Resolution No. 2017-018RESOLUTION NO. 2017-18
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
VERNON ADOPTING AN ANNUAL STATEMENT OF INVESTMENT
POLICY FOR FISCAL YEAR 2017-2018 AND DELEGATING
INVESTMENT AUTHORITY TO THE FINANCE DIRECTOR/CITY
TREASURER
WHEREAS, pursuant to California Government Code Section
53646(a)(2), the City Treasurer may annually render to the City Council
an Annual Statement of Investment Policy which the City Council shall
consider at a public meeting; and
WHEREAS, pursuant to Resolution No. 2016-24, the City Council
approved the Annual Statement of Investment Policy for fiscal year
2016-2017 which delegated investment authority to the City Treasurer,
and granted the City Treasurer express authority, as limited by Section
5.1 of the Policy, to make investments of City funds in securities with
a term, or term remaining to maturity at the time of investment, in
excess of five years, as part of an investment program; and
WHEREAS, on October 4, 2016, the City Council adopted
Resolution No. 2016-52 approving an Updated Annual Statement of
Investment Policy for fiscal year 2016-2017 to incorporate provisions
regarding allowable hedging transactions and the analysis of benefits
and risks and City Council approval required prior to entering into a
transaction; and
WHEREAS, the City has continued to follow the Annual
Statement of Investment Policy approved by Resolution No. 2016-52, and
staff has proposed no substantive changes to the Annual Statement of
Investment Policy for Fiscal Year 2017-2018; and
WHEREAS, the City Council desires to reaffirm the investment
policy currently in use, and approve the Annual Statement of Investment
Policy for fiscal year 2017-2018.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF VERNON AS FOLLOWS:
SECTION 1: The City Council of the City of Vernon hereby
finds and determines that the above recitals are true and correct.
SECTION 2: The City Council of the City of Vernon hereby
finds that approval of the Investment Policy is exempt under the
California Environmental Quality Act (CEQA), because it is a government
fiscal activity that will not result in direct or indirect physical
changes in the environment, and therefore does not constitute a
"project" as defined by CEQA Guidelines section 15378.
SECTION 3: The City Council of the City of Vernon hereby
adopts the Annual Statement of Investment Policy (the "Investment
Policy"), for fiscal year 2017-2018, a copy of which is attached hereto
as Exhibit A.
SECTION 4: The City Council of the City of Vernon hereby
delegates to the Finance Director/City Treasurer, or to his authorized
designee, the authority to implement the Investment Policy and select
the instruments for the City's investment portfolio in accordance with
the Investment Policy.
SECTION 5: The City Council of the City of Vernon hereby
grants, as part of the City's investment program, to the Finance
Director/City Treasurer, and to his authorized designee, express
authority, as limited by Section 5.1 of the Policy, to invest in
securities with a term, or term remaining to maturity, at the time of
investment, in excess of five years, and, consistent with Government
Code 53601, this authority shall become effective no less than three
months from the effective date of this Resolution.
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SECTION 6: If any section or part of this Resolution is found
to be unenforceable by operation of law, the remaining sections or parts
of this Resolution shall be in full force and effect.
SECTION 7: This Resolution shall become effective
immediately.
SECTION 8: The City Clerk, or Deputy City Clerk, of the
City of Vernon shall certify to the passage, approval and adoption of
this resolution, and the City Clerk, or Deputy City Clerk, of the City
of Vernon shall cause this resolution and the City Clerk's, or Deputy
City Clerk's, certification to be entered in the File of Resolutions of
the Council of this City.
APPROVED AND ADOPTED this 2nd day of May, 2017.
Name: Melissa A. Ybarra
Title: Mayor
TEST:
Maria E0 Ayala
City Clerk /
APPROVED AS TO FORM:
ZaVn*k Moussa, Senior Deputy City Attorney
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STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
I, Maria E . Ayala, City Clerk /_ of the City of
Vernon, do hereby certify that the foregoing Resolution, being
Resolution No. 2017-18, was duly passed, approved and adopted by the
City Council of the City of Vernon at a regular meeting of the City
Council duly held on Tuesday, May 2, 2017, and thereafter was duly
signed by the Mayor or Mayor Pro-Tem of the City of Vernon.
Executed this �j' day of May, 2017, at Vernon, California.
(SEAL)
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Maria E. Ayala
City Clerk /
EXHIBIT A
CITY OF VERNON
ANNUAL
STATEMENT OF
INVESTMENT POLICY
William F. Fox
Finance Director / City Treasurer
May 2, 2017
TABLE OF CONTENTS
0.0 PREFACE----
1.0 SCOPE ----------------------------------------------------------------------------------------------------------------------------------1
2.0 PURPOSE ------------------------------------------------------------------------------------------------------------------------------1
3.0 OBJECTIVE --------------------------------------------------------------------------------------------------------------------------- 2
4.0 DELEGATION OF AUTHORITY------------------------------------------------------------------------------------------------ 3
5.0 INVESTMENT PROGRAM -------------------------------------------------------------------------------------------------------- 4
6.0 INSTRUMENTS AUTHORIZED FOR INVESTMENT ---------------------------------------------------------------------- 4
7.0 DESIGNATED ENTITIES FROM WHOM THE CITY MAY PURCHASE AUTHORIZED INVESTMENTS- 11
8.0 PROHIBITED INVESTMENTS------------------------------------------------------------------------------------------------- 11
9.0 ALLOWABLE HEDGE TRANSACTIONS---------------------------------------------------------------------------------- I 1
10.0 STATEMENT OF INVESTMENT ACTIVITIES--------------------------------------------------------------------------- 13
11.0 CONFLICT OF INTEREST----------------------------------------------------------------------------------------------------- 14
12.0 PUBLIC INQUIRY ---------------------------------------------------------------------------------------------------------------- 15
13.0 ANALYLSIS OF PROSPECTIVE INVESTMENTS----------------------------------------------------------------------- 15
14.0 SAFEKEEPING -------------------------------------------------------------------------------------------------------------------- 15
15.0 BROKER/DEALER AND DEPOSITORY INSTITUTION RELATIONSHIPS--------------------------------------- 15
0.0 PREFACE
This Annual Statement of Investment Policy (the "Investment Policy") sets forth the course of
action necessary to guide the decision -making of the City Council, and to the extent authorized
under Section 4.0 hereof, City Treasurer and all persons authorized to make investment decisions
on behalf of the City of Vernon (the "City") in the administration of the City's investment
portfolio.
While some portions of this Investment Policy are a restatement of the laws of the State of
California (the "State"), it is viewed that these restatements are integral to the purpose and flow
of this Investment Policy. In most instances the use of future tense throughout this Investment
Policy is intended to mean a continued practice or a practice which shall be continued.
The following statements are intended to ensure the achievement of the purpose, the goals and
objectives in an orderly and accurate manner. However, there is no guarantee that problems,
errors or losses will not arise in the course of administering the investment of idle or surplus
funds.
Among the obstacles and deterrents in achieving the goals and objectives of the portfolio are:
unforeseen national or international events or crises, deviation of actual cash flow from
forecasted cash flow, unforeseen demands on cash flow, policies made with regard to investment
in local depositories, errors in data or advice used to make decisions, as well as any other
unanticipated event that may have an effect on local, national or international financial markets,
economies or politics which in turn has a decided effect upon the portfolio.
This Investment Policy is designed to achieve, keeping in mind the obstacles and deterrents in
pursuing portfolio goals and objective, the safety of the principal of all City funds, consistent
with limited risk and prudent investment practices.
1.0 SCOPE
This Investment Policy governs the deposit, safekeeping and investment of the funds of the
Treasury, as well as all related transactions and investment activities. The investment of bond
proceeds and amounts held under indentures and other security agreements with respect to bonds
as provided in Section 6.12 will be governed by the provisions of the relevant bond documents.
2.0 PURPOSE
The purpose of the Investment Policy is to facilitate accomplishment of the goals and objectives
of the Treasurer with regard to the investment of surplus funds (funds not required for the
immediate needs of the City), to provide a framework within which to carry out the business of
administering and investing the surplus funds of the Treasury, and to improve communications at
all levels between those involved and those interested in the process of investing and
administering the surplus funds of the Treasury.
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3.0 OBJECTIVE
3.1 Legal Compliance
All investments shall be made in accordance with this Investment Policy, California Government
Code Section 53600 et seq., and any forthcoming amendments or additions to the California
Government Code in relation to the investment of local agency surplus funds.
3.2 Prudence
The administration of surplus funds of the City Treasurer, as a fiduciary trustee, shall be
performed in accordance with the prudent investor standard pursuant to California Government
Code Section 53600.3.
The City Treasurer and the City Council of the City, including the Finance Committee, and all
persons authorized to make investment decisions on behalf of the City are "trustees" and
therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting,
purchasing, acquiring, exchanging, selling, or managing public funds, a trustee of the City 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 City, 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 satisfy the
liquidity needs of the City. Within the limitations of this Investment Policy and Section 53600.3
of the California Government Code and considering individual investments as part to an overall
strategy, the City Treasurer and all persons authorized to make investment decisions on behalf of
the City are authorized to acquire investments as authorized by law.
As prudence shall be applied in the context of portfolio management, investment officers and
their advisors, acting in accordance with written procedures and exercising due diligence, shall
report deviations from expectation in an individual security's performance to the Treasurer in a
timely fashion evaluate and appropriate action to be taken to control adverse developments.
3.3 Investment Criteria Goals
The Treasurer's primary goals for the investment of surplus funds (in the City's Treasury or
monies in a sinking fund) are, in order of priority pursuant to California Government Code
Section 53600.5:
3.3.1 Safety -- Safety of capital shall mean the safeguarding of capital through the
selection of investments and investing procedures to best protect against loss,
whether arising from various investment risks (such as interest rate risk, market
risk, counterparty risk, etc.) or from default, fraud, or error.
3.3.2 Liquidity -- The City's portfolio shall be invested so as to always have the ability
to convert sufficient securities in the portfolio to cash, with little or no loss in
value, to cover cash flow needs of the City to meet contingency needs.
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3.3.3 Yield -- Yield refers to earning a reasonable rate of return and shall take into
consideration current market conditions, the present phase of the market cycle,
both present and future cash flow needs, and the other primary goals of Safety and
Liquidity.
3.4 Performance Measurement
The investment portfolio will be managed in accordance with the parameters specified within
this Investment Policy. The methods of measuring investment performance and performance
benchmarks shall be articulated in the internal policies of the City Treasurer's Department.
3.5 Maintenance of Public Trust
As the Treasurer has been entrusted with the safekeeping of public monies received from all
sources, the Treasurer, in managing the investment portfolio, shall exercise a high degree of
professionalism to ensure and sustain public confidence, remembering that both the investment
instruments and the methods of transacting investment business are subject to public review and
scrutiny.
4.0 DELEGATION OF AUTHORITY
The management responsibility for the City's investment program is hereby delegated to the City
Treasurer in accordance with California Government Code Section 53607. Pursuant to
California Government Code Sections 53601, the City Treasurer shall be responsible for the
investment of the City's funds (including the purchase, sale, or exchange of securities), the
monitoring and reviewing of all investments for consistency under this Investment Policy, and
the establishment of a system of controls to regulate the activities of subordinate officials.
The Treasurer shall have the responsibility to execute investment transactions on a day to day
basis. When circumstances warrant, the responsibility to execute investment transactions may be
delegated to the Deputy City Treasurer or to the City Treasurer's authorized designee. However,
each and every transaction must be approved by the City Treasurer.
Any persons authorized to make investment decisions on behalf of the City, shall be subject to
daily oversight and monitoring by the City Treasurer or the Treasurer's Office in order to insure
full and complete compliance with this Investment Policy and the Government Code of the State
of California, relating to the deposit and investment of funds and local agency finances.
NO PERSON MAY ENGAGE IN AN INVESTMENT TRANSACTION EXCEPT AS
PROVIDED UNDER THE LIMITS OF THIS POLICY.
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5.0 INVESTMENT PROGRAM
5.1 Investment in Long Term Securities
The City Treasurer and the authorized designees of the City Treasurer shall actively manage the
City's portfolio of investments in order to take advantage of changing economic conditions and
to insure that the liquidity needs of the City are satisfied. As part of the City's investment
program, the City Treasurer has the express authority to make investments in securities that have
a term, or a term remaining to maturity, at the time of investment, in excess of five years, as long
as such investments, taken in the aggregate in relation to the City's entire investment portfolio,
do not adversely impact the ability to satisfy the liquidity needs of the City and its funds and
enterprises.
Notwithstanding anything contained in this Investment Policy to the contrary, it is the policy of
the City to limit the investment of money in the Light and Power Department Fund, including
operating, reserve and surplus funds, in an amount up to one hundred million dollars
($100,000,000), to investments otherwise permitted for such Fund under this Investment Policy
which mature no later than five years from the time of such investment.
5.2 Active Portfolio Management
The City Treasurer has the express authority to sell, as he deems prudent, any securities in the
City's portfolio of investments prior to the maturity date of the particular security. The City
Treasurer has the express authority to invest in, as he deems prudent, any security authorized by
this Investment Policy with the objective of selling that same security prior to its maturity date.
The City Treasurer's authority to buy and sell securities for investment on behalf of the City
includes the authorization to buy and sell the same security on the same trading day.
6.0 INSTRUMENTS AUTHORIZED FOR INVESTMENT
The City, having money in a sinking fund of, or surplus money in, its treasury not required for
the immediate needs of the City may invest any portion of the money that it deems wise or
expedient in those investments set forth below. If the City purchases or obtains any securities
prescribed in this Section 6.0, in a negotiable, bearer, registered, or nonregistered format, the
City shall require delivery of the securities to the City, including those purchased for the City by
financial advisors, consultants, or managers using the City's funds, by book entry, physical
delivery, or by third party custodial agreement. The transfer of securities to the Counterparty
bank's customer book entry account may be used for book entry delivery. For purposes of this
Section 6.0, "Counterparty" means the other party to the transaction. A Counterparty bank's trust
department or separate safekeeping department may be used for the physical delivery of the
security if the security is held in the name of the City.
Investments may be made in any security authorized by this Section 6, and by Section 53601 of
the California Government Code, that has at the time of investment, a term, or a term remaining
to maturity, in excess of five years, as long as such investment comports with the policies and
objectives of this Investment Policy and the provisions of the California Government Code.
6.1 Bonds Issued by the City
Bonds issued by the City, including bonds payable solely out of the revenues from a
revenue -producing property owned, controlled, or operated by the City or by a department,
board, agency, or authority of the City.
6.2 United States Treasury Bonds
United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the
faith and credit of the United States are pledged for the payment of principal and interest.
6.3 Bonds of the State of California
Registered State warrants or treasury notes or bonds of the State, including bonds payable solely
out of the revenues from a revenue -producing property owned, controlled, or operated by the
State or by a department, board, agency, or authority of the State.
6.4 Bonds of State of California Local Agencies
Bonds, notes, warrants, or other evidences of indebtedness of any local agency within this state,
including bonds payable solely out of the revenues from a revenue -producing property owned,
controlled, or operated by the local agency, or by a department, board, agency, or authority of the
local agency.
6.5 Obligations Issued by Federal Agency or United States Government - Sponsored
Enterprises
Federal agency or United States government -sponsored enterprise obligations, participations, or
other instruments, issued by, or fully guaranteed as to principal and interest by federal agencies
or United States government -sponsored enterprises.
6.6 Bills of Exchange
Bankers' acceptances otherwise known as bills of exchange or time drafts that are drawn on and
accepted by a commercial bank. Purchases of bankers' acceptances may not exceed 180 days
maturity or 40 percent of the City's surplus money that may be invested pursuant to this Section
6. However, no more than 30 percent of the City's money may be invested in the bankers'
acceptances of any one commercial bank pursuant to this Investment Policy.
6.7 Commercial Paper
Commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical
rating as provided for by Moody's Investors Service, Inc. ("Moody's"), or the Standard & Poor's
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Corporation ("S&P") or Fitch Financial Services, Inc. ("Fitch"). The corporation that issues the
commercial paper shall be organized and operating within the United States, shall have total
assets in excess of five hundred million dollars ($500,000,000) and shall issue debt, other than
commercial paper, if any, that is rated "A" or higher by Moody's, S&P or Fitch. Eligible
commercial paper shall have a maximum maturity of 270 days or less. The City may invest no
more than 25% of its money in eligible commercial paper. The City may purchase no more than
10 percent of the outstanding commercial paper of any single corporate issue.
6.8 Negotiable Certificates of Deposit
Negotiable certificates of deposit issued by a nationally or state -chartered bank, savings
association or a federal association (as defined by Section 5102 of the California Financial
Code), a state or federal credit union, or by a state -licensed branch of a foreign bank. Purchases
of negotiable certificates of deposit may not exceed 30 percent of the City's money which may
be invested pursuant to this Investment Policy. For purposes of this Section 6.8, negotiable
certificates of deposit do not come within Article 2 of the California Government Code
(commencing with Section 53630), except that the amount so invested shall be subject to the
limitations of California Government Code Section 53638 concerning maximum deposits. The
City Council of the City and the City Treasurer or other official of the City having legal custody
of the money are prohibited from investing City funds, or funds in the custody of the City, in
negotiable certificates of deposit issued by a state or federal credit union if a member of the City
Council of the City, or any person with investment decision making authority in the City
Administrator's Office, Budget -Auditor's Office, Treasurer's Office or Finance Department of the
City, also serves on the board of directors, or any committee appointed by the board of directors,
or the credit committee or the supervisory committee of the state or federal credit union issuing
the negotiable certificates of deposit.
6.9 Repurchase, Reverse Repurchase and Securities Lending Agreements
6.9.1 Investments in repurchase agreements or reverse repurchase agreements or
securities lending agreements of any securities authorized by this Section 6, as
long as the agreements are subject to this Section 6.9, including, the delivery
requirements specified in this Section 6.9.
6.9.2 Investments in repurchase agreements may be made, on any investment
authorized in Section 6, when the term of the agreement does not exceed one year.
The market value of securities that underlay a repurchase agreement shall be
valued at 102 percent or greater of the funds borrowed against those securities and
the value shall be adjusted no less than quarterly. Since the market value of the
underlying securities is subject to daily market fluctuations, the investments in
repurchase agreements shall be in compliance if the value of the underlying
securities is brought back up to 102 percent no later than the next business day.
6.9.3 Reverse repurchase agreements or securities lending agreements may be utilized
only when all of the following conditions are met:
6.9.3.1 The security to be sold on reverse repurchase agreement or securities
lending agreement has been owned and fully paid for by the City for a
minimum of 30 days prior to sale.
6.9.3.2 The total of all reverse repurchase agreements and securities lending
agreements on investments owned by the City does not exceed 20 percent
of the base value of the portfolio.
6.9.3.3 The agreement does not exceed a term of 92 days, unless the agreement
includes a written codicil guaranteeing a minimum earning or spread for
the entire period between the sale of a security using a reverse repurchase
agreement or securities lending agreement and the final maturity date of
the same security.
6.9.3.4 Funds obtained or funds within the pool of an equivalent amount to that
obtained from selling a security to a counterparty by way of a reverse
repurchase agreement or securities lending agreement, shall not be used to
purchase another security with a maturity longer than the maturity of the
reverse repurchase agreement or securities lending agreement.
6.9.4 Investments in reverse repurchase agreements, securities lending agreements or
similar investments in which the City sells securities prior to purchase with a
simultaneous agreement to repurchase the security, may only be made upon prior
approval of the City Council of the City and shall only be made with primary
dealers of the Federal Reserve Bank of New York or with a nationally or state -
chartered bank that has or has had a significant banking relationship with the City.
6.9.4.1 For purposes of this Section 6.9, "significant banking relationship" means
any of the following activities of a bank:
6.9.4.1.1 Involvement in the creation, sale, purchase, or retirement of
the City's bonds, warrants, notes, or other evidence of
indebtedness.
6.9.4.1.2 Financing of the City's activities.
6.9.4.1.3 Acceptance of the City's securities or funds as deposits.
6.9.5 Definitions
6.9.5.1 Repurchase Agreement
Repurchase Agreement means a purchase of securities by the City
pursuant to an agreement by which the counterparty seller will repurchase
the securities on or before a specified date and for a specified amount and
the counterparty will deliver the underlying securities to the City by book
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entry, physical delivery, or by third party custodial agreement. The
transfer of underlying securities to the counterparty bank's customer book -
entry account may be used for book -entry delivery.
6.9.5.2 Securities
Securities mean securities of the same issuer, description, issue date, and
maturity.
6.9.5.3 Reverse Repurchase Agreement
Reverse Repurchase Agreement means a sale of securities by the City
pursuant to an agreement by which the City will repurchase the securities
on or before a specified date and includes other comparable agreements.
6.9.5.4 Securities Lending Agreement
Securities Lending Agreement means an agreement under which the City
agrees to transfer securities to a borrower who, in turn, agrees to provide
collateral to the City. During the term of the agreement, both the
securities and the collateral are held by a third party. At the conclusion of
the agreement, the securities are transferred back to the City in return for
the collateral.
6.9.5.5 Base Value
Base Value of the City's pool portfolio shall be that dollar amount
obtained by totaling all cash balances placed in the pool by all pool
participants, excluding any amounts obtained through selling securities by
way of reverse repurchase agreements or other similar borrowing methods.
6.9.5.6 Spread
Spread means the difference between the cost of funds obtained using the
reverse repurchase agreement and the earnings obtained on the
reinvestment of the funds.
6.10 Medium -Term Notes
Medium -term notes, defined as all corporate and depository institution debt securities with a
maximum remaining maturity of five years or less, 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. Notes eligible for investment under this Section
6.10 shall be rated "A" or better by a nationally recognized rating service. Purchases of medium -
term notes shall not include other instruments authorized by Section 6 and may not exceed 30
percent of the City's surplus money which may be invested.
6.11 Diversified Management Company Shares
6.11.1 Shares of beneficial interest issued by diversified management companies that
invest in the securities and obligations as authorized by Sections 6.1 to 6.10,
inclusive, or Sections 6.13 or 6.14 and that comply with the investment
restrictions of Article 1 (commencing with Section 53600 of the California
Government Code) and Article 2 (commencing with Section 53630 of the
California Government Code). However, notwithstanding these restrictions, a
counterparty to a reverse repurchase agreement is not required to be a primary
dealer of the Federal Reserve Bank of New York if the company's board of
directors finds that the counterparty presents a minimal risk of default, and the
value of the securities underlying a repurchase agreement may be 100 percent of
the sales price if the securities are marked to market daily.
6.11.2 Shares of beneficial interest issued by diversified management companies that are
money market funds registered with the Securities and Exchange Commission
under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.).
6.11.3 If investment is in shares issued pursuant to Section 6.11.1, the company shall
have met either of the following criteria:
6.11.3.1 Attained the highest ranking or the highest letter and numerical
rating provided by not less than two nationally recognized
statistical rating organizations; or
6.11.3.2 Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations authorized by Sections 6.1 to 6.10, inclusive, or
Sections 6.13 or 6.14 and with assets under management in excess
of five hundred million dollars ($500,000,000).
6.11.4 If investment is in shares issued pursuant to Section 6.11.2, the company shall
have met either of the following criteria:
6.11.4.1 Attained the highest ranking or the highest letter and numerical
rating provided by not less than two nationally recognized
statistical rating organizations; or
6.11.4.2 Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience managing money market mutual
funds with assets under management in excess of five hundred
million dollars ($500,000,000).
6.11.5 The purchase price of shares of beneficial interest purchased pursuant to this
Section 6.11 shall not include any commission that the companies may charge and
shall not exceed 20 percent of the City's surplus money that may be invested
pursuant to this Section 6. However, no more than 10 percent of the City's
surplus funds may be invested in shares of beneficial interest of any one mutual
fund pursuant to Section 6.11.1.
6.12 Moneys Pledged to Payment or Security of Bonds of the City
Moneys held by a trustee or fiscal agent and pledged to the payment or security of bonds or other
indebtedness, or obligations under a lease, installment sale, or other agreement of the City, or
certificates of participation in those bonds, indebtedness, or lease installment sale, or other
agreements, may be invested in accordance with the statutory provisions governing the issuance
of those bonds, indebtedness, or lease installment sale, or other agreement, or to the extent not
inconsistent therewith or if there are no specific statutory provisions, in accordance with the
ordinance, resolution, indenture, or agreement of the City providing for the issuance.
6.13 Bonds Secured by Government Code Section 53651 Eligible Securities
Notes, bonds, or other obligations that are at all times secured by a valid first priority security
interest in securities of the types listed by Section 53651 of the California Government Code as
eligible securities for the purpose of securing local agency deposits having a market value at
least equal to that required by Section 53652 of the California Government Code for the purpose
of securing local agency deposits. The securities serving as collateral shall be placed by delivery
or book entry into the custody of a trust company or the trust department of a bank which is not
affiliated with the issuer of the secured obligation, and the security interest shall be perfected in
accordance with the requirements of the Uniform Commercial Code or federal regulations
applicable to the types of securities in which the security interest is granted.
6.14 Mortgage Pass -Through Security
Any Mortgage pass -through security, collateralized mortgage obligation, mortgage -backed or
other pay -through bond, equipment lease -backed certificate, consumer receivable pass -through
certificate, or consumer receivable -backed bond, in each case, of a maximum of five years
maturity. Securities eligible for investment under this Section 6.14 shall be issued by an issuer
having an "A" or higher rating for the issuer's debt as provided by a nationally recognized rating
service and rated in a rating category of "AA" or its equivalent or better by a nationally
recognized rating service. Purchase of securities authorized by this Section 6.14 may not exceed
20 percent of the City's surplus money that may be invested pursuant to Section 6.
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7.0 DESIGNATED ENTITIES FROM WHOM THE CITY MAY PURCHASE
AUTHORIZED INVESTMENTS
The purchase by the City of any investment authorized pursuant to California Government Code
Sections 53601 or 53601.1, not purchased directly from the issuer, shall be purchased either from
an institution licensed by the State as a broker -dealer, as defined in Section 25004 of the
California Corporations Code, or from a member of a federally regulated securities exchange,
from a national or state -chartered bank, from a savings association or federal association (as
defined by Section 5102 of the California Financial Code) or from a brokerage firm designated
as a primary government dealer by the Federal Reserve Bank.
8.0 PROHIBITED INVESTMENTS
8.1 The City shall not invest any funds pursuant to this Investment Policy or pursuant to
California Government Code, Article 2, Deposit of Funds (commencing with Section 53630) in
inverse floats, range notes, or mortgage -derived, interest -only strips.
8.2 The City shall not invest any funds pursuant to this Investment Policy or pursuant to
California Government Code, Article 2, Deposit of Funds (commencing with Section 53630) in
any security that could result in zero interest accrual if held to maturity. However, the City may
hold prohibited instruments currently owned by the City until their maturity dates. The
limitation in this Section 8.2 shall not apply to City investments in shares of beneficial interest
issued by diversified management companies registered under the Investment Company Act of
1940 (15 U.S.C. Sec. 80a-1, and following) that are authorized for investment pursuant to
Section 6.11.
8.3 The City is prohibited under this policy from engaging in speculative activities typical to
many organizations orientated toward profit maximization. Taking risks in order to arbitrage
market opportunities, or risks unrelated to the City's normal business activities is prohibited.
These include investments in derivatives such as contracts -options, swaps, and futures/forward
contracts without a clear, identifiable, justifiable, and effective hedgeable item.
8.4 Prior to entering into an allowable hedgeable transaction, such as a swap agreement,
the City shall review legal documentation subject to the transaction to understand the terms
of the transaction, the risks taken on by the parties, and the remedies available to them. These
documents may include, among others, the ISDA Master Agreement, Schedule, Confirmation
and Credit Support Annex. Such documentation will be retained to support the basis of the
decision.
9.0 ALLOWABLE HEDGABLE TRANSACTIONS
9.1 Interest rate swap contract in conjunction with debt issuances
s h a 11 b e reviewed as part of the City ` s overall financial position considering both the
potential benefits and potential risks. Prior to submitting a swap agreement for City Council's
approval, the potential benefits and potential benefits are to be analyzed. The results of the analysis
shall be provided to City Council at the time of approval.
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9.2 Potential benefits: Accessing the swap market increases the array of options available
to the City for hedging risk. Using swaps, can in some circumstances, reduce costs or
improve cash flows, thereby increasing resources available for debt service, other public
purposes, and contributing to the City's overall mission. The City shall consider the
following benefit factors when determining the applicability as part of
different strategies:
9.2.1 Reducing borrowing costs, by using floating -to -fixed rate swaps combined with
variable rate bonds to achieve costs lower than those available with fixed-rate
bonds, or by using fixed -to -floating rate swaps to create synthetic floating rate
debt and achieve lower costs without external liquidity or remarketing support.
9.2.2 Improving cash flows, by using basis swaps where the C i t y expects the
payments received from the counterparty to be greater, over time, than the
payments made to the counterparty.
9.2.3 Locking in current rates for future transactions, through forward -starting swaps
or swaptions.
9.2.4 Matching assets and liabilities, by using a swap contract so that fixed-rate
debt is matched with fixed-rate assets and floating-rate debt is matched with
floating-rate assets.
9.2.5 The City shall take into account the potential benefits of swap transactions in
conjunction with debt issuances by recognizing that in the proper circumstances
they can have a positive effect on the City's financial position.
9.3 Potential Risks: Interest rate swaps involve certain risks that shall be considered when
doing an analysis. Prior to submitting a swap agreement to City Council for approval, the
potential risk factors will be examined and analyzed. They will be presented as part of the overall
staff report in order to provide a full perspective of both the risks and benefits. There are five
potential risk factors that encompass ten different separate elements:
9.3.1 Risk Factor #1: Cash flows and/or net revenues
9.3.1.1 Basis Risk: The risk that variable rate payments received will be less
than variable rate payments they were designed to offset, because the
variable rate payments received and the variable rate payments owed are
based on different indexes, and the ratio between those indexes changes
over time.
9.3.1.2 Tax Risk: The risk that the City's costs will raise because federal
income tax rates fall, or because the tax exemption for municipal debt is
eliminated or is modified in a way that reduces its value.
9.3.1.3 Yield Curve Risk: The risk is that the City's cash flow will be
adversely affected because the slope of the yield curve is not as the City
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anticipated when entering into the swap. This is an aspect of basis risk that may
affect the termination value for swaps contacts.
9.3.1.4 Amortization Mismatch: The risk that the notional amount of the
swap and the outstanding principal amount of the debt intended to be hedged
will no longer be equal. Such mismatch may be a feature of the transaction at its
inception or may be caused by subsequent events, such as redemption of bonds
before maturity or termination of the swap before bond maturity.
9.3.2 Risk Factor #2: Balance Sheet
9.3.2.1 Termination Risk: The risk that the City will be required to make a
payment based on the market value of the swap in connection with an unforeseen
termination of the swap, at a time when the market value is negative to the issuer.
9.3.2.2 Collateral Posting Risk: The risk that the City will be required to
post collateral, upon a downgrade of its credit rating or other trigger event a
time when the market value is negative.
9.3.3 Risk Factor #3: Counterparty Risk
93.3.1 The risk that the counterparty will no longer perform its obligations
under the contract, or that the counterparty's credit quality will decline to the
point where there is uncertainty about its ability to perform.
9.3.4 Risk Factor #4: Future Financial Management
9.3.4.1 Market Access Risk: The risk that the City will be unable to obtain
derivatives contracts when needed in the future on reasonably favorable terms,
including new derivatives upon early or scheduled termination of existing
hedges ("Rollover Risk").
9.3.4.2 Loss of Flexibility: The risk that a swap contract will limit the issuers
debt management options in the future due to an inability to modify or
terminate the swap without cost.
9.3.5 Risk Factor #5: Management Complexity
9.3.5.1 The risk that certain swap contracts may add a level of complexity to
financial management that will require ongoing commitment of additional
resources. The utilization of a financial advisory firm to assist or review
transactions prior to entering into an arrangement may be required.
10.0 STATEMENTS OF INVESTMENT ACTIVITIES
10.1 Annual Statement of Investment Policy
The City Treasurer shall annually render to the City Council and the Finance Committee of the
City a statement of investment policy, which the City shall consider at a public meeting. Any
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changes in the investment policy shall also be considered by the City Council of the City at a
public meeting.
10.2 Quarterly Report of Investments
The City Treasurer shall render a quarterly report to the Finance Committee of the City and City
Council. The quarterly report shall be so submitted within 30 days following the end of the
quarter covered by the report. This report shall include the type of investment, issuer, date of
maturity par and dollar amount invested on all securities, investments and moneys held by the
City and shall additionally include a description of any of the City's funds, investments, or
programs that are under the management of contracted parties, including lending programs. With
respect to all securities held by the City and under management of any outside party that is not
also a local agency or the State of California Local Agency Investment Fund, the report shall
also include a current market value as of the date of the report, and shall include the source of
this same valuation.
For local agency investments that have been placed in the State of California Local Agency
Investment Fund, in National Credit Union Share Insurance Fund -insured accounts in a credit
union, in accounts insured or guaranteed pursuant to Section 14858 of the California Financial
Code, or in Federal Deposit Insurance Corporation -insured accounts in a bank or savings and
loan association, in a California County investment pool, or any combination of these, the City
Treasurer and the Treasurer's Department may supply to the City Council and Finance
Committee the most recent statements received by the City from these institutions.
The quarterly report shall state compliance of the portfolio to this Investment Policy, or the
manner in which the portfolio is not in compliance. The quarterly report shall include a
statement denoting the ability of the City to meet its budgeted expenditure requirements for the
next six months, or provide an explanation as to why sufficient money shall, or may, not be
available. In the quarterly report, a subsidiary ledger of investments may be used in accordance
with accepted accounting practices.
10.3 Monthly Investment Transaction Report
The authority of the City Council to invest or to reinvest funds of the City, or to sell or exchange
securities so purchased has been delegated for a one-year period by the City Council to the City
Treasurer, who shall thereafter assume full responsibility for those transactions and shall make a
timely monthly report of those transactions to the City Council.
11.0 CONFLICT OF INTEREST
No City employee shall, outside of regular working hours, engage in any professions, trade,
business or occupation which is incompatible or involves a conflict of interest with his/her duties
as a City Officer or employee.
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12.0 PUBLIC INQUIRY
The City Treasurer's portfolio and related transactions are a matter of public record. Any
member of the public may receive a copy of the portfolio or this Investment Policy by requesting
a copy at the Treasurer's Office. The Treasurer may charge a fee for the copy, as allowed by law.
13.0 ANALYSIS OF PROSPECTIVE INVESTMENTS
Due to the complexity of the various investment instruments available and uncertainty of market
conditions the Treasurer may seek professional advice in making investment decisions in order
to optimize investment selections.
14.0 SAFEKEEPING
As required by California Government Code Section 53601 all investment instruments in a
negotiable, bearer, registered, or nonregistered format, shall be delivered to the City's custodial
bank by using book entry or physical delivery. The "delivery vs. payment" purchase procedure
shall be used.
The City's custodial bank for safekeeping of the bonds, notes, bills, debentures, obligations,
certificates of indebtedness, warrants, or other evidences of indebtedness in which the money of
the City is invested pursuant to this policy shall be one of the following: (a) a federal or state
association (as defined by Section 5102 of the Financial Code), (b) a trust company or a state or
national bank located within California, (c) the Federal Reserve Bank of San Francisco or any
branch thereof within California, (d) any Federal Reserve Bank, or (e) with any state or national
bank located in any city designated as a reserve city by the Board of Governors of the Federal
Reserve System.
15.0 BROKER/DEALER AND DEPOSITORY INSTITUTION RELATIONSHIPS
15.1 Approved List of Broker/Dealer Institutions
Subject to Section 7.0, the City Treasurer shall approve and maintain a list of broker/dealers and
depository institutions authorized to provide investment and other services to the City. All
investments must be made with institutions that have been approved by the City Treasurer prior
to investing.
15.2 Broker/Dealer Commissions and Fees Charsteable to the City
All broker/dealers who transact with the City and buy and sell securities on the City's behalf
shall earn a commission or charge a fee not to exceed an amount deemed prudent and reasonable
by the Financial Industry Regulatory Authority ("FINRA") and what is customary in the industry
for the types of securities being purchased by the City.
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15.3 Deposit and Investment of Funds of the City
All depository institutions that do business with the City shall be in compliance with the
requirements of Article 2, commencing with Section 53630, of the Government Code of the State
of California, concerning the deposit of funds, including the overall creditworthiness and credit
ratings requirements of the sections of that Article.
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STAFF REPORT
APR 272017
CITY CLERK'S OFFICE
DATE: May 2, 2017
STAFF REPORT
Finance Department
TO: Honorable Mayor and City Council
FROM: William Fox, Finance Director 14
Originator: Joaquin Leon, Deputy City Treasurer
RECEIVED
APR 2 4 2017
CITY ADMINISTRATION
RE: A Resolution adopting an Annual Statement of Investment Policy for Fiscal
Year 2017-2018 and delegating investment authority to the Finance
Director/City Treasurer
Recommendation
It is recommended that the City Council:
A. Find that approval of the investment policy for Fiscal Year 2017-2018 is exempt under
the California Environmental Quality Act (CEQA) in accordance with Section
15061(b)(3), because it is a government fiscal activity that will not result in direct or
indirect physical changes in the environment, and therefore does not constitute a
"project" as defined by CEQA Guidelines; and
B. Adopt a resolution approving the Annual Statement of Investment Policy for Fiscal Year
2017-2018 and delegating investment authority to the Finance Director/City Treasurer.
The investment policy requires an annual approval by City Council. Such approval is
performed annually through the review of any updates and reaffirming the investment
policy in effect.
Background
The Annual Statement of Investment Policy sets forth the course of action necessary to guide the
decision -making of the City Council, City Treasurer, and those authorized to make investment
decisions in the administration of the City's investment portfolio. The existing policy is in
compliance with the California Government Code and is a restatement of relevant sections
applying to investment activities. The policy is designed to ensure that the administration of
surplus funds is performed in accordance with the "prudent investor standard" pursuant to
California Government Code Section 53600.3. As such capital preservation is of paramount
importance and that no speculative activities are entered into.
Conclusion
The City made no changes to Annual Investment Policy previously submitted and approved by
City Council on October 4, 2016. The City's Annual Investment Policy conforms with California
Law and is be adhered to and attested by the Independent Certified Public Accounting firm that
performs the certified annual audit of the financial statements.
Fiscal Impact
There is no direct fiscal impact by the approval of the investment policy resolution. The
investment policy provides the framework to ensure sound investment practices are being
followed in compliance with California Government Code.
Attachment(s)
1. Resolution Adopting an Annual Statement of Investment Policy for Fiscal Year 2017-2018
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
VERNON ADOPTING AN ANNUAL STATEMENT OF INVESTMENT
POLICY FOR FISCAL YEAR 2017-2018 AND DELEGATING
INVESTMENT AUTHORITY TO THE FINANCE DIRECTOR/CITY
TREASURER
WHEREAS, pursuant to California Government Code Section
53646(a)(2), the City Treasurer may annually render to the City Council
an Annual Statement of Investment Policy which the City Council shall
consider at a public meeting; and
WHEREAS, pursuant to Resolution No. 2016-24, the City Council
approved the Annual Statement of Investment Policy for fiscal year
2016-2017 which delegated investment authority to the City Treasurer,
and granted the City Treasurer express authority, as limited by Section
5.1 of the Policy, to make investments of City funds in securities with
a term, or term remaining to maturity at the time of investment, in
excess of five years, as part of an investment program; and
WHEREAS, on October 4, 2016, the City Council adopted
Resolution No. 2016-52 approving an Updated Annual Statement of
Investment Policy for fiscal year 2016-2017 to incorporate provisions
regarding allowable hedging transactions and the analysis of benefits
and risks and City Council approval required prior to entering into a
transaction; and
WHEREAS, the City has continued to follow the Annual
Statement of Investment Policy approved by Resolution No. 2016-52, and
staff has proposed no substantive changes to the Annual Statement of
Investment Policy for Fiscal Year 2017-2018; and
WHEREAS, the City Council desires to reaffirm the investment
policy currently in use, and approve the Annual Statement of Investment
Policy for fiscal year 2017-2018.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF VERNON AS FOLLOWS:
SECTION 1: The City Council of the City of Vernon hereby
finds and determines that the above recitals are true and correct.
SECTION 2: The City Council of the City of Vernon hereby
finds that approval of the Investment Policy is exempt under the
California Environmental Quality Act (CEQA), because it is a government
fiscal activity that will not result in direct or indirect physical
changes in the environment, and therefore does not constitute a
"project" as defined by CEQA Guidelines section 15378.
SECTION 3: The City Council of the City of Vernon hereby
adopts the Annual Statement of Investment Policy (the "Investment
Policy"), for fiscal year 2017-2018, a copy of which is attached hereto
as Exhibit A.
SECTION 4: The City Council of the City of Vernon hereby
delegates to the Finance Director/City Treasurer, or to his authorized
designee, the authority to implement the Investment Policy and select
the instruments for the City's investment portfolio in accordance with
the Investment Policy.
SECTION 5: The City Council of the City of Vernon hereby
grants, as part of the City's investment program, to the Finance
Director/City Treasurer, and to his authorized designee, express
authority, as limited by Section 5.1 of the Policy, to invest in
securities with a term, or term remaining to maturity, at the time of
investment, in excess of five years, and, consistent with Government
Code 53601, this authority shall become effective no less than three
months from the effective date of this Resolution.
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SECTION 6: If any section or part of this Resolution is found
to be unenforceable by operation of law, the remaining sections or parts
of this Resolution shall be in full force and effect.
SECTION 7: This Resolution shall become effective
immediately.
SECTION 8: The City Clerk, or Deputy City Clerk, of the
City of Vernon shall certify to the passage, approval and adoption of
this resolution, and the City Clerk, or Deputy City Clerk, of the City
of Vernon shall cause this resolution and the City Clerk's, or Deputy
City Clerk's, certification to be entered in the File of Resolutions of
the Council of this City.
APPROVED AND ADOPTED this 2nd day of May, 2017.
Name:
Title: Mayor / Mayor Pro-Tem
ATTEST:
City Clerk / Deputy City Clerk
APPROVED AS TO FORM:
ZaVn" Moussa, Senior Deputy City Attorney
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STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
I,
ss
, City Clerk / Deputy City Clerk of the City of
Vernon, do hereby certify that the foregoing Resolution, being
Resolution No. , was duly passed, approved and adopted by the City
Council of the City of Vernon at a regular meeting of the City Council
duly held on Tuesday, May 2, 2017, and thereafter was duly signed by the
Mayor or Mayor Pro-Tem of the City of Vernon.
Executed this day of May, 2017, at Vernon, California.
(SEAL)
City Clerk / Deputy City Clerk
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EXHIBIT A
CITY OF VERNON
ANNUAL
STATEMENT OF
INVESTMENT POLICY
William F. Fox
Finance Director / City Treasurer
May 2, 2017
TABLE OF CONTENTS
0.0 PREFACE --------------------------------------------- ---- --------------------------------------------------------------------------- 1
1.0 SCOPE ---------------------------------------------------------------------------------------------------------------------------------- 1
2.0 PURPOSE------------------------------------------------------------------------------------------------------------------------------ 1
3.0 OBJECTIVE --------------------------------------------------------------------------------------------------------------------------- 2
4.0 DELEGATION OF AUTHORITY------------------------------------------------------------------------------------------------ 3
5.0 INVESTMENT PROGRAM -------------- ----------------------------------------------------------------------------------------- 4
6.0 INSTRUMENTS AUTHORIZED FOR INVESTMENT ---------------------------------------------------------------------- 4
7.0 DESIGNATED ENTITIES FROM WHOM THE CITY MAY PURCHASE AUTHORIZED INVESTMENTS- 11
8.0 PROHIBITED INVESTMENTS------------------------------------------------------------------------------------------------ 11
9.0 ALLOWABLE HEDGE TRANSACTIONS---------------------------------------------------------------------------------- 11
10.0 STATEMENT OF INVESTMENT ACTIVITIES--------------------------------------------------------------------------- 13
11.0 CONFLICT OF INTEREST----------------------------------------------------------------------------------------------------- 14
12.0 PUBLIC INQUIRY ---------------------------------------------------------------------------------------------------------------- 15
13.0 ANALYLSIS OF PROSPECTIVE INVESTMENTS----------------------------------------------------------------------- 15
14.0 SAFEKEEPING -------------------------------------------------------------------------------------------------------------------- 15
15.0 BROKER/DEALER AND DEPOSITORY INSTITUTION RELATIONSHIPS--------------------------------------- 15
0.0 PREFACE
This Annual Statement of Investment Policy (the "Investment Policy") sets forth the course of
action necessary to guide the decision -making of the City Council, and to the extent authorized
under Section 4.0 hereof, City Treasurer and all persons authorized to make investment decisions
on behalf of the City of Vernon (the "City") in the administration of the City's investment
portfolio.
While some portions of this Investment Policy are a restatement of the laws of the State of
California (the "State"), it is viewed that these restatements are integral to the purpose and flow
of this Investment Policy. In most instances the use of future tense throughout this Investment
Policy is intended to mean a continued practice or a practice which shall be continued.
The following statements are intended to ensure the achievement of the purpose, the goals and
objectives in an orderly and accurate manner. However, there is no guarantee that problems,
errors or losses will not arise in the course of administering the investment of idle or surplus
funds.
Among the obstacles and deterrents in achieving the goals and objectives of the portfolio are:
unforeseen national or international events or crises, deviation of actual cash flow from
forecasted cash flow, unforeseen demands on cash flow, policies made with regard to investment
in local depositories, errors in data or advice used to make decisions, as well as any other
unanticipated event that may have an effect on local, national or international financial markets,
economies or politics which in turn has a decided effect upon the portfolio.
This Investment Policy is designed to achieve, keeping in mind the obstacles and deterrents in
pursuing portfolio goals and objective, the safety of the principal of all City funds, consistent
with limited risk and prudent investment practices.
1.0 SCOPE
This Investment Policy governs the deposit, safekeeping and investment of the funds of the
Treasury, as well as all related transactions and investment activities. The investment of bond
proceeds and amounts held under indentures and other security agreements with respect to bonds
as provided in Section 6.12 will be governed by the provisions of the relevant bond documents.
2.0 PURPOSE
The purpose of the Investment Policy is to facilitate accomplishment of the goals and objectives
of the Treasurer with regard to the investment of surplus funds (funds not required for the
immediate needs of the City), to provide a framework within which to carry out the business of
administering and investing the surplus funds of the Treasury, and to improve communications at
all levels between those involved and those interested in the process of investing and
administering the surplus funds of the Treasury.
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3.0 OBJECTIVE
3.1 Legal Compliance
All investments shall be made in accordance with this Investment Policy, California Government
Code Section 53600 et seq., and any forthcoming amendments or additions to the California
Government Code in relation to the investment of local agency surplus funds.
3.2 Prudence
The administration of surplus funds of the City Treasurer, as a fiduciary trustee, shall be
performed in accordance with the prudent investor standard pursuant to California Government
Code Section 53600.3.
The City Treasurer and the City Council of the City, including the Finance Committee, and all
persons authorized to make investment decisions on behalf of the City are "trustees" and
therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting,
purchasing, acquiring, exchanging, selling, or managing public funds, a trustee of the City 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 City, 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 satisfy the
liquidity needs of the City. Within the limitations of this Investment Policy and Section 53600.3
of the California Government Code and considering individual investments as part to an overall
strategy, the City Treasurer and all persons authorized to make investment decisions on behalf of
the City are authorized to acquire investments as authorized by law.
As prudence shall be applied in the context of portfolio management, investment officers and
their advisors, acting in accordance with written procedures and exercising due diligence, shall
report deviations from expectation in an individual security's performance to the Treasurer in a
timely fashion evaluate and appropriate action to be taken to control adverse developments.
3.3 Investment Criteria Goals
The Treasurer's primary goals for the investment of surplus funds (in the City's Treasury or
monies in a sinking fund) are, in order of priority pursuant to California Government Code
Section 53600.5:
3.3.1 Safety -- Safety of capital shall mean the safeguarding of capital through the
selection of investments and investing procedures to best protect against loss,
whether arising from various investment risks (such as interest rate risk, market
risk, counterparty risk, etc.) or from default, fraud, or error.
3.3.2 LiquiditX -- The City's portfolio shall be invested so as to always have the ability
to convert sufficient securities in the portfolio to cash, with little or no loss in
value, to cover cash flow needs of the City to meet contingency needs.
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3.3.3 Yield -- Yield refers to earning a reasonable rate of return and shall take into
consideration current market conditions, the present phase of the market cycle,
both present and future cash flow needs, and the other primary goals of Safety and
Liquidity.
3.4 Performance Measurement
The investment portfolio will be managed in accordance with the parameters specified within
this Investment Policy. The methods of measuring investment performance and performance
benchmarks shall be articulated in the internal policies of the City Treasurer's Department.
3.5 Maintenance of Public Trust
As the Treasurer has been entrusted with the safekeeping of public monies received from all
sources, the Treasurer, in managing the investment portfolio, shall exercise a high degree of
professionalism to ensure and sustain public confidence, remembering that both the investment
instruments and the methods of transacting investment business are subject to public review and
scrutiny.
4.0 DELEGATION OF AUTHORITY
The management responsibility for the City's investment program is hereby delegated to the City
Treasurer in accordance with California Government Code Section 53607. Pursuant to
California Government Code Sections 53601, the City Treasurer shall be responsible for the
investment of the City's funds (including the purchase, sale, or exchange of securities), the
monitoring and reviewing of all investments for consistency under this Investment Policy, and
the establishment of a system of controls to regulate the activities of subordinate officials.
The Treasurer shall have the responsibility to execute investment transactions on a day to day
basis. When circumstances warrant, the responsibility to execute investment transactions may be
delegated to the Deputy City Treasurer or to the City Treasurer's authorized designee. However,
each and every transaction must be approved by the City Treasurer.
Any persons authorized to make investment decisions on behalf of the City, shall be subject to
daily oversight and monitoring by the City Treasurer or the Treasurer's Office in order to insure
full and complete compliance with this Investment Policy and the Government Code of the State
of California, relating to the deposit and investment of funds and local agency finances.
NO PERSON MAY ENGAGE IN AN INVESTMENT TRANSACTION EXCEPT AS
PROVIDED UNDER THE LIMITS OF THIS POLICY.
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5.0 INVESTMENT PROGRAM
5.1 Investment in Long Term Securities
The City Treasurer and the authorized designees of the City Treasurer shall actively manage the
City's portfolio of investments in order to take advantage of changing economic conditions and
to insure that the liquidity needs of the City are satisfied. As part of the City's investment
program, the City Treasurer has the express authority to make investments in securities that have
a term, or a term remaining to maturity, at the time of investment, in excess of five years, as long
as such investments, taken in the aggregate in relation to the City's entire investment portfolio,
do not adversely impact the ability to satisfy the liquidity needs of the City and its funds and
enterprises.
Notwithstanding anything contained in this Investment Policy to the contrary, it is the policy of
the City to limit the investment of money in the Light and Power Department Fund, including
operating, reserve and surplus funds, in an amount up to one hundred million dollars
($100,000,000), to investments otherwise permitted for such Fund under this Investment Policy
which mature no later than five years from the time of such investment.
5.2 Active Portfolio Management
The City Treasurer has the express authority to sell, as he deems prudent, any securities in the
City's portfolio of investments prior to the maturity date of the particular security. The City
Treasurer has the express authority to invest in, as he deems prudent, any security authorized by
this Investment Policy with the objective of selling that same security prior to its maturity date.
The City Treasurer's authority to buy and sell securities for investment on behalf of the City
includes the authorization to buy and sell the same security on the same trading day.
6.0 INSTRUMENTS AUTHORIZED FOR INVESTMENT
The City, having money in a sinking fund of, or surplus money in, its treasury not required for
the immediate needs of the City may invest any portion of the money that it deems wise or
expedient in those investments set forth below. If the City purchases or obtains any securities
prescribed in this Section 6.0, in a negotiable, bearer, registered, or nonregistered format, the
City shall require delivery of the securities to the City, including those purchased for the City by
financial advisors, consultants, or managers using the City's funds, by book entry, physical
delivery, or by third party custodial agreement. The transfer of securities to the Counterparty
bank's customer book entry account may be used for book entry delivery. For purposes of this
Section 6.0, "Counterparty" means the other party to the transaction. A Counterparty bank's trust
department or separate safekeeping department may be used for the physical delivery of the
security if the security is held in the name of the City.
Investments may be made in any security authorized by this Section 6, and by Section 53601 of
the California Government Code, that has at the time of investment, a term, or a term remaining
to maturity, in excess of five years, as long as such investment comports with the policies and
objectives of this Investment Policy and the provisions of the California Government Code.
6.1 Bonds Issued by the City
Bonds issued by the City, including bonds payable solely out of the revenues from a
revenue -producing property owned, controlled, or operated by the City or by a department,
board, agency, or authority of the City.
6.2 United States Treasury Bonds
United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the
faith and credit of the United States are pledged for the payment of principal and interest.
6.3 Bonds of the State of California
Registered State warrants or treasury notes or bonds of the State, including bonds payable solely
out of the revenues from a revenue -producing property owned, controlled, or operated by the
State or by a department, board, agency, or authority of the State.
6.4 Bonds of State of California Local Agencies
Bonds, notes, warrants, or other evidences of indebtedness of any local agency within this state,
including bonds payable solely out of the revenues from a revenue -producing property owned,
controlled, or operated by the local agency, or by a department, board, agency, or authority of the
local agency.
6.5 Obligations Issued by Federal Agency or United States Government - Sponsored
Enterprises
Federal agency or United States government -sponsored enterprise obligations, participations, or
other instruments, issued by, or fully guaranteed as to principal and interest by federal agencies
or United States government -sponsored enterprises.
6.6 Bills of Exchange
Bankers' acceptances otherwise known as bills of exchange or time drafts that are drawn on and
accepted by a commercial bank. Purchases of bankers' acceptances may not exceed 180 days
maturity or 40 percent of the City's surplus money that may be invested pursuant to this Section
6. However, no more than 30 percent of the City's money may be invested in the bankers'
acceptances of any one commercial bank pursuant to this Investment Policy.
6.7 Commercial Paper
Commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical
rating as provided for by Moody's Investors Service, Inc. ("Moody's"), or the Standard & Poor's
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Corporation ("S&P") or Fitch Financial Services, Inc. ("Fitch"). The corporation that issues the
commercial paper shall be organized and operating within the United States, shall have total
assets in excess of five hundred million dollars ($500,000,000) and shall issue debt, other than
commercial paper, if any, that is rated "A" or higher by Moody's, S&P or Fitch. Eligible
commercial paper shall have a maximum maturity of 270 days or less. The City may invest no
more than 25% of its money in eligible commercial paper. The City may purchase no more than
10 percent of the outstanding commercial paper of any single corporate issue.
6.8 Negotiable Certificates of Deposit
Negotiable certificates of deposit issued by a nationally or state -chartered bank, savings
association or a federal association (as defined by Section 5102 of the California Financial
Code), a state or federal credit union, or by a state -licensed branch of a foreign bank. Purchases
of negotiable certificates of deposit may not exceed 30 percent of the City's money which may
be invested pursuant to this Investment Policy. For purposes of this Section 6.8, negotiable
certificates of deposit do not come within Article 2 of the California Government Code
(commencing with Section 53630), except that the amount so invested shall be subject to the
limitations of California Government Code Section 53638 concerning maximum deposits. The
City Council of the City and the City Treasurer or other official of the City having legal custody
of the money are prohibited from investing City funds, or funds in the custody of the City, in
negotiable certificates of deposit issued by a state or federal credit union if a member of the City
Council of the City, or any person with investment decision making authority in the City
Administrator's Office, Budget -Auditor's Office, Treasurer's Office or Finance Department of the
City, also serves on the board of directors, or any committee appointed by the board of directors,
or the credit committee or the supervisory committee of the state or federal credit union issuing
the negotiable certificates of deposit.
6.9 Repurchase, Reverse Repurchase and Securities Lending Agreements
6.9.1 Investments in repurchase agreements or reverse repurchase agreements or
securities lending agreements of any securities authorized by this Section 6, as
long as the agreements are subject to this Section 6.9, including, the delivery
requirements specified in this Section 6.9.
6.9.2 Investments in repurchase agreements may be made, on any investment
authorized in Section 6, when the term of the agreement does not exceed one year.
The market value of securities that underlay a repurchase agreement shall be
valued at 102 percent or greater of the funds borrowed against those securities and
the value shall be adjusted no less than quarterly. Since the market value of the
underlying securities is subject to daily market fluctuations, the investments in
repurchase agreements shall be in compliance if the value of the underlying
securities is brought back up to 102 percent no later than the next business day.
6.9.3 Reverse repurchase agreements or securities lending agreements may be utilized
only when all of the following conditions are met:
6.9.3.1 The security to be sold on reverse repurchase agreement or securities
lending agreement has been owned and fully paid for by the City for a
minimum of 30 days prior to sale.
6.9.3.2 The total of all reverse repurchase agreements and securities lending
agreements on investments owned by the City does not exceed 20 percent
of the base value of the portfolio.
6.9.3.3 The agreement does not exceed a term of 92 days, unless the agreement
includes a written codicil guaranteeing a minimum earning or spread for
the entire period between the sale of a security using a reverse repurchase
agreement or securities lending agreement and the final maturity date of
the same security.
6.9.3.4 Funds obtained or funds within the pool of an equivalent amount to that
obtained from selling a security to a counterparty by way of a reverse
repurchase agreement or securities lending agreement, shall not be used to
purchase another security with a maturity longer than the maturity of the
reverse repurchase agreement or securities lending agreement.
6.9.4 Investments in reverse repurchase agreements, securities lending agreements or
similar investments in which the City sells securities prior to purchase with a
simultaneous agreement to repurchase the security, may only be made upon prior
approval of the City Council of the City and shall only be made with primary
dealers of the Federal Reserve Bank of New York or with a nationally or state -
chartered bank that has or has had a significant banking relationship with the City.
6.9.4.1 For purposes of this Section 6.9, "significant banking relationship" means
any of the following activities of a bank:
6.9.4.1.1 Involvement in the creation, sale, purchase, or retirement of
the City's bonds, warrants, notes, or other evidence of
indebtedness.
6.9.4.1.2 Financing of the City's activities.
6.9.4.1.3 Acceptance of the City's securities or funds as deposits.
6.9.5 Definitions
6.9.5.1 Repurchase Agreement
Repurchase Agreement means a purchase of securities by the City
pursuant to an agreement by which the counterparty seller will repurchase
the securities on or before a specified date and for a specified amount and
the counterparty will deliver the underlying securities to the City by book
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entry, physical delivery, or by third party custodial agreement. The
transfer of underlying securities to the counterparty bank's customer book -
entry account may be used for book -entry delivery.
6.9.5.2 Securities
Securities mean securities of the same issuer, description, issue date, and
maturity.
6.9.5.3 Reverse Repurchase Agreement
Reverse Repurchase Agreement means a sale of securities by the City
pursuant to an agreement by which the City will repurchase the securities
on or before a specified date and includes other comparable agreements.
6.9.5.4 Securities Lending Agreement
Securities Lending Agreement means an agreement under which the City
agrees to transfer securities to a borrower who, in turn, agrees to provide
collateral to the City. During the term of the agreement, both the
securities and the collateral are held by a third party. At the conclusion of
the agreement, the securities are transferred back to the City in return for
the collateral.
6.9.5.5 Base Value
Base Value of the City's pool portfolio shall be that dollar amount
obtained by totaling all cash balances placed in the pool by all pool
participants, excluding any amounts obtained through selling securities by
way of reverse repurchase agreements or other similar borrowing methods.
6.9.5.6 Spread
Spread means the difference between the cost of funds obtained using the
reverse repurchase agreement and the earnings obtained on the
reinvestment of the funds.
6.10 Medium -Term Notes
Medium -term notes, defined as all corporate and depository institution debt securities with a
maximum remaining maturity of five years or less, 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. Notes eligible for investment under this Section
6.10 shall be rated "A" or better by a nationally recognized rating service. Purchases of medium -
term notes shall not include other instruments authorized by Section 6 and may not exceed 30
percent of the City's surplus money which may be invested.
6.11 Diversified Management Company Shares
6.11.1 Shares of beneficial interest issued by diversified management companies that
invest in the securities and obligations as authorized by Sections 6.1 to 6.10,
inclusive, or Sections 6.13 or 6.14 and that comply with the investment
restrictions of Article 1 (commencing with Section 53600 of the California
Government Code) and Article 2 (commencing with Section 53630 of the
California Government Code). However, notwithstanding these restrictions, a
counterparty to a reverse repurchase agreement is not required to be a primary
dealer of the Federal Reserve Bank of New York if the company's board of
directors finds that the counterparty presents a minimal risk of default, and the
value of the securities underlying a repurchase agreement may be 100 percent of
the sales price if the securities are marked to market daily.
6.11.2 Shares of beneficial interest issued by diversified management companies that are
money market funds registered with the Securities and Exchange Commission
under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.).
6.11.3 If investment is in shares issued pursuant to Section 6.11.1, the company shall
have met either of the following criteria:
6.11.3.1 Attained the highest ranking or the highest letter and numerical
rating provided by not less than two nationally recognized
statistical rating organizations; or
6.11.3.2 Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations authorized by Sections 6.1 to 6.10, inclusive, or
Sections 6.13 or 6.14 and with assets under management in excess
of five hundred million dollars ($500,000,000).
6.11.4 If investment is in shares issued pursuant to Section 6.11.2, the company shall
have met either of the following criteria:
6.11.4.1 Attained the highest ranking or the highest letter and numerical
rating provided by not less than two nationally recognized
statistical rating organizations; or
6.11.4.2 Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience managing money market mutual
funds with assets under management in excess of five hundred
million dollars ($500,000,000).
6.11.5 The purchase price of shares of beneficial interest purchased pursuant to this
Section 6.11 shall not include any commission that the companies may charge and
shall not exceed 20 percent of the City's surplus money that may be invested
pursuant to this Section 6. However, no more than 10 percent of the City's
surplus funds may be invested in shares of beneficial interest of any one mutual
fund pursuant to Section 6.11.1.
6.12 Moneys Pledged to Payment or Security of Bonds of the City
Moneys held by a trustee or fiscal agent and pledged to the payment or security of bonds or other
indebtedness, or obligations under a lease, installment sale, or other agreement of the City, or
certificates of participation in those bonds, indebtedness, or lease installment sale, or other
agreements, may be invested in accordance with the statutory provisions governing the issuance
of those bonds, indebtedness, or lease installment sale, or other agreement, or to the extent not
inconsistent therewith or if there are no specific statutory provisions, in accordance with the
ordinance, resolution, indenture, or agreement of the City providing for the issuance.
6.13 Bonds Secured by Government Code Section 53651 Eligible Securities
Notes, bonds, or other obligations that are at all times secured by a valid first priority security
interest in securities of the types listed by Section 53651 of the California Government Code as
eligible securities for the purpose of securing local agency deposits having a market value at
least equal to that required by Section 53652 of the California Government Code for the purpose
of securing local agency deposits. The securities serving as collateral shall be placed by delivery
or book entry into the custody of a trust company or the trust department of a bank which is not
affiliated with the issuer of the secured obligation, and the security interest shall be perfected in
accordance with the requirements of the Uniform Commercial Code or federal regulations
applicable to the types of securities in which the security interest is granted.
6.14 Mortgage Pass -Through Security
Any Mortgage pass -through security, collateralized mortgage obligation, mortgage -backed or
other pay -through bond, equipment lease -backed certificate, consumer receivable pass -through
certificate, or consumer receivable -backed bond, in each case, of a maximum of five years
maturity. Securities eligible for investment under this Section 6.14 shall be issued by an issuer
having an "A" or higher rating for the issuer's debt as provided by a nationally recognized rating
service and rated in a rating category of "AA" or its equivalent or better by a nationally
recognized rating service. Purchase of securities authorized by this Section 6.14 may not exceed
20 percent of the City's surplus money that may be invested pursuant to Section 6.
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7.0 DESIGNATED ENTITIES FROM WHOM THE CITY MAY PURCHASE
AUTHORIZED INVESTMENTS
The purchase by the City of any investment authorized pursuant to California Government Code
Sections 53601 or 53601.1, not purchased directly from the issuer, shall be purchased either from
an institution licensed by the State as a broker -dealer, as defined in Section 25004 of the
California Corporations Code, or from a member of a federally regulated securities exchange,
from a national or state -chartered bank, from a savings association or federal association (as
defined by Section 5102 of the California Financial Code) or from a brokerage firm designated
as a primary government dealer by the Federal Reserve Bank.
8.0 PROHIBITED INVESTMENTS
8.1 The City shall not invest any funds pursuant to this Investment Policy or pursuant to
California Government Code, Article 2, Deposit of Funds (commencing with Section 53630) in
inverse floats, range notes, or mortgage -derived, interest -only strips.
8.2 The City shall not invest any funds pursuant to this Investment Policy or pursuant to
California Government Code, Article 2, Deposit of Funds (commencing with Section 53630) in
any security that could result in zero interest accrual if held to maturity. However, the City may
hold prohibited instruments currently owned by the City until their maturity dates. The
limitation in this Section 8.2 shall not apply to City investments in shares of beneficial interest
issued by diversified management companies registered under the Investment Company Act of
1940 (15 U.S.C. Sec. 80a-1, and following) that are authorized for investment pursuant to
Section 6.11.
8.3 The City is prohibited under this policy from engaging in speculative activities typical to
many organizations orientated toward profit maximization. Taking risks in order to arbitrage
market opportunities, or risks unrelated to the City's normal business activities is prohibited.
These include investments in derivatives such as contracts -options, swaps, and futures/forward
contracts without a clear, identifiable, justifiable, and effective hedgeable item.
8.4 Prior to entering into an allowable hedgeable transaction, such as a swap agreement,
the City shall review legal documentation subject to the transaction to understand the terms
of the transaction, the risks taken on by the parties, and the remedies available to them. These
documents may include, among others, the ISDA Master Agreement, Schedule, Confirmation
and Credit Support Annex. Such documentation will be retained to support the basis of the
decision.
9.0 ALLOWABLE HEDGABLE TRANSACTIONS
9.1 Interest rate swap contract in conjunction with debt issuances
s h a 11 b e reviewed as part of the City` s overall financial position considering both the
potential benefits and potential risks. Prior to submitting a swap agreement for City Council's
approval, the potential benefits and potential benefits are to be analyzed. The results of the analysis
shall be provided to City Council at the time of approval.
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9.2 Potential benefits: Accessing the swap market increases the array of options available
to the City for hedging risk. Using swaps, can in some circumstances, reduce costs or
improve cash flows, thereby increasing resources available for debt service, other public
purposes, and contributing to the City's overall mission. The City shall consider the
following benefit factors when determining the applicability as part of
different strategies:
9.2.1 Reducing borrowing costs, by using floating -to -fixed rate swaps combined with
variable rate bonds to achieve costs lower than those available with fixed-rate
bonds, or by using fixed -to -floating rate swaps to create synthetic floating rate
debt and achieve lower costs without external liquidity or remarketing support.
9.2.2 Improving cash flows, by using basis swaps where the C it y expects the
payments received from the counterparty to be greater, overtime, than the
payments made to the counterparty.
9.2.3 Locking in current rates for future transactions, through forward -starting swaps
or swaptions.
9.2.4 Matching assets and liabilities, by using a swap contract so that fixed-rate
debt is matched with fixed-rate assets and floating-rate debt is matched with
floating-rate assets.
9.2.5 The City shall take into account the potential benefits of swap transactions in
conjunction with debt issuances by recognizing that in the proper circumstances
they can have a positive effect on the City's financial position.
9.3 Potential Risks: Interest rate swaps involve certain risks that shall be considered when
doing an analysis. Prior to submitting a swap agreement to City Council for approval, the
potential risk factors will be examined and analyzed. They will be presented as part of the overall
staff report in order to provide a full perspective of both the risks and benefits. There are five
potential risk factors that encompass ten different separate elements:
9.3.1 Risk Factor #1: Cash flows and/or net revenues
9.3.1.1 Basis Risk: The risk that variable rate payments received will be less
than variable rate payments they were designed to offset, because the
variable rate payments received and the variable rate payments owed are
based on different indexes, and the ratio between those indexes changes
over time.
9.3.1.2 Tax Risk: The risk that the City's costs will raise because federal
income tax rates fall, or because the tax exemption for municipal debt is
eliminated or is modified in a way that reduces its value.
9.3.1.3 Yield Curve Risk: The risk is that the City's cash flow will be
adversely affected because the slope of the yield curve is not as the City
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anticipated when entering into the swap. This is an aspect of basis risk that may
affect the termination value for swaps contacts.
9.3.1.4 Amortization Mismatch: The risk that the notional amount of the
swap and the outstanding principal amount of the debt intended to be hedged
will no longer be equal. Such mismatch may be a feature of the transaction at its
inception or may be caused by subsequent events, such as redemption of bonds
before maturity or termination of the swap before bond maturity.
9.3.2 Risk Factor #2: Balance Sheet
9.3.2.1 Termination Risk: The risk that the City will be required to make a
payment based on the market value of the swap in connection with an unforeseen
termination of the swap, at a time when the market value is negative to the issuer.
9.3.2.2 Collateral Posting Risk: The risk that the City will be required to
post collateral, upon a downgrade of its credit rating or other trigger event a
time when the market value is negative.
9.3.3 Risk Factor #3: Counterparty Risk
933.1 The risk that the counterparty will no longer perform its obligations
under the contract, or that the counterparty's credit quality will decline to the
point where there is uncertainty about its ability to perform.
9.3.4 Risk Factor #4: Future Financial Management
9.3.4.1 Market Access Risk: The risk that the City will be unable to obtain
derivatives contracts when needed in the future on reasonably favorable terms,
including new derivatives upon early or scheduled termination of existing
hedges ("Rollover Risk").
9.3.4.2 Loss of Flexibility: The risk that a swap contract will limit the issuer's
debt management options in the future due to an inability to modify or
terminate the swap without cost.
9.3.5 Risk Factor #5: Management Complexity
9.3.5.1 The risk that certain swap contracts may add a level of complexity to
financial management that will require ongoing commitment of additional
resources. The utilization of a financial advisory firm to assist or review
transactions prior to entering into an arrangement may be required.
10.0 STATEMENTS OF INVESTMENT ACTIVITIES
10.1 Annual Statement of Investment Policy
The City Treasurer shall annually render to the City Council and the Finance Committee of the
City a statement of investment policy, which the City shall consider at a public meeting. Any
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changes in the investment policy shall also be considered by the City Council of the City at a
public meeting.
10.2 Ouarterly Report of Investments
The City Treasurer shall render a quarterly report to the Finance Committee of the City and City
Council. The quarterly report shall be so submitted within 30 days following the end of the
quarter covered by the report. This report shall include the type of investment, issuer, date of
maturity par and dollar amount invested on all securities, investments and moneys held by the
City and shall additionally include a description of any of the City's funds, investments, or
programs that are under the management of contracted parties, including lending programs. With
respect to all securities held by the City and under management of any outside party that is not
also a local agency or the State of California Local Agency Investment Fund, the report shall
also include a current market value as of the date of the report, and shall include the source of
this same valuation.
For local agency investments that have been placed in the State of California Local Agency
Investment Fund, in National Credit Union Share Insurance Fund -insured accounts in a credit
union, in accounts insured or guaranteed pursuant to Section 14858 of the California Financial
Code, or in Federal Deposit Insurance Corporation -insured accounts in a bank or savings and
loan association, in a California County investment pool, or any combination of these, the City
Treasurer and the Treasurer's Department may supply to the City Council and Finance
Committee the most recent statements received by the City from these institutions.
The quarterly report shall state compliance of the portfolio to this Investment Policy, or the
manner in which the portfolio is not in compliance. The quarterly report shall include a
statement denoting the ability of the City to meet its budgeted expenditure requirements for the
next six months, or provide an explanation as to why sufficient money shall, or may, not be
available. In the quarterly report, a subsidiary ledger of investments may be used in accordance
with accepted accounting practices.
10.3 Monthly Investment Transaction Report
The authority of the City Council to invest or to reinvest funds of the City, or to sell or exchange
securities so purchased has been delegated for a one-year period by the City Council to the City
Treasurer, who shall thereafter assume full responsibility for those transactions and shall make a
timely monthly report of those transactions to the City Council.
11.0 CONFLICT OF INTEREST
No City employee shall, outside of regular working hours, engage in any professions, trade,
business or occupation which is incompatible or involves a conflict of interest with his/her duties
as a City Officer or employee.
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12.0 PUBLIC INQUIRY
The City Treasurer's portfolio and related transactions are a matter of public record. Any
member of the public may receive a copy of the portfolio or this Investment Policy by requesting
a copy at the Treasurer's Office. The Treasurer may charge a fee for the copy, as allowed by law.
13.0 ANALYSIS OF PROSPECTIVE INVESTMENTS
Due to the complexity of the various investment instruments available and uncertainty of market
conditions the Treasurer may seek professional advice in making investment decisions in order
to optimize investment selections.
14.0 SAFEKEEPING
As required by California Government Code Section 53601 all investment instruments in a
negotiable, bearer, registered, or nonregistered format, shall be delivered to the City's custodial
bank by using book entry or physical delivery. The "delivery vs. payment" purchase procedure
shall be used.
The City's custodial bank for safekeeping of the bonds, notes, bills, debentures, obligations,
certificates of indebtedness, warrants, or other evidences of indebtedness in which the money of
the City is invested pursuant to this policy shall be one of the following: (a) a federal or state
association (as defined by Section 5102 of the Financial Code), (b) a trust company or a state or
national bank located within California, (c) the Federal Reserve Bank of San Francisco or any
branch thereof within California, (d) any Federal Reserve Bank, or (e) with any state or national
bank located in any city designated as a reserve city by the Board of Governors of the Federal
Reserve System.
15.0 BROKER/DEALER AND DEPOSITORY INSTITUTION RELATIONSHIPS
15.1 Approved List of Broker/Dealer Institutions
Subject to Section 7.0, the City Treasurer shall approve and maintain a list of broker/dealers and
depository institutions authorized to provide investment and other services to the City. All
investments must be made with institutions that have been approved by the City Treasurer prior
to investing.
15.2 Broker/Dealer Commissions and Fees Chargeable to the City
All broker/dealers who transact with the City and buy and sell securities on the City's behalf
shall earn a commission or charge a fee not to exceed an amount deemed prudent and reasonable
by the Financial Industry Regulatory Authority ("FINRA") and what is customary in the industry
for the types of securities being purchased by the City.
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15.3 Deposit and Investment of Funds of the City
All depository institutions that do business with the City shall be in compliance with the
requirements of Article 2, commencing with Section 53630, of the Government Code of the State
of California, concerning the deposit of funds, including the overall creditworthiness and credit
ratings requirements of the sections of that Article.
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