CC SR 20210615 N - FY2021-22 Investment Policy
CITY COUNCIL MEETING DATE: 06/15/2021
AGENDA REPORT AGENDA HEADING: Consent Calendar
AGENDA TITLE:
Consideration and possible action to review and adopt the Fiscal Year 2021-22
Investment Policy.
RECOMMENDED COUNCIL ACTION:
1) Adopt the FY 2021-22 Investment Policy for the City of Rancho Palos Verdes,
Rancho Palos Verdes Successor Agency to the Redevelopment Agency, and
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, City Manager
ATTACHED SUPPORTING DOCUMENTS:
A. FY 2021-22 Investment Policy (page A-1)
BACKGROUND:
The objective of the City’s Investment Policy is to strive to maintain a level of investment
of all idle funds as near 100% as possible through the optimum operation of its cash
management system. The investment criteria in priority order are Safety, Liqui dity, and
Yield. In addition to the policy, the City must follow investment practices in accordance
with principles of sound treasury management and the provisions of Government Code
Section 53600 et seq.(Investment of Surplus).
On an annual basis, state law requires that public agencies adopt an investment policy.
Pursuant to this requirement, Staff reviews the City’s current policy, statutory changes,
and consults with the City’s investment broker for any possible changes that may improve
the City’s investment activities. Any proposed changes are presented to the Finance
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Advisory Committee for review. Subsequently, Staff presents the changes to the Cit y
Council for approval.
DISCUSSION:
Staff has researched and reviewed the statutory changes to the Government Code
Section 53600 et seq. through the Local Agency Investment Guidelines (LAIG) published
by the California Debt and Investment Advisory Commission (CDAIC). At this time, the
changes that were published are not applicable to the City.
Additionally, Staff consulted with the City’s investment broker, and based on the research
and the most current information applicable to the City, there are some changes to
consider. Staff presented the proposed changes to the FAC on May 6, 2021. The changes
are mainly to add government agency bonds as applicable for the City with a maximum
of 50% allocation of the total portfolio. In comparing with U.S. Treasuries, agency bonds
are projected to have a higher liquidity base points, which may improve the performance
of the City’s investment portfolio. Also, these changes are universal investment category
for public investing in California. Moreover, the changes are in accordance with the City’s
investment criteria of Safety, Liquidity, and Yield. Below are the recommended changes
approved by FAC under Investment Instruments, Number 4 and are underlined:
4. Securities backed by the full faith and credit of the United States Government
and which mature in three years or less. The City may invest in the following
government sponsored agency bonds out to three years: Freddie Mac (FHLMC),
Fannie Mae (FNMA), Federal Farm Credit Bank (FFCB), Federal Home Loan Bank
(FHLB), and Farmer Mac (FAMCA). Total Securities are at the maximum of 50%
of the total portfolio.
Staff seeks City Council approval to adopt the City’s revised Investment Policy for FY
2021-22, including the same policy for Rancho Palos Verdes Successor Agency to the
Redevelopment Agency and Rancho Palos Verdes Improvement Authority. The complete
document of the proposed FY 2021-22 Investment Policy is presented in Attachment A.
ADDITIONAL INFORMATION:
As 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.
ALTERNATIVES:
In addition to Staff recommendation, the following alternative action is available for the
City Council’s consideration:
1. Take other action, as deemed appropriate.
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EXHIBIT A
CITY OF RANCHO PALOS VERDES, RANCHO PALOS VERDES SUCCESSOR
AGENCY TO THE REDEVELOPMENT AGENCY AND RANCHO PALOS VERDES
IMPROVEMENT AUTHORITY FY 2021-22 INVESTMENT POLICY
OBJECTIVES
The City of Rancho Palos Verdes, Rancho Palos Verdes Successor Agency to the
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 the City Treasurer
to invest subject to the limitation set forth in the Investment Pol icy. 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:
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 a t 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 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
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Government and which mature in three years or less. The City may invest
in the following government sponsored agency bonds out to three years:
Freddie Mac (FHLMC), Fannie Mae (FNMA), Federal Farm Credit Bank
(FFCB), Federal Home Loan Bank (FHLB), and Farmer Mac (FAMCA).
Total Securities are at the maximum of 50% of the total portfolio.
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.
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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 Inve stment 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
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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.
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 investmen t
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.
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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.
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.
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Signed:__________________________
Treasurer
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