Res 12-018 RESOLUTION NO. 12 -018
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF POWAY, CALIFORNIA,
AMENDING INVESTMENT POLICY FOR PUBLIC FUNDS
AND RESCINDING RESOLUTION NO. 11 -018
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BE IT FURTHER RESOLVED, that Resolution No. 11 -018 is hereby rescinded.
PASSED, ADOPTED AND APPROVED by the City Council of the City of Poway,
California, at a regular meeting this 17th day of April 2012.
L)` L.01111■
Don Higginson, M. •
ATTEST:
• a A. •yan, 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. 12 -018 was duly adopted by the
City Council at a meeting of said City Council held on the 17th day of April 2012, and
that it was so adopted by the following vote:
AYES: BOYACK, GROSCH, MULLIN, CUNNINGHAM, HIGGINSON
NOES: NONE
ABSENT: NONE
DISQUALIFIED: NONE
da . Troyan, MMC, ity Clerk
Resolution No. 12 -018
Page 2
EXHIBIT A
CITY OF POWAY
STATEMENT OF INVESTMENT POLICY
April 2012
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 April 17, 2012, 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 City's funds shall be invested in accordance with all applicable City resolutions,
California statutes, and Federal regulations, and in a manner designed to accomplish the
following objectives, which are listed in priority order:
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.
DELEGATION OF AUTHORITY
In accordance with City of Poway Resolution No. 12 -018, the City
Treasurer /Administrative Services Department is authorized to invest the City's funds in
accordance with the California Government Code Section 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.
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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.
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
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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:
1. 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.
2. 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.
3. 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.
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
Resolution No. 12 -018
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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 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 from the
date of trade settlement.
7. Negotiable Certificates of Deposits (CDs) of commercial banks rated at least A -1, or
the equivalent, with maturities not exceeding five years from the date of trade
settlement. 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.
8. Non - negotiable Certificates of Deposit and savings deposits with a maturity not
exceeding five years from the date of trade settlement, 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 Code Section
53630.5.
Deposits in excess of the insured amount shall be secured pursuant to California
Government Code Section 53651 and 53652. The City shall comply with and act to
secure compliance with the security (collateralization) system specified in the
Government Code Section 53649 and 56652.
9. 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, by 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.
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10. 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.
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.
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
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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 ossible investments shall be matched with p t 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).
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.
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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 9 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 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.
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.
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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.
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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
of current available cash of Oversight Committee
to be invested
2.3 Investment recommendation:
Determination of amount to be invested, Investment Manager/
selection of type of investment, and Finance Mgr/ Sr. Accountant
term of investment
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
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APPROVED BROKER/DEALERS
April 17, 2012
The following Broker /Dealers are approved for execution of trades.
Broker /Dealers
Barclays Capital Inc.
Goldman, Sachs & Co.
Jefferies & Company
J.P. Morgan Securities
Merrill Lynch, Pierce, Fenner & Smith Inc.
Mizuho Securities USA Inc.
Morgan Keegan & Company Inc.
Morgan Stanley Smith Barney - Citigroup Global Markets platform
Morgan Stanley Smith Barney- Morgan Stanley platform
RBC Capital Markets Corporation
UBS Financial Services
Wells Fargo Securities
Wunderlich Securities Inc.