|
Investment Policy
PURPOSE
Effective cash flow management and cash investment practices are
recognized as essential to good fiscal management. This Statement
is intended to provide guidelines for the prudent investment of
the City's temporarily idle cash in all Funds, and outline the policies
for maximizing the efficiency of the City's cash management system.
OBJECTIVE
The objective of the investment policy is to provide guidelines
for insuring the safety of funds invested while maximizing investment
interest income to the City.
INVESTMENT POLICY
A. The Finance Director is responsible for investing the
cash balances in all City Funds in accordance with the California
Government Code, Sections 53600 et seq. and 53635 et seq. This policy
does not include Long Term Debt Reserve Funds and Deferred Compensation
Funds, which are exceptions covered by other more specific Government
Code sections and the legal documents unique to each debt transaction.
Investment practices shall conform to the prudent man rule (Civil
Code Sect. 2261, et seq.) which states, in essence, that "in investing...
property for the benefit of another, a trustee shall exercise the
judgment and care, under the circumstances then prevailing, which
men of prudence, discretion and intelligence exercise in the management
of their own affairs..."
B. It is the City's full intent, at the time of purchase,
to hold all investments until maturity in order to ensure the return
of all invested principal. However, it is realistically anticipated
that market prices of securities purchased as investments will vary
depending on economic conditions, interest rate fluctuations, or
individual security credit factors. In a well diversified investment
portfolio, such temporary variations in market value will inevitably
result in measurable losses at any specific point in time. From
time to time, changes in economic or market conditions may dictate
that it is in the City's best interest to sell a security prior
to maturity.
C. The three principle factors of Safety, Liquidity and
Yield are to be taken into consideration, in the specific order
listed, when making investment decisions.
- Safety of principal is the foremost factor to be considered
during each investment transaction. Safety in investing refers
to minimizing the potential for loss of principal, interest or
a combination of the two due to the two types of risk, Credit
Risk and Market Risk.
- Credit Risk, defined as the risk of loss due to failure
of the issuer of a security, shall be mitigated by only investing
in very safe, or "investment grade" securities and diversifying
where feasible.
- Market Risk, defined as market value fluctuations due to
overall changes in interest rates shall be mitigated by limiting
the average maturity of the investment portfolio to less than
3 years, with a maximum maturity of any one security of 5
years without prior Council approval. Also, the portfolio
will be structured based on liquidity needs so as to avoid
the need to sell securities prior to maturity.
- Liquidity refers to the ability to convert an investment
to cash promptly with minimum risk of losing some portion of principal
or interest. The investment portfolio will be structured based
on historic cash flow analysis in order to provide the necessary
liquidity as investments routinely mature. A portion of the portfolio
will be maintained in liquid short term securities which can be
converted to cash if necessary to meet unforeseen disbursement
requirements.
- Yield is the average annual return on an investment based
on the interest rate, price, and length of time to maturity. The
City attempts to obtain the highest yield possible, provided that
the basic criteria of safety and liquidity have been met.
AUTHORIZED INVESTMENT INSTRUMENTS
The City may invest in the following instruments under the guidelines
as provided herein:
A. Certificates of Deposit. Time Certificates of Deposit
will be made only in FDIC or FSLIC insured accounts. For deposits
in excess of the insured maximum of $100,000, approved collateral
shall be required in accordance with California Government Code
Section 53652 and/or 53651 (m) (1). No more than 25% of the investment
portfolio may be invested in this investment type.
B. Securities of the U.S. Government or its Agencies. Includes
obligations issued by Federal Home Loan Banks, Government National
Mortgage Association, the Farm Credit System, the Federal Home Loan
Bank, the Federal Home Loan Mortgage Association, the Federal National
Mortgage Association, the Student Loan Marketing Association, or
obligations or other instruments of or issued by a federal agency
or a United States Government sponsored enterprise.
C. Treasury Bills and Notes. US Treasury Bills, Notes, Bonds
or Certificates of Indebtedness, or those for which the full faith
and credit of the United States are pledged for the payment of principal
and interest.
D. Local Agency Investment Fund (LAIF). Investment of funds
in the California LAIF which allows the State Treasurer to invest
through the Pooled Money Investment Account. Maximum investment
is subject to state regulation.
E. County of San Diego Treasury Pool. Investment of funds
in the County of San Diego Treasury which allows the County Treasurer-Tax
Collector to invest local funds through a pooled concept.
F. Bankers Acceptance. Bills of Exchange or Time Drafts
drawn on and accepted by a commercial bank, otherwise known as Bankers
Acceptances, both domestic and foreign, which are eligible for purchase
by the Federal Reserve System. Purchases of Bankers Acceptances
may not exceed 180 days maturity or total more than 40% of the cost
value of the City's investment portfolio.
G. Commercial Paper. Paper of the highest rating as provided
by Moody's Investors Service, Inc. (P1), or Standard and Poor's
Corporation (A1+). Eligible paper is further limited to issuing
corporations that are organized and operating within the United
States and having total assets in excess of five hundred million
dollars ($500,000,000). Purchases of eligible commercial paper may
not exceed 270 days maturity, represent more than 10% of the outstanding
paper of the issuer, or total more than 25% of the cost value of
the City's investment portfolio.
H. Negotiable Certificates of Deposit. Issued by a nationally
or state chartered bank or a state or federal savings and loan association
or by a state licensed branch of a foreign bank. Purchases of Negotiable
Certificates of Deposit may not total more than 30% of the cost
value of the City's investment portfolio.
I. Repurchase Agreements. A purchase of securities by the
City pursuant to a Master Repurchase Agreement by which the seller
will repurchase such securities on or before a specified date, or
on demand of either party, and for a specified amount. Investments
in repurchase agreements will be used solely as short term investments
not to exceed 90 days and be collateralized by securities having
a market value of at least 102% of the value of the repurchase agreement
at all times during the term of the investment.
J. Medium Term Corporate Notes. Corporate obligations shall
be rated A or better by Moody's and or Standard and Poor's rating
agencies. Purchases of corporate medium term notes shall not total
more than 30% of the cost value of the City's investment portfolio,
nor for any one corporation, when combined with any Commercial Paper
issued by the same corporation, total more than 15% of the cost
value of the City's investment portfolio.
K. Various daily cash funds administered for or by Trustees,
Paying Agents, or Custodian Banks contracted by the City may be
purchased as allowed under California Government Code. Only those
funds holding US Treasury or Government Agency obligations shall
be purchased.
DIVERSIFICATION
Investments shall be diversified among institutions, types of securities
and maturities to maximize safety and yield with changing market
conditions. Local financial institutions will be given preferential
consideration for investment of City funds consistent with the City's
objective of attaining market rates of return, and consistent with
constraints imposed by its safety objectives, cash flow considerations
and State laws.
SAFEKEEPING
All investments of the City shall have the City of Chula Vista
as registered owner and shall be held in safekeeping by a third
party bank trust department, acting as agent for the City under
the terms of a custody agreement.
INVESTMENT REPORTS
A. The Director of Finance shall submit a quarterly investment
report to the City Manager and City Council in accordance with Government
Code Section 16481.2 containing the following information for each
individual investment:
- Financial institution
- Type of investment
- Purchase Price of investment
- Rate of interest
- Purchase date
- Maturity date
- Current market value for securities
- Other data as required by the City
In addition, the report shall include a statement of compliance
of the portfolio with the Council approved Investment Policy and
a statement indicating the ability of the City to meet its expenditure
requirements for the next six months.
B. The Director of Finance shall submit copies of the second
and fourth quarter calendar year investment reports to the California
Debt and Advisory Commission (CDAIC) in accordance with AB 943.
Also a copy of the City's Investment Policy shall be sent to CDAIC
annually.
POLICY REVIEW
This investment policy and guidelines shall be adopted by resolution
of the City Council on an annual basis after being reviewed to ensure
its consistency with the overall objectives of preservation of principal,
liquidity, and yield, and its relevance to current law and financial
and economic trends.
|
