RPVCCA_SR_2011_07_05_D_FY11-12_City_Investment_PolicyMEMORANDUM
TO:HONORABLE MAYOR &MEMBERS OF THE CITY COUNCIL
FROM:DENNIS McLEAN,CITY TREASURER (oD bU1 DV\JlC
DATE:JULY 5,2011
SUBJECT:CITY INVESTMENT POLICY -FY11·12
REVIEWED BY:CAROLYN LEHR,CITY MANAGER c6l-
Staff Coordinator:Kathryn Downs,Deputy Director of Finance &Information Technology
RECOMMENDATION:
Adopt and file the FY11-12 Investment Policy for the City of Rancho Palos Verdes.
BACKGROUND:
Investment Policy
State law requires that public agencies adopt an investment policy annually.No significant
changes to California law have occurred during FY1 0-11 that would require modification to
the City's investment policy.
As criteria for selection of investments,the policy maintains the use of the following factors
(listed in order of priority):safety,liquidity,and yield.The policy continues to require the
City Treasurer to submit a monthly report to the City Manager and City Council detailing the
City's investment activity and policy compliance.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.
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.The City's Financial Advisor has
designed an investment strategy in compliance with the City's Investment Policy that is
based on conservatism and considers the City's limited resources for managing an
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CITY INVESTMENT POLICY -FY11·12
July 5,2011
Page 2 of 10
investment portfolio.Staff meets quarterly with the City's Financial Advisor to receive
current market information and to review the City's investment portfolio.
A summary of the City's (inclusive of Redevelopment Agency and Improvement Authority)
invested funds as of May 31,2011 is detailed below:
Security Security Type Financial Institution Amount Current YieldCategoryInvested
Liquid Demand Deposit Bank of America $1,561,814
Pooled Investment Local Agency Investment
Liquid Fund (LAIF)$36,410,499 0.41%
Liquid Money Market Bank of Amercia $4,666,178 0.49%
Total $42,638,491
Attachments:
Exhibit A -Draft FY11-12 Investment Policy
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EXHIBIT A
CITY OF RANCHO PALOS VERDES,RANCHO PALOS VERDES REDEVELOPMENT
AGENCY AND RANCHO PALOS VERDES IMPROVEMENT AUTHORITY FY11-12
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 Director of Finance and Information Technology as Treasurer
of the City,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
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:
1.Demand deposits and money market savings accounts totaling a book
balance up to five million dollars ($5,000,000)with the Bank of America 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 administered by the Treasurer of the
State of California.
3.Certificates of Deposit,which are insured by the Federal Deposit Insurance
Corporation,including certificates of deposit placed through the Certificate of
Deposit Account Registration System ("CDARs")as authorized by
Government Code Section 53601.8 through 53635.8 (enacted as AB 2011 in
September 2006).
4.Securities backed by the full faith and credit of the United States
Government and which mature in three years or less.
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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 anyone 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).
7.Repurchase agreements with Bank of America,or any other financial
institution approved by the City Council,which meet the following standards:
A.The securities subject to the repurchase agreement shall be issued by
the United States Government or be backed by its full faith and credit.
B.The term of the repurchase agreement shall be 7 days or less.
C.The aggregate total of the funds deployed in the repurchase
agreements shall not exceed 15%of the City's portfolio.
D.The securities,which are the subject of the repurchase agreement,
shall be held in the trust department of the bank entering into the
repurchase agreement pursuant to a written agreement providing for
the segregation from assets of the bank.
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
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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
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,qrviolation of,policy
or stating that the monthly report is in compliance with the Investment Policy.
The monthly investment report shall include a statement of the City's ability to meet its
expenditure requirements for the next six months.
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.
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INVESTMENT GUIDELINES
Cash Availability Guidelines:
1. 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:
1.Only investments authorized by the Investment Policy are utilized.
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.
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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 America 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 ofthe 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.
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:
1.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.
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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 Dealerwith
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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