HomeMy WebLinkAboutItem 2c: Redevelopment Agency Statement of Investment Policy for FY 2011-2012 .r r
STAFF REPORT
Arcadia Redevelopment Agency
DATE: June 7, 2011
TO: Chairperson and Agency Board
FROM: Hue C. Quach, Administrative Services Director
Shannon Huang, Financial Services Manager /City T easurer'5 --
SUBJECT: ARCADIA REDEVELOPMENT AGENCY STATEMENT OF
INVESTMENT POLICY FOR FISCAL YEAR 2011 -2012
Recommendation: Adopt
SUMMARY
In keeping with the recommendation of its independent auditors, the Arcadia
Redevelopment Agency traditionally adopts its Statement of Investment Policy every
year as part of the budget approal process. This year, staff is recommending that the
policy be adopted without any revisions.
DISCUSSION
In 2007, staff worked with CutWater Asset Management (formerly MBIA), who manages
a large portion of the City's investment portfolio since April 2006, to revise the Agency's
investment policy entirely. The following changes were included in that revision:
• Clarified that the policy applies to all City funds, including the Arcadia
Redevelopment Agency.
• Expanded the criteria for selecting investments from safety, liquidity, and yield
to include diversification and compliance with City, State, and Federal laws and
regulations.
• Authorized the engagement of outside investment advisors.
• Set forth ethical standards for employees who handle City investments.
• Expanded authorized investments to include medium term notes and money
market funds.
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• Expanded competitive bid requirements and safekeeping bank qualifications.
• Set forth the standards against which the performance of the City's investment
portfolio is to be measured.
For fiscal year 2009 -10, the inclusion of Municipal obligations and the FDIC guaranteed
corporate bonds as authorized investments was approved by Agency Board. The
additions allow staff to take advantage of the taxable municipal bonds that have been
earning higher interests due to the financial market condition and the temporary
guarantee program established by FDIC in response to the financial crisis in 2008.
Additionally, the Agency Board adopted an investment policy in 2010 -11 fiscal year to
allow the purchase of certificates of deposits from banks outside the City boundaries
through the Certificate of Deposit Account Registry Services (CDARS), and to extend
the maximum term of maturity for investments in the City of Arcadia's and the Arcadia
Redevelopment Agency's municipal bonds from five to ten years.
After a thorough review of the existing statement of investment policy, staff believes that
no additional revisions are required at this time.
FISCAL IMPACT
There is no fiscal impact to this action.
RECOMMENDATION
It is recommended the Agency Board:
Adopt the recommended Statement of Investment Policy.
Approved by:
Don Penman, Executive Director
City of Arcadia
Statement of Investment Policy
Fiscal Year 2011 -2012
The City of Arcadia (the "City "), incorporated in1903 is located approximately 20 miles
northeast of downtown Los Angeles in the San Gabriel Valley, at the base of the San
Gabriel Mountains. It is the site of the Santa Anita Park racetrack and home to the Los
Angeles County Arboretum and Botanic Garden. The City is a charter city and operates
under a council /manager form of government (Charter Section 300). The City is governed
by a city council (the "Council ") of five members elected at -large (Charter Section 400),
whom selects the City Manager (Charter Section 600). The Arcadia Redevelopment
Agency is a component unit of the City, which was established in 1968 and governed by the
same Council and City Manager. Hereinafter the City and Agency are collectively
referenced as the "the City ".
The Council has adopted this Investment Policy in order to establish the investment scope,
objectives, delegation of authority, standards of prudence, reporting requirements, internal
controls, eligible investments and transactions, diversification requirements, risk tolerance,
and safekeeping and custodial procedures for the investment of the funds of the City. All
City funds will be invested in accordance with this Investment Policy and with applicable
sections of the California Government Code.
This Investment Policy was endorsed and adopted by the City Council of the City of Arcadia
on June 15, 2010. It replaces any previous investment policy or investment procedures of
the City, unless otherwise directed by the City Council.
SCOPE
The provisions of this Investment Policy shall apply to all financial assets of the City as
accounted for in the City's Comprehensive Annual Financial Report.
All cash shall be pooled for investment purposes. The investment income derived from the
pooled investment account shall be allocated to the contributing funds based upon the
proportion of the respective balances relative to the total pooled balance in the investment
portfolio. Investment income shall be distributed to the individual funds on a monthly basis.
OBJECTIVES
The principal investment objectives of the City are:
1. Preservation of capital and protection of investment principal.
2. Maintenance of sufficient liquidity to meet anticipated cash flows.
3. Attainment of a market rate of return.
4. Diversification to avoid incurring unreasonable market risks.
5. Compliance with the City's Municipal Code and with all applicable City resolutions,
California statutes and Federal regulations.
City of Arcadia Investment Policy 1 FY2011 -12
DELEGATION OF AUTHORITY
The management responsibility for the City's investment program is delegated annually by
the City Council to the City Treasurer pursuant to California Government Code Section
53607. The City's Financial Services Manager serves as the City Treasurer, who is
appointed and supervised by the Administrative Services Director. The Administrative
Services Director is delegated by the City Manager to oversee the City's investment and
finance operation and has ultimate responsibility of the investment operation. The
Administrative Services Director and City Treasurer may delegate the authority to conduct
investment transactions and to manage the operation of the investment portfolio to other
specifically authorized staff members. No person may engage in an investment transaction
except as expressly provided under the terms of this Investment Policy.
The City Treasurer shall maintain a system of internal controls, consistent with this
Investment Policy, for the operation of the City's investment program. Such system shall be
designed to prevent losses of public funds arising from fraud, employee error,
misrepresentation by third parties, or imprudent actions by employees of the City.
The City may engage the support services of outside investment advisors in regard to its
investment program, so long as it can be clearly demonstrated that these services produce
a net financial advantage or necessary financial protection of the City's financial resources.
PRUDENCE
The standard of prudence to be used for managing the City's investments shall be
California Government Code Section 53600.3, the prudent investor standard which states,
"When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing
public funds, a trustee shall act with care, skill, prudence, and diligence under the
circumstances then prevailing, including, but not limited to, the general economic conditions
and the anticipated needs of the agency, that a prudent person acting in a like capacity and
familiarity with those matters would use in the conduct of funds of a like character and with
like aims, to safeguard the principal and maintain the liquidity needs of the agency."
The City's overall investment program shall be designed and managed with a degree of
professionalism that is worthy of the public trust. The City recognizes that no investment is
totally riskless and that the investment activities of the City are a matter of public record.
Accordingly, the City recognizes that occasional measured losses may be desirable in a
diversified portfolio and shall be considered within the context of the overall portfolio's
return, provided that adequate diversification has been implemented and that the sale of a
security is in the best long -term interest of the City.
The City Treasurer and authorized investment personnel acting in accordance with written
procedures and exercising due diligence shall be relieved of personal responsibility for an
individual security's credit risk or market price changes.
City of Arcadia Investment Policy 2 FY2011 -12
ETHICS AND CONFLICTS OF INTEREST
Elected officials and employees involved in the investment process shall refrain from
personal business activity that could conflict with proper execution of the City's investment
program or could impair or create the appearance of an impairment of their ability to make
impartial investment decisions. Also, elected officials and employees involved in the
investment process shall not participate in any decision on behalf of the City in which they
have a financial interest as set forth in the Political Reform Act of the State of California and
related regulations. The City Manager, the Administrative Services Director, City Treasurer
and any other staff authorized to engage in investment operation shall file a Statement of
Economic Interests each year pursuant to California Government Code Section 87203 and
regulations of the Fair Political Practices Commission.
AUTHORIZED SECURITIES AND TRANSACTIONS
All investments and deposits of the City shall be made in accordance with California
Government Code Sections 16429.1, 53600 -53609 and 53630- 53686, except that, pursuant
to California Government Code Section 5903(e), proceeds of bonds and any moneys set
aside or pledged to secure payment of the bonds may be invested in securities or
obligations described in the ordinance, resolution, indenture, agreement, or other instrument
providing for the issuance of the bonds. Any revisions or extensions of these code sections
will be assumed to be part of this Investment Policy immediately upon being enacted.
The City has further restricted the eligible types of securities and transactions as follows:
1. United States Treasury bills, notes or bonds with a final maturity not exceeding five
years from the date of trade settlement.
2. Federal Instrumentality (government sponsored enterprise) debentures, discount notes,
callable and step -up securities, with a final maturity not exceeding five years from the
date of trade settlement, issued by the following only: Federal Home Loan Banks
(FHLB), Federal National Mortgage Association (FNMA), Federal Farm Credit Banks
(FFCB) and Federal Home Loan Mortgage Corporation (FHLMC).
3. Repurchase Agreements with a final termination date not exceeding 30 days
collateralized by U.S. Treasury obligations or Federal Instrumentality securities listed in
items 1 and 2 above with the maturity of the collateral not exceeding five years. For the
purpose of this section, the term collateral shall mean purchased securities under the
terms of the City's approved Master Repurchase Agreement. The purchased securities
shall have a minimum market value including accrued interest of 102% of the dollar
value of the funds borrowed. Collateral shall be held in the City's custodian bank, as
safekeeping agent, and the market value of the collateral securities shall be marked -to-
the- market daily.
Repurchase Agreements shall be entered into only with broker /dealers and who are
recognized as Primary Dealers with the Federal Reserve Bank of New York, or with
firms that have a Primary Dealer within their holding company structure. Primary
Dealers approved as Repurchase Agreement counterparties shall have a short-term
credit rating of at least A -1 or the equivalent and a long -term credit rating of at least A or
City of Arcadia Investment Policy 3 FY2011 -12
the equivalent. Repurchase agreement counterparties shall execute a City approved
Master Repurchase Agreement with the City. The City Treasurer shall maintain a copy
of the City's approved Master Repurchase Agreement and a list of the broker /dealers
who have executed same.
4. Prime Commercial Paper with a maturity not exceeding 270 days from the date of trade
settlement with the highest ranking or of the highest letter and number rating as
provided for by a Nationally Recognized Statistical Rating Organization (NRSRO). The
entity that issues the commercial paper shall meet all of the following conditions in
either sub - paragraph A. or sub - paragraph B. below:
A. The entity shall (1) be organized and operating in the United States as a
general corporation, (2) have total assets in excess of five hundred million
dollars ($500,000,000) and (3) Have debt other than commercial paper, if
any, that is rated "A" or higher by a NRSRO.
B. The entity shall (1) be organized within the United States as a special
purpose corporation, trust, or limited liability company, (2) have program wide
credit enhancements, including, but not limited to, over collateralization,
letters of credit or surety bond and (3) have commercial paper that is rated
"A -1" or higher, or the equivalent, by a NRSRO.
Purchases of eligible commercial paper may not represent more than 10% of the
outstanding commercial paper of any single corporate issuer. No more than 5% of the
City's total portfolio shall be invested in the commercial paper of any one issuer, and the
aggregate investment in commercial paper shall not exceed 25% of the City's total
portfolio.
5. Eligible Bankers Acceptances with a maturity not exceeding 180 days from the date of
trade settlement, issued by a national bank with combined capital and surplus of at
least $250 million, whose deposits are insured by the FDIC, and whose senior long-
term debt is rated at least A or the equivalent by a NRSRO at the time of purchase.
The aggregate investment in banker's acceptances shall not exceed 15% of the City's
total portfolio, and no more than the lesser of 10% of the City's total portfolio or $3
million shall be invested in banker's acceptances of any one bank.
6. Medium Term Notes 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, with a final maturity not exceeding three years from
the date of trade settlement, and rated at least AA+ or the equivalent by a NRSRO at
the time of purchase. The aggregate investment in medium term notes shall not
exceed 20% of the City's total portfolio, and no more than 5% of the City's total portfolio
shall be invested in the medium term notes of any one cooperation. In addition, AAA
rated FDIC - guaranteed corporate bonds are herein authorized, within the
aforementioned diversification and maturity requirements.
7. Non - negotiable Certificates of Deposit and savings deposits with a maturity not
exceeding five years. Certificates of Deposits may be purchased from FDIC insured
state or nationally chartered banks or savings banks, or through a private section entity
that assists in the placement of such deposits. Time Certificates of Deposit exceeding
City of Arcadia Investment Policy 4 FY2011 -12
the FDIC insured amount shall be secured pursuant to California Government Code
Section 53652. The aggregate investment in certificates of deposit shall not exceed
30% of the City's total portfolio.
8. State of California's Local Agency Investment Fund (LAIF), pursuant to California
Government Code Section 16429.1.
9. Money Market Funds registered under the Investment Company Act of 1940 that (1)
are "no -load" (meaning no commission or fee shall be charged on purchases or sales
of shares); (2) have a constant net asset value per share of $1.00; (3) invest only in the
securities and obligations authorized by state statute and (4) have a rating of at least
AAA or the equivalent by at least two NRSROs. The aggregate investment in money
market funds shall not exceed 20% of the City's total portfolio.
10. Municipal & State Obligations:
A. Obligations of the City of Arcadia, California: General obligation bonds,
Tax allocation bonds or other debt securities issued by or guaranteed wholly,
partially or morally by the City of Arcadia or Arcadia Redevelopment Agency
with maturities not exceeding ten years.
B. General and Revenue obligations of any state in the United States or any
political subdivision, institution, or authority of such a governmental entity.
Municipal bonds must be rated at least AA+ or the equivalent by two
NRSROs with maturities not exceeding five years.
The City shall not invest more than 5% of the City's total portfolio in the
Municipal Bonds of any one entity.
The foregoing list of authorized securities and transactions shall be strictly interpreted. Any
deviation from this list must be preapproved by resolution of the City Council.
SELECTION OF BROKER/DEALERS
The City Treasurer, after review and approval by the Administrative Services Director and
City Manager, shall maintain a list of broker /dealers approved for investment purposes, and
it shall be the policy of the City to purchase securities only from those authorized firms. To
be eligible, a firm must be licensed by the State of California as a broker /dealer as defined
in Section 25004 of the California Corporations Code.
Broker /dealers will be selected on the basis of their expertise in public cash management
and their ability to provide service to the City's account. Broker /dealers shall attest in writing
that they have received and reviewed a copy of this Investment Policy.
The City may purchase commercial paper from direct issuers even though they are not on
the approved broker /dealer list as long as they meet the criteria outlined in Item 4 of the
Authorized Securities and Transactions section of this Investment Policy.
City of Arcadia Investment Policy 5 FY2011 -12
PORTFOLIO MATURITIES AND LIQUIDITY
To the extent possible, investments shall be matched with anticipated cash flow
requirements and known future liabilities. The City will not invest in securities maturing more
than five years from the date of purchase, except for the municipal obligations issued by
City of Arcadia or Arcadia Redevelopment Agency, which can have a term remaining to
maturity up to ten years from the date of purchase.
COMPETITIVE TRANSACTIONS
All investment transactions shall be conducted competitively with authorized broker /dealers.
At least three broker /dealers shall be contacted for each transaction and their bid or offering
prices shall be recorded.
If the City is offered a security for which there is no other readily available competitive
offering, then City Treasurer will document quotations for comparable or alternative
securities.
SAFEKEEPING AND CUSTODY
The City Treasurer, after review and approval by the Administrative Services Director and
City Manager, shall select one or more banks to provide safekeeping and custodial services
for the City, in accordance with the provisions of Section 53608 of the California
Government Code. A Safekeeping Agreement approved by the City shall be executed with
each custodian bank prior to utilizing that bank's safekeeping services.
Custodian banks will be selected on the basis of their ability to provide services for the City's
account and the competitive pricing of their safekeeping related services.
The purchase and sale of securities and repurchase agreement transactions shall be settled
on a delivery versus payment basis. All securities shall be perfected in the name of the
City. Sufficient evidence to title shall be consistent with modern investment, banking and
commercial practices.
All investment securities, except non - negotiable Certificates of Deposit, Money Market
Funds and LAIF, purchased by the City will be delivered by either book entry or physical
delivery and will be held in third -party safekeeping by a City approved custodian bank, its
correspondent bank or its Depository Trust Company (DTC) participant account.
All Fed wireable book entry securities owned by the City shall be held in the Federal
Reserve system in a customer account for the custodian bank which will name the City as
"customer."
All DTC eligible securities shall be held in the custodian bank's DTC participant account and
the custodian bank shall provide evidence that the securities are held for the City as
"customer."
City of Arcadia Investment Policy 6 FY2011 -12
All non -book entry (physical delivery) securities shall be held by the custodian bank or its
correspondent bank and the custodian bank shall provide evidence that the securities are
held by the bank for the City as "customer."
PORTFOLIO PERFORMANCE
The investment portfolio shall be designed to attain a market rate of return throughout
budgetary and economic cycles, taking into account prevailing market conditions, risk
constraints for eligible securities, and cash flow requirements. The performance of the City's
investments shall be compared to the average yield on the U.S. Treasury security that most
closely corresponds to the portfolio's weighted average effective maturity.
REPORTING
Monthly, the City Treasurer shall submit to the Administrative Services Director, the City
Manager and the City Council a report of the investment earnings including weighted
average rate of return and performance results of the City's investment portfolio. The report
shall include the following information:
1. Investment type, issuer, date of maturity, par value and dollar amount invested in all
securities, and investments and monies held by the City;
2. A description of the funds, investments and programs;
3. A market value as of the date of the report (or the most recent valuation as to assets not
valued monthly) and the source of the valuation;
4. A statement of compliance with the investment policy or an explanation for not -
compliance; and
5. A statement of the ability to meet expenditure requirements for six months, and an
explanation of why money will not be available if that is the case.
POLICY REVIEW
This Investment Policy shall be adopted annually of the Council. It shall be reviewed at least
annually to ensure its consistency with the overall objectives of preservation of principal,
liquidity, yield and diversification and its relevance to current law and economic trends.
Amendments to this Investment Policy shall be approved by the Council.
City of Arcadia Investment Policy 7 FY2011 -12