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CC - Item 4F - Annual Adoption of City's Investment PolicyI TO: HONORABLE MAYOR AND MEMBERS ROSEMCITY COUNCIL FROM: BILL CR WE, CITY MANAGER DATE: JUNE 15, 2004 RE: ANNUAL ADOPTION OF CITY'S INVESTMENT POLICY The City's Auditor, McGladrey & Pullen, LLP requires the City Council to approve on an annual basis the City's Investment Policy. Attached is a copy of the City's Investment Policy approved by the City.Council at the Adjourned Meeting of October 3, 1995. Also included is the staff report from that meeting as well as the minutes. i RECOMMENDATION It is recommended that the City Council adopt the attached policy. klo: word \bankmisc \inveslpolicyag.doc (06- 14 -04) AGENT y JUN 2 2 2004 rr EM No. CITY OF ROSEMEAD INVESTMENT POLICY The investment of the funds of the City of Rosemead is directed to the goals of safety, liquidity and yield. The authority governing investments for municipal governments is set forth in the Government Code, Sections 53601, et seq. The primary objective of the investment policy of the City of Rosemead is SAFETY. Our investments are placed in those securities as outlined below; the balance between the various investment instruments may change in order to give the City the best combination of liquidity and additional yield. LOCAL INVESTMENT VS. DIRECT MARKET INVESTMENT As a matter of public policy, one of the goals of a public agency's investment program may be local economic development. Placing funds in local banks is one method of promoting this goal. It can be argued that the total return to the government from keeping the money at "home" is the sum of the direct yield on the time deposits and the indirect yield that comes from the added tax revenues generated by local economic growth. In general, however, it is hard to measure the costs and benefits of such a policy. Private financial institutions that receive public funds can allocate those funds to many different assets. Bank credit is mobile and can be directed to areas and uses that meet the banking institution's preferences. Probably banks invest in whatever assets will realize the greatest income to them. The City of Rosemead places investments in local banks to the extent one can without sacrificing the other goals of our investment policy, i.e., safety, liquidity and yield. A VARIED INVESTMENT PROGRAM The City of Rosemead uses a varied investment program to accomplish all of our goals- safety, liquidity and yield as well as local investment. Following are the types of investments the City makes and some of the advantages of each: The local Agency Investment Fund of the State of California offers high liquidity because our deposits can be wired to our checking account within twenty -four (24) hours. Interest is computed on a daily basis. Our savings account allows us to transfer money from checking to savings and earn short -term interest on odd amounts of money. U.S. treasury securities are highly liquid in addition to being considered the safest of all investments. City of Rosemead Investment Policy, Page 2 Federal Agency securities are high liquid and considered riskless Bankers Acceptances are frequently the highest in yield, and are safe investments are highly liquid. Commercial paper issued by prime rated industrial and financial institutions allows the investment of money for one to 180 days at rates higher than we can earn from' the previously listed securities. These are also collateralized. Certificates of deposit allow the City to select the exact amount and day to maturity as well as the exact depository. There are penalties for withdrawal of funds prior to the original maturity date. These are also collateralized. Negotiable certificates of deposit are high grade instruments, paying a higher interest rate than regular certificates of deposit. They are liquid because they can be traded in the secondary market. Medium Term Corporate Notes offer a competitive alternative to Negotiable Certificates of Deposits and standard Certificates of Deposits. These securities enjoy an actibve secondary market to provide liquidity. Mutual Funds or "beneficial shares" is another authorized investment allowing the City to maintain liquidity and receive money market rates. DEPOSITORY SERVICES AS THEY RELATE TO THE CITY OF ROSEMEAD Leaal Constraints Money must be deposited in state or national banks, state or federal savings associations or state or federal credit unions in the state. It may be in inactive deposits, active deposits or interest - bearing active deposits. The deposits cannot exceed the amount of the bank's paid up capital and surplus. The bank must secure the active and inactive deposits with eligible securities having a market value of 110% of the total amount of the deposits. State law also allows as an eligible security, first trust deeds having a value of 150% of the total amount of the deposits. A third class of collateral is letters of credit drawn on the Federal Home Loan Bank (FHLB). As a matter of policy, the City does not accept 150% collateral in first trust deeds or 105% Letters of Credit drawn on the FHLB, even though the state statutes allow municipalities to accept them. City of Rosemead Investment Policy, Page 3 The treasurer may, at his discretion, waive security for that portion of a deposit which is insured pursuant to federal law. Currently, the first $100,000 of a deposit is federally insured. It is to the City's advantage to not waive this collateral requirement for the first $100,000. If funds are to be collateralized, the collateral we accept is 110% of the deposit in government securities.. Depository Services Active deposits are demand or checking accounts which receive revenues and pay disbursements. The City of Rosemead has three demand accounts: General checking account Payroll checking account Redevelopment Agency bond proceeds checking account Interest - bearing active deposits are money market accounts at a financial institution (i.e., bank, savings and loan, credit union). These accounts are demand accounts (i.e., checking accounts) with restricted transaction activity. The City of Rosemead has two accounts of this nature for the Rosemead Redevelopment Agency. Inactive deposits are Certificates of Deposit issued in any amount for periods of time as short as fourteen (14) days and as long as several years. Interest must be calculated on a 360 day basis, actual number of days. At any given time, the City may have certificates of deposit in several financial institutions. As a matter of policy, we do not invest in CD's for longer than on year. We require that each financial institution submit current financial statements which are evaluated by staff prior to investment of funds. We use the following criteria: The institution must have been in business at least three years. The institution must submit audited financial statements. 'The institution must have assets of at least $50 million and a net worth to liability ratio of 3.5 to 1. For calculations, net worth does not include subordinated debt and Reserves for Allowance for Loan Losses. City investments of less than 180 days to maturity can use a net worth to asset ration of 3.0 to 1. Whenever possible, the use of several years' financial data is evaluated to present a trend of activity in the institution. We also require that interest be paid to the City on a monthly basis (current state law only,requires quarterly payment). City of Rosemead Investment Policy, Page 4 Passbook savings account is similar to an inactive deposit except not for a fixed term. The savings account allows us flexibility. Funds can be deposited and withdrawn according to our daily needs. INVESTMENT VEHICLES AS THEY RELATE TO THE CITY OF ROSEMEAD Legal Constraints Surplus funds of local agencies may only be invested in certain eligible securities. The City of Rosemead invests only in these securities. See Government Code, Section 53601, a- m, Investment of Surplus Funds. Effective January 1, 1989, the Government Code, Section 53601 states: "no investment shall be made in any security underlying a repurchase or reverse repurchase agreement authorized by this section, which at the time of the investment has a term remaining to maturity in excess of five years, unless the legislative body has granted express authority to make that investment either specifically or as a part of an investment program approved by the legislative body no less than three months prior to the investment." The investment strategy for the City of Rosemead is similar to administer an operational portfolio. A definition of an operational portfolio is to have adequate funds available at all times to meet appropriated and projected cashflow requirements for the City of Rosemead. From time to time, the investment strategy may wish to capture high yields with the purchase of safe, low risk, highly liquid investments. For purchases greater than five years, the following requirements must be met: The security must be a U.S. Treasury Note or bond, a Federal National Mortgage Association (FNMA) debenture of Federal Home Loan Bank (FHLB) debenture. 2. A maximum of twenty -five (25) percent of the City's funds can be invested in securities with maturities between five and seven years. 3. No securities can be purchased for the City of Rosemead or the Rosemead Redevelopment Agency with a maturity greater than five years, without the Committee approval and Council consent. The City of Rosemead does not purchase or sell securities on MARGIN. City of Rosemead Investment Policy, Page 5 Investment Vehicles U.S. TREASURY's are direct obligations of the United States Government. U.S. T -BILLS are issued weekly with maturity dates up to one year. They are issued and traded on a discount basis and the interest is figured on a 360 day basis, actual number of days. They are issued in amounts of $10,000 and up, in multiples of $5,000. They are a highly liquid security. U.S. T -NOTES are initially issued with two to ten year maturities. They are actively traded in a large secondary market and are very liquid. The Treasury may issue bond issues with a minimum of $1,000. Federal Agency issues are guaranteed directly or indirectly by the United States Government. All agency obligations quality as legal investments and are acceptable as security for public deposits. They usually provide higher yield then regular Treasury issues with all of the same advantages. Examples are: FNMA's (Federal National Mortgage Association) are used to assist the home mortgage market by purchasing mortgages insured by the Federal Housing Administration and the Farmers Home Administration, as well as those guaranteed by the Veteran's Administration. They are issued for various maturities from a few months to twenty years in denominations of $10,000 minimum. The notes are issued with maturities of less than one year and interest is paid at maturity. The bonds are issued at various maturities and interest is paid semi - annually. Interest is computed on a 30 day month, 360 day year basis. There is a strong secondary market in these securities. The City invests periodically in FNMA's. FHLB's (Federal Home Loan Bank) are issued by the Federal Home Loan Bank System to help finance the housing industry. The notes and bonds provide liquidity and home mortgage credit to savings and loan associations, mutual savings banks, cooperative banks, insurance companies and mortgage - lending institutions. The minimum denomination is $5,000. The notes are issued with maturities of less htan one year and interest is paid at maturity. the bonds are issued at various maturities and carry semi - annual coupons. Interest is computed on a 30 day month, 360 day year basis. There is a strong secondary market in these securities. The City invests periodically in FHLB's. FFCB's (Federal Farm Credit Bank) are debt instruments to finance the short and intermediate term needs of farmers and the national agricultural industry. They are issued monthly with 3 and 6 month maturities. The FFCB also issues discount notes with maturities less than one year purchased at a discount with interest paid at maturity. FFCB term issues longer than one year pay interest semi - annually on a 30/360 basis. These issues enjoy an established secondary market. The City invests in these securities from time to time. City of Rosemead Investment Policy, Page 6 TVA's (Tennessee Valley Authority) are loans to finance the capital acquisitions of the Authority. These issues are issued in intermediate and long term maturities. All issues are fully guaranteed by the U.S. Government against default. Interest is payable semi - annually and at maturity and is calculated on a 30/360 basis. Other federal agency issues are Small Business Administration notes (SBA's) and Government National Mortgage Association notes (GNMA's). As a matter of policy, the City does not invest in these issues because they do not suit our purpose as well as those outline above. Bankers Acceptances Bankers Acceptances are a short-term credit arrangement to enable businesses to obtain funds to finance commercial transactions. They are time drafts drawn on a bank by an exporter or importer to obtain funds to pay for specific merchandise. By its acceptance, the bank becomes primarily liable for the payment of the draft at its maturity. An acceptance is a high grade negotiable instrument. Acceptances are purchased in various denominations for original issue terms of 30 to 180 days but no longer than 270 days. The interest is calculated on a 360 day discount basis similar to Treasury Bills. Local agencies may not invest more than forty percent of their surplus money in bankers acceptances. The City may invests in bankers acceptances. Local Agency Investment Fund This is a special fund in the State Treasury which local agencies may use to deposit funds for investment. There is no minimum investment period and the minimum transaction is $5,000, in multiples of $1,000 above that, with a maximum of $20,000,000 for any agency. The City is restricted to a maximum of ten transactions per month. L.A.I.F. offers high liquidity because deposits can be converted to cash within twenty -four hours. All City of Rosemead Investment Policy interest is distributed to those agencies participating on a proportionate share determined by the amounts deposited and the length of time they are deposited. Interest paid quarterly via a check or direct deposit to Agency's L.A.I.F. account. The interest rates are fairly high because of the pooling of the State surplus cash with the surplus cash deposited by local governments. This creates a multi - billion dollar money pool and allows diversified investments. In a high interest rate market, we do better than L.A.I.F., but in times of low interest rates, L.A.I.F. yields are higher. The City continually invests in the Local Agency Investment Fund. The State keeps an amount for reasonable costs of making the investments, not to exceed one- quarter of one percent of the earnings. City of Rosemead Investment Policy, Page 7 The interest rates are fairly high because of the pooling of the State surplus cash with the surplus cash deposited by local governments. This creates a multi - billion dollar money pool and allows diversified investments. In a high interest rate market, we do better than L.A.I.F., but in times of low interest rates, L.A.I.F. yields are higher. The City continually invests in the Local Agency Investment Fund. Commercial Paper Commercial Paper is a short term unsecured promissory note issued by a corporation to raise working capital. These negotiable instruments are purchased at a discount to par value or at par value with interest bearing. Commercial paper is issued by corporations such as General Motors Acceptance Corporation (GMAC), Shearson - American Express, Bank of America, Wells Fargo Bank, etc. Local agencies are permitted by state law to invest in commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating as provided by Moody's Investor's Service, Inc., or Standard and Poor's Corporation. Purchases of eligible commercial paper may not exceed fifteen percent of the local agency's surplus funds. Medium Term Corporate Notes Medium Term Corporate Notes are unsecured promissory notes issued by a corporation organized and operating in the United States. These are negotiable instruments and traded in the secondary market. Medium Term Corporate Notes can be defined as extended maturity Commercial Paper. Corporations use these medium term debt securities to raise capital. Examples of corporate medium term notes (MTN's) are General Electric, Shearson - American Express, GMAC, Wells Fargo Bank, Citibank, Southern California Edison, etc. klo :worMbankmisOinvestpolicy.doc (11- 02 -99) N TO: HONORABLE MAYOR AND MEMBERS ROSEMEAD CITY COUNCIL FROM: FRANK G. TRIPEPI, CITY MANAGE DATE: SEPTEMBER 28, 1995 RE: CITY FINANCE COMMITTEE COUNCIL OCT "31995 ITEM No. /. After discussing this issue with the City Treasurer, staff drafted the attached document which is basically the City of Lakewood's investment policy without the following investment options: the County of Los Angeles Pooled Fund, Repurchase Agreements, Reverse Repurchase Agreements and Financial Futures and Options. Since the City already has an Investment Committee, as defined in Section 2207 of the RMC, the attached policy would serve as a guideline for that Committee. RECOMMENDATION It is recommended that after making any changes, the Rosemead City Council approve the attached policy and direct the City Treasurer to implement that.policy. �..U djw:ccstf(51) i pov CHAPTER 2 - OFFICERS 220.0 Assessor and Tax Collector Pursuant to the authority granted by Section 51501 of the Government Code of the State of California, the assessment and tax collection duties performed by the City Assessor and Tax Collector hereby are transferred to the Assessor and Tax Collector of the County of Los Angeles. 1 8 -4 -59 2200.1 Same. Abolishment of Offices The offices of City Assessor and Tax Collector hereby are abolished. 1 8 -4 -59 2200.2 Same. Transfer of Duties Pursuant to the authority granted by Section 51507 of the Government of the State of California, the duties'of the City Assessor, other than assessing of City property and the duties of the Tax Collector, other than the collection of taxes, hereby are transferred to and shall be performed by the City Clerk, or such officer of the County of Los Angeles authorized to perform such duties. 1 8 -4 -59 2201 City Clerk.Duties Any applications required to be filed with the City or fees required to be paid to the City, pursuant to the provisions of this Code, shall be filed with or paid to the City Clerk, unless otherwise by this Code provided. The City Clerk shall also be the Assistant Treasurer. 1 8 -4 -59 0 480 12 -12 -78 2201.1 City -Clerk Bond The City Clerk upon the entry to his duties of office shall execute a bond to the City in conformity with bonds of public officers, and in con- formity with the provisions of the Government Code of the State of California relating thereto, in the amount of $5,000. 1 8 -4 -59 2202 City Treasurer The City Treasurer shall be appointed by and serve at the pleasure of the City Council. The City Treasurer shall have the following duties: (a) Receive and have custody of all moneys receivable by the City from any source; (b) Deposit all moneys received in such de- positories as may be designated by resolution of the City Council; (c) Disburse moneys on demands properly audited Zr d approved in the manner provided for; (d) Prepare and submit to the City Clerk monthly written reports of all receipts, dis- bursements and fund balances, copies of which reports shall be filed with the City Manager and City Finance Director and City Council; -13- 2202, (e) Discharge any other financial duties which Cont'd may from time to time be assigned by the City Manager whether the same pertains to the normal duties of a City Treasurer or not; (f) Serve as Chairman of the Investment Company (g) Review and sign all investment documents to verify that they are in compliance with applicable laws and regulations. 1 8 -4 -59 458 10 -25 -77 2203. Removal of Papers or Documents from Cit Hall. No per- son unless authorized by the City Clerk, Mayor or City Attorney, shall remove any papers or documents from the City Hall. 2204. Office of Director of Finance and Purchasing Officer. Pursuant to Section 40805.5 of the Government Code of the State of California, the Office of Director of Fi- nance is hereby established, and the duties provided for in Government Code Sections 40802, 40803, 40804 and 40805 are hereby transferred from the City Clerk to the Director of Finance. The Director of Finance shall also be the Purchasing Officer and shall be ap- pointed by the City Manager on the basis of his pro - fessional and administrative qualifications and ability and shall serve as a Department Head at the pleasure of the City Manager. With the approval of the City Council, the City Manager may be appointed the Director of Finance and perform the functions thereof, including the appointment of a deputy or deputies and the delegation to other employees of the functions of the office. 164 .8 -12 -65 458 10 -25 -77 . . 480 12 -12 -78 2205. Powers and Duties of Director of Finance The Director of Finance shall be vested and charged with the following powers, duties and responsibilities: (a) To have charge of the administration of the financial affairs of the City; (b) To assist -the City Manager in preparing the annual budget f,or submission to the City Council, and to administer it after adoption; (c) To keep the City Manager fully informed on the financial condition and needs of the City; T.�. (d' - To serve as the Accounting Officer of the City and maintain records readily reflecting the financial condition of the City; (e) To prepare.for presentation to the City Council at the end of each fiscal.year a summary statement of receipts and disbursements by departments and funds, including opening & closing fund balances in the trea- anrv: ,i. 2205. (f) To cause the financial statement of the City Cont'd to be published in a new of general circulation printed and published in the City, within 120 days after the close of the fiscal year for which such statement is compiled; (g) To audit and approve before payment all bills, invoices, payrolls, demands or charges against the City, and with the advice of the City Attorney when necessary, determine the regularity, legality and correctness of such claims, demands and charges; (h) Supervise the keeping of current inventories of all property of the City by all City departments, offices and agencies; - (i) Perform such other duties as may be imposed upon him by ordinance or directive of the City Manager; (j.) To serve on the Finance - Committee as set forth in Section 2201 of this Code; (k) To act as purchasing officer as defined in Section 2602 of this code for the purchase of supplies, equipment, services and facilities as described in Section 2602 through 2612 of this code. The Director of Finance shall be bonded in an a-:ount to be•determi -ned by - the -City Council with:,the advice of the City Attorney. 164 8- 1'2 -65 458 10 -25 -77 2206 Powers and Duties of r' r F n Acting as _ Assistant City Treasurer The City Treasurer shall appoint the Director of Finance to act as the Assistant City Treasurer shall perform the following duties: (a) To act for the Treasurer when the Treasurer is absent, unable or refuses to perform his duties. (b) Preparation of cash flow projections for use in determining monies available for investment by the City; (c) Collection of taxes and licence fees; (d) Preparation of a monthly report of receipts, disbursements, and fund balances as required by Governnent Code Section 41004; (e) Preparation of demand listing and checks or warrants and payment thereof; (f) Receipt and deposit of money via the use of i prenumbered receipt forms, cash register machines, cash journals, deposit and coordination of night deposits at all receiving.points. 458 10 -25 -77 -15- 2207 The Investment Committee There shall be an Investment Committee which shall serve as an advisory body to the City Treasurer.and City Council. (a) Duties The Investment Committee shall meet on a regular basis, not less than once each month, to determine investments, appropriate depository banks, the amount and allocation of active nad inactive deposits, the methods of deposit, and all other matters pertinent to the investment and cash -flow of the City of Rosemead. The Investment Committee shall advise the Treasurer and report, from time to time, to the City Council on the status of the investment and cash -flow requirements of the City. (b) Members of Investment Committee The Investment Committee shall consist of the Treasurer, who shall be its chairman, the City Manager, and the Director of Finance. 458 10 -25 -77 -16- CITY OF ROSEMEAD INVESTMENT POLICY The investment of the funds of the City of Rosemead is directed to the goals of safety, liquidity and yield. The authority governing investments for municipal governments is set forth in the Government Code, Sections 53601, et seq. The primary objective of the investment policy of the City of Rosemead is SAFETY. Our investments are placed in those securities as outlined below; the balance between the various investment instruments may change in order to give the City the best combination of liquidity and additional yield. LOCAL INVESTMENT VS. DIRECT MARKET INVESTMENT As a matter of public policy, one of the goals of a public agency's investment program may be local economic development. Placing funds in local banks is one method of promoting this goal. It can be argued that the total return to the government from keeping the money at "home" is the sum of the direct yield on the time deposits and the indirect yield that comes from the added tax revenues generated by local economic growth. In general, however, it is hard to measure the costs and benefits of such a policy. Private financial institutions that receive public funds can allocate those funds to many different assets. Bank credit is mobile and can be directed to areas and uses that meet the banking institution's preferences. Probably banks invest in whatever assets will realize the greatest income to.them. The City of Rosemead places investments in local banks to the extent one can without sacrificing the other goals of our investment policy, i.e., safety, liquidity and yield. A VARIED INVESTMENT PROGRAM ` The City of Rosemead uses a varied investment program to accomplish all of our goals - safety, liquidity and yield as well as local investment. Following are the types of investments the City makes and some of the advantages of each: The local Agency Investment Fund of the State of California offers high liquidity because our deposits can be wired to our checking account within twenty -four hours. Interest is computed on a daily basis. Our savings account allows us to transfer money from checking to savings and earn short-term interest on odd amounts of money. U.S. treasury securities are highly liquid in addition to being considered the safest of all investments. c ' City of Rosemead Investment Policy Page 2 Federal Agency securities are high liquid and considered riskless. uently the highest in yield, and are safe investments are Bankers Acceptances are freq highly liquid. Commercial paper issued by prime rated industrial and financial institutions allows the . investment of money for one to 180 days at.rates higher than we can earn from the previously listed securities. These are also collateralized. as Certificates of tdepository. sit all h There are penalties exact n forwi hd a waloffunds pri y or to the well as the exact original maturity date. These are also collateralized. Negotiable certificates of deposit are high grade instruments, paying a higher interest rate than regular certificates of deposit. They are liquid because they can be traded in the secondary market. I tive Medium is an o standard t est of fer a c of Deposits lt These ties en an secondary market to provide liquidity. Mutual Funds or "beneficial shares" is another author !zed investment allowing the City to maintain liquidity and receive money DEPOSITORY SERVICES AS THEY RELATE TO THE CITY OF ROSEMEAD Legal C� onst_ r Money m ited in state or national banks, state or federal savings associatio ust be depos ns s in the state. It may be l or state or federal credit deposits. The deposits cannot exceed the amount of the bank's paid or interest - bearing active up capital and surplus. e active and inactive deposits with eligible securities having a The bank must secure th the deposits. ma eligible security, fi rst O trust deeds having amount of f 150% of the tt I amount n the deposits. 9 A third class of collateral is le first n t acicept drawn 50 °� toll to al in f strtrustadeeds orF10L5% As a matter of policy, the City on the FHLB, even though the state statutes allow municipalities to Letters of Credit drawn accept them. The treasurer may, at his discretion; waive security. for that portion of a deposit which is the first deposit is federally insured pursuant. to federa ala a nt ge to s not waive this l collateral alorequirrement for the first insured. It is to the City' $100,000. If funds are to be collateralized, the collateral we accept is 110% of the deposit in government securities. City of Rosemead Investment Policy Page 3 Depository Services Active deposits are demand or checking accounts which receive disbursements. The City of Rosemead has three demand accounts: General checking account Payroll checking account' bond proceeds checking account revenues and pay Redevelopment Agency act ive deposits are money market accounts at a financial institution (i.e., Interest bearing act bank, savings and loan, credit union). These The City of semead has two accou is of this accounts) with restricted transaction activity. . nature for the Rosemead Redevelopment Agency. as short amount iny for periods of Inactive deposits are C of Deposit as in a e tmust becalculatedon a 360 day e as fourteen days and as long ye have certificates of deposit basis, actual number of days. At any given time, the City may . in several financial institutions. As a matter of policy, we do not invest in CD's for longer than one year. We require that each financial institution submit current financial statements which are evaluated by staff prior to investment of funds. We use the following criteria: The institution must have been in business at least three years. The institution must submit audited financial statements. The institution must have assets of at least $50 million and a net worth to liability ratio of 3.5 to 1. For calculations, net worth does not include subordinated debt and Reserves for Allowance for Loan Losses. City investments of less than 180 days to maturity can use a net worth to asset ration of 3.0 to 1. - , f several years' financial data is evaluated to present a trend Whenever possible, the use o of activity in the institution. t be paid to the City on a monthly basis (current state law We also require that interes only requires quarterly payment): Passbook savings account is similar to an inactive deposit except not for a fixed term. The savings account allows us flexibility. Funds can be deposited and withdrawn accord In to our daily needs. City of Rosemead Investment Policy Page 4 INVESTMENT VEHICLES AS THEY RELATE TO THE CITY OF ROSEMEAD Legal Constraints Surplus funds of local agencies may only be invested in'certain eligible securities. The City of Rosemead invests only in these securities. See Government Code, Section 53601, a -m; Investment of Surplus Funds. Effective January 1, 1989, the Government code, Section.53601 states: "no investment shall be made in any security, other than a security underlying a repurchase or reverse repurchase agreement authorized by this section, which at the time of the investment has a "term remaining to maturity in excess of five years, unless the legislative body has granted express authority to make that investment either specifically or as a part of an investment program approved by the legislative body no less than three months prior to the investment." The investment strategy for the City of Rosemead is similar to administer an operational portfolio. A definition of an operational portfolio is to have adequate funds available at all times to meet appropriated and projected cashflow requirements for the City.of Rosemead. From time to time, the investment strategy may wish to capture high yields with the purchase of safe, low risk, highly liquid investments. For purchases greater than five years,. he following requirements must be met: 1. The security must be a U.S. Treasury Note or bond, a Federal National Mortgage Association (FNMA) debenture of Federal Home Loan Bank (FHLB) debenture. 2. A maximum of twenty -five percent of the City's funds can be invested in securities with maturities between five and seven years. 3. No securities can be purchased for the City of Rosemead or the Rosemead Redevelopment Agency with a maturity greater than five years, without the Committee approval and Council consent. , The City of Rosemead does NOT purchase or sell securities on MARGIN. Investment Vehicles U.S. TREASURY's are direct obligations of the United States Government. U.S. T -BILLS are issued weekly with maturity dates up to one year. They are issued and traded on a discount basis and the interest is figured on a 360 day basis, actual number of days. They are issued in amounts of $10,000 and up, in multiples of $5,000. They are a highly liquid security. City of Rosemead Investment Policy Page 5 U.S. T -NOTES are initially issued with two to ten year maturities. They are actively traded in a large secondary market and are very liquid. The Treasury may issue bond issues with a minimum of $1,000. Federal Agency issues are guaranteed directly or indirectly by the United States Government.. All agency obligations qualify as legal investments and are acceptable as security for public deposits. They usually provide higher yields than regular Treasury issues with all of the.same advantages. Examples are: . FNMA's (Federal National Mort gage Association) are used to assist the home mortgage market by purchasing mortgages insured by the Federal Housing Administration and the Farmers Home Administration, as well as those guaranteed by the Veterans Administration. They are issued for various maturities from a few months to twenty years in denominations of 510,000 minimum. The notes are issued with maturities of less than one year and interest is paid at maturity. The bonds are issued at various maturities and interest is paid semi - annually. Interest is computed on a 30 day month, 360 day year basis. There is a strong secondary market in these securities. The City invests periodically in FNMA's. FHLB's (Federal Home Loan Bank) are issued by the Federal Home Loan Bank System to help finance the housing industry. The notes and bonds provide liquidity and home mortgage credit to savings and loan associations, mutual savings banks, cooperative banks, insurance companies and mortgage- lending institutions. The minimum, denomination is $5,000. The notes are issued with maturities of less than one year and interest is paid at maturity.._'The bonds are issued at various maturities and carry semi- annual coupons. Interest is computed on a 30 day month, 360 day year basis. There is a strong secondary market.in these securities. The City invests periodically in FHLB's. FFCB's . (Federal Farm Credit Bank) are debt instruments to finance the short and intermediate term needs of farmers and the national agricultural industry. They are issued monthly with 3 and 6 month maturities. The FFCB also issues discount notes with maturities less than one year purchased at a discount with interest paid at maturity. FFCB term issues longer than one year pay interest semi - annually on a 30/360 basis. These issues enjoy an established secondary market, The City invests in these securities from time to time. TVA's (Tennessee Valley Authority) are loans to finance the capital acquisitions of the Authority. These issues are issued in intermediate and long term maturities. All issues are fully guaranteed by the U.S. Government against default. Interest is payable semi- annually and at maturity and is calculated on a 30/360 basis. Other federal agency issues are Small Business Administration notes (SBA's) and Government National Mortgage Association notes (GNMA's). As a matter of policy, the City does NOT invest in these issues because they do not suit our purpose as well as those outlines above. City of Rosemead investment Policy Page 6 Bankers Acceptances Bankers Acceptances are a short -term credit arrangement to bus' asses to obtain funds to finance commercial transactions. They are time drafts drawn n a bank by an exporter or importer to obtain funds to pay for specific merchandise. By it acceptance, the bank becomes primarily liable for the payment of the draft at its maturity. An acceptance is a high grade negotiable instrument. Acceptances are purchased in various enominations for original issue terms of 30 to 180 days but no longer than 270 days. The int rest is calculated on a 360 day discount basis similar to Treasury Bills. Local agencies ma not invest more than forty percent of their surplus money in bankers acceptances. The City nvestlin bankers acceptances; ay be in these short term investments. The City of Rosemead does not use these. Local Agencv Investment Fund This is a special fund in the State Treasury which local agencies may use to deposit funds for investment. There is no minimum investment period and the minimum transaction if $5,000, in multiples of $1,000 above that, with a maximum of $20,000,000 for any agency. The City is restricted to a maximum of ten transactions per month. L.A.I.F. offers high liquidity because deposits can be converted to cash within twenty -four hours. All City of Rosemead Investment Policy Page 7 interest is distributed to, those agencies participating on a proportionate share determined by the amounts deposited and the length of time they are deposited. Interest is paid quarterly via a check or direct deposit to Agency's L.A.I.F. account. The State keeps an amount for reasonable costs of making the investments, not to exceed one - quarter of one percent of the earnings. The interest rates are fairly high because of the pooling of the State surplus cash with the surplus cash deposited by local governments. This creates a multi - billion dollar money pool and allows diversified investments. In a high interest rate market, we do better than L.A.I.F., but in times of low interest rates, L.A.I.F. yields are higher. The City continually invests in the Local Agency Investment Fund. Negotiable Ce " i tes of D institution, ban r s mgs lo: accrued inter tat at y. They issuance' m mu i s of S1 mil' of S50 ,000 al ugh smaller ne iabie C although as o meric Citibank, Chas an established for continued quidity 7 (NCD's) unsecur ugh par alue ith p grade eg able inst the seco market usi �e occasi y available. T er of p only with th ttan, a .) where a sec Local agencies may not in -otTlp ations o' om' a to f u ent . The F y ades in i i it invests rgest U.SIn ry market est more ncial odically (i.e., BA 30 1 /0 of City of Rosemead Investment Policy Page 7 Commercial Paper Commercial paper is a short term unsecured promissory note issued by a corporation'to raise working capital. These negotiable instruments are purchased at a discount to par value or at par value with interest bearing. Commercial paper is issued by corporations such as General Motors Acceptance Corporation (GMAC), Shearson- American Express, Bank of America, Wells Fargo Bank, etc. . Local agencies are permitted by state law to invest in commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical. rating as provided by Moody's Investor's Service, Inc. or Standard and Poor's Corporation. Purchases of eligible commercial.paper: may not exceed fifteen percent of the local agency's surplus funds. . Medium Term Corporate Notes Medium Term Corporate Notes are unsecured promissory notes issued by a corporation organized and operating in the United States. These are negotiable instruments and traded in the secondary market. Medium Term Corporate Notes can be defined as extended maturity Commercial Paper. Corporations use these medium term debt securities to raise capital. Examples of corporate medium term notes (MTN's) are General Electric, Shearson - American Express, GMAC, Wells Fargo Bank, Citibank, Southern California Edison, etc. Local agencies are restricted by the Government Code to investments in corporations rated in the top three note categories by a nationally - recognized rating service. Further restrictions are a maximum term of five years to maturity and total investments in MTN's may not exceed thirty percent of the local agency's surplus money. na.�� „al Funri� Mutual Fun a ref to in ernme od , Sectio 601, L, as "shares of beneficial in ests' s d by' iv ified m nag ant co, panie Th Mutual Fund must be ra;tricte y its b ws to t ame inve tm is as the oca gency These” es ment are Trees issue Agency sues, Sta f Californi a d City withi Califo nia) t obli tions, C mercial P per, Certific of Deposit, otiable rtif' ates of it, a d dium .Te Corpora Notes. T quality ratin nd perc to a restric s in a ch vestme category plicable to t ocal agency o applie o e Mutu und. A urther rest ction is that the purchase price of shares of the mutual funds a not include any sales commission. Investments in mutual funds shall not exceed fiftee ercent of the local agency's surplus money. A wp:agenda:13 4 . NOT OFFICIAL UNTI, ADOPTED BY THE ROSEMEAD MINUTES OF THE ADJOURNED REGULAR MEETING ,C /Ty COUNCIL ROSEMEAD CITY COUNCIL OCTOBER 3, 1995 ' . .. The adjourned regular meeting of the Rosemead City Council was called to order by Mayor Vasquez at 7:50 p.m. in the Conference Room of the City Hell, 8838 E. Valley Boulevard, Rosemead, California. - -- The Pledge.to the Flag was led by Councilmember Taylor. The Invocation was delivered by Councilmember Bruesch ROLL CALL OF OFFICERS: Present: Councilmembers Bruesch, Imperial (arrived at 7:55 p.m.), Taylor, Mayor Pro Tom Clark (arrived at 7:55 p.m.), and Mayor Vasquez Absent: .'None .. I. A STUDY SESSION TO DISCUSS THE CITY FINANCECOMMITTEE - Councilmember Taylor defined the makeup of the current Investment Committee as consisting of the Treasurer, the City Manager, and the Finance Director and asked what has changed since the problem we had after the last bond sale to prevent it from recurring. Frank Tripepi, City Manager, responded that the Council has set a very specific policy that says we will not deal with brokerage houses, get into the stock market, securities, or the long bond market as investment vehicles. Mr. Tripepi stated he believed the purpose of this meeting was to define the proper investments. Councilmember Taylor asked what caused the problem with the bond proceeds and who will be responsible for understanding the restrictions and regulations to prevent this from happening again. Mr. Tripepi explained that the oversight was caused by a lack of understanding by Merrill Lynch of what were viable and /or legal investment vehicles that the City or Agency could invest in, and that the City Treasurer, working with the Finance Committee members will follow policy set by Council to invest funds at the highest yield rate possible within legal boundaries. - Councilmember Taylor inquired if the three members. of the Investment Committee were aware or not of the regulations. Mr. Trips responded that some were and some weren't. Councilmember Taylor responded that if there was an oversight and it was missed, at that point whet protection would we have that that doesn't happen again. Mr. Tripepi responded that there needs to be a better understanding between the Treasurer and the other members as to what those investments will be prior to the time they are made. Councilmember Taylor then asked who would be sure the oversight wouldn't happen again and determined that the Treasurer apparently has that responsibility. Hugh Foutz, City Treasurer, said that he was fully aware that long term bonds were not to be invested in without specific approval, but that since he had been doing it for twenty years, he felt that that was a kind of approval. After some discussion about fluctuating interest rates, he felt that the loss could have been prevented if we had held on to the securities. CC 10 -3 -95 Page 1 Mr. Tripepi pointed out .that the policy which states that purchases more then five years cannot be done without Council approval. Peter Wallin, City Attorney, stated that the problem was that Mr. Foutz had invested - - in long term securities. Mr. Foutz stated that he did not hold anything long term and always had cash reserve - to cover any of the forecast cash flow. - Councilmember Imperial stated that there was no use pointing fingers at who was wrong and stated that an investment policy and finance committee needs to be formed in order to prevent future problems from occurring. Mr. Imperial continued that this should never have happened, but that he thought we had a safety system in place and apparently it wasn't good enough and that we need to move forward. Mayor Pro Tam Clark stated that if there is no admission of what went wrong, then - we may fall into the some situation again and added that investments longer. than five years 'i should require Council approval. She also stated that in addition to the long term investment, r another, problem was the type of investments which weren't legal anymore. ,. Mr. Wallin affirmed that the legal restrictions applicable to City money ware not the - same as for Agency money. The Redevelopment Agency did not have a limitation on five year investments as the City did, and Bond Counsel opined that several of the Agency investments, although they may be legal under redevelopment few, they not legal under the bond covenants. J Mayor Pro Tam Clark stated that the third problem was the fact of arbitrage -that even . - if you make more money on your investments than the rate you borrowed the money at, the Federal government says you cannot keep the profit. el Mr. Foutz stated that since you are not through with the investment for thirty years, he would went to make a good profit on the investment and that it is after thirty years that you measure whether you made a profit... Mayor Pro Tam Clark repeated her concern that since the government makes you pay �. -_ back any profit you make, why are we taking the risk of investing in securities that can , fluctuate? - Mr. Wallin and Mr. Tripepi confirmed that it is not at the end of thirty years, it is every year that bond counsel computes the arbitrage. You cannot invest at a higher yield than you borrowed at. Mr. Tripepi confirmed that this information comes from the Bond Counsel and - independent city auditors. - Mr. Fout that he has conflicting advice about arbitrage from many sources, but that he must abide by our Bond Counsel. Councilmember Imperial stated, that this was "water under the bridge" and we need to move on. Councilmember Bruesch explained that the public is more aware of City's finances, that laws are being changed and tightened and Council needs to move forward and become more knowledgeable and start overseeing Rosemead's finances and investments. Discussion ensued as to who would be on the Finance Committee and receiving. <- quarterly reports from the City Treasurer. MOTION BY COUNCILMEMBER BRUESCH, SECOND BY MAYOR PROTEM CLARK that the Council receive quarterly reports and Minutes from the Finance Committee meetings. Before vote could occur, more discussion ensued. CC 10 -3-95 Page 2 Councilmember Taylor emphasized that this motion does not change anything and what guarantee is there that somebody is keeping current and aware.of all state and federal regulations. Mr. Taylor continued that while Mr. Foutz has done a good job, someone else needs to be accountable also, such as the City Manager and Finance Director if they can keep abreast of.all the changes and reflect those changes in the minutes. Councilmember Imperial suggested that a Councilmember be involved in the committee. Councilmember Taylor responded that a professional familiar with the rule and changes would be more suitable. Mr. Tripepi . stated that the California Society of Municipal Finance Officers (CSMFO) publication,and the California Municipal Treasurer's Association (CMTA) have meetings and publications discussing guidelines regarding legal investments and that the Finance Committee meetings should consist mainly of making decisions as to what to do with investments rolling over and where should it go to maximize the investments. Councilmember Bruesch stated his motion again that the Council receive quarterly reports and minutes from the City Finance Committee, and that the minutes be placed on the City's Consent Calendar. Before vote could result, more discussion ensued. Mr. Tripepi explained that there may be times when there will not be a meeting, for example, when the money is already invested and does not require any decisions. After discussion; it was agreed that the Finance Committee should meet quarterly regardless. Councilmember Taylor said that his onl IQioblem with Mr. Foutz' inv stme s over the years had been the legal regulations I—V J; "Ca+— Ida tk4A M".. j" Mr. Tripepi stated that other, members of the Council did not feel taxpayers. dollars - .. should be played in a volatile market such as the bond market. He heard this expressed by Mayor Pro Tem Clark and Councilmember Bruesch. Mayor Pro Tem Clerk asked What would happen if there was not a unanimous consent among the Finance Committee members. Peter Wallin, City Attorney; responded that if the committee serves is advisor to the Treasurer, then the Treasurer has the power to do investments. Mayor Pro Tem Clark named the three areas that she considered were wrong; (1) the investments in question had emphasized yield over safety and liquidity and there was no rational basis for such an investment policy, when in any event, yield was limited by arbitrage restrictions; (2) the Agency investments in bonds issued by utility companies did not appear to be authorized by the bond covenants or state law; and (3) the investment of City funds in bonds that matured in more than five years had, as pointed out in the letter from the City auditor, violated legal restraints on City, investments. Mayor Pro. Tam Clark than asked Mr. Foutz whether the 'City Manager had pointed out to him what was wrong with these investments. Mr. Foutz stated that no one pointed them out until Frank had the proposal with Structured Finance. Councilmember Bruesch again asked Mr. Foutz that since he had not been attending the Treasurers' meetings whether he was privy to the information concerning these regulations? Mr. Foutz stated that arbitrage is a grey area and that Bond Counsel was unclear about it even at the meeting. CC 10 -3 -95 Page 3 Mayor Pro Tam Clark disagreed and stated that it had been made very clear. * She reiterated her concern that if local governments cannot keep the money they make on higher interest rates, then why are we investing in risky investments. . Mr Foutz countered as to why we seek lower borrowing rates in the first place? Mr. Tripepi explained that you borrow at the lowest rate possible, similar to a home buyer, and that the purpose of borrowing the money is to do projects, not to reinvest the money. - Councilmember Imperial repeated that he felt we should not be going over this again. Mayor Pro Tam Clark stated again that if there is not an admission of mistakes made, the same problem will occur again, and that is why she is asking for a unanimous agreement among the committee, and if an admission is not made, then we have a serious problem. Mrs. Clark continued that it was her understanding that Mr. Tripepi had warned Mr. Foutz concerning the investments and asked if that was true. Mr. Foutz said that it was "over his shoulder, walking into his office ", - saying lie wanted to do ... the 3.66% when it first came out Councilmember Taylor commented that it would be the responsibility of the Finance Committee to be aware of the three items that Mrs. Clark mentioned. Mr. Taylor stated that basically it was not a question of poor investment but of not following regulations, such as the TVA. While it was a good investment, it was a violation of utility and long -term investment regulations. - - Mayor Pro Tom Clark stated that if one member of the committee informs the Treasurer of a violation, then that item would have to go to Council to resolve. Councilmembers Taylor and Imperial concurred. Councilmember Bruesch requested that a clause be added to the investment Committee of the RMC, Section 2207, (c) to read that any decision of the Finance Committee be of unanimous consent. Mr. Tripepi stated that he had no problem with taking on an additional duty. He stated that Structured Finance was not new to this City and that when we sold all those long term bonds, Structured Finance had given Mr. Foutz a schedule of investments of all the money. Mr. Foutz had objected to Mr. Tripepi getting involved and stated he would do the investments. Mr.. Tripepi stayed out of it with the exception of the escrow fund overage, which stayed with Structured, which has been perfectly legal; not triggered by the audit, and has been a fine investment. Mr. Foutz took the bond proceeds and put them with Merrill Lynch. That was not`Mr. Tripepi's choice. He reiterated that Mr. Foutz had meet Structured Finance early on,in the bond deal. : Mr. Foutz stated that he felt that was an oversimplification of what had taken place. Councilmember Bruesch_ called for the question.. . Discussion ensued that that would be a policy change. Mr. Wallin added that a policy change, such as taking away the power of the City Treasurer and investing it in a committee of the three, would require an ordinance. COUNCILMEMBER BRUESCH requested that his MOTION include the unanimous consent clause as part of the Investment Committee section of the Rosemead Municipal Code. . COUNCILMEMBER TAYLOR bifurcated that MOTION to vote first on the submittal of quarterly reports and the updating of regulations. - Councilmember Bruesch called for the question. CC 10 -3 -95 Page 4 Mr. Tripepi pointed out that if investments come due after a Finance Committee i' meeting, would a special meeting of the Council have to be celled as to where to invest that money. _ u Mr. Wallin asked if every investment would have to come before the Finance Committee, for example, if on a Friday afternoon and Mr. Foutz is not available, can Mr. Tripepi invest $500,000 available in to a short term fund investment to earn $2,000 over the weekend. - CC 10 -3 -95 Page 5 Mayor Pro Tem Clark requested clarification on the motion and the unanimous consent . clause and stated that she does not want to vote on the Investment Committee without that clause as it is germane to the effectiveness of the committee. a Mr. Wallin clarified that there is a Motion and a Second on the floor that the Finance Committee provide Council with quarterly reports of their meetings, and there is nothing before the Council at this time on how the committee makes their decisions. Mayor Pro Tem Clark asked what procedure is necessary to include that policy decision. - " Mr. Wallin responded that such a decision could be included in the investment policy, or by adopting a resolution, or by minute action. Mr. Tripepi stated that the committee is already in place and this motion assures that the committee will meet on a regular basis and provide reports. Councilmember Bruesch confirmed that anything that changes the duties of the committee would have to be done by ordinance. ' Mr. Wallin added that the Council can adopt a motion to instruct staff to return with an ordinance to that effect: Councilmember Bruesch stated that would be the next step. MOTION BY COUNCILMEMBER BRUESCH, to amend the previous motion calling for unanimous consent end directed staff to develop a policy that 2207 (c) of the Rosemead Municipal Code state that the committee will provide Council with quarterly reports and - minutes of the meetings. •• Mayor Pro Tem Clark stated that she will not second the amended motion without the inclusion of the unanimous consent statement. MOTION BY COUNCILMEMBER TAYLOR, SECOND BY COUNCILMEMBER BRUESCH :. to table the previous motion and that the new motion include under 2207 (c) Rosemead Municipal Code that the Finance Committee meet quarterly and provide Council with reports of those meetings. Vote resulted: Yes: Bruesch, Vasquez, Imperial, Taylor No: Clark - Absent: None Abstain: None - The Mayor declared such motion duly carried and so ordered. MOTION BY COUNCILMEMBER BRUESCH, SECOND BY MAYOR PRO TEM CLARK that 2207 (d) state that-all investment policies be by unanimous consent of the members of the - Investment Committee and any non - unanimous decisions be brought before the Council. _ Before vote could result, more discussion ensued. Mr. Tripepi pointed out that if investments come due after a Finance Committee i' meeting, would a special meeting of the Council have to be celled as to where to invest that money. _ u Mr. Wallin asked if every investment would have to come before the Finance Committee, for example, if on a Friday afternoon and Mr. Foutz is not available, can Mr. Tripepi invest $500,000 available in to a short term fund investment to earn $2,000 over the weekend. - CC 10 -3 -95 Page 5 i f. Councilmember Bruesch suggested a proviso can be added whereby only major decisions regarding the amount and length of investments come before the Council. Mr. Tripepi explained that that would be taking power away from the Treasurer and that the Treasurer has to be given the responsibility to do those short term repurchase Investments, with his alternate as backup when he is out of town. Councilmember Taylor stated that there have not been any problems with the investments made by the Treasurer in the past, and with the Finance Committee in place providing quarterly reports, the Council will have a financial overview without having to become involved in the day -by -day operations. Mr. Foutz stated there have not been any disagreements over the years with his investments except this one occasion and this situation came about largely due to the Orange County fiasco. Mayor Pro Tem Clark agreed that the Council should not micro - manage either, but there were investments made in the past that were not proper and wants assurance that this does not occur again. Mrs. Clark stated that she did not feel we had solved the problem. Also discussed and agreed upon was the willingness and ability of the City Treasurer and City Manager to work together on the Finance Committee to follow Council's policy.' Councilmember Taylor called for the question. Vote resulted: Yes: - Bruesch, Clark No: :Vasquez, Imperial, Taylor . Absent: None Abstain: None The Motion failed to pass Councilmember Taylor clarified for Mr. Foutz that the Motion was that the committee had to be unanimous in everything it did for the investments and the vote was No; therefore, they are to continue as they have been. The next topic discussed for contextual purposes was the City's Investment Policy. Councilmember Bruesch asked if banks have a local investment policy. Mr. Tripepi responded that that is not necessary because federal banking laws under the Community Reinvestment Act requires local banks to put percentage of money back into the community that they get by way of investments. Councilmember Taylor inquired about another law or regulation that requires investing our money in banks that earn the highest return for the taxpayers. Mr. Tripepi responded that the City or Agency has.to buy the Certificate of Deposits from the bank that has the highest return. Councilmember Bruesch requested thatthe Investment Policy include investing in local 'banks as much as possible. - Mayor Pro Tem Clark inquired about the Negotiable Certificates of Deposit (NCD's) section relating to unsecured obligations. Mr. Foutz responded that the City does not use NCO's and the C.D's invested in has a 110 °h guarantee, and he will not invest money in a bank without collateral. MOTION BY MAYOR PRO TEM CLARK, SECOND BY COUNCILMEMBER TAYLOR that the entire paragraph relating to Negotiable Certificates of Deposit of the Investment Policy be deleted. Vote resulted:. CC 10 -3-95 Page 6 . Aye: No: Absent: Abstain: Bruesch, Clark, Vasquez, Imperial, Taylor None None None The Mayor declared said motion duly carried and so ordered. MOTION BY COUNCILMEMBER BRUESCH, SECOND BY COUNCILMEMBER TAYLOR .that the entire paragraph relating to Mutual Funds of the Investment Policy be deleted. Vote resulted: Aye: Bruesch, Clark, Vasquez, Imperial, Taylor No: None Absent: None Abstain: None The Mayor declared said motion duly carried and so ordered. Mayor Pro Tem Clark requested confirmation from the City Treasurer, City Manager, and Finance Director that the items remaining in the Investment Policy are safe investments. The response was affirmative. MOTION BY COUNCILMEMBER TAYLOR, SECOND BY COUNCILMEMBER IMPERIAL that the Council approve the amended Investment Policy. Vote resulted: Aye: Bruesch, Clerk, Vasquez, Imperial, Taylor . No: None Absent: None - Abstain: None The Mayor declared said motion duly carried and so ordered. H. ADJOURNMENT There being no further action at this time, the meeting was adjourned at 9:20 p.m. The next regular meeting will be held on October 10, 1995, at 8:00 p.m. Respectfully submitted: APPROVED: City Clerk CC 10 -3 -95 Page 7 MAYOR MINUTES.OF THE ADJOURNED REGULAR MEETING ROSEMEAD CITY COUNCIL . OCTOBER 3, 1995 NOT OFFICIAL UNTIE ADOPTED BY THE ROSEMEAD CITY COUNUL The adjourned regular meeting of the Rosemead City Council was called to order by Mayor Vasquez at 7:50 p.m. in the Conference Room of the City Hall,, 8838 E. Valley Boulevard, Rosemead, California. The Pledge to the Flag was led by Councilmember Taylor. . The Invocation was.delivered by Councilmember Bruesch ROLL CALL OF OFFICERS: Present: Councilmembers Bruesch, Imperial (arrived at 7:55 p.m.), Taylor, Mayor Pro Tem Clark (arrived at 7:55 p.m.), and Mayor Vasquez Absent: None A STUDY SESSION TO DISCUSS THE CITY FINANCE COMMITTEE -Councilmember Taylor defined the makeup.of the current Investment Committee as consisting of the Treasurer, the City Manager, and the Finance Director and asked what has changed since the problem we had after the last bond sale to prevent it from recurring. Frank Tripepi, City Manager, responded that the Council has set a very specific policy that says we will not deal with brokerage houses, get into the stock market, securities, or the long bond market as investment vehicles. Mr. Tripepi stated he believed the purpose of this meeting was to define the proper investments. Councilmember Taylor asked what caused the problem with the bond proceeds and who will be responsible for understanding the restrictions and regulations to prevent this from happening again. Mr. Tripepi explained that the oversight was caused.by a lack of understanding by Merrill Lynch of what were viable and /or legal investment vehicles that the City or Agency could invest in, and that the City Treasurer, working with the Finance Committee members will follow policy set by Council to invest funds at the highest yield rate possible within legal boundaries. Councilmember Taylor inquired if the three members. of the Investment Committee were aware or not of the regulations. Mr. Tripepi responded that some were and some weren't. Councilmember Taylor responded that if there was an oversight and it was missed, at that point what protection would we have that that doesn't happen again. s. . Mr. Tripepi responded that there needs to be a better understanding between the Treasurer and the other members as to what those investments will be prior to the time they are made. Councilmember Taylor then asked who would be sure the oversight wouldn't happen again and determined that the Treasurer apparently has that responsibility. Hugh Foutz, City Treasurer, said.that he was fully aware that long term bonds were not to be invested in without specific approval, but that since he had been doing it for twenty years, he felt that that was a kind of approval. After some discussion about fluctuating interest rates, he felt that the loss could have been prevented if we had held on to the securities. CC 10 -3 -95 Page 1 N Mr. Tripepi pointed out that policy which states that purchases more then five years cannot be done without Council approval. Peter Wallin, City Attorney, stated that the problem was that Mr. Foutz had invested in long term securities. Mr. Foutz stated that he did not hold anything long term and always had cash reserve to cover any of the forecast cash flow. Councilmember Imperial stated that there was no use pointing fingers at who was wrong and stated that an investment policy and finance committee needs to be formed in order to prevent future problems from occurring. Mr. Imperial continued that this should never have happened, but that he thought we had a safety system in place and apparently it wasn't good enough and that we need to move forward. Mayor Pro Tem Clark stated that if there is no admission of what went wrong, then we may fall into the same situation again and added that investments longer. than five years should require Council approval. She also stated that in addition to the long term investment, another_ problem was the type of investments which weren't legal anymore. , Mr. Wallin affirmed that the legal restrictions applicable to City money were not the same as for Agency money. The Redevelopment Agency did not have a limitation on five year investments as the City did, and Bond Counsel opined that several of the Agency investments, although they may be legal under redevelopment law, they not legal under the bond covenants. Mayor Pro Tem Clark stated that third problem was the fact of arbitrage - that even if you make more money on your investments than the rate you borrowed the money at, the Federal government says you cannot keep the profit. Mr. Foutz stated that since you are not through with the investment for thirty years, lie would want to make a good profit on the investment and that it is after thirty years that, you measure whether you made a profit. Mayor Pro Tem Clark repeated her concern that since the government makes you pay back any profit you make, why are we taking the risk of investing in securities that can fluctuate? Mr. Wallin and Mr. Tripepi confirmed that it is not at the and of thirty years, it is every year that bond counsel computes the arbitrage. You cannot invest at a higher yield than you borrowed at. Mr. Tripepi confirmed that this information comes from the Bond Counsel and independent city auditors. Mr. Foutz,.stated that he has conflicting advice about arbitrage from many sources, but that he must abide by our Bond Counsel. Councilmember Imperial stated. that this was "water under the bridge" and we need to move on. Councilmember Bruesch explained that the public is more aware of City's finances, that laws are being changed and tightened and Council needs to move forward and become more knowledgeable and start overseeing Rosemead's finances and investments. Discussion. ensued as to who would.be on the Finance Committee and receiving quarterly reports from the City Treasurer.. MOTION BY COUNCILMEMBER BRUESCH, SECOND BY MAYOR PROTEM CLARK that the Council receive quarterly reports and Minutes from the Finance Committee meetings. Before vote could occur, more discussion ensued. CC 10 -3-95 Page 2 . Councilmember Taylor emphasized that this motion does not change anything and what guarantee is there that somebody is keeping current and aware. of all state . and federal regulations. Mr. Taylor continued that while Mr. Foutz has done a good job, someone else needs to be accountable also, such as the City Manager and Finance Director if they can keep abreast of all the changes and reflect those changes in the minutes. Councilmember Imperial suggested that a Councilmember be involved in the committee. Councilmember Taylor responded that a professional familiar with the rule and changes would be more suitable. Mr. Tripepi stated that the California Society of Municipal Finance Officers (CSMFO) publication,and the California Municipal Treasurer's Association. (CMTA) have meetings and publications discussing guidelines regarding legal investments and that the Finance Committee meetings should consist mainly of making decisions as to what to do with investments rolling over and where should it go to maximize the investments. Councilmember Bruesch stated his motion again that the Council receive quarterly reports and minutes from the City Finance Committee, and that the minutes be placed on the City's Consent Calendar. Before vote could result, more discussion ensued. Mr. Tripepi explained that there may be times when there will not be a meeting, for example, when the money is already invested and does not require any decisions. After discussion, it was agreed that the Finance Committee should meet quarterly regardless. Councilmember Taylor said that his onl problem with r. Foutz' investme s over the years had been the legal regulations L", k%�-I y 2 Mr. Tripepi stated that other members of the Council did not feel taxpayers, dollars should be played in a volatile market such as the bond market. He heard this expressed by Mayor Pro Tam Clark and Councilmember Bruesch. Mayor Pro Tam Clark asked what would happen if there was not a unanimous consent among the Finance Committee members. Peter Wallin, City Attorney; responded that if the committee serves as advisor to the Treasurer, then the Treasurer has the power to do investments. Mayor Pro Tam Clark named the three areas that she considered were wrong; (1) the investments in question had emphasized yield over safety and liquidity and there was no rational basis for such an investment policy, when in any event, yield was limited by arbitrage restrictions; (2) the Agency investments in bonds issued by utility companies did not appear to be authorized by the bond covenants or state law; and (3) the investment of City funds in bonds that matured in more than five years had, as pointed out in the letter from the City auditor, violated legal restraints on City investments. Mayor Pro. Tom Clark than asked Mr. Foutz whether the 'City Manager had pointed out to him what was wrong with these investments. Mr. Foutz stated that no one pointed them out until Frank had the proposal with Structured Finance. Councilmember Bruesch again asked Mr. Foutz that since he had not been attending the Treasurers' meetings whether he was privy to the information concerning these regulations? Mr. Foutz stated that arbitrage is a grey area and that Bond Counsel was unclear about it even at the meeting. e CC 10 -3 -95 Page 3 Mayor Pro Tom Clark disagreed and stated that it had been made very clear. She reiteratpd her concern that if local governments cannot keep the money they make on higher interest rates, then why are we investing in risky investments. Mr Foutz countered as to why we seek lower borrowing rates in the first place? Mr. Tripepi explained that you borrow at the lowest rate possible, similar to a home buyer, and that the purpose of borrowing the money is to do projects, not to reinvest the money. . Councilmember Imperial repeated that he felt we should not be going over this again. Mayor Pro Tom Clark stated again that if there is not an admission of mistakes made, the'same problem will occur again, and that is why she is asking for a unanimous agreement among the committee, and if an admission is not made, then we have a serious problem. Mrs. Clark continued that it was her understanding that Mr. Tripepi had warned Mr. Foutz concerning the investments and asked if that was true. Mr. Foutz said that it was "over his shoulder, walking into his ,office ", saying fie wanted to do ... the 3.68 %.when it first came out Councilmember Taylor commented that it would be "the responsibility of the Finance Committee to be aware of the three items that Mrs. Clark mentioned. Mr. Taylor stated that basically it was not a question of poor investment but of not following regulations, such as the TVA. While it was a good investment, it was a violation of utility and long -term investment regulations. Mayor Pro Tam Clark stated that if one member of the committee informs the Treasurer of a violation, then that item would have to go to Council to resolve. Councilmembers Taylor and Imperial concurred. Councilmember Bruesch requested that a clause be added to the Investment Committee of the RMC, Section 2207, (c) to read that any decision of the Finance Committee be of unanimous consent. Mr. Tripepi stated that he had no problem with taking on an additional duty. lie stated that Structured Finance was not new to this City and that when we sold all those long term bonds, Structured Finance had given Mr. Foutz a schedule of investments of all the money. Mr. Foutz had objected to Mr. Tripepi getting involved and stated he would do the investments. Mr. Tripepi stayed out of it with the exception of the escrow fund overage, which stayed with Structured, which has been perfectly legal; not triggered by the audit, and has been a fine investment. Mr. Foutz took the bond proceeds and put them with Merrill Lynch. That was not Mr. Tripepi's choice. He reiterated that Mr: Foutz had meet Structured. Finance early'on the bond deal. Mr. Foutz stated that he felt that was an oversimplification of what had taken place. Councilmember Bruesch, called for the question.. . Discussion ensued that that would be a policy change. Mr.. Wallin added that a policy change, such as taking away the power of the City Treasurer and investing it in a committee of the three, would require an ordinance. COUNCILMEMBER BRUESCH requested that his MOTION include the .unanimous consent clause as part of the Investment Committee section of the Rosemead Municipal Code: COUNCILMEMBER TAYLOR bifurcated that MOTION to vote first on the submittal of quarterly reports and the updating of regulations. Councilmember Bruesch called for the question. . CC 10 -3 -95 Page 4 Mayor Pro Tem Clark requested clarification on the motion and the unanimous consent clause and stated that she does not want to,vote on the Investment Committee without that clause as it is germane to the effectiveness of the committee. Mr. Wallin clarified that there is a Motion and a Second on the floor that the Finance Committee provide Council with quarterly reports of their meetings, and there is nothing before the Council at this time on how the committee makes their decisions. Mayor Pro Tem Clark asked what procedure is necessary to include that policy decision. Mr. Wallin responded that such a decision could be included in the investment policy, or by adopting a resolution, or by minute action. Mr. Tripepi'stated that the committee is already in place and this motion assures that the committee will meet on a regular basis and provide reports. Councilmember Bruesch confirmed that anything that changes the duties of the committee would have to be done by ordinance. , Mr. Wallin added that the Council can adopt a motion to instruct staff to return with an ordinance to that effect. Councilmember Bruesch stated that would be the next step. MOTION BY COUNCILMEMBER BRUESCH, to amend the previous motion calling for unanimous consent and directed staff to develop a policy that 2207 (c) of the Rosemead Municipal Code state that the committee will provide Council with quarterly reports and minutes of the meetings. Mayor Pro Tem Clark stated that she will not second the amended motion without the inclusion of the unanimous consent statement. MOTION BY COUNCILMEMBER TAYLOR, SECOND BY COUNCILMEMBER BRUESCH to table the previous motion and that the new motion include under 2207 (c) Rosemead Municipal Code that the Finance Committee meet, quarterly and provide Council with reports of those meetings. Vote resulted: Yes: Bruesch, Vasquez, Imperial, Taylor No: Clark Absent: None _ Abstain: None The Mayor declared such motion duly carried and so ordered. MOTION BY COUNCILMEMBER BRUESCH, SECOND BY MAYOR PRO TEM CLARK that 2207 (d) state that all investment policies be by unanimous consent of the members of the Investment Committee and any non - unanimous decisions be brought before the Council. Before vote could result, more discussion ensued. Mr. Tripepi pointed out that if investments come due after Finance Committee meeting, would a special meeting of the Council have to be called as to where to invest that money. Mr. Wallin asked if every investment, would have to come before the Finance Committee, for example, if on a Friday afternoon and Mr. Foutz is not available, can Mr. Tripepi invest $500,000 available in to a short term fund investment to earn $2,000 over the weekend. CC 10 -3 -95 Page 5 Councilmember Bruesch suggested a proviso can be added whereby only major decisions regarding the amount and length of investments come before the Council. . Mr. Tripepi explained that that would be taking power away from the Treasurer and that the Treasurer has to be given the responsibility to do those short term repurchase investments, with his alternate as backup when he is out of town.. - Councilmember Taylor stated that there have not been any problems with the investments made by the Treasurer in the past, and with the Finance Committee in place providing quarterly reports, the Council will have a financial overview without having to become involved in the day -by -day operations. Mr. Foutz stated there have not been any disagreements over the years with his investments except this one occasion and this situation came about largely due to the Orange County fiasco. Mayor Pro Tem Clark agreed that the Council should not micro - manage either, but there were investments made in thd`past that were not proper and wants assurance that this does not occur again. Mrs. Clark stated that she did not feel we had solved the problem. Also discussed and agreed upon was the willingness and ability of the City Treasurer and City Manager to work together on the Finance Committee to follow Council's policy. Councilmember Taylor called for the question. Vote resulted: Yes: Bruesch, Clark No: Vasquez, Imperial, Taylor Absent: None Abstain: None The Motion failed to pass. Councilmember Taylor clarified for Mr. Foutz that the Motion was that the committee had to be unanimous in everything it did for the investments and the vote was No; therefore, they are to continue as they have been. The next topic discussed for contextual purposes was the City's Investment Policy. " Councilmember Bruesch asked if banks have 'a local investment policy Mr. Tripepi responded that that is not necessary because federal banking laws under the Community Reinvestment Act requires local banks to put percentage of money back into the community that they get by way of investments. Councilmember Taylor inquired about another law or regulation that requires investing our money in banks that earn the highest return for the taxpayers. Mr. Tripepi responded that the City or Agency has.to buy the Certificate of Deposits from the bank that has the highest return. Councilmember Bruesch requested that the Investment Policy include investing in local banks as much as possible. Mayor Pro Tem Clark inquired about the Negotiable Certificates of Deposit (NCD's) section relating to unsecured obligations. Mr. Foutz responded that the City does not use NCD's and the C.D's invested in has a 110% guarantee, and he will not invest money in a bank without collateral. MOTION BY MAYOR PRO TEM CLARK, SECOND BY COUNCILMEMBER TAYLOR that the entire paragraph relating to Negotiable Certificates of Deposit of the Investment Policy be deleted. Vote resulted: CC 10 -3 -95 Page 6 ` ' ` , ' Aye: BrUGScA, Clark, Vasquez, Imperial, Taylor . � No: None ' � None Absent: Nnno Abstain: None ` The Mayor declared said motion duly carried and so ordered. MOTION BYCOUNC|LK8EK8BERDRUESCH, SECOND BYCOUmC|LK8EMBERTAYLOR Ahat the entire paragraph relating to Mutual Funds of the Investment Policy be deleted. Vote 'SU|t8d� Aye: 8nuasoh, Clark, Vasquez, Imperial, Taylor No: None Absent: None Abstain: None ' The Mayor declared said motion duly carried 8nd.8uordered. ' Mayor Pro T'8n8 Clark requested confirmation from the City Treasurer, City Manager, and Finance Director that the items remaining iA the Investment Policy are safe investments. ' ` The response was affirmative. MOTION BYCOUNC|LK8EN1BER TAYLOR, SECOND 8YCOUNC|L[NE[NBERIMPERIAL that the Council approve the amended Invest Policy. Vote resulted; � ' Aye: Bru8SCh, Clark, Vasquez, Imperial, Taylor No: None Absent: None Abstain: None . ^ The Mayor declared ooidnoudondu|yc n|edoodoo ordered.- ` / IL ADJOURNMENT . ' There being o^ further action nt this time, the meeting was adjourned atQ:2Up.rn. The next regular meeting will be held onOctober 10, 1395,at8:00 pm; ` Respectfully submitted: APPROVED: ' ' ' City Clerk � ` MAYOR � � ' CC 18'3`Q5 Page '