Res 10-020RESOLUTION NO. 10 -020
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF POWAY, CALIFORNIA,
AMENDING INVESTMENT POLICY FOR PUBLIC FUNDS
AND RESCINDING RESOLUTION NO. 09 -027
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of
Poway, California, that the Statement of Investment Policy, attached as Exhibit A, is
hereby adopted as the Investment Policy of the City of Poway.
BE IT FURTHER RESOLVED, that Resolution No. 09 -027 is hereby rescinded.
PASSED, ADOPTED AND APPROVED by the City Council of the City of Poway,
California, at a regular meeting this 4th day of May 2010.
--�W-16— 4�. _
Don Higginson, Mayor
Troyan, MMC, City Clerk
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN DIEGO)
I, Linda A. Troyan, MMC, City Clerk of the City of Poway, do hereby certify under
penalty of perjury that the foregoing Resolution No. 10 -020 was duly adopted by the
City Council at a meeting of said City Council held on the 4 day of May 2010, and that
it was so adopted by the following vote:
AYES: Boyack, Cunningham, Rexford, Kruse, Higginson
NOES: None
ABSENT: None
DISQUALIFIED: None
Troyan,
City of Poway Resolution No. 10 -020
Statement of Investment Policy Page 2
EXHIBIT A
CITY OF POWAY
STATEMENT OF INVESTMENT POLICY
May 2010
The City of Poway (the City) has adopted this Investment Policy (the Policy) in order to establish
the investment scope, objectives, delegation of authority, standards of prudence, reporting
requirements, internal controls, eligible investments and transactions, diversification
requirements, risk tolerance, and safekeeping and custodial procedures for the investment of
the funds of the City. All City funds will be invested in accordance with this Investment Policy
and with applicable sections of the California Government Code.
This Investment Policy, dated May 4, 2010, replaces any previous investment policy or
investment procedures of the City.
SCOPE
The provisions of this Policy shall apply to all financial assets and investment activities of the
City as accounted for in the City's Comprehensive Annual Financial Report. The employees'
retirement and deferred compensation funds are not covered by this Policy. Also, bond reserve
funds will be invested in accordance with each bond issue's indenture agreement.
All cash shall be pooled for investment purposes. The investment income derived from the
pooled investment account shall be allocated to the General Fund, the Water Fund, the Sewer
Funds, and other funds as budgeted or required by legislation based upon the proportion of the
respective average balances relative to the total pooled balance. Investment income shall be
distributed to the individual funds not less than annually.
OBJECTIVES
The principal investment objectives of the City are:
1. Preservation of capital and protection of investment principal.
2. Maintenance of sufficient liquidity to meet anticipated cash flows.
3. Attainment of a market rate of return.
4. Diversification to avoid incurring unreasonable market risks.
5. Compliance with all applicable City resolutions, California statutes, and Federal regulations.
City of Poway Resolution No. 10 -020
Statement of Investment Policy Page 3
DELEGATION OF AUTHORITY
In accordance with City of Poway Resolution No. 10 -020, the City Treasurer /Administrative
Services Department are authorized to invest the City's funds in accordance with the California
Government Code Sections 53607. The City's Director of Administrative Services serves as the
Treasurer. The Director of Administrative Services may delegate the authority to conduct
investment transactions and to manage the operation of the investment portfolio to other
specifically authorized staff members. No person may engage in an investment transaction
except as expressly provided under the terms of this Policy.
The Director of Administrative Services shall develop administrative procedures and internal
controls, consistent with this Policy, for the operation of the City's investment program. Such
procedures shall be designed to prevent losses of public funds arising from fraud, employee
error, misrepresentation by third parties, or imprudent actions by employees of the City.
The City may engage the support services of outside investment advisors with respect to its
investment program, so long as it can be demonstrated that these services produce a net
financial advantage or necessary financial protection of the City's financial resources. If an
investment advisor is selected to help manage the investment program, a City Investment
Oversight Committee shall be kept informed of the changing investment environment and any
potential restructuring of the portfolio which could result. This Investment Committee shall
consist of the Director of Administrative Services, the Finance Manager, and the Senior
Accountant.
PRUDENCE
The standard of prudence to be used for managing the City's investment program is California
Government Code Section 53600.3, the prudent investor standard, which states that "when
investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a
trustee shall act with care, skill, prudence, and diligence under the circumstances then
prevailing, including, but not limited to, the general economic conditions and the anticipated
needs of the agency, that a prudent person acting in a like capacity and familiarity with those
matters would use in the conduct of funds of a like character and with like aims, to safeguard
the principal and maintain the liquidity needs of the agency."
The City's overall investment program shall be designed and managed with a degree of
professionalism that is worthy of the public trust. The City recognizes that no investment is
totally without risk and that the investment activities of the City are a matter of public record.
Accordingly, the City recognizes that occasional measured losses may occur in a diversified
portfolio and shall be considered within the context of the overall portfolio's return, provided that
adequate diversification has been implemented and that the sale of a security is in the best
long -term interest of the City.
The Director of Administrative Services and authorized investment personnel acting in
accordance with established procedures and exercising due diligence shall be relieved of
personal responsibility for an individual security's credit risk or market price changes, provided
that deviations from expectations are reported in a timely fashion to the City Council and
appropriate action is taken to control adverse developments.
City of Poway Resolution No. 10 -020
Statement of Investment Policy Page 4
ETHICS AND CONFLICTS OF INTEREST
Elected officials and employees involved in the investment process shall refrain from personal
business activity that could conflict with proper execution of the City's investment program or
could impair or create the appearance of an impairment of their ability to make impartial
investment decisions. Employees and investment officials shall subordinate their personal
investment transactions to those of the City. In addition, City Councilmembers, the Director of
Administrative Services, the Finance Manager, and the Senior Accountant shall file a Statement
of Economic Interests each year as required by California Government Code Section 87203 and
regulations of the Fair Political Practices Commission.
AUTHORIZED SECURITIES AND TRANSACTIONS
All investments and deposits of the City shall be made in accordance with California
Government Code Sections 16429.1, 53600- 53609, and 53630 - 53686. Any revisions or
extensions of these code sections will be assumed to be part of this Policy immediately upon
being enacted.
The City shall not knowingly make any investments in any institution, company, corporation,
subsidiary, or affiliate that practices or supports directly or indirectly through its actions,
discrimination on the basis of race, religion, color, creed, national or ethnic origin, age, sex,
sexual preference, or physical disability.
The City has further restricted the eligible types of securities and transactions as follows:
United States Treasury bills, notes, or bonds with a final maturity not exceeding five years
from the date of trade settlement. There is no limit on the percentage of the portfolio that
may be invested in U.S. Treasury securities.
Federal Instrumentality (government sponsored enterprise) debentures, discount notes,
callable and step -up securities, with a final maturity not exceeding five years from the date
of trade settlement, issued by the following only: Federal Home Loan Banks (FHLB),
Federal National Mortgage Association (FNMA), Federal Farm Credit Banks (FFCB) and
Federal Home Loan Mortgage Corporation (FHLMC). No more than 25% of the City's total
portfolio shall be invested in a Federal Instrumentality of any one issuer, and the aggregate
investment in Federal Instrumentality shall not exceed 75% of the City's total portfolio.
Federal Agency Obligations with a final maturity not exceeding five years from the date of
trade settlement issued only by Government National Mortgage Association (GNMA). No
more than 75% of the City's total portfolio may be invested in Federal Agency Obligations.
4. Medium -Term Notes issued by corporations organized and operating within the United
States or by depository institutions licensed by the United States or any state and operating
within the United States, with a final maturity not exceeding five years from the date of trade
settlement, and rated at least A, or the equivalent, by a Nationally Recognized Statistical
Rating Organization (NRSRO). No more than 5% of the City's portfolio shall be invested in
the obligations of any one issuer, and the aggregate investment in medium -term notes and
other corporates shall not exceed 30% of the City's total portfolio. In addition, AAA rated
FDIC - guaranteed corporate bonds are herein authorized, within the aforementioned
diversification and maturity requirements.
City of Poway
Statement of Investment Policy
Resolution No. 10 -020
Page 5
5. Any Mortgage Pass - through Security collateralized mortgage obligation, mortgage- backed
or other pay- through bond, equipment lease -back certificate, consumer - receivable pass -
through certificate, or consumer - receivable- backed bond with a maximum legal maturity of
five years from the date of trade settlement. These securities must be rated AAA, or the
equivalent, and must be issued by an issuer rated single at least A, or the equivalent, by a
NRSRO. Total investment in this category may not exceed 20% of the portfolio.
6. Obligations of any State in the United States or any political subdivision, institution, or
authority of such a governmental entity. Municipal bonds must be rated at least A or the
equivalent by two NRSROs with maturities not exceeding five years.
7. Prime Commercial Paper with a maturity not exceeding 270 days from the date of trade
settlement and rated at least A -1, or the equivalent, but a NRSRO. The entity that issues the
commercial paper shall meet all of the following conditions in either sub - paragraph A. or
sub - paragraph B. below:
A. The entity shall (1) be organized and operating in the United States as a
general corporation, (2) have total assets in excess of $500,000,000 and
(3) have debt other than commercial paper, if any, that is rated at least A
or the equivalent by a NRSRO.
B. The entity shall (1) be organized within the United States as a special
purpose corporation, trust, or limited liability company, (2) have program
wide credit enhancements, including, but not limited to, over
collateralization, letters of credit or surety bond and (3) have commercial
paper that is rated at least A -1 or the equivalent by a NRSRO.
No more than 5% of the City's total portfolio shall be invested in the commercial paper of
any one issuer, and the aggregate investment in commercial paper shall not exceed 25% of
the City's total portfolio.
8. Eligible Banker's Acceptances with a maturity not exceeding 180 days from the date of trade
settlement, drawn on and accepted by a commercial bank whose senior long -term debt is
rated at least A, or the equivalent, by a NRSRO at the time of purchase. Banker's
Acceptances shall be rated at least A -1, or the equivalent, at the time of purchase by a
NRSRO. No more than 5% of the City's total portfolio shall be invested in banker's
acceptances of any one bank and the aggregate investment in banker's acceptances shall
not exceed 40% of the City's total portfolio.
9. Negotiable Certificates of Deposits (CDs) of commercial banks rated at least A -1, or the
equivalent, with maturities not exceeding five years. In addition, the City may not invest in
the CD of a state or federal credit union where any person with investment decision making
authority at the City also serves on the board of directors, or any committee appointed by
the board of directors, or the credit committee or the supervisory committee of the state or
federal credit union issuing the negotiable certificates of deposit. No more than 5% of the
portfolio may be invested in the CDs of any one issuer, and the aggregate investment in
CDs shall not exceed 30% of the portfolio.
10. Non - negotiable Certificates of Deposit and savings deposits with a maturity not exceeding
five years, in FDIC insured state or nationally chartered banks or savings banks that qualify
as a depository of public funds in the State of California as defined in California Government
Cnde Sectinn 53830 5
City of Poway
Statement of Investment Policy
Deposits in excess of the insured amount shall
Government Code Section 53651 and 53652. The Cit y
compliance with the security (collateralization) system
Section 53649 and 56652.
Resolution No. 10 -020
Page 6
be secured pursuant to California
shall comply with and act to secure
specified in the Government Code
11. Money Market Funds registered under the Investment Company Act of 1940 that (1) are
"no -load" (meaning no commission or fee shall be charged on purchases or sales of
shares); (2) have a constant net asset value per share of $1.00; (3) invest only in the
securities and obligations authorized in the applicable California statutes and (4) have a
rating of at least AAA, or the equivalent by at least two NRSROs. No more than 10% of the
portfolio may be invested in any one fund and the aggregate investment in money market
funds shall not exceed 20% of the City's total portfolio.
12. Shares of Beneficial Interest issued by a joint powers authority organized pursuant to
Section 6509.7 that invest in the securities and obligations authorized in subdivisions (a) to
(o), inclusive, of California Government Code Section 53601. Each share shall represent an
equal proportional interest in the underlying pool of securities owned by the joint powers
authority. To be eligible under this section, the joint powers authority issuing the shares shall
have retained an investment adviser that:
(1) is registered or exempt from registration with the Securities and Exchange
Commission.
(2) has at least five years of experience investing in the securities and obligations
authorized in subdivisions (a) to (o), inclusive, of California Government Code
Section 53601.
(3) has assets under management in excess of $500,000,000.
13. State of California's Local Agency Investment Fund (LAIF) pursuant to California
Government Code Section 16429.1.
14. The San Diego County Investment Pool. The City may invest in this investment pool,
established by the San Diego County Treasurer for the benefit of local public agencies.
The foregoing list of authorized securities and transactions shall be strictly interpreted. Any
deviation from this list must be preapproved by resolution of the City Council.
City of Poway Resolution No. 10 -020
Statement of Investment Policy Page 7
INVESTMENT MANAGEMENT
If the City has employed an external investment advisor to help manage its portfolio, the
investment advisor shall be bound by the aforementioned list of authorized securities, the state
and local laws and regulations that govern the investment activity of the City, and the following
additional parameters.
While it is understood that occasionally it may be in the best interest of the City to take
losses in its security portfolio, losses taken to increase the yield in the portfolio may only
be taken if the increased yield results in the loss being recouped in one year or less.
Credit - related losses on the other hand are taken to prevent potentially larger losses in
the future. When possible, the investment manager will get prior approval of the City
before taking credit - related losses. In any case, the City will be notified as soon as
possible about any losses taken in the portfolio.
Securities that are downgraded by one or more rating agency to below the ratings
required by this policy do not have to be sold. However, the investment advisor will
immediately notify the City of the downgrade. The advisor will prepare a credit report on
the downgraded security and forward it to the City.
While the City entrusts its investment portfolio to the advisor, the City retains the right to
ultimately make the decisions on how to invest its monies.
INVESTMENT DIVERSIFICATION
The City shall diversify its investments to avoid incurring unreasonable risks inherent in over -
investing in specific instruments, individual financial institutions or maturities. Nevertheless, the
asset allocation in the investment portfolio should be flexible depending upon the outlook for the
economy, the securities markets and the City's anticipated cash flow needs.
PORTFOLIO MATURITIES AND LIQUIDITY
To the extent possible, investments shall be matched with anticipated cash flow requirements
and known future liabilities. The City will not invest in securities maturing more than five years
from the date of trade settlement, unless the City Council has by resolution granted authority to
make such an investment at least three months prior to the date of investment.
SELECTION OF BROKER/DEALERS
The Finance Manager shall maintain a list of broker /dealers approved for investment purposes,
and it shall be the policy of the City to purchase securities only from those brokers and the firms
they represent. Each approved broker /dealer must possess an authorizing certificate from the
California Commissioner of Corporations as required by Section 25210 of the California
Corporations Code.
To be eligible, a firm must meet at least one of the following criteria:
1. be recognized as Primary Dealers by the Federal Reserve Bank of New York or have a
primary dealer within their holding company structure, or
2. report voluntarily to the Federal Reserve Bank of New York, or
3. qualify under Securities and Exchange Commission (SEC) Rule 15c3 -1 (Uniform Net
Capital Rule).
City of Poway Resolution No. 10 -020
Statement of Investment Policy Page 8
The Finance Manager will select broker /dealers on the basis of their expertise in public cash
management and their ability to provide service to the City's account. Each authorized
broker /dealer shall submit and annually update a City approved Broker /Dealer Information
Request form that includes the firm's most recent financial statements.
In the event that an external investment advisor is not used in the process of recommending a
particular transaction in the City's portfolio, authorized broker /dealers shall attest in writing that
they have received a copy of this policy.
The City may purchase commercial paper from direct issuers even though they are not on the
approved broker /dealer list as long as they meet the criteria outlined in Item 7 of the Authorized
Securities and Transactions section of this Investment Policy.
COMPETITIVE TRANSACTIONS
All investment transactions shall be conducted competitively with authorized broker /dealers. At
least three broker /dealers shall be contacted for each transaction and their bid or offering prices
shall be recorded.
If the City is offered a security for which there is no other readily available competitive offering,
then the Finance Manager will document quotations for comparable or alternative securities.
SELECTION OF BANKS
The Finance Manager shall maintain a list of FDIC insured banks approved to provide
depository and other banking services for the City. To be eligible, a bank shall qualify as a
depository of public funds in the State of California as defined in California Government Code
Section 53630.5 and shall secure deposits in excess of FDIC insurance coverage in accordance
with California Government Code Section 53652.
SAFEKEEPING AND CUSTODY
The Finance Manager shall select one or more banks to provide safekeeping and custodial
services for the City. A Safekeeping Agreement approved by the City shall be executed with
each custodian bank prior to utilizing that bank's safekeeping services.
Custodian banks will be selected on the basis of their ability to provide services for the City's
account and the competitive pricing of their safekeeping related services.
The purchase and sale of securities and repurchase agreement transactions shall be settled on
a delivery versus payment basis. All securities shall be perfected in the name of the City.
Sufficient evidence to title shall be consistent with modern investment, banking, and commercial
practices.
All investment securities, except non - negotiable Certificates of Deposit, Money Market Funds
and LAIF, purchased by the City will be delivered by either book entry or physical delivery and
will be held in third -party safekeeping by a City approved custodian bank, its correspondent
bank or its Depository Trust Company (DTC) participant account.
All Fed wireable book entry securities owned by the City shall be held in the Federal Reserve
System in a customer account for the custodian bank which will name the City as "customer."
All DTC eligible securities shall be held in the custodian bank's DTC participant account and the
custodian bank shall provide evidence that the securities are held for the City as "customer."
City of Poway Resolution No. 10 -020
Statement of Investment Policy Page 9
PORTFOLIO PERFORMANCE
The investment portfolio shall be designed to attain a market rate of return throughout budgetary
and economic cycles, taking into account prevailing market conditions, risk constraints for
eligible securities, and cash flow requirements. The performance of the City's investments shall
be compared to the average yield on the U.S. Treasury security that most closely corresponds
to the portfolio's weighted average effective maturity. When comparing the performance of the
City's portfolio, its rate of return will be computed net of all fees and expenses.
REPORTING
Quarterly, the Director of Administrative Services shall submit to the City Council a report of the
investment earnings and performance results of the City's investment portfolio. The report shall
include the following information:
1. Investment type, issuer, date of maturity, par value and dollar amount invested in all
securities, and investments and monies held by the City;
2. A description of the funds, investments, and programs;
3. A market value as of the date of the report (or the most recent valuation as to assets not
valued monthly) and the source of the valuation;
4. A statement of compliance with the investment policy or an explanation for non - compliance;
and
5. A statement of the City's ability to meet expenditure requirements for six months, and an
explanation of why money will not be available if that is the case.
City of Poway Resolution No. 10 -020
Statement of Investment Policy Page 10
POLICY REVIEW
This Investment Policy shall be reviewed at least annually to ensure its consistency with the
overall objectives of preservation of principal, liquidity, yield and diversification, and its
relevance to current law and economic trends. Amendments to this Investment Policy shall be
approved by resolution of the City Council.
SEGREGATION OF RESPONSIBILITIES
FUNCTION RESPONSIBILITY
1.0 Investment Policy:
1.1 Preparation and annual review Director of Admin. Services/
of investment policy. Oversight Committee
1.2 Approval of investment policy. City Council
2.0 Investment Transactions
2.1
Calculation of cash position.
Sr. Accountant/Finance Mgr.
2.2
If applicable, notify investment advisor
Written approval by 2 members
the accounting records.
of current available cash
of Oversight Committee
Reconciliation of subsidiary records to
to be invested.
2.3
Investment recommendation:
4.3
Review of financial institutions and
Determination of amount to be invested,
Investment Manager/
investment brokers' reputation and
selection of type of investment, and
Finance Mgr/ Sr. Accountant
financial condition.
term of investment.
4.4
2.4
Review of investment recommendation
Written approval by member
and execution of transaction.
of Oversight Committee
3.0 Recording of Transactions
3.1 In investment subsidiary ledgers. Accountant/Account Technician
3.2 In accounting records. Accountant/Account Technician
3.3 Match investment confirmation
to subsidiary ledgers. Sr. Accountant/Accountant
4.0 Safeguarding of Assets and Records:
4.1
Reconciliation of subsidiary records to
the accounting records.
Senior Accountant
4.2
Reconciliation of subsidiary records to
bank statements and safekeeping records.
Senior Accountant
4.3
Review of financial institutions and
investment brokers' reputation and
financial condition.
Investment Adv. /Oversight Comm.
4.4
Review of collaterals.
Investment Adv. /Oversight Comm.
5.0 Investment portfolio
5.1 Preparation of investment report. Senior Accountant
5.2 Review of portfolio for compliance
with stated investment policy. Oversight Committee
5.3 Approval of investment report. City Council
City of Poway
Statement of Investment Policy
APPROVED BROKER/DEALERS
May 4, 2010
The following Broker /Dealers are approved for execution of trades:
Broker /Dealers
Banc of America Securities
Citigroup Global Markets
Deutsche Bank Securities
Jefferies & Company
Mizuho Securities USA
Morgan Keegan & Company
Morgan Stanley
RBC Capital Markets
UBS Financial Services
Resolution No. 10 -020
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