HomeMy WebLinkAboutStaff Report 7.B 02/23/2004CITY OF PETALUMA, CALIFORNIA February 2 ®4
ift AGENDA BILL
W enda Title:
Meeting Date:
Resolution Approving the 2004 Investment Policy
February 23, 2004
Meeting Time ❑ 3:00 PM
® 7:00 PM
Category (check one) ❑ Consent Calendar Public Hearing ❑ New Business
❑ Unfinished Business ❑ Presentation
Department
` Director :
Contact Person
Phone Number
Finance
W. Thomas
W. Thomas
778 -4323
Cost of Proposal Not Applicable
Account Number N/A
Amount Budgeted Not applicable
Name of Fund: N/A
Attachments to Agenda Packet Item
1. Resolution Approving the 2004 _Investment Policy
2. Exhibit A to Resolution — The Investment Policy
3. Government Code Sections 53600 through 53609, and Sections 53630 through 53686
(THESE ARE NOT PROVIDED WITH PACKET AS THEY CONSIST OF 55 PAGES — THEY ARE AVAILABLE
FOR REVIEW IN THE FINANCE DEPARTMENT)
Summary Statement
State law requires all local agencies to develop an annual investment policy that must be considered by the
City Council at a public meeting. A good investment policy drives the cash, treasury and investment
management of the City. It serves as a guide for setting and achieving program objectives, defines rules
and establishes benchmarks while reducing the exposure to liability of both the City staff and the City
Council.
Recommended City Council.Action /Suggested Motion
Adopt the resolution approving the 200'4 Investment Policy
Reviewed by Finance Director:
Reviewed by City Attorney
Date:
AoProv0dby City Manage
Date:
ate:
Toay's d Date
Revision # and Date Revised:
File C A.
#
February 1.1, 2004
CITY OF PETALUMA, CALIFORNIA
FEBRUARY 23, 2004
• AGENDA DEPORT
FOR
RESOLUTION APPROVING THE 2004 INVESTMENT POLICY
1. EXECUTIVE SUMMARY
State law requires all local agencies to develop an annual investment policy that must be considered by the City
Council at a public meeting. A good investment'policy drives the cash, treasury and investment management of
the City. It serves as .a guide for setting and achieving program objectives, defines rules and establishes
benchmarks while reducing the exposure to liability of both the City staff and the City Council.
2. BACKGROUND
The Investment Policy provides valuable information on how to properly manage public funds. The proposed
Investment Policy for the year 2004 has been changed slightly from the one approved for year 2003. The
changes, by section, are as follows:
❑ PRUDENCE
o . This section was revised to comply with Government Code Section 53600.3. That section
provides that the City Council and all persons authorized to invest public funds pursuant to the
• Government Code chapter are considered to be trustees and therefore fiduciaries subject to the
prudent investor standard.
• DELEGATION OF AUTHORITY
o This was revised to clarify the requirements of this section. This section now incorporates two
additional requirements from Code 53607. First, the Code. only allows investment authority to
be delegated for a period of one year, which may be renewed each year. Secondly, once the
investment authority,is delegated, the City Treasurer takes full responsibility for all investment
transactions. Finally, the revised policy limits the personal responsibility of the individuals
involved in the investment program when they are acting in accordance with established policy
and procedures.
• PERMITTED INVESTMENTS
o Instead of listing the permitted investments and then describing these investments later on in the
policy, the investment is listed followed by its description.
o Mutual funds have, been deleted as a permitted investment.although money market, funds are still
permitted. Money market funds `strive to maintain a constant net asset value, the net asset value
for otherlypes of mutual.funds fluctuate. Consequently, there is a greater likelihood that the
City, upon withdrawal, would receive more or less than the principal amount invested. Due to
that risk, mutual funds are not an appropriate investment.
o Guaranteed Investment Contracts (GIC) is deleted as a permitted investment. The Code only
permits GIC's and other appropriate investment types for bond proceeds. A new sub - section is
added to this investment type. to allow the City to invest bond proceeds in any type of investment
permitted by the bond. documents. This will give the City the option to invest in GIC's, on a
case -by -case basis.
• o A new sub- section was added on ineligible investments. This section further clarifies what
investment types are or are not permitted under the Policy'
2
❑ COLLATERALIZATION
• This section was deleted and the collateralization requirements are now included under the
requirements for Certificates of Deposit, which are the only investment type to which the
collateral requirements in. this section had applied to.
• Additional protection was added to repurchase agreements, as described in the "permitted"
section. Protections added were:
Collateral `is limited to U.S. Treasury and Federal Agency securities to ensure rights
provided by the Federal Bankruptcy Code.
■ Require that collateral be delivered to a third party custodian in all cases, and that the
City obtain a perfected.first security interest in all collateral.
e Require that collateral have at.all times a market value, including. accrued interest, if any,
of 102 percent.
• LOCAL INVESTMENT POOL POLICIES AND'REPORTS
o California Asset Management *Program (CAMP) is listed as a local government investment pool
authorized by the Policy.
• SAFEKEEPING AND CUSTODY
o The change acknowledges that certain security types such as local agency investment pools,
Certificates of Deposits and money market funds are not deliverable securities, while still
retaining the requirement that all investments be held in the City's -name.
❑ PERFORMANCE STANDARDS
o The reference to a specific benchmark is deleted. While using a performance benchmark is an
important management tool, the City should retain the flexibility to change benchmarks if
conditions change without first having to amend the Policy.
o The benchmark of investing "97 %" of all City funds was replaced by the provision that the
Treasurer retains the flexibility to adapt to changing cash flow requirements.
❑ REPORTING REQUIREMENTS
o To bring the Policy in full compliance with Government Code, the'following changes were
made:
C Code section 56307 requires that'when - investment authority has been delegated from the
City Council to the City Treasurer that the City Treasurer provide monthly report of
investment transactions to the City Council. This requirement was ,added to the Policy.
■ Code section 53646 also requires that the quarterly investment report .shall state
compliance of theportfolio to the Policy, or.manner in which the portfolio is not in
compliance. The quarterly report must also include a statement denoting the ability of
the City to meet its expenditure requirements for the next six,months, or provide an
explanation as to why sufficient money shall, or may, not be available. These
requirements were also.added to the Policy.
❑ Policy Review
o The Policyhas been changed to include wording that requires the City Treasurer to submit
annually a statement of investment policyto the City Council and that the City Council must
consider the Policy at a public meeting. It also includes that any changes to the Policy must also
be considered at a public meeting.
It i& recommended that all of the above changes be approved so that the. 2004 Investment. Policy is strengthened
and in compliance with the appropriate Government Code.
3. ALTERNATIVES
Add to or amend the Investment Policy within the limits of State law.
3
4. )F'INANCIAL IMPACTS
Developing the Investment Policy and administering it while investing idle funds takes approximately 200
hours of staff time with an estimated cost of $1.2,000. This cost is regularly budgeted in the Finance
0 rtment's salaries and benefits accounts.
5. CONCLUSION.
The City's Investment Policy has been changed to comply with existing laws and provides additional protection
for the City in some of the permitted investments.
6. OUTCOMES OR PERFORMANCE MEASUREMENTS THAT WILL IDENTIFY SUCCESS OR COMPLETION:
The approval of the proposed resolution'will adopt the 2004 Investment Policy that governs investments of
public funds by the City Treasurer.
7. RECOMMENDATION
Adopt the resolution approving the 2004 Investment Policy.
g1for ns /2003 agenda bill
0
•
M
RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF PETALUMA APPROVING THE
INVESTMENT POLICY FOR 2004
WHEREAS, the City Treasurer has annually 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 of the City's
funds, 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 2004 Investment Policy as
shown in Exhibit A attached.
s
CITY OF PETALUMA CALIFORNIA
2004 STATEMENT OF INVESTMENT POLICY
William J. Thomas
Finance Director /City Treasurer
EXHIBIT A TO THE RESOLUTION
is
City Petaluma, California_ 2004 Statement of Investment• Policy
2 .CI'TY OF PETALUIVMA CALIFORNIA
2004 STATEMENT OF INVESTMENT POLICY
/N5 POLICY
6
7 It is the policy of the City of Petaluma, CA (the "City ") to invest public funds in a manner that
8 will provide the highest investment return with the maximum security while meeting the daily
9 cash flow demands of the entity and conforming to all state and local statutes governing the
1 o investment of public funds.
11
12 SCOPE
13
14 This investment policy applies to all financial assets of the City. These funds are accounted for
15 in the City Comprehensive Annual Financial Report and include:
16
17 General Fund
18 Special Revenue Funds
19 Debt Service Funds
20 Capital Project Funds
21 Enterprise Funds ,
22 Internal Service Funds
23 Permanent Private Purpose Trust Funds
24
25 This Policy shall also. apply to funds of the Petaluma Community Development Commission
26 (PCDC), Petaluma Public Financing Authority, City of Petaluma Public Financing Corporation
27 and any other fund under the control of the City Treasurer.
PRUDENCE
3 i Investments shall be made with care, skill, prudence, and diligence under the circumstances then
32 prevailing, including, but not limited to, the general economic conditions and the anticipated
33 needs of the City, that a "prudent person acting in a like capacity and familiarity with those
34 matters would use in the conduct of funds of a like character and with like aims, to safeguard the
35 principal and maintain the liquidity needs of the City.
36
37 OBJECTIVE
38
39 The primary objective in priority order, of the City's investment activities shall be:
40
41 1. Safety: Safety of principal is the foremost objective of the investment program.
42 Investments of the City shall be undertaken in a manner that seeks to ensure the
43 preseryation'of capital in the overall portfolio.
44 2. Liquidity: The City's investment portfolio will remain 'sufficiently liquid to enable the
45 City to meet all operating. requirements which might be reasonably anticipated.
46 3. Return on .Investments: The City's investments shall be designed with the objective of
47 attaining a rate of return throughout budgetary' and economic cycles commensurate with
48 the City's investment risk constraints and the cash flow characteristics of the portfolio.
49
50 DELEGATION OF AUTHORITY
51
52 Under the City Charter Section 24, the City Treasurer is appointed by the City Manager with the
53 approval of the City Council. The City Treasurer is also the City's Finance Director. Pursuant to
;� the Government. Code, the City Council delegates the authority to invest or to reinvest funds, or
to sell or exchange securities so purchased, to the City Treasurer for a one -year period. The City
56 Treasurer is charged with the responsibility for carrying out the policies of the City Council and
57 shall assume full responsibility for investment transactions until the delegation of authority is
58 revoked or expires.
City of Petaluma, .California 2004 Statement of Investment Policy
1 . The daily cash management, investment transactions and account reconciliation's are the primary
2 responsibilities of the City Treasurer: These activities are also 'carried out by other members of
3 the Finance Department under the direction of the City Treasurer. The City Treasurer shall
4 establish procedures for the operation consistent with this investment policy.
5
6 The City Treasurer and authorized individuals acting in accordance with written procedures and
7 the investment, policy and exercising due diligence shall be, relieved of personal responsibility for
8 an individual security's credit, risk or market price, changes, provided deviations' from
9 expectations are, reported in a timely fashion and appropriate action is taken to. control- adverse
10 developments.
11
12 E THICS AND CONFLICT OF INTEREST
13
14 Officers and employees involved in the 'investment process shall refrain from personal business
15 activities that could conflict with proper execution of the investment program or which could'
•16 impair their ability to make impartial decisions. Officers and employees .involved in the
17 investment process shall abide by the Conflict of Interest Code, (California Government Code.
18 Section. 1090, et seq.) and the California Political Reform Act (California Government Code
19 Section 8.1000 et seq.).
20
21 PERMITTED :INVESTMENTS
22
23 California Government Code Sections53601 et. seq. governs the investments permitted for
24 purchase by the City. Within the investments permitted by the Code, the City seeks to further
25 restrict eligible investments to the investments listed below.
26
27 Percentage limitations, where indicated, apply at the time of the purchase. Rating requirements
28 were indicated; apply at the time of purchase. In the event a security held by the City is subject
29 to a' rating change that brings it below the minimum specified rating requirement, the City
30 Treasurer shall notify, the City Council of the change. The course of action to be followed will
31 then be decided on a case -by -case basis, considering such factors as the reason for the rate drop,
32 prognosis for recovery or further rate drops, and, the market price of the security: Investment
33 maturities shall be based on review of cash flow forecasts. Maturities will be scheduled so as to
34 permit the City meet all projected obligations.
35
36 No investment shall be made in any security, other than a security underlying a repurchase or
37 reverse repurchase agreement, that at the time of the investment has a term remaining to maturity
38 in excess of five years, unless the City Council has granted express authority to make that
39 investment no les than three months prior to the investment.
40
41 EL7GIBLETNyESTMENTs
42
43 A. State of California Local Agency Investment Fund ( "LAIF "). The City may invest in
44 LAIF. A' maximum - of $40 million may be invested in this category.
45
46 B. Sonoma County Investment ,Pool. The City may invest in the _Sonoma County
47 Investment Pool. A maximum of .$10 million maybe invested in this category.
48
49 C. California Asset Management Trust. The City may invest in the shares in the
50 California Asset Management Trust; so long as the portfolio is rated _among_ the top two
51 rating categories by one of the nationally recognized rating agencies.. A maximum of $40
52 in may be invested in this category.
53
54 D. Certificates of Deposit. FDIC insured or fully collateralized time certificates of deposit �.
55 in financial institutions located in California. Eligible investments are restricted to those
56 issuing institutions that have been in business at least five years. The maximum term for
57 deposits shall be. one year. Investments in. certificates of deposit are further limited to
58 20 % of surplus funds. All time deposits must be collateralized in accordance with
City of Petaluma, California 20.04 Statement of Investment Policy
1 California Government Code section 53561. The City, at its discretion, may waive the
2 collateral'ization requirements for any portion of the 'deposit that is covered by federal
I. Repurchase Agreements. Repurchase agreements are to be used solely as short-term
investments not to exceed .3.0 days. The City may enter into repurchase agreements with
-4 0. primary goverment securities dealers rated "A" or .better by two nationally recognized
31 rating services. Counterparties should have (i.) a short-term credit rating of at least A-
32 1 /P -1; (ii.) minimum assets and capital size of $25 billion in assets and $350 million in
33 capital; (iii.) five years of acceptable audited financial results; and (iv.) a strong
34 reputation among market participants.
35
36 The following collateral restrictions will be observed:
37
38 Only U.S. Treasury securities or Federal, Agency securities will be acceptable
39 collateral. All securities underlying repurchase agreements must be delivered to
40 the City's custodian bank versus payment or be handled under a properly executed
41 tri -party repurchase agreement. The total market of all collateral for each
42 repurchase agreement must equal or exceed 102 percent of the total dollar value of
43 the money invested by the City for the: term of the investment. For any repurchase
44 agreement with a term of more than one day, the value of the underlying securities
45 must be reviewed on an on- going basis according to market conditions. Market
46 value must be calculated each time there is a substitution of collateral.
47
48 The City or its trustee shall have perfected first security interest under the
49 Uniform Commercial Code in ,all 'securities subject to repurchase agreement. The
50 City shall have properly executed a Professional Services Agreement with each
51 counter party with which it enters into repurchase agreements.
52
53 J. Commercial Paper. Commercial paper of "prime" quality of the highest ranking or of
the highest letter and number rating as provide for by a nationally recognized statistical-
rating organization (NRSRO). The entity that, issues commercial paper shall meet all of
56 the following conditions in one of the following:
57
insurance.
5
E.
Negotiable: Certificates of Deposit. Negotiable certificates of deposit issued by a
6
nationally or state chartered bank or a state or federal savings and loan association or by a
7
state - licensed branch of a foreign bank; provided that the senior debt obligations of the
8
issuing institution are rated "AA" or better by' Moody's or Standard & Poor's.
9
Investments in negotiable certificates of deposit are limited to 20% of the portfolio.
10
11
F.
Banker's Acceptances. Banker's acceptances issued by domestic or foreign banks,
12
which are eligible for purchase by the Federal Reserve System. Purchases of banker's
13
acceptances may not exceed 180 days maturity. Eligible banker's acceptances are
14
restricted to issuing financial institutions with short-term paper rated in the highest
15
category by one or more nationally recognized rating services. Investments in banker's
16
acceptances are further limited to 40 % of the portfolio with no more than 30% of surplus
17
invested in the banker's acceptances of any one commercial bank:
18
19
G.
U.S. Government Issues. United States Treasury notes, bonds, bills, or certificates of
20
indebtedness, or those for which the faith and credit of the United States are pledged for
21
the payment of principal and interest.
22
23
H.
Federal Aizency Securities. Federal agency or United States government- sponsored
24
enterprise obligations; participations, or other instruments, including those issued by or
25
fully guaranteed as to principal and interest by federal agencies or United States
26
government- sponsored enterprises.
27
I. Repurchase Agreements. Repurchase agreements are to be used solely as short-term
investments not to exceed .3.0 days. The City may enter into repurchase agreements with
-4 0. primary goverment securities dealers rated "A" or .better by two nationally recognized
31 rating services. Counterparties should have (i.) a short-term credit rating of at least A-
32 1 /P -1; (ii.) minimum assets and capital size of $25 billion in assets and $350 million in
33 capital; (iii.) five years of acceptable audited financial results; and (iv.) a strong
34 reputation among market participants.
35
36 The following collateral restrictions will be observed:
37
38 Only U.S. Treasury securities or Federal, Agency securities will be acceptable
39 collateral. All securities underlying repurchase agreements must be delivered to
40 the City's custodian bank versus payment or be handled under a properly executed
41 tri -party repurchase agreement. The total market of all collateral for each
42 repurchase agreement must equal or exceed 102 percent of the total dollar value of
43 the money invested by the City for the: term of the investment. For any repurchase
44 agreement with a term of more than one day, the value of the underlying securities
45 must be reviewed on an on- going basis according to market conditions. Market
46 value must be calculated each time there is a substitution of collateral.
47
48 The City or its trustee shall have perfected first security interest under the
49 Uniform Commercial Code in ,all 'securities subject to repurchase agreement. The
50 City shall have properly executed a Professional Services Agreement with each
51 counter party with which it enters into repurchase agreements.
52
53 J. Commercial Paper. Commercial paper of "prime" quality of the highest ranking or of
the highest letter and number rating as provide for by a nationally recognized statistical-
rating organization (NRSRO). The entity that, issues commercial paper shall meet all of
56 the following conditions in one of the following:
57
City of Petaluma, California 2004 Statement of Investment Policy
2 'a. The entity meets the following criteria:
3 i. Is organized and operating within the' United States as a general
4 corporation.
5 ii. Have total assets in excess of $500 million.
6 iii. Has debt other `than commercial paper, if any, that is rated "A" or higher
7 by a nationally recognized statistical- rating organization
8
9 (or)
10
I l b. The entity meets the following criteria:
12 i. Is organized. within .the United States as a special purpose corporation,
13 trust, or limited.liability company.
14 ii. Has. program wide credit enhancements including, but not limited to, over
15 collateralization, letters of credit, or surety bond.
16
17 Investments in commercial paper are limited to a maximum of 25% of the portfolio.
18 Purchases shall not exceed 10 percent of °the outstanding paper of the issuing corporation.
19 The maximum investment maturity is restricted to 270 days.
20
21 K. Money Market Funds. Shares of beneficial interest issued by diversified management
22 companies that are money market funds registered with the Securities and Exchange
23 Commission (SEC) under the Investment Company Act of 1940 (15 U.S.C., Sec. 80a -1,
24 et seq.).
25
26 The City may invest in shares of beneficial. interest issued by company shall have met
27 either of the following criteria:
28
29 a. Attained the highest ranking or the highest letter and numerical rating provided by
30 not less than two nationally recognized rating services.
31
32 (or)
33
34 b. Retained an investment adviser registered or exempt from registration: with the
35 ` SEC with not less than five years experience in managing money market. mutual
36 funds with assets under management in excess of five hundred million dollars
37 ($500,000
38
39 The purchase price of shares of beneficial interest purchased pursuant to this subdivision
40 shall not include any commission that the companies may charge. Investments in Money
41 Market Funds are further limited to 20% of the portfolio.
42 "
43 ELIGIBLE IwESTMENTS FOR BOND PROCEEDS
44
45 Bond Proceeds shall be invested in securities permitted by the applicable bond documents. 'If the
46 bond documents are silent as to the permitted investments, bond proceeds will be invested in
47 securities permitted by this Policy.
48
49 With respect to. maximum maturities, the Policy authorizes investing bond reserve fund proceeds
50 beyond the five years if prudent in the opinion of the ,City Treasurer.
51
52 INELIGIBLE INVESTMENTS
53
54 As provided in California Government Code section 53601.6, the City .shall not invest any funds
55 in inverse floaters, range notes, mortgage derived interest -only strips or in any security that could
56 result in zero interest accrual if held to maturity.
57
4
City Hof Petaluma; California 2004 Statement of Investment Polig
1 The purchase of any secur "ity not listed above, but permitted by the California Government Code,
2 is prohibited unless the. City Council approves the investment either specifically or as a part of an
investment program approved by the Board.
BROKERS
6
7 In selecting -securities brokers the City Treasurer shall conduct credit and capitalization analysis
8 to determine that firms are adequately.financed to conduct public business.
9
10 FOCAL INVESTMENT _POOL POLICIES AND REPORTS
11
12 To the extent there are investments in the State, Sonoma County,. or CAMP investment pools, the
13 City Treasurer shall review. and, maintain current copies of the adopted.investment policies of the
14 State, Sonoma County and CAMP,. The policies shall be reviewed for concurrence with the
15 investment policy of the City.
16
17 SAFEKEEPING AND CUSTODY
18
19 All security transactions entered. into by the City of Petaluma, CA 'shall be conducted on a
20 delivery- versus payment basis. A third party' custodian designated by the City Treasurer and
21 evidenced by safekeeping, receipts will hold securities:
22
23 The only exceptions to the foregoing are Local Agency Investment Pools, Certificates of Deposit,
24 and money market funds since the purchased securities are not deliverable. In all cases,
25 purchased securities shall be held in the City's name.
26
27 INTERNAL CONTROL
The City Treasurer shall establish an annual process of independent review by an external
auditor. This review will provide internal control by assuring compliance with policies and
31 procedures.
32
33 PERFORMANCE STANDARDS "
34
35 The investment portfolio shall be designed with the objective of obtaining a rate of return
36 throughout budgetary and. economic cycles, commensurate with the investment risk constraints
37 and the cash flow needs.
38
39 The City will measure the portfol'io's ; performance against a market benchmark that is
40 commensurate with the City's investment risk constraints and;the cash flow characteristics of the
41 portfolio.
42
43 REPORTING
44
45 The City Treasurer shall provide a monthly investment report to the City Council, which
46 provides a.clear picture of the: status of the current investment portfolio, including transactions.
47 This will be formally submitted to the City Council each quarter at a public meeting.
48
49 Schedules in the quarterly Treasurer's Report will include the following:
50
51 A list of individual securities held at the end of the reporting period by authorized
52 investment category,
53 m Average i.fe and final maturity of all investments
• Earnings rate on an annualized basis
• Market value, par value and amortized book value
5 Percentage of the portfolio by investment category
57
5
City of Petaluma, California 2004 Statement of Investment Polic
1 The quarterly report shall state compliance of the portfolio to the investment policy, or manner in
2 which the portfolio is: not in compliance. The quaiterlyreport shall also include a statement
3 denoting the ability of the City to meet its. expenditure requirements for the, next six months, or
4 provide an explanation as to why sufficient money shall, or may,. not be available.
5
6 Po ky REVIEW
7
8 The investment policy shall be adopted, by resolution -of the City Council on at.minimum, an
9 annual basis. The. investment policy shall be reviewed at least annually to= ensure its. consistency
10 with'the overall objectives of preservation of principal, liquidity and yigld�and its relevance to
I 1 current law and financial and economic trends. Any amendments to the policy shall be.
12 forwarded to the City Council for approval.
13
•
6
City of.Petaluma California 2004 Statement of Investment Policy
1 ; CITY OF PETALUMA ,
2 2004 STATEMENT OF LNVESTMENT POLICY
GLOSSARY OF TYPES OF INVESTMENTS
5 AVAILABLE TO LOCAL GOVERNMENTS
6 _ .
7
8 STATE INVESTMENT POOL (LAIF)
9
io The Local Agency InvestmenVFund (LAIF), a. voluntary program created by statute, began in
11 1977 as an investment alternative for California`s local governments aiid special districts and
12 continues today under the State of California Treasurer's office. The enabling legislation for the
13 LAIF is Section 16429.1,2,3 of the California Government Code.
14 This program offers participatirig.agencies the opportunity to participate in a major portfolio
15 which daily invests hundreds of millions of dollars, using the "investment expertise of the
16 Treasurer's Office Investment staff at no additional cost to the taxpayer.' This in -house
17 management team is comprised of civil servants who have individually worked, for the State
18 Treasurer's Office for over, 20 years'.
19 The LAIF' is part of the Pooled Money Investment Account (PM1A),. The PMIA began in 1953
20 and has oversight provided bythe Pooled Money Investment Board (PMIB) and an in -house
21 Investment Committee. The PMIB Board members are the State Treasurer, Director of Finance,
22 and State Controller.
The LAIF has oversight'by the Local Investment Advisory Board (LIAB). The Board consists of
five ,members as designated by Statute. The Chairman is the State Treasurer, or his designated
25 representative. Two members qualified by training and experience'in the, field of investment or
26 finance, and the State Treasurer appoints two members who are Treasurers, finance or fiscal
27 officers or business` managers employed by any, County, City or local district or Municipal
28 Corporation of this state. Thelerm of each appointment is two years or at the pleasure of the
29 appointing authority.
30 All securities are purchased under the authority of the Government Code Section 16430 and
31 16480.4. The State Treasurer's "Office takes .delivery of all securities purchased on a delivery
32 versus payment basis using a third party custodian. All investments are purchased at market, and
33 market valuation. is conducted monthly.,
34 Additionally, the PMIA has Policies, Goals, and Objectives for the portfolio to make certain that
35, our goals of Safety, Liquidity and Yield are not jeopardized and that prudent management
36 prevails. These policies are formulated by investment staff and reviewed by both the PMIB and
37 tle'LIAB on an annual basis.
38 The Bureau of State Audits on an annual basis audits the State Treasurer's' Office. The resulting
39 'opinion is included in the subsequent PMIB monthly report;following its publication. The Bureau
4:0 of 'State Audits also has a continuing audit process throughout the year. The State Controller's
41 ' , Office. as well as an in -house audit process involving three separate divisions` audit all investment
and LAIF , clairns on a daily basis.
. It has. been determined that the. State of California cannot declare bankruptcy under Federal
44 regulations, thereby allowing the'Governinent Code Section 16429.3 to stand. This Section states
City of Petaluma, California 2004 Statement of Investment Polia
1 "money placed with the State Treasurer for deposit -in the LAIF shall not be subject to
2 impoundment or seizure by any State official or State agency."
LAIF has grown from 293 participants and
3 Thee g p p $468 million in 19 to 1039 participants and
4 $19.9 billion in, 2002.
5
6 The Local Agency Investment Fund (LAIF) was created by statute in 1977 and provides an
7 investment alternative for local agencies. The program offers participating agencies to
8 participate in a major. portfolio, which,invests- hundreds of millions of.dollars a.,.day,, The deposits'
9 and withdrawals are .done ;by electronic transfers of _funds (wire, transfers) acid deposits :earn.
10 interest on a daily basis.
11
12 There is a limitation of $40 million per legal entity within an agency. There_is a'ls'o a� maximum.,
13 of fifteen transactions'
ransactions; deposits or withdrawals per,month.
14 .
15 SONOMA COUNTY INVESTMENT'POOL
16'
17 The .Sonoma County' Treasurer maintains an investrrient pool in which the County, Schools,
18 Special Districts and; Cities can participate., This investment. pool operates in the; s_ e manner as
19 the iState pool. The County "Treasurer is subject to the same.State Government Code.;regarding
20 investments as the City. As with the State investment'fuiid, City funds can be withdrawn af; any
21 time and are protected by State Law from seizure or .impoundment by any County Officer. The
22 City does not participate in this pool but retains the option to do so.
23
24 CALIFORNIA ASSET MANAGEMENT PROGRAM (CAMP)
25
26 CAMP ovides California public agencies, together with any bond trustee acting on behalf of
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27 such public agency, assistance with the investment. of and accounting for bond proceeds and
28 surplus funds. For bond proceeds, the objective of CAMP: is to invest and account of such
29 proceeds in compliance with arbitrage management, and rebate requirements `of the Internal
30 Revenue Service..' The program includes the California Asset ,Management Trust, 'a California:
31 common law trust organized in 198:9. The Trust currently offers a 'professionally managed
32 money market investment portfolio the Cash Reserve Portfolio, to provide public: agencies with
33 a convenient method of pooling funds for temporary investment pending ,their expenditure. The
34 Trust also provides record keeping', custodial and arbitrage rebate calculation services for bond
35 proceeds. As part of the - program, public agencies may also establish individual, professionally'
36 managed investment, accounts.
37
38 The Pool seeks to attain as high'a level of current income as ,is consistent - with the preservation of
39 principal.. The 'Pool purchases only. investments of the type in which public: agencies are
40 permitted by statute to invest surplus funds and proceeds of their own bonds.
41
42 CERTIFICATES'-OF DEPOSITS (CD)
43
44 Certificates of Deposits, sometimes known as "Jumbo Accounts" or "Fixed CD's" are savings
45 accounts with Banks or -Savings and Loans. These accounts are for a specific amount, Have a set
46 in terest rate; and set maturity date. There is a substantial interest'
nterest penalty if the CD is withdrawn
47 prior to the maturity date.
48
49 The State lawrequires;Public Fund CD's to be collateralized by the financial institution at 110%
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50 with US Government°notes/bonds or at 15.0% with quality First Trust Deeds„ This collateral can
51 , be waived if Federal Insurance (FDIC). is. available.. These federal agencies will insure each
52 account up to $100,000.
53
54 The City generally waives the collateralization, requirements for t FDIC ,insurance. The waiver
55 of collateral is a w:i`de spread practice and will generally generate higher %interrest rates and provide
City "of Petaluma, California 2004 Statement' Investment Policy
1 the greatest security forlthe funds from the Federal Insurance Agencies. For deposits in excess of
2 $ 100 the collateralization requirements are not waived.
)- NEGOTIABLE CERTIFICATE OF DEPOSIT (NCD)
6 This investment is similar to the Fixed CD's above. However, the NCD can be sold through a
7 broker on a "secondary market" prior to the .maturity date. Normally, NCD's are issued in
8 $500;000 and $1,000,000 ,amounts. The. State Code limits NCD's to not more than 30% of the
9 local agency's portfolio acid td a, five -year maximum term. 'The, security is the credit worthiness
10 of the issuer. These deposits are uninsured and uncollateralized promissory notes.
11
12 BANKER'S ACCEPTANCES (BA)
13
14 A Banker's Acceptance is a time draft of invested funds, which has been drawn on and accepted
15 for repayment by a bank. This firiancial instrument is -generally used for short term (30 and 180
16 days) financing of export, import, or storage goods. By accepting,the draft (investment of City
17 funds), the bank is liable for the payment at maturity. This bank liability makes the Banker's
18 Acceptance a marketable investment. The State Code limits BA's to not more than 180 days to
19 maturity and 40% of the local agency's portfolio. In addition, not more than 30% of the local
20 agency's portfolio may be placed in any one bank.
21
22 US TREASURY BILLS
23
24 Commonly referred to as T- Bills, these are short-term marketable securities sold as obligations of
25 the US Government. They are offered in-three month, six month, nine month and one -year
26 maturities. , T -Bills do not accrue interest but are sold at a discount, and pay the face value at
27 maturity.
US'TREASURY NOTES
31 These are marketable ' interest- bearin g securities sold as obligations of the US Government with
32 original maturities of one to ten years. Interest is paid semi - annually.
33
34 US TREASURY BONDS
35
36 These are the same as US Treasury Notes except they have - original maturities of ten years or
37 longer.
38
39 FEDERAL AGENCY ISSUES
40
41 Many Federal Government Agencies are authorized to issue short term and long term obligations
42 that, are used' to finance various programs such_ as home loans, business loans, farm loans, etc-.
43 These Agencies 'were created by the Federal .Government in the 1930's and have since become.
44 independent quasi- public agencies'. The security for their issues is, the guarantee, of the Agency to
45. pay. The Federal Government has! only an implied liability to the extent that the Agency has an
46 open credit line to borrow from the U.S. Treasury. It is widely accepted that Federal Agency
47, issues are almost as secure as U.S.. Government notes.
48
49 "There', is an active secondary market available to sell these; issues prior to maturity. The issues
50 are fairly liquid depending on the prevailing market interest,rates at the time of sale.
51 Some of the more common agency notes are issued by the Federal National Mortgage
52 Association (Fannie Mae), Federal Home Loan Banks, Federal Home Loan Mortgage
53 Corporation (Freddie Mac), and the Federal Farm Credit Banks.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS (REPOS)
56
57 A 'Repurchase Agreement is a short -term investment agreement to loan. City funds for a fixed
58 period in return for a fixed interest rate and secured collateral, such as U.S. Treasuries or Agency
City of Petaluma, California 2004 Statement of Investment - Policy
1 Notes. This type of investment is .usually done for overnight or very short term (7 days)
2 investment of funds 'left in the general operating checking account.. Reverse Repurchase
3 agreements is a short-term investment, which is used to take advantage of market interest rate
4 changes and increase the size of the portfolio. State law was amended in 1996 to limit the use of °
5 both repurchase and reverse repurchase agreements.
6
7 COMMERCIAL PAPER,(CP)
8
9 Commercial Paper .is unsecured promissory notes of 'industrial corporations, utilities and bank.
1 o holding companies. The notes are in bearer form in amounts starting_:at $1-00,0. 0,0. State, law
11 limits the City to investments in United States corporations having assets in excess of :five
12 hundred million dollars with an "A" or higher rating. State Law also permits cities :to invest in
13 Asset Back Commercial Paper (ABCP) from issuers organized within the United States as a
14 special purpose corporation, trust or limited liability company. ABCP .issuers must have program
1.5 wide credit enhancements including, but.-not limited to over collateralization, letters
,of credit, or
16 surety bond. Cities may not invest, more than 25% of the portfolio in commercial paper nor
17 purchase more than 10 percent of the outstanding commercial paper of any single 'issuer: The
18 maximum maturity of the commercial paper may ,not_ exceed a term of 270 days.
19
20 MUTUAL FUNDS'
21
22 An izvestmetlt company that pools money and can invest in a variety of securities, including
23 fixed - income securitie& and money market instruments, cities may invest in Mutual Funds' or
24 Money,Market funds that receive the highest ranking,or the highest letter and numerical rating by
25 two of ,the three largest nationally recognized rating services. The Mutual Funds must abide by
2'6 the same investment restrictions and regulations that apply to public agencies an California.
27 Money Market Funds must follow regulations ;specified °the, Security and n
Exchange Commission,
28 under the .Investment Company Act of 1940. Mutual Funds' have floating, Net Asset Values
29 (NAV), which means the amount received at redemption may be more or less than the, amount'
30 originally invested. Money Market Funds strive to maintain a constantNAV.
31
32 GUARANTEED INVESTMENT CONTRACT' (GIC)
33
34 ' This is an agreement.ackmwledging'receipt of funds for deposit, specifying,terms. for withdrawal
35 and guaranteeing a ,rate of interest to be paid. The investment follows all state laws for. the
36 investment ofpublic funds. GIC's are only permitted for bond proceeds
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