Annual Review and Adoption of City’s Investment Policy - Staff Report

Page 1 of 4 Agenda Item B.3 CONSENT CALENDAR Meeting Date: January 15, 2019 TO: Mayor and Councilmembers FROM: Luke Rioux, Finance Director SUBJECT: Annual Review and Adoption of City’s Investment Policy RECOMMENDATION: Adopt Resolution No. 19-_ entitled, “A Resolution of the City Council of the City of Goleta, Adopting the City of Goleta Investment Policy and Rescinding Resolution No. 17-56.” BACKGROUND: The City’s Investment Policy was created in June 2005 to establish guidelines, strategies, practices, and procedures to be used in investing public funds in accordance with California Government Code (Government Code) sections 53600-53610, which establish legally permitted investments for local governments statewide. The City’s Investment Policy was last reviewed and revised in December 2017. At that time, revisions included updates to be consistent with industry best practices, provided by the California Debt and Investment Commission (CDIAC), California Municipal Treasurer’s Association (CMTA) and Government Finance Officers Association (GFOA). The updates included the following two amendments: 1) An update to Section 5(A), Authorized Investments, to include the “Investment Trust of California, a Joint Powers Authority, doing business as CalTRUST”, under the list of authorized investments as item number eight (8). 2) An update to Section 14, changing the title from “Duties and Responsibilities” to “Delegation of Authority”, and include additional language to clarify the authority of investment activities, and that the delegation of authority be in effect for one fiscal year, and may be renewed annually by City Council and may revoke the authority at any time. While not required by statute, annual review of a local agency’s investment policy is recommended by CDIAC, and is a requirement in the City’s Investment Policy. 1 Meeting Date: January 15, 2019 Page 2 of 4 DISCUSSION: City Investment Policy The City’s Investment Policy serves as a guide for setting and achieving the City’s investment goals and defines guidelines for the management of the City’s investment portfolio. Government Code Section 53600 establishes legally permitted investments for local governments statewide. As mentioned above, while not required by statute, Government Code Section 53646(a)(2) provides for annual City Council consideration of the Investment Policy at a public meeting, which further defines the suitable and authorized investments specifically for the City. It also gives City Council the opportunity to ensure the policy is consistent with the overall investment primary objectives, which are, in order of priority; safety, liquidity, and yield. In some cases, the City’s policy is more restrictive than the Government Code. The City Council is expressly authorized to invest and manage the City’s public funds pursuant to Government Code Section 53600.3. Additionally, the City Council may choose to delegate its authority to invest and reinvest funds to the City Treasurer/Finance Director for up to one year pursuant to Government Code Section 53607. The City Council delegated investment authority to the City Treasurer/Finance Director for FY 2017/18 on December 19, 2017 when reviewing and adopting the Investment Policy at that time. A public vote by City Council signifies that the City Council shares fiduciary responsibility with the City Treasurer/Finance Director and provides transparency and disclosure that the policy complies with current law that governs investment of public funds. Staff recommends revisions to the annual investment policy, as needed, to incorporate policy or statutory changes affecting the City’s investment program and daily investing activities. Policy revisions are technical in nature, such as process changes or language clarifications. Statutory changes are updates in state law affecting allowable investments or procedures related to investing activities. Statutory and Staff Recommended Changes At this time, there are no recommended statutory changes and only administrative updates to the Investment Policy for Fiscal Year 2018/19. Staff is recommending the following updates: 1) Update to Section 8(B), Investment Strategy – Benchmark, to include the 1-year U.S. Treasury Note and the 2-Year U.S. Treasury Note as additional useful benchmarks. The policy currently utilizes the Local Agency Investment Fund (LAIF) apportionment rate as a benchmark. As the City expands its investment program, additional benchmarks will be appropriate for comparison purposes. A benchmark should represent a close correlation to the level of risk and average duration of the portfolio’s investments. 2) Update to Section 13, Prudence, to clarify trustees and investment officials are interchangeable, along with various cleanup edits throughout the document to provide clarity. 2 Meeting Date: January 15, 2019 Page 3 of 4 3) Update to the Glossary section, to include additional and updated definitions for the following: Benchmark, City Treasurer, Collateralization, Federal Deposit Insurance Corporation (FDIC), Federal Reserve System, Primary Dealer, Principal, Secondary Market, and Trustee. (See Attachment 1 – Exhibit A, starting on page 9 for all recommended Glossary updates in redline format). In addition, staff is also recommending the continued delegation of authority to the City Treasurer/Finance Director. As provided in the Investment Policy, Council formally delegates authority to the City Treasurer/Finance Director for a one fiscal-year period, as specified starting on page 6, Section 14 of the City’s Investment Policy. Management and responsibility for the investment program is delegated to the City Treasure/Finance Director. Under the authority granted by the City Council, no person may engage in an investment transactions covered by the terms of this policy unless directed by the Treasurer. All investment transactions shall also require the signature of the City Manager or designee and are subject to the authorized investments outlined in Section 5, starting on page 2 of the Investment Policy. The attached Resolution confirms the annual review, recommended changes, and delegation of authority to staff to complete investment transitions. The Investment Policy is attached as Exhibit A to the Resolution, and provided in redline (track change) format for easier reference of the recommended changes to the Investment Policy. Finance and Audit Standing Committee Recommendation Staff met with the Finance Committee on January 7, 2019 to review the Investment Policy and support the recommendations. Staff will continue to work with the Finance Committee as staff moves forward with evaluating the available and allowable investment options per the City’s adopted investment policy, and will continue to discuss options at future Finance Committee meetings. FISCAL IMPACTS: There are no fiscal impacts to the City for adopting the City’s Investment Policy. The policy conforms to California Government Code and complies with best practices designed to meet the City’s short and long-term cash flow needs by managing safety, liquidity and yield in a prudent manner. 3 Meeting Date: January 15, 2019 Page 4 of 4 ALTERNATIVES: Approval of the Investment Policy annually by the Legislative body is required by City policy and is a recommended best practice. The Council may request alterations be made to any section as long as the revisions meet the requirements of Government Code. Legal Review By: Approved By: ___________________ ___________________ Michael Jenkins Michelle Greene City Attorney City Manager ATTACHMENTS: 1. Resolution No. 19-__ entitled, “A Resolution of the City Council of the City of Goleta, California, Adopting and Amending the City of Goleta Investment Policy and Rescinding Resolution No. 17-56.” A. Exhibit A – Investment Policy (Redline Version) 4 ATTACHMENT 1: Resolution No. 19-__ entitled, “A Resolution of the City Council of the City of Goleta, California, Adopting the City of Goleta Investment Policy and Rescinding Resolution No. 17-56” 5 6 RESOLUTION NO. 19-__ A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF GOLETA, CALIFORNIA, ADOPTING THE CITY OF GOLETA INVESTMENT POLICY AND RESCINDING RESOLUTION NO. 17-56 WHEREAS, On June 20, 2005, the City Council adopted and established a policy regarding the investment of City funds; and WHEREAS, the City’s Investment Policy was last modified on December 19, 2017; and WHEREAS, staff wishes to include additional benchmarks, which include the 1-year and 2-year U.S. Treasury Notes, and various cleanup edits to further clarify terms used through the Investment Policy, including additional and updated definitions to the glossary section. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF GOLETA DOES RESOLVE, DETERMINE, AND ORDER AS FOLLOWS: SECTION 1: The attached Exhibit A, City of Goleta Investment Policy – Fiscal Year 2018/19, is hereby adopted and incorporate herein. SECTION 2. Resolution 17-56, which adopted a previous version of the City of Goleta Investment Policy, is hereby rescinded. SECTION 3. The City Clerk shall certify to the adoption of this resolution and enter it into the book of original resolutions. PASSED, APPROVED AND ADOPTED this 15th day of January 2019. ______________________________ PAULA PEROTTE, MAYOR ATTEST: APPROVED AS TO FORM: ________________________ ______________________________ DEBORAH S. LOPEZ MICHAEL JENKINS CITY CLERK CITY ATTORNEY 7 STATE OF CALIFORNIA ) COUNTY OF SANTA BARBARA ) ss. CITY OF GOLETA ) I, DEBORAH S. LOPEZ, City Clerk of the City of Goleta, California, DO HEREBY CERTIFY that the foregoing Resolution No. 19-__ was duly adopted by the City Council of the City of Goleta at a regular meeting held on the 15th day of January, 2019 by the following vote of the Council: AYES: NOES: ABSENT: (SEAL) _________________________ DEBORAH S. LOPEZ CITY CLERK 8 Exhibit A 1 CITY OF GOLETA, CALIFORNIA INVESTMENT POLICY FISCAL YEAR 2018/19 1. PURPOSE It is the purpose of the City’s investment policy to establish strategies, practices and procedures to be used in investing public funds in a prudent manner, which will provide the maximum security while meeting daily cash flow needs and conforming to all statutes governing the investment of public funds. Secondly, this document will identify policies that enhance opportunities for a prudent and systematic investment of public funds. This policy is intended to guide the investment of City funds toward the goals of safety, liquidity and yield. 2. POLICY It is the policy of the City of Goleta, hereafter referred to as the “City”, to invest public funds not required for immediate day-to-day operations, also referred to as idle funds, in safe and liquid investments having acceptable rates of return while conforming to all state statutes and this City's Investment Policy. Any conflict between this City Investment Policy and Government Code Section 53600 et. seq., shall be interpreted in favor of the Government Code. 3. SCOPE It is intended that this policy cover all funds and investment activities of the City. These funds are reflected in the annual audit report and include: ? General Fund ? Special Revenue Funds ? Debt Service Funds ? Capital Projects Funds ? Fiduciary Funds Any additional funds that may be created from time to time shall also be administered within the provisions of this policy and comply with the California State Government Code. This policy covers the investment activities of idle funds under the direct authority of the City. A. Pooled Investments Investments for the City and its component units will be made on a pooled basis, except as provided for below. B. Investments Held Separately In some instances, investments cannot be included in the City's investment pool. These may include investments of bond proceeds. In 9 2 such cases the funds will be held separately when required by law, contract or other authority. 4. OBJECTIVES Section 53600.5 of the California Government Code outlines the primary objectives of a trustee investing public money. The primary objectives, in order of priority, of the City’s investment activities shall be: A. Safety Safety of principal is the foremost objective of the investment program. Investments by the City shall be undertaken in a manner that seeks to ensure preservation of capital in the overall portfolio and reduce both credit and market risk. The type of investment instruments and diversification of investments are critical components to ensuring investment portfolio safety. B. Liquidity The City's investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated. Liquidity also refers to the ability to convert an investment to cash without loss of principal and minimal loss of interest. C. Yield Investment return becomes a consideration only after the basic requirements of safety and liquidity have been met. The City shall attempt to obtain an acceptable return for additional income for City operations relative to the risk being taken. The City Treasurer shall strive to maintain the level of investment of all idle funds as close to 100% as possible. While the objectives of safety and liquidity must first be met, it is recognized that investment assets represent a potential source of significant revenues. It is to the benefit of the City that these assets be managed to produce optimum revenues consistent with State statutes and local policies. 5. AUTHORIZED INVESTMENTS A. Pooled Monies for Investment Purpose. The City Treasurer may invest City funds in the following instruments as specified in California Government Code Section 53601, and as further limited in this policy. (1) Local Agency Investment Fund (LAIF) of the State of California. Investments in accordance with the laws and regulations governing those funds. 10 3 (2) Obligations of the U.S. Government, its agencies and instrumentalities, including mortgage-backed securities with a fixed coupon issued by an agency of the U.S. Government. (3) Certificates of Deposit (CDs). CDs shall not exceed five-year maturity. CDs shall be collateralized as specified in Section 6 of this investment policy. CDs shall be issued by nationally or state chartered banks and cannot exceed thirty percent (30%) of the total portfolio. The City may waive collateral requirements for the portion of any deposit insured up to the amount allowed per account by the FDIC. (4) Prime Commercial Paper of the highest numerical rating of Moody's Investment Service, Inc. or Standard & Poor’s Corporation (S&P) from issuing corporations that are organized and operating within the United States and having total assets in excess of $500 million and having the equivalent to an “AA-” or higher rating from either Moody’s or S&P for other debt of the issuer. Commercial Paper shall not exceed 270 days maturity or 25% of the portfolio. (5) Money market funds with portfolios consisting of one or more of the indicated legal investments and none of the prohibited investments. (6) Sweep account for the investment of overnight funds when the funds are swept into investments authorized by this policy. (7) Passbook accounts maintained solely to provide for ongoing operational needs shall be subject to the requirements of this policy. (8) Investment Trust of California, a Joint Powers Authority, doing business as CalTRUST. The City may invest in CalTRUST, a pool created by local public agencies to provide a method for local public agencies to pool their assets for investment purposes B. Investments Held Separately. Investments of bond funds shall be made in conformance with the trust indenture for each issue. Such investments shall be held separately when required. 6. COLLATERALIZATION Investments in certificates of deposit, sweep accounts and passport accounts shall be fully insured up to the limit set by the Federal Deposit Insurance Corporation or the Federal Savings & Loan Insurance Corporation (FDIC). Investments in certificates of deposit, sweep accounts and passport accounts in excess of the FDIC limit shall be properly collateralized as required by law. 11 4 7. UNAUTHORIZED INVESTMENTS/INVESTMENT ACTIVITIES Investments not specifically authorized herein are disallowed. Additionally, Section 53601.6 of the California Government Code disallows the following: inverse floaters, range notes, or interest-only strips that are derived from a pool of mortgages. Futures, options, all leveraged purchases, reverse repurchases, and speculations on interest rates are specifically not allowed by this policy. 8. INVESTMENT STRATEGY A. Buy and Hold. A buy and hold strategy shall generally be followed. A buy and hold strategy requires that the portfolio be kept sufficiently liquid to preclude the undesirable sale of investments prior to maturity. Occasionally, the City Treasurer may find it advantageous to sell an investment prior to maturity, such as when the return for an alternative investment would significantly exceed the loss on the current investment. The sale of investments prior to maturity should be only on an exception basis and only when it is clearly favorable to do so. To further provide for liquidity, investments will be made only in readily marketable securities actively traded in the secondary market. B. Benchmark. The City’s overall investment strategy is passive. The City intends to hold its investments to maturity. The City shall use the LAIF interest apportionment rate, the 1-year U.S. Treasury Note and the 2-year U.S. Treasury asNote as a useful benchmarks to measure whether or not the City’s portfolio net yields are matching or surpassing the market yields. The benchmarks and investment performance will be reviewed by the Finance and Audit Standing Committee as market conditions warrant or when the benchmarks is notare not met for a consecutive one-year period. C. Per Indenture Provisions. Investments held separately for bond proceeds will follow the trust indenture for each issue. 9. MAXIMUM MATURITIES A. Pooled Monies for Investment Purpose. A policy of laddered portfolio shall be followed for pooled investments. At least thirty-five percent (35%) of the portfolio value shall be invested in instruments maturing within one year from the investment date. No more than twenty-five percent (25%) of the entire portfolio value shall have a maturity date between three (3) and five (5) years from the investment date, unless the City Treasurer can demonstrate via a comprehensive cash-flow analysis that higher percentages allows the City to meet its cash-flow requirements. Investments having a maturity greater than five (5) years shall not be made. 12 5 B. Investments Held Separately. Maturities for investments held separately shall conform to the trust indenture for each issue. 10. DIVERSIFICATION The portfolio instrument composition shall be diversified to the extent feasible to avoid incurring unreasonable and avoidable risks regarding specific security types indicated in Section 5 of this investment policy. No more than ten percent (10%) of the value of the City's portfolio will be placed with any single issuer, with the exception of the U.S. Treasury/Federal agency securities, authorized pools, and collateralized investments. 11. SELECTION OF FINANCIAL INSTITUTIONS AND BROKERS/DEALERS A. General. Investments shall be purchased only through well-established, financially sound institutions. All financial institutions and broker/dealers who desire to become qualified vendors for investment transactions will be given a copy of the City's investment policy and certification form. The completion and submission of the certification form by a broker-dealer or financial institution shall constitute proof that it has received the City’s Statement of Investment Policy, read it, and intends to comply with it. Qualified financial institutions must provide current audited financial statements and provide either verification of a federal or a state charter or of being an eligible institution per the California Government Code. Broker/dealers must provide current audited financial statements and verification that the firm is in good standing with one of national securities exchange that is registered with the Securities Exchange Commission. B. Authorized Financial Institutions. The City Treasurer shall maintain an Approved List of all commercial banks and all savings and loan associations which may serve as public depositories of City monies. That list will be reviewed by the Finance and Audit Standing Committee within three months of modifying the list. The City shall only deposit public monies in financial institutions that have: (1) at least $500 million in total assets; (2) a core capital-to-total assets ratio of at least five percent; (3) favorable ratings from a recognized financial institution rating service, as determined by the City Treasurer; (4) a federal or a state charter; or are eligible institutions per the California Government Code and (5) a branch office within Santa Barbara County. Under no circumstances shall the City’s deposits in a financial institution exceed the total shareholders’ equity of that institution. C. Authorized Broker-dealers. The City will maintain a list of financial institutions authorized to provide investment services. In addition, a list will also be maintained of approved security broker-dealers selected by credit 13