CC SR 20170718 D - City Investment Policy FY17-18RANCHO PALOS VERDES CITY COUNCIL
AGENDA REPORT
AGENDA DESCRIPTION:
MEETING DATE: 07/18/2017
AGENDA HEADING: Consent Calendar
Consideration and possible action to review and adopt the FY17-18 Investment Policy
for the City of Rancho Palos Verdes.
RECOMMENDED COUNCIL ACTION:
(1) Adopt the FY17-18 Investment Policy for the City of Rancho Palos Verdes.
FISCAL IMPACT: None
Amount Budgeted: N/A
Additional Appropriation: N/A
Account Number(s): N/A
ORIGINATED BY: Allan Kaufman, Senior Administrative Analyst
REVIEWED BY: Deborah Cullen, Director of Finance_
APPROVED BY: Doug Willmore, City ManagerALJ
ATTACHED SUPPORTING DOCUMENTS:
A. Draft FY17-18 Investment Policy (page A-1)
BACKGROUND:
Investment Poli
As criteria for selection of investments, the City's Investment Policy maintains the use of
the following factors (listed in order of priority): safety, liquidity, and yield. Each year, as
a part of the City's annual independent audit, there is a review of the City's Investment
Policy regarding compliance with Policy guidelines. This procedural review will be
performed in conjunction with the internal control testing applied to City policies. Any
discrepancies will be reported directly to the City Council in the auditor's management
letter issued upon the completion of their examination.
State law requires that public agencies adopt an investment policy annually. Staff has
reviewed and researched the statutory changes to the Government Code as show
below, through the California Debt and Investment Advisory Commission (CDAIC), and
consulted with its broker Vining -Sparks IBG. Based on Staff review, no significant
changes to California law pertain to the City's Investment Policy that would warrant
inclusion in the policy for FY17-18.
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Statutory Chanaes to the Government Code
There were two (2) statutory changes made to the Government Code. The first change
was made to Sections 53601.8 and 53635.8 that allows for:
Extending the authority to use a private sector entity to assist placing deposits to
January 1, 2021;
Permitting local agencies to invest up to 30 percent of their surplus funds in
placement service deposits inclusive of certificates of deposit (CDs) and 30
percent in negotiable certificates of deposit;
Enabling a local agency to invest up to 30 percent with the same deposit
placement service provider.
Upon the sunset date of January 1, 2021, a public agency may no longer use a
placement service provider to place deposits; however, the private entity would be able
to assist a local agency with the placement of CDs. Currently, the City does not work
with a private sector service provider to place certificates of deposits (CDs) with
financial institutions. Based on this fact and consulting with the City's investment broker,
Vining -Sparks IBG, Staff believes this statutory change will have no bearing on the
City's Investment Policy in FY17-18.
The second change to the Government Code pertains to Section 53601 to clarify and
amend statutory rating requirements. Specifically, rating requirements now refer to a
rating category which is inclusive of any rating modifiers such as "+"/"—" or numbers and
to include equivalent ratings from Nationally Recognized Statistical Rating
Organizations (NRSRO). Based on the aforementioned research that Staff has
performed under consultation with the City's investment broker, Staff believes this
change will have no bearing on the City's annual investment policy in FY7-18.
Investment Details
Temporarily idle or surplus funds of the City shall be invested in accordance with
principles of sound treasury management and in accordance with provisions of
Government Code Section 53600 et seq., and the City's Investment Policy.
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EXHIBIT A
CITY OF RANCHO PALOS VERDES, RANCHO PALOS VERDES REDEVELOPMENT
AGENCY AND RANCHO PALOS VERDES IMPROVEMENT AUTHORITY FY17-18
INVESTMENT POLICY
OBJECTIVES
The City of Rancho Palos Verdes, Rancho Palos Verdes Redevelopment Agency and
Rancho Palos Verdes Improvement Authority (hereafter referred to as "City") strive to
maintain the level of investment of all idle funds as near 100% as possible through the
optimum operation of its cash management system. The City has determined that its
investment criteria, listed in order of priority, are safety, liquidity and yield.
DELEGATION OF AUTHORITY
The City has designated the Finance Director as Treasurer of the City, the Successor
Agency to the former Redevelopment Agency and Improvement Authority (hereafter
referred to as City Treasurer). The City has delegated the authority to invest to the City
Treasurer, subject to the limitation set forth in the Investment Policy. The City Treasurer
shall be trustee and fiduciary on behalf of the City. If the City Treasurer is unavailable, the
City has delegated authority to the City Manager, also designated as the Executive Director
of the Successor Agency to the former Redevelopment Agency and Chief Administrative
Officer of the Improvement Authority, to conduct transactions in connection with the
investment of the City's funds.
INVESTMENT INSTRUMENTS
The City can invest in the following investment instruments as approved by the California
Government Code:
Demand deposits and money market savings accounts totaling a book
balance up to five million dollars ($5,000,000) with Bank of the West or any
other financial institution approved by the City Council; provided, however,
that not more than 15% of the City's funds are on deposit at said bank.
Demand deposits and money market savings accounts may exceed five
million dollars ($5,000,000) or 15% of the City's funds for no more than thirty
(30) days if the accounts are to hold monies being transitioned between
investment instruments listed in the Investment Policy.
2. The Local Agency Investment Fund (LAIF) administered by the Treasurer of
the State of California.
3. Certificates of Deposit (CDs) placed through Vining -Sparks and Certificate of
Deposit Account Registration System ("CDARs") through Malaga Bank. Both
entities are insured by the Federal Deposit Insurance Corporation as
authorized by Government Code Section 53601.8 through 53635.8 (enacted
by AB 2011 in September 2006).
4. Securities backed by the full faith and credit of the United States
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Government and which mature in three years or less.
5. Money Market Savings Accounts and demand deposits with institutions other
than those specified in paragraph 1 above, provided that no deposit made
pursuant to this paragraph in any one institution shall exceed the amount
insured by the Federal Deposit Insurance Corporation.
6. Shares of "money market funds", which are sold without any sales
commission or sales charge of any kind (true no load funds), which limit
investment to securities issued by (or guaranteed as to both principal and
interest by) the United States, which are issued in the City's name and are
rated in the highest ranking or numerical rating by at least one of the
nationally recognized statistical rating organizations (not to exceed 15% of
the total portfolio).
The listed investments are the only authorized investments for the City.
POLICY CRITERIA FOR SELECTING INVESTMENTS (IN ORDER OF PRIORITY)
SAFETY:
Safety, and the minimizing of risk associated with investing, refers to attempts to reduce
the potential for loss of principal, interest, or a combination of the two. The first level of risk
control is reduction of default risk by investing in instruments that appear to be the most
credit worthy. The second level of risk control is reduction of market risk by investing in
instruments that have relatively short maturities, thereby eliminating risk of loss from a
forced sale. The City only invests in those instruments that are considered very safe.
LIQUIDITY:
Liquidity refers to the ability to easily sell at any time with minimal risk of losing some
portion of principal or interest. Liquidity is an important quality for an investment to have, for
at any time the City may have unexpected or unusual circumstances that result in larger
disbursements than expected, and some investments may need to be sold to meet the
contingency. Most investments of the City are highly liquid, with the exception of insured
Time Certificates of Deposit issued by banks and savings and loan associations whose
maturities are selected in anticipation of disbursement needs, thereby obviating the need
for forced liquidation or lost interest penalties.
YIELD:
Yield is the potential dollar earnings an investment can provide, and also is sometimes
described as the rate of return. The City attempts to obtain the highest yield possible when
selecting an investment, provided that the criteria stated herein for safety and liquidity are
met.
POLICY CONSTRAINTS AND GUIDELINES
The City of Rancho Palos Verdes operates its investment program according to the
prudent investor standard with many additional, self-imposed constraints. The Treasurer
shall act with the care, skill, prudence and diligence to safeguard principal and maintain
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liquidity. The Treasurer shall: (1) not speculate; (2) not buy corporate debt securities; (3)
not deal in futures or options; (4) not purchase on margin or through reverse repurchase
agreements; (5) not buy long term securities; and (6) not acquire any investment expressly
prohibited by State statute.
REPORTS PROVIDED BY THE TREASURER
The Treasurer shall annually render a Statement of Investment Policy to the City Council
for their approval, and this policy shall be in compliance with all applicable State statutes.
The Treasurer shall render a monthly report of cash balances to the City Manager and City
Council showing the type of investment, date of purchase, custodian (if applicable),
institution, date of maturity, amount of deposit or purchase price, current market value for
all securities, and rate of interest. The report shall also include a description of any of the
City's funds, investments, or programs that are under the management of contracted
parties.
The monthly Report of Cash Balances shall state its relationship to the Investment Policy
by indicating each and every instance that there is a divergence from, or violation of, policy
or stating that the monthly report is in compliance with the Investment Policy.
INVESTMENT AUDITS AND INVESTMENT POLICY EVALUATION
As a part of the City's annual independent audit, there shall be a review of the City's
Investment Policy regarding compliance with the Policy guidelines. These review
procedures will be performed in conjunction with the internal control testing applied to City
policies. Any discrepancies will be reported directly to the City Council in the auditor's
management letter issued upon the completion of their examination.
INVESTMENT GUIDELINES
Cash Availability Guidelines:
A cash flow analysis shall be developed as necessary which will serve as a basis for
determining the cash available for investment and maturity dates needed to cover
future disbursements.
2. Revenue receipts are consolidated into one bank account and invested on a pooled
concept basis. Interest earnings are allocated according to fund cash and
investment balances.
3. Active bank balances are kept as low as possible without jeopardizing good banking
relationships by maintaining investment of available cash as near to 100% as
possible.
4. Sufficient funds are maintained in very liquid investments to meet most unexpected
contingencies.
Investing Guidelines:
Only investments authorized by the Investment Policy are utilized.
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2. A copy of the Investment Policy should be given to each financial institution with
which the City does business, and the City will request an acknowledgement not
less than annually that such financial institution has received and reviewed the
Policy.
3. Before an unfamiliar security is purchased, the issuer and the instrument are
researched and investigated and all contractual agreements and administrative
procedures are completed before any transactions are consummated.
4. The City does not permit the purchase of securities on margin or via reverse
repurchase agreements (using the security to be purchased as collateral).
5. Every investment transaction is documented and the procedure for monitoring is
clearly defined.
6. Investment strategies are reviewed by the City Treasurer for possible need to
change at least annually. They are reviewed more frequently as changes in
economic conditions dictate.
Guidelines for certain Types of Investments:
California State Local Agency Investment Fund
A resolution is on file with the State Treasurer that permits maintaining an account
in LAIF.
Custody
Custody of investments in securities backed by the full faith and credit of the United
States Government shall be placed, pursuant to a written custody agreement, with
Bank of the West or any other financial institution approved by the City Council.
INTERNAL CONTROL OBJECTIVES FOR INVESTMENTS
Internal control for investments is the procedure established by management of the City to
assist in ensuring as far as practicable:
1. An orderly and efficient conduct of investing, including adherence to investment
policies.
2. The safeguarding of assets.
3. The accuracy and completeness of the accounting records for investments.
4. The timely preparation of reliable financial information.
5. The prevention of errors.
6. The detection of fraud.
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Elements of Internal Control of Investments:
Adherence to the use of sufficient elements of a system of internal control is the method by
which the City can satisfy the objective of internal control. A list of sample elements follows:
Responsibility
Specific responsibility for the performance of duties should be assigned and lines of
authority and reporting clearly identified and understood.
2. Segregation
Segregation of functions reduces the risk that a person is in a position to conceal
errors. If two different people process the components of a transaction, collusion is
necessary to conceal errors or fraud. In particular, the functions that should be
considered when evaluating segregation of functions are authorization, execution,
recording, and performing reconciliations.
3. Authorization
Only the appropriate responsible individual shall authorize all transactions. The
responsibilities and limits of authorization should be clearly delineated. Delegation
of authority to authorize transactions should be handled very carefully.
4. Transfers of Investment Funds
The transferring of investment funds will be carried out exclusively by use of the
Federal Reserve Bank's electronic wire transfer system. Each Banker or Dealer with
which the City does business shall receive in writing from the City Treasurer a listing
that limits transfers of funds to pre -authorized bank accounts only.
The listing will also contain the names of City staff authorized to request such
transfers and will be updated in writing for all changes of authorized staff and bank
accounts as necessary.
Transfers from one account of the City to another shall require the request of only
one authorized staff member. Transfers from the City's account to third parties shall
require the request of two authorized members.
5. Recording
The recording system should provide that the recording procedures, both manual
and computerized, be carried out independently of the individual doing the
investment execution to help assure that recorded transactions are complete, valid,
authorized, and properly recorded.
Signed:
Treasurer
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