Res 02-012RESOLUTION NO. 02-012
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF POWAY, CALIFORNIA,
AMENDING INVESTMENT POLICY FOR PUBLIC FUNDS
AND RESCINDING RESOLUTION NO. 01-035
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BE IT FURTHER RESOLVED, that Resolution No. 01-035 is hereby rescinded.
PASSED, ADOPTED AND APPROVED by the City Council of the City of Poway,
California, at a regular meeting this 29th day of January 2002.
ATTEST:
STATE OF CALIFORNIA )
COUNTY OF SAN DIEGO )
I, Lori Anne Peoples, City Clerk of the City of Poway, do hereby certify under
penalty of perjury that the foregoing Resolution No. 02- 012 was duly adopted by the
City Council at a meeting of said City Council held on the 29th day of January 2002,
and that it was so adopted by the following vote:
AYES: EMERY, GOLDBY, HIGGINSON, REXFORD, CAFAGNA
NOES: NONE
ABSTAIN: NONE
ABSENT: NONE
Exhibit A
Resolution No. 02-012
Page 2
CITY OF POWAY
STATEMENT OF INVESTMENT POLICY
January2002
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 stdving 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 criteda
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 goveming 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.
3. To ensure that money is always available when needed.
To generate the maximum amount of investment income within the parameters
of this Statement of Investment Policy and the guidelines for suitable
investments.
City of Poway
Statement of Investment Policy
Resolution No. 02- 012
Page 3
I. SCOPE
In accordance with City of Poway Resolution No. 02- , the City Treasured
Administrative Services Department are authorized to invest the City's funds in
accordance with the California Government Code Sections 53601 and 53602. This
investment policy applies to all financial assets and investment activities of the City
of Poway (debt issues are invested by trustees appointed under the indenture,
pursuant to the terms of the indenture, with direction from the City
Treasurer/Administrative Services Department). The employees' retirement and
deferred compensation funds are not covered by this Policy.
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's Fund will be invested by an investment manager. The investment of the
Fund will be overseen by a City Investment Oversight Committee comprised of the
Director of Administrative Services, the Deputy Director of Administrative Services,
the Finance Manager, and the Senior Accountant.
The investment manager will observe, review and react to changing conditions that
affect the fund. The investment manager will keep the Investment Oversight
Committee apprised of the changing investment environment and any potential
restructuring of the portfolio which could result.
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.
Credit Risk. Credit risk, defined as the risk of loss due to failure of an
issuer of a security, shall be mitig3ted by investing in only very safe
institutions and by diversifying tl.e f~J~cd so that the failure of any one issuer
would not unduly harm the City's cash flow.
City of Poway
Statement of Investment Policy
Resolution No. 02-. 0].2
Page 4
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, a periodic cash flow analysis of the
City's sources and uses of funds will be conducted. The investment portfolio
will be structured so that it complements the City's cash flow requirements. A
prudent reserve of highly liquid, short-term assets matudng in six months or
less will be established to ensure that unforeseen cash requirements of the City
can be met.
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 retum is defined as the
average return on one-year U.S. Treasury Bills. Whenever possible, and
consistent with risk limitations as defined herein and prudent investment
principles, the City shall seek to augment retums above the market-average
rate of return.
The performance of the portfolio will be reviewed monthly versus the one-year
U.S. Treasury Bill Index. Periodically, the investment manager and the
Investment Oversight Committee will review the appropriateness of the
reference index and change it as necessary.
III.
AUTHORIZED INVESTMENTS
The City of Poway has a fiduciary responsibility to maximize the productive 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:
City of Poway
Statement of Investment Policy
Resolution No. 02- 012
Page 5
"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 prevailing, 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 govemed by the California Govemment Code, Sections
53601 and 53602. Within the context of these limitations, 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.
Obligations issued by the Govemment National Mortgage Association (GNMA),
the Federal Fa,, 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. govemment
agency obligations with remaining maturities of five years or less. Despite the
implied government guarantee, "Agencies" that are not direct obligations of the
U.S. government will be limited to 75% of the portfolio in aggregate and no
more than 25% of the portfolio may be in any one Agency.
City of Poway
Statement of Investment Policy
Resolution No. 02- 01z
Page 6
Bills of exchange or time drafts drawn on and accepted by a commemial bank,
otherwise known as banker's acceptances with a maximum matudty of 180
days. No more than 5% of the market value of the fund may be invested in
banker's acceptances issued by any one bank. No more than 40% of the
portfolio may be in banker's acceptances. Issuing banks must be rated "PI" by
Moody's Investor Services (Moody's) and "Al" by Standard and Poor's Rating
Services (S&P).
Commercial paper with a maximum maturity of 270 days, rated "PI" by Moody's
and "Al" by $&P, 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 S&P. No more than 3% of the market
value of the fund may be invested in commercial paper issued by any one
corporation. Investment in one issuer's commercial paper may not exceed 10%
of that issuer's outstanding commercial paper. Total investments in commercial
paper may not exceed 25% of the portfolio.
Negotiable Certificates of Deposits (CDs) of "Al" and "P1" rated commercial
banks with maturities of five years or less. Eligible banks must also have no
long-term ratings below "A" or equivalent. No more than 5% of the fund may be
invested in CDs of one issuer. No more than 30% of the portfolio may be
invested in CDs. Except, the City may not invest in a 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.
Repurchase agreements. The City may enter into 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 for
the City's account or to the City's 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, only those marketable securities
eligible for investment by the City are permitted as collateral. Treasuries,
Agencies, and eligible money market instruments will collateralize at 102%.
Corporates and other eligible collateral will be collateralized at 105%.
Repurchase agreements will be conducted with only primary dealers.
Repurchase agreements shall not exceed 90 days.
City of Poway
Statement of Investment Policy
Resolution No. 02- 012
Page 7
Reverse repurchase a,qreements The City may enter into reverse repurchase
agreements only with those pdmary dealers with which the City has entered
into a master repurchase contract outlining te,,s and conditions of reverse
repurchase agreements. The City may enter into 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.
Reverse repurchase agreements will be limited to 20% of the unlevereged
portfolio. Only securities that have been owned and paid for by the City for 30
days are eligible to be used for collateral. Collateralization must be maintained
at 102%.
No reverse repurchase agreements will be entered into by the investment
advisor without the prior written permission of the City.
Local ARency Investment Fund Demand Deposits The City may invest in the
Local Agency Investment Fund (LAIF) established by the State Treasurer for
the benef~ of local agencies up to the maximum permitted by State law.
The County of San Die,qo'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 (CDs which
cannot be sold in the secondary market) insured, or collateralized time deposits
in accordance with the Califomia Government Code, in commercial banks,
savings and loan companies and industrial thdft 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 secudty 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 secudty (collateralization) system specified in the
Government Code Section 53649 and 56652.
City of Poway
Statement of Investment Policy
Resolution No. 02-012
Page 8
K. Insured passbook savings account demand deposits in commemial banks and
savings and loan companies.
Medium-term notes and other corporate notes with a maximum maturity of five
years 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 30% of the fund may be invested in medium-term
notes or other corporates. No more than 5% of the portfolio may be invested in
the obligations of one issuer.
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:
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
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 pumhase or redemption. No more
than 20% of the fund may be invested in mutual funds. The limit for one
mutual fund is 10% of the fund.
3. Mutual Fund investments will be limited to Money Market Mutual Funds
with a par value of $1.00.
N. 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 with a maximum expected matudty of five years. These securities must
be rated "AAA" or equivalent. Total investment in this category may not exceed
20% of the fund.
City of Poway
Statement of Investment Policy
Resolution No. 02-012
Page 9
P. Other prudent investment instruments, approved prior to purchase by a two-
thirds majority of the governing body.
Ineli.qible investments Investments not described herein, including but not
limited to common stocks, are prohibited from use in this fund. Derivatives
such as inverse floaters, mismatched floaters, yield curve notes and other
securities that magnify interest rate dsk are expressly prohibited~
In determining the amount of investment for compliance purposes, the book
value of the secudty will be used. For instance, if the City purchases $1 million
of a medium-term note at a pdce of 103% (1.03), the investment for compliance
purposes will be $1,030,000 since this is the City's actual exposure to the
issuer.
Compliance will be measured at the time of purchase. If the value of the
portfolio subsequently declines, securities that are over the issuer limit need not
be sold.
Pdvate placements are not acceptable investments. Commercial paper of six
months or less matudty issued under the 4(2) exemption is acceptable as long
as it is an acceptable investment for Money Market Mutual Funds.
Corporates, including medium-te-, notes, rated single A may not be purchased
if they are currently on the downgrade list at either Moody's or S&P.
Commercial Paper of issuers with Iong-te,, ratings of single A may not be
purchased if the issuer is currently on the downgrade list of either S&P or
Moody's.
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 matudty or until they are sold.
IV. INVESTMENT MANAGEMENT AND REPORTINC-
The City has employed an investment advisor to manage its portfolio. The
investment advisor will be bound by this policy and the various state and local laws
and regulations that govern the investment activity of 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. Besides the other parts of this
policy, the investment advisor will be bound by the following:
City of Poway
Statement of Investment Policy
Resolution No. 02-012
Page 10
While it is understood that occasionally it may be in the best interest of the City
to take losses in its secudty 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 secudty and forward it to the City.
The investment advisor will prepare monthly reports for the City on its
investment portfolio. The reports will include all information required bythe City
and applicable state and local laws and regulations. The investment advisor
may be requested by the City to prepare periodically such special reports as
may reasonably be required of the investment advisor.
It is expected that the investment advisor will make at least a quarterly visit to
the City to discuss the investment perfo,uance of the City's portfolio. The City
expects the investment advisor to make such additional trips as necessary to
develop investment strategy, discuss investment performance, or to review
investment policy. These additional trips will be scheduled at the convenience
of the City and the investment advisor.
At least annually, the investment advisor will review the City's investment policy
and make recommendations to the City on changes in the policy necessary to
bring it into compliance with state and local laws and regulations and to
generally update the policy for the changing investment environment. All
changes are subject to City approval.
The investment advisor will, as necessary, revise the list of approved
broker/dealers. All changes are subject to City approval.
Vo
QUALIFIED DEALERS AND INSTITUTIONR
The City shall transact business only with banks, savings and loans, and registered
investment securities dealers. The pumhase 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
City of Poway
Statement of Investment Policy
Resolution No. 02-012
Page 11
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 pdmary government dealer
by the Federal Reserve Bank. A list of approved broker/dealers is attached. All
trades must be done with approved broker/dealers.
VI. SAFEKEEPING OF SECURITIES
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.
VII. REPORTING
Under provision of Section 53646 of the Califomia Govemment Code, the Treasurer
or chief fiscal officers shall render a monthly report to the City Council showing the
type of investment; the institution, date of maturity, amount of deposit, current
market value for all securities, rate of interest, and such data as may be required by
the City Council, state of California, or the federal government. 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.
The report shall be submitted to the City Council within 30 days following the month
being reported. The investment manager will submit its report to the Investment
Oversight Committee no later than 15 days after the end of the month being
reported.
VIII. INVESTMENT CONTROLS
The City Treasurer/Administrative Services Department have developed a system of
internal investment controls and a segregation of responsibilities of investment
functions in order to assure an adequate system of internal control over the
investment function.
City of Poway
Statement of Investment Policy
Resolution No. 02-012
Page 12
IX. SEGREGATION OF RESPONSIBILITIER
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.
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,
RESPONSIBILITY
Director of Admin. Services/
Oversight Committee
City Council
Sr. Accountant/Finance Mgr.
Investment Manager/
Finance Manager
Wdtten approval by 2 members
of Oversight Committee
Accountant/Account Technician
Accountant/Account Technician
Sr. Accountant/Accountant
Senior Accountant
Senior Accountant
Investment Mgr./Oversight Comm.
Investment Mgr./Oversight Comm.
Senior Accountant
Oversight Committee
City Council
City of Poway
Statement of Investment Policy
Resolution No. 02- 012
Page 13
X. 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.
Xl. CALIFORNIA CODE OF ECONOMIC INTEREST .
Additionally, the investment responsibility carries with it the added duties of ensudng
that investments placed are done so without the appearance of improper influence.
The personnel in Administrative 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:
All persons authorized to place or approve investments shall not personally nor
through a close relative maintain any accounts, interest, or pdvate 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 with which the
City places investments.
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 fi.. with which
the City places investments.
XlI. 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 INVESTMENT, and its relevance to current law, financial and economic trends,
and to meet the needs of the City of Poway.
c:\data~agenda\investpolres1-29-02.doc
City of Poway
Statement of Investment Policy
Resolution No. 02- 012
Page 14
APPROVED BROKER/DEALERS
Janua~ 29,2002
The following Broker/Dealers are approved for execution of trades, repurchase agreements
and reverse repurchase agreements. Repurchase and reverse repurchase agreements
require a signed PSA Agreement prior to execution. Reverse repurchase agreements may
not be executed without the prior written approval of the City.
Broker/Dealers
ABN AMRO Securities
Bear Steams
Banc America Securities
Banc One Capital Markets
Barclays Capital
Bonds Direct Securities
C.S. First Boston
Dain Rauscher, Inc.
Deutsche Bank Securities
First Empire Securities, Inc.
First Tennessee Bank
First Union Capital Markets
Goldman Sachs
Greenwich Capital Markets
HSBC Securities
J.P. Morgan Chase Securities
LPL Financial Services
Lehman Brothers
Merrill Lynch
Morgan Stanley Dean Witter
National Bank of Commerce
Nomura Securities
Prudential Securities
Raymond James & Associates
Robert W. Baird & Company
Salomon Smith Barney
SBC Warburg Dillon Read
Sutro & Company
U.S. Bancorp Piper Jaffrey
UBS PaineWebber