IA SR 20200707 E - FY2020-21 Investment Policy-IA
IMPROVEMENT AUTHORITY MEETING DATE: 07/07/2020
AGENDA REPORT AGENDA HEADING: Consent Calendar
AGENDA TITLE:
Consideration and possible action to review and adopt the Fiscal Year 2020-21
Investment Policy for the City of Rancho Palos Verdes Improvement Authority.
RECOMMENDED COUNCIL ACTION:
1) Adopt the FY 2020-21 Investment Policy for the City of Rancho Palos Verdes
Improvement Authority.
FISCAL IMPACT: None
Amount Budgeted: N/A
Additional Appropriation: N/A
Account Number(s): N/A
ORIGINATED BY: Jane Lin, Accountant
REVIEWED BY: Trang Nguyen, Director of Finance
APPROVED BY: Ara Mihranian, AICP, Chief Administrative Officer
ATTACHED SUPPORTING DOCUMENTS:
A. FY 2020-21 Investment Policy (page A-1)
BACKGROUND AND DISCUSSION:
The City’s idle or surplus funds are invested in accordance with principles of sound
treasury management, provisions of Government Code Section 53600 et seq., and the
City’s Investment Policy. 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. State of California law requires that public agencies adopt an
investment policy annually. The Staff reviewed and researched the statutory changes to
the Government Code Section 53600 et seq. through the California Debt and
Investment Advisory Commission (CDAIC). Based on Staff review, there are currently
no changes at this time to the California law that pertains to the City’s Investment Policy
that would warrant inclusion in the policy for FY 2020-21.
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Additionally, 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 are required to be reported directly to the City Council in the
auditor’s management letter issued upon the completion of its examination.
Since there are no significant changes to the California law that pertains to the City’s
Investment Policy, the policy is the same as what was adopted the prior year. Staff
recommends the Improvement Authority adopt the existing Investment Policy for FY
2020-21 (Attachment A).
ALTERNATIVES:
In addition to Staff recommendation, the following alternative action is available for the
Improvement Authority’s consideration:
1. Discuss and make recommendations on other options, as deemed
appropriate by the Improvement Authority.
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EXHIBIT A
. RANCHO PALOS VERDES IMPROVEMENT AUTHORITY FY 20-21 INVESTMENT
POLICY
OBJECTIVES
The City of Rancho Palos Verdes and Rancho Palos Verdes Improvement Authority
(hereafter referred to as "City") strive to maintain the level of investment of all idle funds
as near 1 00% 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 and Improvement
Authority (hereafter referred to as City Treasurer). The City has delegated the authority
to the City Treasurer to invest 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 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 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 administered by the Treasurer of the
State of California.
3. Certificates of Deposit (COs) placed through Vining-Sparks and Malaga
Bank as well as 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
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
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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
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
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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:
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 toJ each financial institution with
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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:
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.
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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