HomeMy WebLinkAboutAgenda Bill 2B 05/27/2010a '~
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DATE:. ~ May 27, 2010
TO:
FROM:
~l~-ev-.d.~ Itevw # 2.3
Honorable Mayor and Members of the City Council through City Manager
Sandra Sato, Interim Finance Director
SUBJECT: Resolution to Approve the City of Petaluma,Investment Policy and Delegate
Investment Authority to the City Treasurer For Fiscal Year 2009-2010 and 2010-
2011
RECOMMENDATION:
It is recommended that the. City Council adopt the attached "resolution approving the City of
Petaluma Investment Policy and delegating investment authority to the City Treasurer for Fiscal
Years 2009-2010 and 2010-2011.
BACKGROUND:
In compliance with State ,law, the City Treasurer may annually render to the City Council a
Statement of Investment Policy, which the City Council shall consider at a public meeting.
There are several changes to the Investment Policy that are intended to better promote and assure
the use of reliable and safe instruments. The investments set forth in this policy are pursuant to
Sections 53601 and 53635, of the California Government Code:
DISCUSSION:
A good .investment policy ,provides. the framework for the cash, treasury and investment
management. of the City. The City of .Petaluma requires that investments of City funds be
compliant with its. Investment Policy. This policy, brought to the Council for review and
consideration, limits th"e investment instruments -that the Treasurer may utilize when investing
City funds.:. 'The management of the City's investment portfolio requires daily analysis of the
City's cash flow needs, which include not only day-to-day operating .requirements, but also the
funding of large capital projects. This requires the City to keep substantial funds in very liquid
investments such as Local Agency Investment Fund (LAIF) and California Asset Management
Program. (CAMP).
Agenda Review:
Deft. Director<City Attorney Finance Director~_ City Mana~e -~_~~
The primary objectives of this investment policy are to comply with state laws, safeguard the
principal of funds, meet daily cash flow requirements and achieve a reasonable. rate of return.
The: policy has been updated and revised to better protect the City from risk: Several of the more
risky investments -have been eliminated such as negotiable certificates of deposit, commercial
paper and, medium term notes (which -.have 'been restricted to current investments). Although
these are allowed by law, as a result of the events of the ,East two years staff recommends a more
conservative policy. The policy also reflects an increase in the LAIF and CAMP ,limits to $50
million each to'reflect the. need to keep~the portfolio short in anticipation of cash flow needs and
the possibility of interest rate risk due to an increase in interest rates.
The certificate of deposit policy was. also modified so that the City can invest through a
Certificate of Deposit Placement Service such as :CDARS (Certificate of Deposit Account
Registry Service) which is a new .insured investment opportunity. Under the program authorized
by section 53601.8 of the Government Code, ;the Cify makes 'a $1 million investment with a local
bank which issues a $250,00.0 fully FDIC insured .certificate. of deposit to the City and in turn
submits the remaining $750,000 (the portion which is not FDIC insured) in increments (currently
$250,000) to a private sector entity that assists in: the placement of certificates of deposit with
other banks so that the .entire '$1 million becomes FDIC insured: The ability to .make investments
under Government Code section 53501:8 ends on January ~1, 2012.The current. policy precludes
investments in certificates of -deposit in out of state banks even though .the certificate may be
insured. It also requires that the .bank .be in business for fiveyears. The CDARS program does
not allow the City to select the banks where the other FDIC insured cerfificates are placed and it
is not possible for the. City to place restrictions on which banks .are selected. Staff feels that there
is very little risk,involved as long as the certificate is FDIC insured and the new policy removes
these restrictions.
The investment policy has for some time provided that the City Council delegates investment
authority to :the City Treasurer for a one year period. The proposed resolution adds delegation
language to conform to the policy:
FINANCIAL IMPACTS:
There is no financial impact.
ATTACHMENTS
1, Resolution Approving the City of Petaluma Investment Policy and Delegating Investment
Authority to the .City Treasurer For Fiscal Years 2009-20:10 and 2010-20.11
2. City of Petaluma' Investment Policy For Fiscal Years 2009=2010 and 2010-2011
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ATTACHMENT 1
• _ ...
~RESOLUTION~OF TFIE; CITY COUNCIL QF TI=LE CITE OF PETAL.UMA
APPROVING THE CITI'.OF FETALUIVIA I,NVESTIVIENT POLICY ANI)
DELEGATING INVESTMENT AUTH'ORITY'T®: THE CITY TREASURER FOR
FISCAL YEARS-2009=20:10 ANI) 2010-201.1
• WHEREAS, the City Treasurer has rendered to the City .Council a Statement of
Investment Policy; :and ~ •
WHEREAS, the City Treasurer'has the responsibility ;to invest the pooled .idle cash from
all City- funds pursuant to California Government Code 'Sections 53601 and 53635.; and
WHEREAS; the City Treasurer'has developed:a~ Statement of Investment Policy and
submitted said Policy to the City Council for review..
NOW, THEREFORE BE IT RESOLVED, that the City Council approves the City of
Petaluma Investment Policy -and delegates °investment .authority to l1e City Treasurer for Fiscal
Years 2009-2010 and 2010-2.0:11 as-shown in Exhibit.A attached.
J
ATTACHMENT 2
EXHIBIT A TO THE.RESOLUTION
CITY OF PET'AIJUlVIA,, CALIF~IZNIA
STATEMENT ®F INVESTMENT POLICY
For Fiscal Years 2009-2010 and 2010-2011
Sandra: Sato
Interim Finance Director/City Treasurer
1
2 CITY OF PE'TAL,LTIVIA CALIFORNIA
3 STATEMENT. OI' INVESTIVI~NT:P'bLICY..I'®R FISCAL FEARS
4 ..2D09-201®ANI) 2010 2011
6. POLICY
<8 It is the policy 'of the City of Petaluma, CA (the "Ci'ty") to manage ;public funds in a manner
9 consistent with the following .obj'ectives: comply with all laws of the State of'California pertaining to
to the investment of public funds;; safeguard the.. principal of .funds under" its control, meet the daily cash
11' flow requirements and ao achieve arcasonable' rate of return with "the :maximum security.
1'2 '
13 SCOPE .
'14 -
15 This investment policy applies to .all financial assets of`the City.. These; funds are accounted for in
16 the-City Comprehensive Annual Financial Report and include:
17
L8 General Fund
19 Special Revenue Funds
20 Debt Service Funds
2a Capital Project Funds
22 Enterprise Funds
23 Internal Service Funds -
24 Permanent and Private Purpose'Trust Funds
25
26 This Policy shall also ;apply to' funds of the Petaluma Community .Development Commission
27 (PCDC), Petaluma, Public Financing Authority, City of Petaluma Public Financing Corporation and
28 any other fund under the: control of the City Treasurer. '
29 •
30 PRUDENCE
3'1
32 Investments shall be made with care., .,skill,. prudence, and diligence. under the circumstances. then
33 ~ prevailing, including, but not limited. to, the_ general economic conditions :and the anticipated needs
34~ of the City, that a ,prudent person acting in a like capacity and familiarity with those matters would
35 use in the conduct of funds of a' like character and with like .aims,: to .safeguard the principal and
36 maintain the liquidity needs of the City:
37
. _:
3.8 `The: City Treasurer and authorized individuals acting ,in accordance-.with written procedures and the
39 investment policy and .exercising due diligence shall be relieved of personal responsibility for an
4o individual security' S 'credit risk, or market price changes;. provided deviations from expectations are
41 reported in a; timely fashion and. appropriate, action is taken to control adverse developments.
42 -
43 OBJECTIVE
44
45 The primary objecti e~ in priority ord'ei; of the City's. investment activities shall be:
46
47 1. Safety:- Safety of principal is the foremost objective of the investment program. Investments
48 of the City shall be undertaken m~.a manner that seeks to ensure the preservation of capital in
49 the overall. portfolio.
50
51 2. Liquidity: 'The City's investment. portfolio will, remain sufficiently liquid to enable the City
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52 to meet all operating requi_remerits which might bereasonably anticipated.
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;_.2. 3. Return on~'In~es~finents~ The City's investments shall be designed.with: the objective 'of
3 attaining a rate,.of return throughout .budgetary and. economic cycles;, cornmerisurate with the
4 City''s :investment risk ,constraints and the cash flow characteristics of'the portfolio.
5 '
6 .DELEGATION OF AUTHORITY
8 Under the City.. Charter Section. 24, the City Treasurer is appointed by the City 1Vlaiiager with the
- 9 approval of the City Council.. The City Treasurer- is also the City's :Finance Director.. Pursuant. to
l0 the Government Code, the City .Counc'1 delegates 'the authority to invest or to .reinvest funds; or to
..
-11 sell or exchange securities so purchased,, to the City Treasurer" for' aone=year period. The City
12 Treasurer is charged with the responsibility :for carrying; out the policies of the City Council and
i3 shahl assume full. responsibility for rivestmen"t transactions until the delegation of authority is
-14 revoked or expires.
The daily cash .management, iriVestment firansaetions~ and ,account', reconciliations are the primary
responsibilities of the Ci. Treasurer. These activities, are also carried out by ..other members of the
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Finance Department under the direction. of th'e City Treasurer;.. -The City Treasurer shall establish
procedures for: the operation consistent with this investment policy.
21 .ETHICS AND:' CONFLICT OF INTEREST -
22
23 Officers .and. employees involved ~in the :investment process shall refrain from ,personal business
24 activities that could con#lict with proper execution of the investment program ~or wfiich could impair
25 their ability to make impartial decisions. Off cers and. employees' involved in he mvesfinent process
°26 shall abide by the::Conflict of Interest Code,. (California Government Code Section 1090 et seq)' and
`27 the California -Political Reform Act (California Government Code Section 8'1'000 et seq.).
28 - . - ,
29' PERIVIITTED` INVESTMENTS.'
3;0
3~1 California. Government, Code Sections 53;60.1 et. seq., and 53635 govern the' investments permitted
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32 fore.purchase by the City. Within the. investments permitted' by the. Code, the City seeks to further
33 restrict.' eligible investments to the investments listed, bel'gw;
34
35 Percentage limitations, where indicated; apply at the: time of the purchase. Rating requirements
36 where indicated apply at the time of purchaser In the evert a security held. by the 'City i`s .subject to a
37 rating change.. that brings it below the. minimum specified rating requirement, the City Treasurer
38 shall notify'the°-City Council, of-the change': The course of'action to b:e' followed will then be decided
3'9 on a case „by-case. basis, considering ;such. factors as ahe :reason for the -rate drop, prognosis for
..
4o recovery or further rate drgps, and the.. market price of the security. Investment maturities shall be
4r based on review of.~ash flow forecasts: 1Vlaturities will be scheduled so;'as to permit-the' Ci"ty to meet
42 al'l projectedobligatons. -
43
44 No investment shall be made in any security, other- than a security' underlying, a repurchase or
45 reverse repurchase agreement, -that at the fime of the investment- has. a -term. remaining to maturity 'in
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46 .excess of three years (except for bond proceeds).; unless the City Council has granted express
47 authority `to make that investment. no less. than three months prior to the investment.
48
49
1 ELIGIBLE INVESTitiIENTS
2~
3 A. State; :of California Local_A~encw Trivesfinerit Fund. (LAIF). The City may invest in
4 LAIF: A.maximum of'$50 million maybe invested iri this category.
5 ,
6 B. Sonoma County Inwestment:P:ool.- The City may invest in the Sonoma County Investment
7 Pool. A maximum of $'10 trillion may be invested in thin category.
C. Cali`forriia, Asset: Man'agem'ent Program. Trust _(CAlVIPJ. The Gity may invest in the
shares 'in~the California Asset 1Vlanagement Trust; so long as the' portfolio is rated,among the
top~two rating categories by one of the nationally recognized rating agencies. A maximum
of $50 million may be invested in this category.
a14 D:. Certificates of .Deposit::- FDIC insured or fully collateralized Time certificates of deposit in
15 financial .institutions located i"n the United. States. including. a Placement Service such as
16 Certificate of Deposit Account Registry Service (CDARS). Collateralized .certificates of
T7 deposit shall be handled in -accordance .with Cahforria Gquernment~ Code section 53561.
1B The City; at its discretion, may ware the collaterahzation requirements .for any portion of
19 the deposit:. that is covered by.federal. deposit insurance. As noted above the City .may also
20 invest. in fully insured certificates of deposit utilizing a'placernent service such as CDARS,
21 as provided under California Government Code: section.. "53601..8. The •maxitrium term for
22 certificates 'of deposit "shall lie two: years. Investments `in certificates of rdeposit are further
23 limited to 30% of surplus "funds.
E. Banker's Acceptances., :Banker's acceptances issued by domestic. or, foreign banks, `wh'ich
are eligible. for purchase, by the Federal Reserve System:: Purchases; of banker"s a'cceptanees
may not.exceed 180 days anaturity. Eligible banker''s acceptances are restricted to issuing
financial institutions with short-term paper"rated in the highes"t category by one or snore
nationally :recognized. rating. services. Investments in, banker's acceptances are further
limited ~to40%: of "the portfolio with. no .more than 30% of surplus rovested in the banker's
acceptances of any one commereial'bank.
F. US. Government Issues. United.. States Treasury notes, 'bonds; bills, or certificates. of
'indebtedness, or those for which the faith and credit of the United States are pledged for the
payment of principal and iriterest.
G. 'Federal A~eriey Securities. Federal ;agency or United .States government-.sponsored'
enterprise.obligatons, ;participations, or other msfrurrients, including; those issued by or.fully
guaranteed as' fo ;principal, and interest by federal agencies or United States government.-
sponsored eriterpr'ses:: •
H. Repurchase Agreements. .Repurchase agreements. are to be used solely .as short=term
investments :~notto". exceed 3Q days.. The City may enter into repurchase agreements with
primary government securities. dealers rated "A" or better by two ~. nationally recognized
rating• services Counterpanes should have (i,) a short=term credit rating of at least A-1/P-1;
(ii.) mnimum,assets and.capifal size of $25 billion n,assets and $•3'SQ million in capital; (iii.)
five years of acceptable .audited. financial results;. and (iw) a strong reputation among market.
participants..
t The following collateral restrictions wil be observed:
2
`~3 Only U:S. Treasury securities or Federal Agency securities will be acceptable
~~4 ~ collateral. All. securities underlying repurchase agreements must be delivered to the
`~ 5 City's custodian bank versus payment or be handled under a properly executed tri-
`6 party repurchase agreement.. The total market value of all. collateral for each
ti 7 repurchase agreement must equal or exceed 102 percent of the total dollar value of
`~ 8 the money invested by the City for -the term of the investment. For any repurchase
9 agreement. with a term of more than one day,, the value of the underlying. securities
l 0 must. be reviewed on an on-going basis according to market conditions. Market value
11 must be calculated each time; there is a substitution of collateral.
12
t3 The City or its trustee shall .have perfected fist security interest under the Uniform
14 Commercial Code in all securities subject to repurchase, agreement. The City shall
15 have properly executed a Professional Services Agreement with each counter party
t 6 with which it enters into repurchase agreements.
I. Money Market Funds. Shares of beneficial interest issued by diversified management
companies that are money market funds registered with the Securities and Exchange
Commission (SEC) under the Investment Company Act of 1940 (15 U.S.C., Sec. 80a-l,.et
seq.).
The City may invest in shares of beneficial interest issued by a company which shall have
me"t either of the following criteria:.
26 a. Attained the. highest ranking or the :highest letter and. numerical rating provided by
27 not less than two nationally recognized rating services..
28
29 (or)
30
3 t b. Retained an investment adviser registered or exempt from registration with the SEC
32 with not .less than five .years experience in managing .money market mutual funds
33 with assets under management in excess of five hundred million dollars
34 ($500,000,000).,
The purchase price of shares of beneficial interest purchased pursuant to this subdivision
shall not include any commission that the companies may .charge. Investments in Money
Market Funds are further limited to 20% of the portfolio.
4o J. ;Medium-Term Notes., Medium-term .notes shall be limited to any current investments and
4 r any new investments will be prohibited. Medium-term .notes are defined as all corporate and
42 depository institution debt securities with a maturity of not more :than. 397 days, including
43 securitiesspecified as "medium=term notes," as well as other debt instruments originally
44 issued with maturities 'longer than 3'97 days, but which, at .time- of .purchase, have a f nal
45 maturity of 397 days or less. Eligible medium-term notes shall be issued by corporations
46 organized and operating within the United States or by depository institutions licensed by the
47 United States or any state, and operating within the United States.
48
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5
K. ELIGIBLE INYESTMENTS'FOR BOND PROCEEDS
36
37
38
39
40
41
50
Bond Proceeds shall be invested. in securities ,permitted by-the applicable bond documents. If the
bond documents are silent as to the permitted investments, bond proceeds will be invested in
securities permitted by this Policy.
With respect to maximum maturities, the Policy authorizes investing bond reserve fund proceeds
beyond the five years if prudent in the opinion of the City Treasurer.
INELIGIBLE: INVESTMENTS
As provided in California Government Code section 53601.6 and this' policy, the City shall not
investany funds in:
® Inverse Floaters
• Range Notes
• Mortgage Derived Interest.-Only Strips
• Negotiable Cerhificates of Deposit
• Commercial Paper
• Medium Term Notes except as currently owned as of the date this policy is approved
• Any security that could .result in zero interest accrual if held ~to maturity.
The purchase of any security not listed above; but permitted by the California Government Code, is
prohibited unless the City Council approves the investment ~-either specifically or as a part of an
investment program approved by the Board. Exclusion of these investment vehicles is consistent
with the City's overall objectives of achieving reasonable returns on public funds while minimizing
risk and capital losses. Although thee, potential exists for greater yields with -these vehicles, there is
the potential level ofriskthat can exceed their benefits.
BROKERS
To provide for the optimum yield in the City's portfolio, the City's procedures shall be designed to
encourage competitive bidding on transactions from an approved list of broker/dealers.
The City Treasurer, or the City's investment advisor, shall. maintain a list of authorized
broker/dealers and ..financial institutions that are approved for investment purposes. This list will be
developed after a comprehensive credit and capitalization ~ana~lys's :indicates the firm is adequately
financed to condu_ ct business with public entities. It shall be the policy of the City to purchase
securities only from those .authorized institutions or firms.
SAFEKEEPING AND CUSTODY
All security; ransactions entered. into by the. City of Petaluma, CA shall be conducted. on a delivery-
versus-payment (DVPj basis. This. procedure ensures Ghat securities are deposited with the third-
party custodian prior to the: release of funds. A third. party custodian designated by the City
Treasurer aril evidenced by safekeeping receipts will hold securities.
The only exceptions to the foregoing are Local Agency Investment Pools, Certificates of Deposit,
and money market funds since the purchased securities are not deliverable. In all cases, purchased
securities shall be held in the City's name.
6
1 ,INTERNAL CONTROL
2
3 The City Treasurer shall establish. an annual process of inde""pendent review by an external auditor.
4 This review will provide internal control byassuring compliance with "the Statement of Investment
=.5 Policy and procedures.
6
7 PERFORMANCE STANDARDS
8
9 The investment portfolio shall be designed with the objectye.of obtaining a reasonable. rate of return
°1o throughout budgetary and economic. cycles, commensurate with the. investment risk constraints and
=l 1 the cash flow needs.
1'2
- 13 The City will measure ,the portfolio's performance against a market benchmark that is .commensurate
74 with the City's investment risk constraints and the cash flow characteristics of the portfolio.
i5
16 REPORTING
l7
18 The City Treasurer shall provide a quarterly .investment .report to the. City Council, which provides a
l9 clear picture of the status of the current nvestmentport_ folio, including, transactions. This report will
20 be formally submitted to the City Council eaefi quarter at a public meeting.
2-1
. 22 Schedules in the quarterly Treasurer's Report will include the following:
23
., 24 ° Listing of individual securities..held at the end of the reporting".:period.
25 • Realized and unYealized gains or losses resulting from<appreciation or depreciation by listing
:=
26 the cost- aril market value of securities over one-year duration that are:not intended to be held
27' until maturity (in. accordance with. Governmental Accounting Standards Board (GASB)
28 requirements),.
29 • Average weighted yield to maturity of portfolio on investments as compared to applicable
30 benchmarks.
3 t • Listing of investment by rriaturity date.
32 • Percentage of the. total portfolio which each type of"investment represents.
33
34 The quarterly report.shal~l state compliance of the portfolio to the ,investment-policy, or manner in
35 which the portfolio. is not in compliance. The quarterly report shall also include a statement
36 certifying the abil~i"ty of the City to meet its: expenditure requirements for the next six months.
37
38 POLICY IZE"VIEW
The~investment policy shall berevi~euved at least~annuallyto~ensure its consistencywith the overall
object,yes,of preservafion of~prncpal,. liquidity and yield, and its relevance to current law and
financial and economic trends. The: nvestment-policy sh "all ~be adopted by resolution of the City
Council on, an annual basis. Any amendments to the. policy shall be forwarded to the City Council
for approval
7
t CITY OF PETALUMA .
2 STATEMENT OF INVESTMENT .POLICY FOR FISCAL FEARS
3 2009-2010 ANI) 20.10=2.011
'4
!~5 liLll~~A1t Y Vr 1 Y rr.~ lJr ilv v ~~J l vir:v 1 ~
~;6 AVAILABLE TO LOCAL G®VERNMENTS
~ 8 STATE INVESTMENT POOL (LATE)
9
10 .The Local Agency Investment Fund (LAIF), a voluntary program created by statute, began in 1977
1 l as an investment alternative for California's local .governments and special districts and continues
12 today under the State of California.Treasurer'"s office. The enabling .legislation for the LAIF is
13 Section 1b429,1,2,3 of the California Government Code..
l4 This program offers. participating agencies the opportunity'to participate in a major portfolio which
15 daily invests hundreds. of rilillioris of dollars, using the iny~estment expertise of the Treasurer's Office
16 Investment staff at no additional cost to.'the"taxpayer. This ~n-house, management. team. is comprised
17 of civil servants who have :individually worked for the State Treasurer's Office for over 20 years.
18 The LAIF is part ofthe Pooled Money Investment Account (PMIA). The PMIA began in ~ 1953 and
19 has oversight provided by the Pooled Money Investment Board (PMIB)' anal an in-house 'Investment
20 Committee. The"PMIB Board members are the State Treasurer, Director ofFinance, and State
~.,
2s1 Controller.
22 The LAIF has oversight by the Local .Investment Advisory Board (LIAB). The Board consists of
23 five members as designated. by Statute. The Chairman is the State Treasurer, or his designated
24 representative. Two members qualified by training and experience in the field of.investment or
25 ~ "finance, and the State Treasurer appoints two members who are Treasurers, finance or fiscal officers
26 or"business managers employed by any County, City or local. district orMunicipal Corporation of
27 this state. The term ofeach appointment is two years or at the pleasure of the appointing authority.
28 All securities are purchased under the authority of the Government- Code Section 16430_ and
29 16480.4. The State `Treasurer's Office takes delivery of all securities purchased on a delivery versus
3o payment basis using a third party custodian. All investments are purchased: at market, and market
31 valuation is conducted monthly.
X32 Additionally, the PMIA has Policies,. Goals; and Objectives -for th"e portfolio to make certain that our
33 goals of Safety, Liquidity and Yield are.not jeopardized and that prudent management prevails.
34 These polices:are formulated. by investment staff and reviewed by both the PMIB and the LIAB on
3'S an annual basis.
36 The Bureau of State Audits on an annual basis audits the State Treasurer's Office. The resulting
37 opinion is included in the. subsequent PNITB monthly report following its publication. The Bureau of
38 State. Audts~also has a continuing audit process throughout. the year. The State Controller's Office as
'39 well as an in-house audit process involving three separate divisions audit. all investment and LAIF
40 claims on a daily basis.. ,.
41
42 There: is a lmitation° of $50 million. per legal entity within an agency. There is also "a maximum of
43 fifteen transactions,, deposits `or withdrawals. per month.
44
45 SONOIVIA COUNTY INVESTIVIENT,POOL
46
47 The Sonoma County Treasurer maintains an investment pool. in: which the County, Schools, Special
48 Districts and,.Cites can participate., This .investment pool operates in the. same manner as the State
49 pool. The County Treasurer is subject to the same State Government Code regarding investments as
so the City.. As with the State investment fund, City funds can be withdrawn at any time and are
s. protected by 'State I,aw :from seizure or impoundment by any County Officer. 'The City does not
52 participate i~n this' ,pool but retains the option to do so.
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~;1 CALIFORNIA ASSET MANAGEMENT PROGRAM (CAMP)
~2
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3 CAMP provides .California public agencies, together with. any bond.. trustee acting on behalf of such
4 public :agency, assistance with. the investment of and accounting for bond proceeds and surplus
S funds. For bond proceeds, the objective of CAMP is to invest :and account of such proceeds in
6 compliance with arbitrage management and rebate requirements of the Internal Revenue -Service.
7 The program includes the California Asset Management Trust, a California common law trust
8 organized in 1989. The Trust currently offers a professionally managed. money market investment
9 portfolio, the Cash Reserve Portfolio, to provide public agencies with a convenient method of
10 pooling funds for' temporary investment pending their expenditure. The Trust also provides record
11 keeping, custodial and arbitrage rebate calculation services for bond proceeds. As part of the
2 program, public agencies may also. establish individual, professionally managed investment
13 accounts.
14
7 5 The Pool seeks to attain as high. a level of current income as is consistent with the preservation of
~i6 principal. The Pool purchases only investments. of the type in which public agencies are permitted
17 by statute to invest surplus funds and proceeds of their own bonds.
18
19 CERTIFICATES OF DEPOSITS (CD) '
20
21 Certificates of Deposits, sometimes- known as "Jumbo Accounts" or "Fixed CD's" are savings
22 ,accounts with Banks or Savings and Loans.. These accounts are for a specific amount, have a set
23 interest rate, and set maturity date.. There `is a sub"stantial interest penalty if the CD is withdrawn
24 prior to the maturity date.
25
26 Thee State law requires Public Fund CD's to .be collateralized by the financial institution at 110%
27 with US Government notes/bonds or at 150% with quality First Trust .Deeds. This collateral can be
28 waived if Federal'Insurance (FDIC). is available. These federal agencies will insure each account up
29 to $100,000, ($2`SQ;000 through December 201.2)
30
3 i Thee City generally waives .the collateralization requirements forahe FDDIC. insurance: The waiver of
32 collateralis a wide spread practice, and will generally generate higher interest rates and provide the
33 greatest security for the funds from the Federal Insurance Agencies. For deposits in excess of
34 $100,0.00, ($250;000 througli.Dec.ember20'12), the collateralizafion requirements are not waived.
35 A Placement Service such as Certif`cate- of Deposit Account Registry Service (CDARS) is a
36 combination of Certificates of Deposits managed by a single bank that can access multi-million
37 dollars in FDIC coverage on CD :investments .made through a single :bank relationship. The single
38 bank relationship means avoid. ing_ tracking collateral on an ongoing basis, requiring urety bonds, or
39 working directly with multiple banks.
40 ,
41 BANKER'S ACCEPTANCES+(B'A)
42
43 A Ban'ker's, Acceptance is a tune draft of invested funds, which has been drawn on and. accepted for
44 repayment by a bank. , 'This financial instrument is .generally used for short. term (30 and 180 days)
45 financing of export, import;_,or storage of goods. $y accepting the draft (investment of City funds),
46 the bank is liable for the -payment at maturity. This bank ~liabiiity makes the Banker-'s Acceptance a
47 marketable investment. The State. Code limits BA's to nofi more than. 180 days to maturity and 40%
48 of.the local agency's portfolio. In addition, not more than 30% of the local agency's portfolio maybe
' 49 placed in any one bank.
50
9 ~ Z.
1 US TREASURY BILLS
2
3 Commonly referred to as T-.Bills; these are short-term marketable' securities sold as obligations of
4 the ~US Government. They .are offered in three month, six month, nine month and one-year
5 maturities. T-Bills do not accrue interest but are sold at a discount; and pay the face value at
6 maturity.
7
8 US TREASURY NOTES
9
1 o These are marketable, ..interest-bearing secur-ites sold. as obligations of the US Government with
X1'1 original maturities °of'one to ten years. Interest is ,paid. semi-arinually.
13 US TREASURY BONDS
14
15 These .are the same as US Treasury Notes except they have original. maturities of ten years or longer.
16
17 FEDERAL AGENCY ISSUES.
18
19 Many Federal Government Agencies are authorized to issue short term and long. term obligations
`2o that are used to finance various programs such as home loans, business loans, farm loans, etc. These
2l Agencies were created by the Federal Government in the 1930's and have since become independent
22 quasi-public agencies;. The security for their issues is the. guarantee of the Agency to pay. The
23 Federal Government has only an implied liability to °the extent that. the Agency has an open credit
24 line to borrow from the U.S. Treasuiy. It is widely accepted that Federal Agency issues are almost
25 as secure as U:S. Government notes.
There is an active -secondary market; available to sell these. issues: prior ~to maturity. The issues are
fairly liquid depending on the prevailing market interest rates at the time of'sale. Some of the more
common agency notes are issued by the 'Federal National .Mortgage Association, (Fannie Mae),
Federal. Horne Loan .Banks,. Federal. Home Loan. Mortgage Corporation (Freddie Mac), and the
Federal Farm Credit. Banks.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS (REPOS)
A Repurchase Agreement is a short-term investment agreement to loan City funds for a fixed period
in return for a fixed interest rate. and secured collateral, such as U.S. 'Treasuries or' Agency Notes.
This type of investment is usually;done for overnight or very short term (7 days) investment of funds
left. in 'the general.:operating .checking account. Reverse Repurchase agreements is a short-term
investment, which is used.;to take advantage of market interest rate changes and increase the size of
the portfolio. State law was amended in 1996 to limit the use of both repurchase and reverse
repurchase ,agreements;.
COMiVIERCIAL PAPER (CP)
45 Commercial Paper is defined :as an unsecured promissory' .note of industrial corporations, utilities
46 and bank holding companies. The notes. are in bearer form in amounts starting at $100;000. State
47 law limits the City to investments in United. States corporations having .assets in excess of five
48 hundred million,.dollars with an "A" or higher rating. State.Law also permits cities to invest in Asset
4'9 Back Commercial Paper (ABCP) from issuers organized within the United States as a special
50 purpose corporation,; trust or limited liability company. ABCP issuers must have program wide
51 credit enhariceinents' including, but not limited to; over collateralization, ,letters of credit, or surety
52 bond. Cities :may not invest more than 25% of the portfolio in commercial paper nor purchase more
10 ~~
1 than 10`percent of the outstanding commercial paper of any single issuer. The maximum maturity of
2 the commercial paper may .not exceed a term of'270' days.
3 .
4 MEDIUIVI 'TERM NOTES (MTN)
5
.' 6 Debt securities issued by a corporation or depository institution with a maturity ranging for nine
:~-
7 months to five years. The term "medium-term note" refers to the time it takes for an obligation to
~c_
8 mature and'~ncludes.other corporate securities originally issued. for .maturities longer than five years,
9 but which have now fallen within the five year maturity range. MTNs issued by banks are also
1o called bank notes. '
12 MUTUAL FUNDS
13
14 An investment. company that pools money and can '.invest in a variety of securities, including. fixed-
15 income securities and money market instruments; cities may invest in Mutual Funds or Money
°16 Market funds that reeei~e the~highest rankng.or the highest letter and numerical rating by two of the
17 three largest nationally recognized. rating services: The Mutual Funds must abide by the same
X18 investment restrictions and regulations that apply to public agencies in California. Money Market
l9 Funds must follow regulations specified the ,Security and 'Exchange Commission under the
20 Investment Company Act. of 1940. Mutual Funds have floating. Net Asset Values (NAV), which
21 means the amount received at redemption may be more. or less than the, amount originally invested.
x:•
22 Money Market Funds strive to maintain a constant NAV.
". 24 GUARANTEED INVESTM'ENT CONTRACT (GIC)
`25
z6 This is an agreement acknowledging. receipt. of funds for deposit, specifying-terms for withdrawal
27 and guaranteeing a .rate of interest to be paid,. The investment follows all state laws .for the
28 investment of public funds. GIC's are only permitted for bond proceeds.
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