Res 94-009RESOLUTION NO. 94-009
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF POWAY, CALIFORNIA,
AMENDING INVESTMENT POLICY FOR PUBLIC FUNDS
AND RESCINDING RESOLUTION NO. 92-110
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BE IT FURTHER RESOLVED, that Resolution No. 92-110 is hereby rescinded.
PASSED, ADOPTED, AND APPROVED by the City Council of the City of Poway,
California, at a regular meeting thereof this 1st day of February, 1994.
Don Higginson, mayor[~.~
ATTEST:
Marjo~ie~. Wahlsten, City Clerk
STATE O~-I~ALIFORNIA )
SS.
COUNTY OF SAN DIEGO )
I, Marjorie K. Wahlsten, City Clerk of the City of Poway, do hereby certify
under penalty of perjury that the foregoing Resolution No. 94J09 was duly adopted
by the City Council at a meeting of said City Council held on the 1st day of
February, 1994, and that it was so adopted by the following vote:
AYES: CAFAGNA, CALLERY, EMERY, SNESKO, HIGGINSON
NOES: NONE
ABSTAIN: NONE
ABSENT: NONE
Marjorie~K. Wahlsten, City Clerk
City off,way
Resolution No. 94-009
Page 2
CITY OF POWAY
STATEMENT OF INVESTMENT POLICY
FEBRUARY 1994
EXHIBIT A
INTRODUCTION
This statement is intended to outline the policies for maximizing the
efficiency of the City of Poway's Cash Management System and for prudent
investment of the City's funds, and to provide guidelines for suitable
investments.
The ultimate goal is to enhance the economic status of the City while
protecting its funds.
The City's Cash Management System is designed to accurately monitor and
forecast expenditures and revenues, thus striving to maintain the level of
investment of all idle funds as near 100% as possible, through daily and
projected cash flow determinations. The City shall attempt to obtain the
highest yield, provided that all investments meet the criteria established for
safety and liquidity.
The investment policies and practices, idle cash management and investment
transactions are the joint responsibility of the City Treasurer and the
Administrative Services Department. These City of Poway policies and
practices are based upon federal, state, and local law and prudent money
management. The primary goals of these policies are:
To assure compliance with all federal, state and local laws
governing the investment of monies under the control of the
City Treasurer and the Administrative Services Department.
2. To protect the principal monies entrusted to these offices.
To generate the maximum amount of investment income within the
parameters of this Statement of Investment Policy and the
guidelines for suitable investments.
I. SCOPE
In accordance with City of Poway Resolution No. 92-110, the City
Treasurer/Administrative Services Department are authorized to invest
the City's funds in accordance with the California Government Code
Sections 53601.1, 53602 and 53635. This investment policy applies to
all financial assets, investment activities and debt issues of the City
of Poway (which are invested by trustees appointed under the indenture,
with direction from the City Treasurer/Administrative Services
Department), except for the employees' retirement and deferred compen-
sation funds.
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Investment Policy
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All monies entrusted to the City Treasurer/Administrative Services
Department will be pooled in an actively managed portfolio. The
Investment Pool or "Portfolio" will be referred to as the "Fund"
throughout the remainder of this document. The City Treasurer/
Administrative Services Department will observe, review and react to
changing conditions that affect the fund.
II. OBJECTIVES
A. SAFETY OF PRINCIPAL
Safety of principal is the foremost objective of the City of
Poway. Each investment transaction shall seek to ensure that
capital losses are avoided, whether from institution default,
broker-dealer default, or erosion of market value of securities.
The City shall seek to preserve principal by mitigating the two
types of risk, credit risk and market risk.
1. Credit Risk. Credit risk, defined as the risk of loss due to
failure of an issuer of a security, shall be mitigated by
investing in only very safe institutions and by diversifying the
fund so that the failure of any one issuer would not unduly harm
the City's cash flow.
2. Market Risk. The risk of market value fluctuations due to
overall changes in the general level of interest rates, shall be
mitigated by limiting the weighted average maturity of the City's
fund to less than five years.
B. LIQUIDITY
Liquidity is the second most important objective of the City of
Poway. The basic premise underlying the City's investment policy
is to ensure that money is always available when needed and at the
same time reaping the highest and best return. In order to
maintain liquidity, no more than 50 percent of the portfolio shall
have a maturity in excess of one (1) year. Investments with a
maturity in excess of one year may not be purchased at a premium
qreater than 1.05 (par beinq 1.00) nor sold at a loss unless the
loss is provided for in the City's budqet.
C. RETURN ON INVESTMENT
The City's fund shall be designed to attain a market-average rate
of return through economic cycles. The market-average rate of
return is defined as the average return on one-year U.S. Treasury
Bills. Whenever possible, the consistent with risk limitations as
defined herein and prudent investment principles, the City shall
seek to augment returns above the market-average rate of return.
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III. AUTHORIZED INVESTHENTS
The City of Poway has a fiduciary responsibility to maximize the produc-
tive use of assets entrusted to its care and to invest and manage those
public funds wisely and prudently. The City of Poway operates its
pooled idle cash to afford a broad spectrum of investment opportunities
that are deemed prudent and are legally allowable under both state
legislation and local ordinances. These investment decisions shall be
made using the trust principles and general "prudent man theory"
outlined below:
"In acquiring, investing, reinvesting, exchanging, selling and
managing property for the benefit of another, a fiduciary shall
exercise the judgment and care under the circumstances then pre-
vailing, which men of prudence, discretion and intelligence
exercise in the management of their own affairs, not in regard to
speculation but in regard to the permanent disposition of their
funds, considering the probable income as well as the probable
safety of their capital. Within the limitations of the foregoing
standard, and subject to any express provisions or limitations
contained in any particular trust instrument, a fiduciary is
authorized to acquire and retain every kind of property--real,
personal or mixed--and every kind of investment specifically
including, but not by way of limitation, debentures and other
corporate obligations, and stocks--preferred or common--which men
of prudence, discretion and intelligence acquire for their own
account."
In addition, the City recognizes that it has an equal obligation to be
aware of the social and political impacts of its investments, and
subsequently to act responsibly in making its financial decisions.
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.
As stated above, the City is governed by the California Government Code,
Sections 53601.1, 53602 and 53635. Within the context of these limita-
tions, the following investments are authorized, as further limited
herein:
United States Treasury Bills, Notes and Bonds, or those for which
the full faith and credit of the United States are pledged for
payment of principal and interest with remaining maturities of
five years or less. There is no limitation as to the percentage
of the fund which can be invested in this category as they are
both safe and liquid.
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Ce
Ee
Obligations issued by the Government National Mortgage Association
(GNMA), the Federal Farm Credit Bank System (FFCB}, the Federal
Home Loan Bank Board (FHLB), the Federal National Mortgage
Association (FNMA), those insured by the Federal Housing
Association {FHA), and other U.S. government agency obligations
with remaining maturities of five years or less. Although there
is no percentage limitation on these issues, the "prudent man
theory" shall apply for a single agency name, as U.S. government
backing is implied rather than guaranteed.
Bills of exchange or time drafts drawn on and accepted by a
commercial bank, otherwise known as banker's acceptances. Invest-
ment in one of the 20 largest (assets) banks in the United States
is authorized. No more than 5% of the market value of the fund
may be invested in banker's acceptances issued by any one bank.
Commercial paper ranked "PI" by Moody's Investor Services and "Al"
by Standard and Poor's, and issued by a domestic corporation
having assets in excess of $500,000,000, and having an "A" or
better rating on its long-term debentures as provided by Moody's
or Standard and Poor's. No more than 3% of the market value of
the fund may be invested in commercial paper issued by any one
corporation.
Repurchase aqreements. The City may invest in repurchase
agreements with banks and dealers with which the City has entered
into a master repurchase contract which specifies terms and
conditions of repurchase agreements, and are fully collateralized
by delivery to an independent third party custodian. In order to
conform with provisions of the Federal Bankruptcy Code which
provides for the liquidation of securities held as collateral for
repurchase agreements, the only securities acceptable as
collateral shall be eligible negotiable certificates of deposit,
eligible banker's acceptances, or securities that are direct
obligations of, or that are fully guaranteed as to principal and
interest by, the United States or any agency of the United States.
Reverse repurchase aqreements. The City may invest in reverse
repurchase agreements only with those banks and dealers with which
the City has entered into a master repurchase contract outlining
terms and conditions of reverse repurchase agreements, and are
fully collateralized by delivery to an independent third party
custodian. The City may invest in reverse repurchase agreements
for the following purpose: when an unanticipated cash outflow
can, in the judgment of the City Treasurer/Administrative Services
Department, be met more advantageously by entering into a reverse
repurchase agreement than by selling securities outright. In such
a case, the reverse repurchase shall not exceed 30 days, and shall
be matched to a known cash inflow of sufficient size to repay the
principal and interest of the reverse repurchase agreement.
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Oe
Local Aqenc¥ Investment Fund Demand Deposits. The City may invest
in the local Agency Investment Fund (LAIF) established by the
State Treasurer for the benefit of local agencies up to the
maximum permitted by State law.
The County of San Dieqo's Investment Pool. The City may invest in
this investment pool established by the San Diego County Treasurer
for the benefit of local public agencies.
Certificates of Deposit. The City may invest in non-negotiable
insured, or collateralized time deposits in accordance with the
California Government Code, in commercial banks, savings and loan
companies and industrial thrift associations. The City shall
deposit funds only with financial institutions which operate in
California. These institutions must be insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Savings and Loan
Insurance Corporation (FSLIC), or other federal government
insurance banking systems.
The City's policy shall be to waive security for the amount
insured. Deposits in excess of the insured amount shall be
secured with eligible securities specified in Government Code
Section 53651. The City shall comply with and act to secure
compliance with the security (collateralization) system specified
in the Government Code Section 53649 and 56652.
Insured passbook savings account demand deposits in commercial
banks and savings and loan companies.
Medium-term notes of a maximum of five years maturity 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. Notes eligible for
investment shall be rated in a rating category of "A" or its
equivalent or better by a nationally recognized rating service.
No more than 20 percent of the fund may be invested in medium-term
notes.
Shares of beneficial interest issued by diversified management
companies, otherwise known as mutual funds and as defined in
Section 23701(m) of the Revenue and Taxation Code. Mutual funds
must consist of securities and obligations of the U.S. government
authorized by Section 53601 of the California Government Code as
amended. Said companies shall either:
1. Attain the highest ranking or the highest letter and
numerical rating provided by not less than two of the three
largest nationally recognized rating services, or
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2. Have an investment adviser registered with the Securities
and Exchange Commission with not less than five years' experience
investing in the securities and obligations as authorized above,
and with assets under management in excess of $500,000,000. The
price of shares of beneficial interest {mutual funds) shall not
include any commission that these companies may charge at the time
of purchase or redemption. No more than 15% of the fund may be
invested in mutual funds.
Obligations of state or municipal governments or their public
agencies, which are rated in the three highest categories of a
national rating service.
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 of a maximum of
five years' maturity.
Other prudent investment instruments, approved prior to purchase
by a two-thirds majority of the governing body.
Ineligible investments. Investments not described herein,
including but not limited to common stocks, are prohibited from
use in this fund.
Effective January 1, 1989, all new investments must have a remaining
life to maturity of no more than five years without specific approval
from the City Council. Investments held at December 31, 1988, with
maturities greater than five years may be held until maturity or until
they are sold.
The City shall attempt to ladder its maturities to meet anticipated cash
needs in such a way that new investment money can be placed in
maturities that carry a higher rate than is available in the extremely
short market of thirty days or under.
IV. QUALIFIED DEALERS AND INSTITUTIONS
The City shall transact business only with banks, savings and loans, and
registered investment securities dealers. The purchase by the City of
any investment, other than those purchased directly from the issuer,
shall be purchased either from an institution licensed by the State as a
broker-dealer, as defined in Section 25004 of the Corporations Code, who
is a member of the National Association of Securities Dealers, or a
member of a federally regulated securities exchange, a national or
state-chartered bank, a federal or state association {as defined by
Section 5102 of the Financial Code}, or a brokerage firm designated as a
primary government dealer by the Federal Reserve Bank. The City
Treasurer's/Administrative Services Department's staffs shall investi-
gate all institutions which wish to do business with the City in order
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to determine if they are adequately capitalized, make markets in
securities appropriate to the City's needs, and agree to abide by the
conditions set forth in the City of Poway's Investment Policy. This
will be done by having the financial institutions complete and return
the appropriate questionnaire.
The City shall attempt to obtain the highest yield available when
selecting investments, provided that criteria for safety and liquidity
are met. This may include the payment of fees to brokers to secure a
higher yield than otherwise would be available. When the City uses such
services, brokers must have offices in the State of California and be
well versed with the California Government Codes of Investment. When
investments are to be made, a minimum of three bids must be obtained
from qualified brokers before an order may be placed.
V. SAFEKEEPING OF SECURITIES
VI.
To protect against potential losses caused by collapse of individual
securities dealers, all securities owned by the City, except securities
used as collateral for repurchase and reverse repurchase agreements,
shall be kept in safekeeping with "perfected interest" by a third party
bank trust department acting as agent for the City under the terms of a
custody agreement executed by the bank and by the City. All securities
will be received and delivered using standard delivery-vs-payment
procedures.
REPORTING
Under provision of Section 53646 of the California Government Code, the
Treasurer or chief fiscal officers shall render a monthly report to the
City Council showing the type of investment institution, date of
maturity, amount of deposit, current market value for all securities
with a maturity of more than twelve months, rate of interest, and such
data as may be required by the City Council. The report shall also
detail all repurchase and reverse repurchase agreements, and shall state
its relationship to this Statement of Investment Policy, as directed
under the Code.
VII. INVESTMENT CONTROLS
The City Treasurer/Administrative Services Department have developed a
system of internal investment controls and a segregation of respon-
sibilities of investment functions in order to assure an adequate system
of internal control over the investment function.
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VIII. SEGREGATION OF RESPONSIBILITIES
FUNCTION
1.0 Investment policy:
1.1 Preparation and annual review
of investment policy.
1.2 Approval of investment policy.
2.0 Investment transactions:
2.1 Calculation of cash position.
RESPONSIBILITY
Director of Admin. Services/
Finance Manager
City Council
2.2 Investment recommendation:
Determination of amount to be invested,
selection of type of investment, and
term of investment.
2.3 Review of investment recommendation
and execution of transaction.
3.0 Recording of transactions:
3.1 In investment subsidiary ledgers.
3.2 In accounting records.
3.3 Match investment confirmation
to subsidiary ledgers.
4.0 Safeguarding of assets and records:
4.1 Reconciliation of subsidiary records to
the accounting records.
4.2 Reconciliation of subsidiary records to
bank statements and safekeeping records.
4.3 Review of financial institutions and
investment brokers' reputation and
financial condition.
4.4 Review of collaterals.
5.0 Investment portfolio:
5.1 Preparation of investment report.
5.2 Review of portfolio for compliance
with stated investment policy.
5.3 Approval of investment report.
Senior Accountant/
Accountant
Senior Accountant/
Finance Manager
Finance Manager/
Director of Admin. Services
Accountant/Account Clerk
Accountant/Account Clerk
Senior Accountant/
Accountant
Senior Accountant
Senior Accountant
Finance Manager
Senior Accountant
Senior Accountant
Finance Manager/
Director of Admin. Services
City Council
IX. INVESTMENT INCOME ALLOCATION
Investment income shall be shared by the General Fund, the Water Fund,
the Sewer Fund, and other funds as budgeted or required by legislation.
This income shall be a proportionate ratio of balances to total pooled
cash and investment income credited accordingly on a monthly basis.
X. CALIFORNIA CODE OF ECONOHIC INTEREST
Additionally, the investment responsibility carries with it the added
duties of ensuring that investments placed are done so without the
appearance of improper influence. The personnel in Administrative
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Services or the Treasurer's Office involved in the investment function
shall adhere to the State's Code of Economic Interest and to the
following:
Ao
All persons authorized to place or approve investments shall not
personally nor through a close relative maintain any accounts,
interest, or private dealings with any firm with which the City
places investments, except for regular savings accounts, checking
accounts, money market accounts, or other similar transactions
which are offered on a non-negotiable basis to the general public.
Such accounts shall be disclosed annually to the City Clerk in
conjunction with annual disclosure statements of economic
interest.
All persons authorized to place or approve investments shall
report quarterly to the City Clerk kinship relations with
principal employees of firms that the City places investments
with.
All persons authorized to place or approve investments shall
report quarterly to the City Clerk any meals, entertainment,,
gifts, or other items of monetary value in excess of $50.00
received from any person employed by a firm with which the City
places investments.
XI. POLICY REVIEW
This Investment Policy shall be reviewed at least annually to ensure its
consistency with the overall objectives of SAFETY OF PRINCIPAL,
LIQUIDITY, and RETURN ON INVESTNENT, and its relevance to current law,
financial and economic trends, and to meet the needs of the City of
Poway.
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