Loading...
CC - Item 3D - City Investment Policy0 ROSEMEAD CITY COUNCIL STAFF REPORT TO: THE HONORABLE MAYOR AND CITY COUNCIL FROM: OLIVER CHI, CITY MANAGER (gA--Gt-- DATE: JULY 22, 2008 SUBJECT: ADOPTION OF FY2008-09 CITY INVESTMENT POLICY SUMMARY Prudent fiscal management includes adopting a City Investment Policy that complies with investment law contained in Section 53601 of the California Government Code as well as internal policies and procedures that dictate best investment practices for the City of Rosemead. To assure that the policy is consistent with current law it is advisable to review and adopt the Investment Policy annually. The attached Investment Policy is being presented for City Council consideration and adoption with the above objectives in mind. Staff Recommendation The Finance Team recommends that the City Council approve the attached Investment Policy (Attachment A). ANALYSIS The California Government Code no longer requires annual adoption of an Investment Policy, however, in the interest of sound fiscal management the Finance Team is submitting the attached Investment Policy for City Council's review and adoption. The Policy was written in conformance with the laws put forth in Section 53601 of the California Government Code. Additions to the Investment Policy include, but are not limited to: 1) adopting the Investment Policy, with changes if necessary, each year, 2) the use of investment advisors, when appropriate, 3) allowed investment allocation percentages are defined for the purpose of protecting overall portfolio valuation, 4) language protecting the City from conflicts of interest by officers and consultants of the City. There are also a number of "best investment practices" included that go well beyond the Government Code investment laws toward meeting the investment priorities (in order of importance) of: 1) Safety, 2) Liquidity, 3) Yield. APPROVED FOR CITY COUNCIL AGENDA: 6, ITEM NUMBER: 9 City Council Meeting January t, 2008 Page 2 of 2 PUBLIC NOTICE PROCESS This item has been noticed through the regular agenda notification process. Submitted by: Steven Brisco Finance Director Attachment A: Investment Policy Attachment B: Investment Policy adopted June 27, 2006 9 • Attachment A The City of Rosemead Investment Policy Fiscal Year 2008-09 Investment Philosophy A. Policy This investment policy is set forth by the City of Rosemead (the City) for the following purposes: a. To establish a clear understanding for the City Council, the Finance Committee, City management, responsible employees, citizens and third parties of the objectives, policies and guidelines for the investment of the City's idle and surplus funds. b. To offer guidance to investment team members and any external investment advisors on the investment of City funds. C. To establish a basis for evaluating investment results. The City establishes investment policies which meet its current investment goals. The City shall review this policy annually, and may change its policies more frequently as its investment objectives change. B. Objectives The objectives of this policy are, in order of priority: To ensure the safety of the invested funds in compliance with all Federal, State and local laws governing the investment of moneys under the control of the City Treasurer. 2. To maintain sufficient liquidity to meet cash flow needs. To attain a "market average rate of return" consistent with primary objectives of safety and liquidity. The expected rate of return on the City's portfolio is more specifically defined in Section IV. C. Prudence 1 of 18 Investment Policy 7-22-08 P C The Prudent Investor Standard shall be used by investment officials, and shall be applied in the context of managing an overall portfolio. Investment staff acting in accordance with written procedures and the investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported within 30 days and appropriate action is taken to control adverse developments. 2. The Prudent Investor Standard: Governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, and managing public funds, a trustee shall act with care, skill prudence, and diligence under the circumstances then prevailing, that a prudent investor acting in a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within the limitations of this section and considering individual investments as part to an overall strategy, a trustee is authorized to acquire investments as authorized by law. D. State law, City statutes and City personnel and purchasing policies shall be followed to avoid conflict of interest or the appearance thereof. In addition to the applicable requirements of the Political Reform Act and the Government Code Section 1090, the City Treasurer and City Manager, members of the City Council, members of the Finance Committee, their spouses and investment consultants shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions on behalf of the City. In addition, these individuals shall disclose to the City Manager any financial interests in or financial relationships with financial institutions that conduct business with the City, and shall subordinate their personal investment transactions to those of the City's, particularly with regard to the timing of purchases and sales. Unless otherwise prohibited by State law, City statutes, policies or regulations, it is permissible for the City to purchase securities from firms in which members of the Finance Committee are officers, partners, members, or employees, provided that: (1) multiple bids are obtained for such purchases; (2) the affected member abstains from participation in the recommendation of the Finance Committee as to the firm with which the member has an employment or ownership relationship; (3) the member's relationship to the securities firm is stated in the minutes of the Finance Committee, and (4) the affected member of the Finance Committee does not participate in the sale of securities to the City as an officer, partner, member, or employee of the securities firm; and (5) the firm meets the requirements of Section II. C. of this Investment Policy. All bond issue providers including but not limited to underwriters, bond counsel, financial advisors, brokers and dealers, will disclose any fee sharing arrangements or fee splitting to the City Manager prior to the 2of18 Investment Policy 7-22-08 • 0 execution of any transactions. The providers must disclose the percentage share and approximate dollar amount share to the City prior to the execution of any transactions. II. Operational and Procedural Matters A. Scope This investment policy applies to all financial assets and investment activities of the City except for proceeds of debt issuance. Debt proceeds shall be invested in accordance with the investment objectives of the City as set forth in this policy: however, such proceeds are invested in accordance with permitted investment provisions of their specific bond indentures. All deviations from investments authorized in this policy for other City funds shall be disclosed to the City Council at the time bond documents are considered for approval. Proceeds of debt issuance shall be subject to the operational and reporting requirements of this policy. B. Delegation and Authority Authority to manage the City's investment program is derived from the California Government Code Sections 53600 et seq. 2. The City of Rosemead Municipal Code, Chapter 2.16.010, authorizes the City Treasurer to invest funds in accordance with California Government Code Section 53600 et seq. The Treasurer shall be responsible for all transactions undertaken by the City's internal staff, and shall establish a system of controls to regulate the activities of internal staff and external investment advisors engaged in accordance with Section II B (5). 3. In the absence of the City Treasurer, the investment responsibilities are hereby delegated to the Director of Finance. 4. In the absence of both the City Treasurer and the Director of Finance the City Manager has that responsibility 5. The City Council may, upon recommendation of the Finance Committee, engage the services of one or more external investment managers to assist in the management of the City's investment portfolio in a manner consistent with the City's objectives. Such external managers may be granted limited discretion to purchase and sell investment securities in accordance with this Investment Policy. Such managers must be registered under the Investment Advisers Act of 1940, or be exempt from such registration. Such external managers shall be prohibited from 1) selecting broker/dealers, 2) executing safekeeping arrangements, and 3) executing wire transfers. This Section does not preclude the City Treasurer from retaining portfolio consultants within existing authority. 3of18 Investment Policy 7-22-08 ~ - i C. Authorized Financial Dealers and Institutions The Treasurer will maintain a list of financial institutions authorized to provide investment services to the City. Institutions eligible to transact investment business with the City include: a. Primary government dealers as designated by the Federal Reserve Bank, b. Nationally or state-charted banks, c. The Federal Reserve Bank, and d. Direct issuers of securities eligible for purchase by the City. 2. Selection of financial institutions and broker/dealers authorized to engage in transactions with the City shall be at the sole discretion of the City. 3. The Treasurer and the Finance Committee shall obtain information from qualified financial institutions to determine if the institution makes markets in securities appropriate for the City's needs, can assign qualified sales representatives and can provide written agreements to abide by the conditions set forth in the City of Rosemead Investment Policy. Investment accounts with all financial institutions shall be standard non-discretionary accounts and may not be margin accounts. All financial institutions which desire to become qualified bidders for investment transactions must supply the Treasurer with the following: a. Audited financial statements for the institution's three most recent fiscal years. b. At least three references from California local agencies whose portfolio size, investment objectives and risk preferences are similar to the City's. C. A statement certifying that the institution has reviewed the California Government Code Section 53600 et seq. and the City's Investment Policy and that all securities offered to the City shall comply fully and in every instance with all provisions of the California Government Code. 5. The signatures of two individuals shall be required for the opening and closing of any bank account and broker account (the 4of18 Investment Policy 7-22-08 • Treasurer or City Manager, and the Mayor or Mayor Pro Tem). The Accounting Manager, who is independent of the investment function, shall keep a record of all opened and closed accounts. On an annual basis, the Accounting Manager shall provide this list of accounts to the City's independent auditor. 6. The authorized list of broker/dealers will be established for a two year period. Public deposits shall be made only in qualified public depositories within the State of California as established by State law. Deposits shall be insured by the Federal Deposit Insurance Corporation, or, to the extent the amount exceeds the insured maximum, shall be collateralized with securities in accordance with State law. 8. Whenever possible, investment staff shall obtain a minimum of two quotations, preferably three, prior to entering into an investment transaction. Staff will buy or sell at the price that is most advantageous to the City and meets investment requirements. D. Delivery vs. Payment All investment transactions of the City shall be conducted using standard delivery-vs.-payment procedures. E. Safekeeping of Securities To protect against potential losses by collapse of individual securities dealers, and to enhance access to securities, interest payments and maturity proceeds, all securities owned by the City 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 executed by the bank and by the City. From time to time, the City may invest funds received late in the day in one to thirty day repurchase agreements with its depository bank. Securities used as collateral for such repurchase agreements may be held in safekeeping by the City's depository bank. Investments are to be held in the City's name in conjunction with industry standards, including collateral held for repurchase agreements by depository banks. III. Permitted Investments and Portfolio Risk Management A. Investments authorized for purchase by City staff. All investments shall be made in accordance with Sections 536000 et seq. of the Government Code of California and as described within this Investment Policy. Limits 5of18 Investment Policy 7-22-08 J 0 identified are to be based on the "market value" of the investment. Permitted investments under this policy include: Securities issued by the US Treasury, provided that there shall be no maximum allowable investment in US Treasury securities. 2. Securities issued and backed as to payment by one of the following Government Sponsored Entities (GSE's): the Federal Farm Credit Bank, Federal Home Loan Bank, Federal Home Loan Mortgage Corporation, and the Federal National Mortgage Association, provided that a. A maximum of the greater of $14 million or 70% of the portfolio be invested in agency securities, and b. No more than the greater of $7 million or 35% of the portfolio be invested in securities issued by any single agency. C. Investment in mortgage-backed bonds and collateralized mortgage obligations (CMOs) is prohibited, even if such bonds are issued by agencies of the US Government. 3. Banker's Acceptances provided that: a. They are issued by domestic institutions the short-term obligations of which are rated a minimum of P1 by Moody's Investor Services (Moody's) or Al by Standard & Poor (S&P). b. The acceptance is eligible for purchase by the Federal Reserve System. C. The maturity does not exceed 180 days. d. No more than the greater of $4 million or 20% of the total portfolio may be invested in banker's acceptances, and Time deposits (Negotiable certificates of deposit) in California banks in excess of insured amounts which are fully collateralized with securities in accordance with California law, provided that: No more than the greater of $4 million or 20% of the portfolio shall be invested in a combination of federally insured and collateralized time deposits, and The federally insured and/or collateralized time deposits are issued by institutions which have long-term debt rated "A" or higher by S&P or "A2" or higher by Moody's; and/or have short-term debt rated Al by S&P or P1 by Moody's. 6of18 Investment Policy 7-22-08 C. The maturity of such deposits does not exceed 180 days. 5. Commercial paper, provided that: a. . The maturity does not exceed 180 days from the date of purchase. b. The issuer is a corporation organized and operating in the United States with assets in excess of $500 million. C. The paper is rated a minimum of P1 by Moody's and Al by S&P, and has a minimum long-term credit rating of A by both rating agencies. d. No more than 15% of the portfolio is invested in commercial paper. 6. , State of California Local Agency Investment Fund (LAIF), provided that: a. LAIF investments in instruments prohibited by or not specified in the City's policy do not exclude it from the City's list of allowable investments, provided that the fund's reports allow the Treasurer to adequately judge the risk inherent in LAIF's portfolio, and provided that disclosure of such investments, if any, is made annually to the City Council. Medium-Term Corporate Notes Must be rated "A" or better by a nationally recognized rating service. b. Investment in these securities shall not exceed $2 million. C. The maximum stated final maturity of these securities shall be five years. 8. From time to time, the investment strategy may be to capture high yields with the purchase of safe, low risk, highly liquid investments. Government Code Section 53601 states: no investment shall be made in any security that at the time of 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." Accordingly and in addition 7of18 Investment Policy 7-22-08 to the Government Code, investments with remaining maturities in excess of five years, the following requirements must be met: a. The security must be a U.S. Treasury Note or bond, a Federal National Mortgage Association (FNMA) debenture or Federal Home Loan Bank (FHLB) debenture. b. A maximum of twenty-five (25) percent of the City's funds can be invested in securities with a term remaining to maturity of between five and seven years. C. No securities may be purchased by the City of Rosemead or the Rosemead Community Development Commission (RCDC) with a term remaining to maturity in excess of five years without approval of the City Council or the RCDC no less than three months prior to the investment. B. Prohibited Investment Vehicles and Practices State law notwithstanding, any investments not specifically described herein including, but not limited to, medium-term corporate notes, mutual funds, other than government money market funds as described in Section III A (11), unregulated and/or unrated investment pools or trusts, except as specified above, futures and options, strips, except for federal agency strips, variable rate securities and securities with embedded options. 2. Trading securities for the sole purpose of speculating on the future direction of interest rates is prohibited. 3. Purchasing or selling securities on margin is prohibited. 4. The use of reverse repurchase agreements, securities lending or any other form of borrowing or leverage is prohibited. 5. Borrowing for investment purposes is prohibited. C. Investments and practices permitted for use by external investment managers. Professional investment managers that may be retained by the City may request more latitude in their choice of investment vehicles and practices than is allowed under this policy. As an integral part of their service to the City, such advisers shall recommend additional investment vehicles and practices, with limitations and restrictions on their use. The City Council must approve the investment vehicles and practices, upon the recommendation of the Finance Committee, and adopt an appropriate amendment to this policy prior to their implementation. 8of18 Investment Policy 7-22-08 • 0 D. Mitigating Credit Risk in the Portfolio Credit risk is the risk that a security or a portfolio will lose some or all of its value due to real or perceived change in the ability of the issuer to repay its debt. The City shall mitigate credit risk by adopting the following strategies: The diversification requirements included in Section III (A) are designed to mitigate credit risk in the portfolio. 2. No more than the greater of $1 million or 5% of the total portfolio may be invested in securities of any single issuer, except that limits on investment securities issued by government agencies shall be governed by Section III A 2 b. Limits are to be based on the "market value" of the investment. 3. The City may elect to sell a security prior to its maturity and record a capital gain or loss in order to improve the quality, liquidity or yield of the portfolio in response to market conditions or the City's risk preferences. 4. If securities owned by the City are downgraded by either Moody's or S&P to a level below the quality required by this Investment Policy, it shall be the City's policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio. a. If a security is downgraded two grades below the level required by the City, the security shall be sold immediately. b. If a security is downgraded one grade below the level required by this policy, the Treasurer will use discretion in determining whether to sell or hold the security based on its current maturity, the loss in value, the economic outlook for the issuer, and other relevant factors. C. If a decision is made to retain a downgraded security in the portfolio, its presence in the portfolio will be monitored and reported monthly to the City Manager and City Council. E. Mitigating Market Risk in the Portfolio Market risk is the risk that the portfolio will decline in value (or will not optimize its value) due to changes in the general level of interest rates. The City recognizes that, over time, longer-term portfolios achieve higher returns. On the other hand, longer-term portfolios have higher volatility of return. The City shall mitigate market risk by providing adequate liquidity for short-term cash needs, and by making some longer-term investments only with funds which are not needed for cash flow purposes. The City further recognizes that certain types of securities, including variable rate 9of18 Investment Policy 7-22-08 • securities, securities with principal pay downs prior to maturity, and securities with embedded options, will affect the market risk profile of the portfolio differently in different interest rate environments. The City, therefore, adopts the following strategies to control and mitigate its exposure to market risk, 1. The maximum stated final maturity of individual securities in the portfolio shall be five years. 2. The City shall maintain a minimum of one month of projected capital and operating expenditures (excluding expenditures financed with bond proceeds) in investments maturing within thirty days. 3. To the extent necessary, investment maturities shall match the City's projected cash flow requirements over the following twelve months. 4. The City shall invest only in fixed rate, fixed coupon securities. 5. The City shall invest only in securities which do not include embedded options (i.e. calls or puts, swaps, etc.). , 6. The City shall not invest in securities which may return all or part of their principal prior to their stated final maturity date. 7. The City may elect to sell a security prior to its maturity and record a capital gain or loss in order to change the portfolios exposure to market risk. in order to minimize the need to sell securities prior to their stated maturity, and to eliminate reliance on interest rate forecasting, the City shall structure its investment portfolio as a maturity ladder. Funds not required for purposes of meeting cash flow needs (see Section III E 2-3) shall be invested in permitted securities with the objective of maintaining the average duration of the portfolio in line with the duration of the Benchmark Index. IV. Specific Objectives and Expectations A. Overall objective. The investment portfolio shall be designed with the overall objective of obtaining a total rate of return throughout economic cycles, commensurate with investment risk constraints and cash flow needs. B. Specific objective. The investment performance objective for the portfolio shall be to earn a total rate of return over a market cycle which is approximately equal to the return on the Benchmark Index. The Benchmark Index, an index with characteristics similar to those of the portfolio in terms of types of securities and maturities, will be set at the beginning of each year. In addition, an index comprised of U.S. Treasury 10 of 18 Investment Policy 7-22-08 LJ C, securities with a maturity distribution similar to that of the Benchmark Index will be presented for comparison purposes. V. Reporting, Disclosure and Program Evaluation A. Quarterly Reports Quarterly investment reports shall be submitted by the Finance Director to the Finance Committee within 30 days of the last day of the quarter. These reports shall disclose information about the risk characteristics of the City's portfolio and shall include: \ Treasurer's Quarterly Report cover page: a) Cash receipts, disbursements and balances in total, b) a summary of the portfolio at month-end, c) information regarding interest earnings, d) a statement of compliance with investment policy, including a schedule of any transactions or holdings which do not comply with this policy or with the California Government Code, including a justification for their presence in the portfolio and a timetable for resolution, e) a statement of the City's ability to meet its expenditure requirements for the next six months, f) cost and market value of the portfolio, g) sector allocation. 2. One-page summary report of portfolio characteristics including modified duration of the portfolio and the benchmark index, average maturity, maturity distribution in years, average yield and time weighted total rate of return. 3. Graphical comparison of the portfolio composition and maturity distribution information for the current month compared to the prior month. 4. Reconciliation of cash disbursements. 5. Listing of individual investment transactions during the month as required by Government Code Section 53607. 6. An asset listing showing par value, cost and accurate and complete market value of each security, type of investment, issuer, maturity date and interest rate. llof18 Investment Policy 7-22-08 • • B. Annual Reports The investment policy shall be reviewed and adopted at least annually within the first 90 days of each fiscal year to ensure its consistency with the overall objectives of preservation of principal, liquidity and return, and its relevance to current law and financial and economic trends. 2. A comprehensive annual financial report for the prior fiscal year shall be presented in conjunction with the investment policy review. This report shall include comparisons of the City's return to the Benchmark Index return, shall suggest policies and improvements that might enhance the investment program, and shall include an investment plan for the coming year. C. Internal Controls The Finance Director is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the entity are protected from loss, theft or misuse. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. Internal controls shall be in writing and shall address the following points: control of collusion, separation of transaction authority from accounting and record keeping, safekeeping of assets and written confirmation of telephone transactions for investments and wire transfers. D. Annual Audit The Finance Director shall establish an annual process of independent review by an external auditor to assure compliance with internal controls in coordination with the City's annual financial audit. E. Special Audits The City Council may at any time order an audit of the investment portfolio and/or the City Treasurer's investment practices. F. Independent Investment Advisor In its discretion, the City Council may retain the services of an independent investment adviser to review the investment program from time to time. The adviser will review compliance with policies and procedures, independently calculate the market value of the City's holdings, report on overall portfolio risk exposure and investment results, and make recommendations, if needed, regarding investment strategy, risk, or any aspect of the investment program. 12 of 18 Investment Policy 7-22-08 • • G. Finance Committee (RMC § 2.36) Responsibilities It shall be the responsibility of the Finance Committee to: Oversee the implementation of the City's investment program, assuring its consistency with the investment policy and recommend changes to the investment policy for consideration by the City Council. 2. Receive and review the quarterly investment reports described in Section V (A) at their quarterly meetings. 3. Approve the lists of authorized banks, dealers, brokers and direct issuers used by the City, as well as any additions to or deletions from such lists. 4. Review the City's portfolio activity and performance for suitability and compliance with this policy. 5. Make recommendations to the Finance Director regarding portfolio activity, performance and compliance with this policy. 6. Make recommendations to the City Council regarding the hiring of external managers and permitted investments and investment strategies for such external managers. 7. Make recommendations to the City Council and the RCDC Commissioners regarding the use of specific local agency investment pools. 8. Inform the City Council of unaddressed concerns with the management of the City's investment portfolio. 13 of 18 Investment Policy 7-22-08 • • GLOSSARY OF INVESTMENT TERMS Agencies - Agencies of the Federal government set up to supply credit to various classes of institutions (e.g., S &Ls, small business firms, students, farmers, housing agencies, etc.) Asked - The price at which securities are offered. Bankers Acceptance (BA) - A draft, bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. Benchmark - A comparative base for measuring the performance or risk tolerance of the investment portfolio. A benchmark should represent a close correlation to the level of risk and the average duration of the portfolio's investments. Bid - Price a prospective buyer is ready to pay. Broker/Dealer - Individual or firm acting as principal in securities transaction. Callables - Securities that the issuer has the right to redeem prior to maturity Certificates of Deposit (CD) - A time deposit with a specific maturity evidenced by a certificate. Collateral - Securities pledged to secure repayment of a loan. Comprehensive Annual Financial Report (CAFR) - An official annual financial report. It includes five combined statements for each individual fund and account group prepared in conformity with GAAP. It also includes supporting schedules necessary to demonstrate compliance with finance-related legal and contractual provisions, extensive introductory material and a detailed statistical section. Coupon - a) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value; b) A certificate attached to a bond evidencing interest due on a payment date. Custody - A banking service that provides safekeeping for the individual securities in a customer's investment portfolio under a written agreement which also calls for the bank to collect and pay out income, to buy, sell, receive and deliver securities when ordered to do so by the principal. Debenture - A bond secured only by the general credit of the issuer 14 of 18 Investment Policy 7-22-08 • • Delivery vs. Payment - There are two methods of delivery of securities: Delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with a simultaneous exchange of money. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. Derivatives - a) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor; b) Financial contracts based upon notional amounts whose value is derived from -an underlying index or security (interest rates, foreign exchange rates, equities or commodities). Discount The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount. Discount Securities - Non-interest bearing money market instruments that are issued a discount and redeemed at maturity for full face value, e.g., U.S. Treasury Bills. Diversification - Dividing investment funds among a variety of securities offering independent returns. Executive Finance Committee - A committee chaired and appointed by the City Treasurer to oversee the day-to-day investment program of the City. Federal Credit Agencies Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g., S&L's, small business firms, students, farmers, farm cooperatives and exporters. Federal Deposit Insurance Corporation (FDIC) - A federal agency that insures bank deposits, currently up to $100,000.00 per deposit. Federal Funds Rate - The rate of interest associated with borrowing a Federal Reserve bank's excess reserves. This rate is currently pegged by the Federal Reserve through open-market operations. Federal Home Loan Banks (FHLB) - overnment sponsored wholesale banks (currently 12 regional banks) which lend funds and provide correspondent banking services to member commercial banking services to member commercial banks, draft institutions, credit unions and insurance companies. The mission of FHLB's is to liquefy the housing related assets of its members who must purchase stock in their district Bank. Federal National Mortgage Association (FNMA) - A publicly owned government sponsored corporation chartered in 1938 to purchase mortgages from lenders and resell them to investors. FNMA is a federal corporation working under the auspices of the Department of Housing (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest. 15 of 18 Investment Policy 7-22-08 • • Federal Open Market Committee (FOMC) - a committee that sets interest rate and credit policies for the Federal Reserve System, the United States' central bank. The FOMC has 12 members. Seven are the members of the Federal Reserve Board, appointed by the president of the United States. The other five are presidents of the 12 regional Federal Reserve banks. Of the five, four are picked on a rotating basis; the other is the president of the Federal Reserve Bank of New York, who is a permanent member. The committee decides whether to increase or decrease interest rates through open market operations of buying or selling government securities. The committee's decisions are closely watched and interpreted by economists and stock and bond market analysts, who try to predict whether the Fed is seeking to tighten credit to reduce inflation or to loosen credit to stimulate the economy. Federal Reserve System - System established by the Federal Reserve Act of 1913 to regulate the U.S. monetary and banking system. The Federal Reserve System (the Fed) is comprised of 12 regional Federal Reserve Banks, their branches, and all national and state that are a part of the system. The Federal Reserve System's main functions are to regulate the national money supply, set reserve requirements for member banks, supervise the printing of currency at the mint, act as clearinghouse for transfer of funds throughout the banking system, and examine member banks to make sure they meet various Federal Reserve regulations. Government National Mortgage Association (GNMA or Ginnie Mae) - Government-owned corporations, nicknamed Ginnie Mae, which is an agency of the U.S. Department of Housing and Urban Development.. Security holder is protected by full faith and credit of the U.S. government. Ginnie Mae securities are backed by the FHA, VA or FmHA mortgages. The term "pass throughs" is often used to describe Ginnie Maes. Intermediate Maturity - Investment period greater than one year but less than five years and one day. Finance Committee - A committee chaired by the City Treasurer to advise the City Treasurer on policies governing the City's investment program. Liquidity - The ability to turn an asset into cash. The ability to buy or sell an asset quickly and in large volume without substantially affecting the asset's price. Local Agency Investment Fund (LAIF) - The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment. Long-Term Maturity - Investment period greater than five years. Long-Term Investment - Maturity on investment greater than five years, as of the date of purchase. Market Value - The price at which a security is trading, usually the liquidation value. 16 of 18 Investment Policy 7-22-08 0 • Master Repurchase Agreement - A written contract covering all future transactions between the parties to repurchase---reverse repurchase agreements that establish each party's rights in the transactions. A master repurchase agreement will often specify the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller-borrower. Maturity - The date upon which the principal or stated value of an investment becomes due and payable. Money Market - The market in which short-term debt instruments (Treasury bills, commercial paper, bankers' acceptances, etc.) are issued and traded. Offer - Price at which someone who owns a security offers to sell it, also known as the asked price. Open Market Operations - Activities by which the Securities Department of the Federal Reserve Bank of New York, popularly called the desk, carries out instructions of the Federal Open Market Committee designed to regulate the money supply. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. Portfolio - Collection of securities held by an investor. Primary Dealer - Investment dealers authorized to buy and sell government securities in direct dealings with the Federal Reserve Bank of New York in its execution of Fed Open Market Operations. Such dealers must be qualified in terms of reputation, capacity, and adequacy of staff and facilities. Prudent Person Rule - Standard adopted by some U.S. states to guide those with responsibility for investing money of others. Such fiduciaries, such as trustees, must act as a prudent man or woman would be expected to act, with discretion and intelligence, to seek reasonable income, preserve capital, and in general, avoid speculative investments. States not using the prudent-man system use the legal list system, allowing fiduciaries to invest only in a restricted list of securities, called the legal list. Qualified Investment - An investment instrument (such as an insured certificate of deposit of $100,000 with California chartered savings and loan) which is approved by this policy or pursuant to procedures set forth in this policy. Range Note - An investment instrument that pays a high interest rate, if a given index falls within a stipulated range, but pays no interest if the stipulated index falls outside that range. Rate of Return - The yield obtainable on security based on its purchase price or its current market price. 17 of 18 Investment Policy 7-22-08 • Repurchase Agreement (RP or REPO) - Agreement between a seller and a buyer, usually of U.S. government securities, whereby the seller agrees to repurchase the securities as an agreed upon price and usually, at a stated time. The security "buyer" in effect lends the "seller' money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use-RP extensively to finance their positions. Exception: when the Fed is said to be doing RP, it is lending money, that is, increasing bank reserves. Required Reports - Sections 53600 et seq. of the Government Code specify that certain information be transmitted to the City's governing body and chief executive officers by the City's chief fiscal or investment officer periodically. Safety - The `ability of a security issuer to guarantee redemption of their security. Safekeeping - see custody Secondary Market - A market made for the purchase and sale of outstanding issues following the initial distribution. Securities & Exchange Commission - Agency created by Congress to protect investors in securities transactions by administering securities legislation. SEC Rule 15C3-1 - See Uniform Net Capital Rule. Short-term Maturities - Investment period of one year or less. Treasury Bills - A non-interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months or one year. Treasury Bonds - Long-term coupon-bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities of more than 10 years. Treasury Notes - Medium-term coupon bearing U.S. Treasury securities issued as direct obligations of the U.S. Government and having initial maturities from two to ten years. Uniform Net Capital Rule - Securities and Exchange Commission requirement that member firms as well as nonmember broker/dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members. Yield - Percentage rate of interest received versus the purchase price of the instrument if held to maturity. 18 of 18 Investment Policy 7-22-08 0 • ATTACHMENT B ROSEMEAD CITY COUNCIL STAFF REPORT TO: THE HONORABLE MAYOR AND CITY COUNCIL FROM: ANDREW C. LAZZARETTO, CITY MANAG DATE: JUNE 27, 2006 SUBJECT: INVESTMENT POLICY SUMMARY Attached is a copy of the City's Investment Policy, which was first approved by the City Council on October 3, 1995 (Attachment A). Also included is background documentation from that meeting for review (Attachment B). Staff Recommendation Staff recommends that the City Council adopt the attached Investment Policy. ANALYSIS The City's Auditor, McGladrey & Pullen, LLP, requires the City to approve on an annual basis the City's Investment Policy. The authority governing investments for municipal governments is set forth in the Government Code, Sections 53601, et. seq, and the City's investment philosophy is based on safety, liquidity, and yield. PUBLIC NOTICE PROCESS This item has been noticed through the regular agenda notification process. Submitted by: n ga Finance (rector Attachment A: Investment Policy Attachment B: October 3, 1995 Meeting Documentation APPROVED FOR CITY COUNCIL AGENDA: ITEM NUMBER: • • ATTACHMENT A 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 Legal 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 0 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. A maximum of twenty-five (25) percent of the City's funds can be invested in securities with maturities between five and seven years. 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 is 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:word\bankmisaUnvestpolicy.doc (11-02-99) E ta 0 epos sa TO: HONORABLE MAYOR AND MEMBERS ROSEMEAD CITY COUNCIL FROM: FRANK G. TRIPEPI, CITY MANAGE DATE: SEPTEMBER 28, 1995 RE: CITY FINANCE COIrIIvII= After discussing this issne.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 Committer. 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. DUNCIL AGENDA DOT -3 1995 ITEM No. 1 vA.lUiW djw:ccsif(51) CHAPTER 2 - OFFICERS. 2200 .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 ASSZSSOr 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 Code 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 he performed by the City Clerk, or such officer of the County of Los Angeles authorized to perform such duties. 1 B-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 B-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. - 2202 'City Treasurer. The City Treasurer shall he 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 a"ard 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 r; Vi,,,Po nirector and City Council; • • 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 City 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 10-25-7 480 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 for 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; (dj 'To serve as the Accounting Officer of the City and maintain records readily reflecting the financial condition of the City; (e) To prenare.for presentation to the City Council at the endc°andeach disburseme ntsiby departmentstand nfun a summary 0 2205. (f) To cause the financial statement of the city Cont'd to be published in a n ew of general circulation inted and published in the City, within 120 days- V pr after the close of the fiscal year for whi ch 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; (jj 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 Drector.of Finance shall be bonded in an amount to-he determi-n-ea by-the -Ci-tye-Council with-the advice of 164 8-12-65 458 10-25-77 the City Attorney. C IY~° CLk K . 2206 Powers and Duties Of D Acting as Assistant City Treasurer. The city Treasurer shall appoint the Directoq 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 Government 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 =renumbered receipt forms, cash register machines, cash journals, deposit slips and coordination of night deposits .at all receiving points. 458 10-25'-77 -1 S_ • • 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.nertinent 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 Jam` -16- CITY OF ROSEMEAD 1 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 govenmants -is Sat forth in the Government Code, Sections 53601, at seq. The primary objective of the investment policy of the City of Rosemead Is SAFE Y. 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 direct the thedded sum the total return to the government from keeepin the money. at that comes "home" 'is taf rthe evenues yield on the time deposits and the indirect yield 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 nvestments safety, liquidity and yield as well as local investment. ent. Following are the types of the City makes and some of the advantages The local Agency Investment Fund of the State of California offers high liquidity because our deposits can be wired to our.thecking account within twerity-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 ara highly liquid in addition to being considered the safest of all investments. Crty of Rosemead lrrvestment.Foiicy page 2 Federal Agency securities are high liquid and considered riskless. Bankers investments are Acceptances are frequently the highest in yield, and are safe Hghly•liquid. Commercial paper issued by prime rated industrial. and financial insttun B allows the Investment t rates higher than we can tarn from the o apex y for on: to 180 days a listed securities. These are also collateralized. previously maturity as osit allow the city to select the exact amount and day of riot the Certificates of depde osi ory There are penalties for withdrawal of funds p well as the exact p original maturity date. These are also collateralized. herinterestrate -Y can be traded in the Negotiable certificates of geposit are high grade instruments, Pay~n9 a hog afar certificates of depost• They are liquid because -h. than rag secondary market. to Negotiable Notes offer a competitive alternative securities enjoy hieenjoy an~Ta Medium Tem Core cvve of Deposits and standard Certificates of Deposits. These secondary market to provide liquidity. City Mutual Funds or "beneficial shares" is another authorized investment allowing the rn arket rates.. to maintain }iquidty;and receive money -ruc ("I Y OF ROSEMEAD Leoalnts tat Money must be deposited in state or national banks, se or federal savings assoctiaUOn t of the bank's Pal or state or federal credit unions in the state. 'it may be in inactive deposits, active deposit exceed the am oun e osits. The deposits cahnot or interest-bearing active. dep UP capital and surplus. also The bank must ecure the total amoufit of the deposits_ With eli State gible law securities havinc h of the a value of 150% of the total amount OT the do` s -Pasi market value of 1100 eligible security, first trust deeds having or 10' -first trust A third class of collateraI ism letters of cradit drawn on the FD dual Home Loan Bank (F C does not accept150% collater al itutes allow mancspaiite: As a matter of policy, the even though the stag s Letters of Credit drawn on the FHLB, accept them. . e e for that portion of a deposit hies dilaw- C:uwentfy not security first $100,000 of a dep The treasurer may, at f dr insured pursuant , to fad-rsledvantage to waive this collateral requirement of for the the O , the collateral we accept is 1100/0 insured. It is to the City $10 -d. It if funds are to be coma raltjzad -.,.,e,nment securities. City of Rosemead Investment Policy Page 3 Ll Deoositorv Services demand or checking accounts which .receive revenues and Pay Active deposits are disbursements. The City of Rosemead has three demand accounts: General checking account payroll checking account account Redevelopment Agency bond proceeds checking interest'-bearing active deposits are money market accounts at a financial institution Ck king bank, savings and loan, credit union). These accounts are demand accounts (i.e., checki accounts) with restricted transaction activty• The City of Rosemead has two accounts of this nature for the Rosemead Redevelopment Agency' amount for periods of time as short inactive deposits are Certificates of Deposit issued in any as fourteen days and as long as several years. Interest must be calculated on a 360 day _ iven time, the city may have certificates of deposit in basis, actual number days. At any 9 o'Vcy, we do not invest in CD's for longer several financial insttitutions. As a matter of p than one year. mit current stateme require inwstmert o~ ndsubWe use the ftollowing criterian~ which are staff preor to financial evaluated by st The institution must haute been in business at least three years. The.institution must submit udit-d financial "ancial statements. ratio llion and a net orth to V The institution must have assets of does not incrlude subordinate d debt and iabilieserves of 3.5 to 1 . For calculations, for Allowance for Loan Losses. City investments of less than 1 Bo days to maturity can use a net worth to asset ration of 3.0 to I. possible, the use of several years' financial data is evaluated to present a trend Whenever of activity in the institution. monthly basis tcurrent state taw Wa also require that interest be paid to the City on a only requires quarterly payment). Passbook savings account is similar Funds pan b deposited and withdrawn according to our savings account allows us fl_xibility- daily needs. City of Rosemead Investment Policy Page 4 INVESTMENT VEHICLES AS THEY RELATE TO THE Cl Y OF ROSEMEAD Legal Constraints Surplus funds of local agencies may only be invested in certain eligible securities. The C'it of Rosemead invests only in these securities. See Government Code, Section 53601, a-m, Investment of Surplus Funds. Effective January 1, 1 BB9, the Government code, Section 53501 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 frva 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 poi folio. 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 purchased whamfor the City of aturity greater t an fivedyeor the Rosemead ars, without the Redevelopment Agency 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 ara 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,DOD. They are a highly liquid security. • City of Rosemead Investment Policy Page 5 C U.S. T-NOTES are initially issued with two to ten year maturities: They are actively ondary market and are very liquid. The Treasury may issue bond traded in a large sec issues with a minimum of $1,000. Federal Agency issues are guaranteed directly or indirectly by the Unit-ad 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 Mortgage Association) are used to assist the home mortgage market by purchasing mortgages insured by the Federal Housing Adrimistration and the well as those guaranteed by the Veterans Farmers. Home Administration, as 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 month maturities and interest i5e id rocondary market In these securities.a The City 360 day year basis. The..r., is a a strong g se Y invests periodically-in FNMA's. FHLB's (Federal Home Loan Bank) are issued by he Federal bonds provide Bony System to and home help finance the housing industry. The notes and mortgage credit to savings and loan associations, mutual savings an Thecooperative banks, insurance companies and. mortgag 9 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 sami- annual coupons. Interast.is computed -on a 30 day month, 350 d °y periodically basis. Then . is a strong secondary market in these securities. The City invests p. Y FFCB's (Federal Farm Credit Bank) are debt instruments to finance the short aand intermediate term needs of farmers and the national agricultural industry. issued monthly with 3 and 6 month maturities. The FFCB also issues discount notes with maturit es less than one year purchased at a discount st semi thinterest n a on aaid at matu bass. FFCB term issues longer than one year pay ntag These issues enjoy an established secondary market, The City invass in these securities from time to time. -I VA's (Tennessee Valley Authority) are loans to finance the capital acquisitions of the- Authority. These issues are issued in intarmad'iate and long tern maturities. All issues are fully guaranteed by the U.S. Government against default. Intarest 1s payable sami- annually and at maturity and is calculated on-a 301360 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 Bank=ers Acceptances Bankers Acceptances area short-term credit arrangement to enable bus' °_sses 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. E 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 1 BO days but no longer than 270 days. The in rest 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 nvestfin bankers acceptances ay be in these short term investments. The City of Rosemead does not use these: Local Agency investment Fund This is a special fund in the State Treasury which local agencies may use to deposit funds for invesunent. 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 thetength 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 pooiing 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, LA.I.F. Yields are higher. The City continually invests in the Local Agency investment Fund. PFec . - Negotiable Cer' i tes of D institution, ban r s rags lot accrued inter tat a y. They issuance ' in mu i s of $1 mi of 550 ,000 ai ugh smaller me iable C z, although as o` Americ itibank, Chas an established for continued quidiv (NCD'5' unsecur i ations or ugfi par alue ith prom' e to f. h' grade ag able instnu ant . The p the s--co market usu y ad's in c 'e occasi y available. T ity invests er of p only with th I rgest U.S. B .tan, ) where a sac ary market i Local agencies may not invest more t n nciai odicaity 30'/o of 0 City of. Rosemead Investment Policy Page 7 L O p l.- ~ 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 secondarymarket. 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 tMTN's) are General Electric, Shearson-American Express, GMAC, Wells Fargo Bank, Citibank, Souther 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 moriey. AAr~i ,pl Fl mri~ Mutual Fun a _ ref to in gimme od , Sectio 601, L, as "shares of beneficial in gists' d by rv fied m nag ent co, panie : Th Mutual Fund must be . restrict= y its b ws tote ame inve is as the oca gency These' es pent are Trees issue , Agency ues, Sta f Califomi a d City Wi, Califo nia) t obli lions, C mercial P per, Certific of Deposit, otiabie rti ates of it, a d dium't:Te Corpo.ra Notes. T quality ratin nd pert to a restri c' s in a ch vestme catagory plicable to t ocal agency o applie o a 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 fifte ercent of the local agency's surplus money. ,nm•anpnria•13 • • ATTACHMENT B NOT OFFICIAL UNTh ADOPTED By THE ROSEME4D MINUTES OF THE ADJOURNED REGULAR MEETING AC[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, 883B E.. VBlley Boulevard, Rosemead, California. The Fledge•to this Flag was led by Councflmamber Taylor. The Invocation was.deliverad by Counclmember Bruesch ROLL CALL OF OFFICERS: Present: Counclmembers Bruesch, Imperial (arrived at 7:55 p.m-), Taylor, Mayor Pro Tam Clark (arrived at 7:55 p.m.), and Mayor Vasquez Absent: None 1. A STUDY SESSION TO DISCUSS THE CITY FINANCE COMMITTEE Councilmember Taylor dBfined the rnakeup.of the currant Investment Committee as consisting of the Treasurer, the City Manager, and the Finance Director and asked what has changed since'the problem we had eftor the last bond sale to prevent it from recurring. ' Frank Tripapi, City Manager, responded that the Council has set a vary specific policy that says we will not deal with brokerage houses, gat into the stock market, securities, or the long bond market as investment vehicles. Mr. Tripapi stated he believed the purpose of this meeting was to define the proper investments. Councifinember Taylor asked what caused the problem with the bond proceeds and ' Who will he 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 andlor 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. . . Councilrnember Taylor inquired if the three members. of the Investment Convnittee were aware or not of the regulations. Mr. TripBpl 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. Mr. Tripepi responded that there needs to bs a better understanding between the Treasurer and the other members as to what those investments will be prior to the time they are made. Counclmember Taylor then asked whD Would be sure the oversight wouldn't happen again and detartnined 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 bean prevented if we had held on to the securities. CC 10-3-95 Page 1 Mr. Tripspi pointed out that the policy which states that purchases more then five years cprnot be done without Council approval. - Peter Wallin, City Attorney, stated that the problem was that Mr. Foutz had invested in long tens securities. Mr. Foutz stated that he did not hold anything long tern 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 Tom 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 then five years should require Council approval. Sfie also stated that in addition to the long term investment, anothar.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 far 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 lagal under redevelopment law,.they not legal under. the bond covenants. , 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. Mr. Foutz stated that since you are not through with the investment for thirty years, he would want to make a good profit on the irivestmsnt and that it is after thirty years that you-measure whether you made a profit.. Mayor Pro Tern Clark repeated her concern that since the government makes you pay back any profit you make, why are we taking the rsk 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 then you borrowed at. W. Tripepi confirmed that this information comes from the Bond counsel and independent city.suditbrs. _ 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 Bmesch 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 RDSamead'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 COUNCILMEM13ER BRUESCH, SECOND BY MAYOR PROTEM CIARKthat 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 Councilmembar Taylor amphasizedthetthis motion does not change any-thing 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 else, such as the City Manager and Finance Director if they can keep abreast of.all the changes and reflect those changes in the minutes. ' Councilmembar Imperial suggested that a Councilmembar be involved in the committee. Councilmembar 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 Trassurer'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, whare should it go to maximize the investments. Councilmembar 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 sult, more discussion ensued. City's Consent Calendar. Before vote could re 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 meat quarterly regardless. Councilmembar Taylor said that his onl prohlem with I. Foutz' invstme s over the % years had been the legal regulations 4-J, ~ 7'p+tj 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 Councilmembar 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'sarves is advisor to the Treasures, 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);i;he Agency investments in bonds issued by utility companies did not appear to be authorized by the bond covenants or state few; and (3) the Investment of City funds in bonds that matured in more than five years had, es pointed out in the letter from the City auditor, violated legal restraints on City investments. Mayor Pro. Tam Clark than asked Mr. Foutz whsthar the-'City Manager had pointed out to him what was wrong with these investments. Mr. Foutz stated that no one pointed them out um7l 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 10-3-25 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 era we investing in risky investments. Mr Foutz countered as to why we seek lower borrowing rates in the first place7 Mr. Tripapi 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. Councilmembar Imperial repeated that he felt we should not be going over this again Mayor Pro Tern Clark stated again that if there is not an admission of mistakes made, the same problem wig 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. Tripapi 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 he 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 invasunant 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 Tem 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. Tripapi stated that he had no-problem with taking on an additional duty. He stated that Structured Fnance was not new to this City and that when we said all those long term bonds, Structured Fnance had given Mr. Foutz a schedule of investments of all the money. Mr. Foutz had objected to Mr. Tripapi getting involved avid stated he would do the investments. W. Tripepi stayed out of it with the exception of the escrow fund overage, which stayed vkh 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 meat Structured Finance early on•in the bond deal. Mr. Form stated that he felt that was an oversimplification of what had taken place. Councilmembar 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 committea of the three, would require an ordinance. COUNCILMEMSER BRUESCH requested that his MOTIDN include the unanimous consent clausa as part of the investment Committee section of the Rosemead Municipal Cods. COUNCILMEMBER TAYLOR bifurcated that MOTION to vote first on the submittal of `quarterly reports and the updating of regulations. Councilmembar Bruesch called for the question., CC 10.3-95 Page 4 Mayor Pro Tom 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 Sacond 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 Tern Clark asked what procedure is necessary to include that policy decision. Mr. Walfin 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 most 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 emend 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 Tam Clark stated that she will not second the emended motion without the . inclusion of the unanimous consent statement. MOTION BY COUNCILMEMBER TAYLOR, SECOND BY CDUNCILMEMBER BRUESCH To table the previous motion and that the new motion include under 2207 (c) Rosemead Municipal Codq.that the Finance Committee most quarterly and provide Council with reports of those meetings. Vote resulted: , Yes: Bruesdh. 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 CLARKthat 2207 (d) state thaYal 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 rasult, more discussion ensued. Mr. Tripapi pointed out that if investments come due after a Fnancs 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. term fund investment to earn $2,000 over the Tripapi invest 5500,000 available into a short 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 cama'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 [)range County fiasco. Mayor Pro Tom Clerk agreed that the Council should not micro-manage either, but there were investments made in the"past that were riot 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. is Councilmember Taylor clarified for Mr. Foutz that the Motion was that the committee had to 6a 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. Tripopi responded that that Is not necessary because federal banking laws under' the Community Reinvestment Act requires local banks to puta percentage of money back into the community that they gat by way of investments. Councilmember Taylor inquired about another low or regulation that requires investing our money in banks that som the highest return for the taxpayers. Mr. Trlpepl respbnded 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 Tam 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 x`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 t0-3-95 Page 5 Aye: Bruesch, Clark, Vasquez, Imperial, Taylor Na- None Absent. None Abstain: None ' The Mayor declared said motion duly carried and so ordered. MOTION BY CDUNCILMEMBER BRUESCH, SECOND BY COUNCILMEMBER TAYLOR that the entire paragraph relating to Mutual Funds of the Investment Policy be deleted. Vote resulted: Ef ' Aye: Bruesch, Clark, Vasquez, Imperial, Taylor No: None - Absent None Abstain: None The Mayor declared said motion duly carried and so ordered. d Mayor Pro Tam 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 CDUNCILMEMBER TAYLOR, SECOND BY CDUNCILMEMBER IMPERIAL that the Council approve the amended Investment Policy. Vote resulted: Aye: Bruesch, Clark, Vasquez, Imperial, Taylor No: None Absent: None Abstain: None The Mayor declared said motion duly carried and so-orderad: - 11. - 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 1.0, 1995, at B:00 p.m. Respectfully submitted: City Clerk APPROVED: MAYOR CC 10-3-95 Page 7