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HomeMy WebLinkAbout116-01RESOLUTION NO. 116-2001 APPROVING CHANGES TO THE TOWN OF DANVILLE INVESTMENT POLICY WHEREAS, the primary objective of the investment policy of the Town of Danville is to prudently invest public funds in a manner which assures safety, liquidity and legality; and WHEREAS, the Town of Danville Investment Policy has been reviewed by the Town's Treasurer and independent investment advisor; and WHEREAS, Assembly Bill 609 has clarified which California Government Code sections apply to local governments; and WHEREAS, Assembly Bill 609 has removed the weighted average dollar restriction and changed the allowable percent of portfolio invested in commercial paper from 30% to 25%; and WHEREAS, these changes will simplify administration of the portfolio; and WHEREAS, the Town of Danville Investment Policy has been amended to incorporate these changes as shown in Exhibit 1, Section 9 and Section 9, e, 3 and 4 and page 10; now, therefore be it RESOLVED, by the Danville Town Council, that the Investment Policy be accepted as amended and that all investment control and reporting procedures outlined in the policy be implemented by the Town Treasurer. APPROVED by the Danville Town Council at a regular meeting on November 6, 2001 by the following vote: AYES: NOES: None ABSTAINED: None ABSENT: None Doyle, Waldo, Arnerich, Greenberg, Shimansky APPROVED AS TO FORM: CITY ATTORNEY CITY CLERK · TOX~rN OF DANVILLE INVESTMENT POLICY TOWN OF DANVILLE INVESTMENT POLICY NOVEMBER 6, 2001 1. PURPOSE This Investment Policy is established by the Town of Danville to develop a clear understanding for the Town Council, Town staff, citizens and third parties of the objectives, policies and guidelines for the investment of the Toxvn's funds which are not required for immediate needs. The Investment Policy also offers guidance to investment staff and any external investment advisers on the investment of the Town's funds. 2. OBJECTIVE The Town of Danville's cash management system is designed to accurately monitor and forecast expenditures and revenues, enabling the Town to invest and manage funds to the fullest extent possible. The Town attempts to obtain the highest yield possible after the basic requirements of safety and liquidity have been met. The primary objective of the investment policy of the Town of Danville is SAFETY. Investments shall be placed only in securities described in this policy, authorized by federal, state and local laws and regulations, and managed in a manner that seeks to ensure the preservation of principal. An adequate percentage of the portfolio shall be maintained in liquid, short-term securities which can be converted to cash if necessary to meet forecasted disbursement requirements. The portfolio shall also be appropriately diversified to avoid incurring unreasonable and avoidable risks regarding specific security types or individual financial institutions. Maximizing interest earned is a secondary objective once safety, liquidity and legality have been assured. The investment portfolio shall be designed with the objective of obtaining a total rate of return throughout economic cycles, commensurate with government codes, investment risk constraints and cash flow needs. 3. PRUDENCE The Town adheres to the "prudent investor rule", which states, "Investments shall be made with judgment and care under circumstances then prevailing which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived." Investment officers 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 in a timely fashion and appropriate action is taken to control adverse developments. Page 1 TOWN OF DANVILLE INVESTMENT POLICY 4. DELEGATION OF AUTHORITY Ultimate responsibility to protect, preserve and maintain cash and investments resides with the Treasurer, who is designated by ordinance of the Town Council. The Town may delegate the investment of Town funds to a professional investment advisor registered under the provision of the Investment Advisors Act of 1940, subject to approval by the Town Council. No person may engage in an investment transaction except as provided under the terms of this Policy and the procedures established by the Treasurer. The Treasurer shall develop and maintain written administrative procedures for the operation of the investment program, consistent with these policies and shall monitor the system of internal controls that regulates the activities of subordinate officials. Written administrative procedures and the system of internal controls shall be reviewed by an independent auditor and reviewed and approved by the Town Council. 5. ETHICS AND CONFLICTS OF INTEREST The Treasurer, members of the Town Council, employees involved in the investment process and their spouses shall comply with the requirements of the Fair Political Practices Commission, including the disclosure of financial interests in the Statement of Economic Interests. 6. SCOPE This Policy applies to all cash assets of the Town of Danville. All pooled funds are accounted for in the Town's Comprehensive Annual Financial Report and include: General Funds Special Revenue Funds Debt Service Funds Capital Project Funds Trust and Agency Funds Excluded funds are those held with a fiscal agent, which have their own specific "permitted investments" section in the bond covenants. These funds include funds required to be reserved for debt service, and pension and deferred compensation funds. 7. INTERNAL CONTROLS A system of internal controls shall be established and documented in writing by the Treasurer. The controls shall be designed to prevent losses of public funds arising from fraud, employee error, misrepresentation of third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of the Town of Danville. Controls deemed most important include: clear delegation of authority to subordinate staff members, separation of transaction authority from accounting and recordkeeping, supervisory control of employee actions, written Page 2 TOW'N OF DANVILLE INVESTMENT POLICY confirmation of all transactions, minimizing the number of authorized investment officials, documentation of transactions and strategies, custodial safekeeping, avoidance of bearer-form securities, specific limitations regarding securities losses and remedial actions, proper review and approval of brokerage accounts and investment transactions, and control of collusion. The Treasurer shall also establish a periodic process of independent review by external and internal auditors. This review will augment internal control systems and practices by assuring compliance with policies and procedures. 8. REPORTING The Treasurer shall generate and forward to the Town Manager, monthly reports for management purposes. Required elements of the report will include type of investment, issuer, date of maturity, rating, cost of the security, current market value and yield. These reports shall provide an appendix that discloses all transactions during the past month. Monthly reports on investment instruments being held, including maturities and market value, as well as any narrative necessary for clarification will be received by the Finance Committee and the Town Council by the first Town Council Meeting after the month following the reporting period. Variances from expectations shall be reported in a timely manner and shall include recommendations for appropriate action to control adverse developments. 9. PERMITTED INVESTMENTS AND LIMITATIONS ON INVESTMENT The investment of surplus funds is governed by California Government Code Section 53600 et seq. Funds on deposit in banks must be federally insured or collateralized in accordance with the provisions of California Government Code, Sections 53630 et seq. Funds not deposited in banks may be invested in the following securities. The maximum maturity of any securities purchased shall not exceed five (5) years from date of purchase unless specified as shorter than five years in sections a-1 to follow. Investment maturities shall be laddered and based upon cash flow forecasts. All investments shall be subject to limitations as described herein. Obligations of the U.S. Treasury, or securities guaranteed by the full faith and credit of the United States ("Treasury obligations") excluding securities which have been stripped of their coupon. There is no limitation to the percent of the portfolio which may be held in Treasury obligations. Obligations (other than CMOs described in paragraph 'T' below) which are guaranteed by the full faith and credit of agencies or instrumentalities of the U.S. government ("Agency obligations"), including, but not limited to, FNMA, FFCB, FHLB, and SLMA. Page 3 TOWN OF DANVILLE INVESTMENT POLICY 1. There is no limitation to the percent of the portfolio which may be held in these Agency obligations. Negotiable certificates of deposit at banks, the short-term obligations of which are rated At or higher by Standard and Poor's, or P1 or higher by Moody's Investors Service, the long term obligations (if any) of which are rated A or higher by Standard and Poor's or Moody's Investors Service, or the equivalent by another nationally recognized rating agency. t. The maximum maturity of certificates of deposit may not exceed t~vo years 2. No more than 30% of the portfolio may be invested in certificates of deposit. Banker's acceptances issued by banks the short-term obligations of which are rated A1 or higher by Standard and Poor's, or P1 or higher by Moody's Investor Services, or the equivalent by another nationally recognized rating agency. 1. The maximum maturity of banker's acceptances may not exceed 180 days. 2. No more than 40% of the portfolio may be invested in banker's acceptances. Commercial paper issued by corporations, the short-term obligations of which are rated A1 or higher by Standard and Poor's, or P1 or higher by Moody's Investor Services, or the equivalent by another nationally recognized rating agency. 1. The maximum maturity of commercial paper may not exceed 270 days. 2. Eligible paper is limited to notes issued by corporations organized and operating within the U.S. and having total assets in excess of $500 million, and having a long term debt rating of "A" or higher. No more than 25% of the portfolio may be invested in commercial paper. Page 4 · TOWN OF DANVILLE INVESTMENT POLICY Repurchase agreements collateralized by any securities permitted under paragraphs a and b of this section of this policy (Treasury Obligations or Agency Obligations). 1. The term of a repurchase agreement may not exceed thirty days. 2. The market value of securities shall not be less than 102% of the repurchase amount. 3. No more than 15% of the portfolio may be invested in repurchase agreements. 4. The repurchase agreements shall be subject to a master repurchase agreement between the Town and the provider of the repurchase agreement. The master repurchase agreement shall be substantially in the form developed by the Public Securities Association. 5. Collateral underlying repurchase agreements shall be delivered to the Town's custodial bank. Clearly marked evidence of ownership (safekeeping receipts) must be supplied to the bank. Corporate medium term notes, rated A or higher by Moody's Investor Services and by Standard & Poor's, Inc. 1. No more than 30% of the portfolio may be invested in corporate medium term notes. Mortgage pass through securities issued by an agency of the U.S. government. 1. No more than 15% of the portfolio may be invested in mortgage pass through securities. Collateralized Mortgage Obligations ("CMOs") rated AAA by Moody's or Standard & Poor's. 1. No more than 15% of the portfolio may be invested in a combination of CMOs and Asset-backed securities (see below). 2. The issuer of the CMO must have a rating of "A" or higher on its outstanding debt, as provided by Moody's Investor Services or by Standard & Poor's, Inc. Page 5 · TOWN OF DANVILLE INVESTMENT POLICY Asset -backed securities ("ABS") rated AAA by Moody's or Standard & Poor's. No more than 15% of the portfolio may be invested in a combination of ABS and CMOs (see above). The issuer of the ABS must have a rating of"A" or higher on its outstanding debt, as provided by Moody's Investor Services or by Standard & Poor's, Inc. Money market mutual funds with a minimum of $500 million in assets which invest in securities described in a. through h. above, provided: The fund has attained the highest rating provided by t~vo of the three largest nationally recognized rating services, or Have an investment adviser registered with the Securities and Exchange Commission with not less than five years' experience investing in the securities and obligations described in a. through h. above. No more than 15% of the portfolio may be invested in money market mutual funds. The Local Agency Investment Fund ("LAIF"). No more than 30% of the portfolio, or $10 million, whichever is higher,-may be invested in LAIF. 2. LAIF imposes a maximum deposit per agency, established by the State Treasurer. The amount invested in LAIF should be based upon the Town's cash flow needs and the difference in yield paid upon funds invested in LAIF compared to other investment options authorized by this policy. The Town of Danville also utilizes demand deposits from commercial banks for regular depository services including operating and payroll accounts. Utilization of "sweep" account services provides short-term interest on operating funds. Interest-bearing accounts may also be maintained for the Community Development Agency and certain individual To~vn funds. Deposits in local banks or savings and loans must be consistent with the basic investment goals which stress safety and liquidity above yield. All bank and savings and loan association deposits shall be insured by the FDIC or, to the extent not insured, collateralized with securities in accordance with Page 6 TOWN OF DANVILLE INVESTMENT POLICY California taw. 10. SCOPE OF AUTItORITY No funds may be invested except as are expressly authorized by this Policy. 11. DIVERSIFICATION REQUIREMENT. No more than 5% of the portfolio may be invested in securities of any one issuer, with the following exceptions: a. LAIF, which has a 30 % limit. Treasury obligations or Agency obligations, where no limit is imposed. Money market mutual funds which are used to hold proceeds from investment sales or maturities for no more than 2 months until another appropriate investment can be purchased, under which case it is permitted to invest 10% of the portfolio in any one issuer. 12. RATING OF SECURITIES Only those securities which meet the ratings specified above may be purchased. If the rating of a security which the Town owns is downgraded below these rating standards, the Finance Committee will determine whether to retain or liquidate the security, based upon the new rating, the reason for the re-rating, the maturity date, the amount and the market value of the security. 13. CUSTODY OF SECURITIES. Securities will be held in the Town's name in a bank custody account approved by the Town Council and evidenced by safekeeping receipts. All transactions will be conducted as delivery- vs.-payment settlements. 14. ADOPTION~ ANNUAL REVIEW AND AMENDMENTS TO POLICY. The Investment Policy shall be adopted by formal Resolution of the Town Council, and shall be reviewed and re-approved annually by the Town Council. This Policy may not be altered, amended or changed in any particular except by formal Resolution of the Town Council. November 6, 2001 Revised November 21, 2000 Revised October 20, 1999 Page 7 - TOYVN OF DANVILLE INVESTMENT POLICY GLOSSARY OF INVESTMENT SECURITIES Obligations of the U.S. Treasury - Debt obligations backed by the full faith and credit of the U.S. Government. They are issued xvith initial maturities from three months to 30 years. Agency obligations - Obligations guaranteed by the full faith and credit of agencies and instrumentalities of the U.S. Government, such as FNMA, FFCB, FHLB, and GNMA. Negotiable certificates of deposit - A bank deposit issued in negotiable form (i.e., one that can be bought or sold in the open market). Banker's acceptance - A draft that is drawn and accepted by banks. Because the accepting institution is obligated to pay the draft without regard to whether it is paid or not, banker acceptances are considered to be high quality money market instruments. Commercial paper - Unsecured promissory notes issued by corporations to fund short term cash requirements. Repurchase agreement - An agreement in which an investor buys securities from a contra-party with the provision that the buyer must sell the securities back to the contra- party at a specific date at a pre-agreed upon price. The repurchase amount is expressed as principal plus interest at an agreed upon rate. Corporate medium term note - An obligation of a corporation issued with an initial term to maturity of nine months to 15 years. Mortgage Pass Through Certificates - Bonds backed by an undivided interest in a pool of mortgages or trust deeds. Income and principal from the underlying mortgages is used to pay off the securities. Collateralized Mortgage Obligations (CMOs) - Corporate bonds backed by a pool of mortgages or mortgage certificates in which the principal cash flows of the underlying pools are channeled, usually sequentially, into two or more series of bonds (tranches). Asset-backed security - A bond which is collateralized with assets such as automobile loans, credit card receivables, home equity loans, etc., which are owned by the issuer and placed with a trustee for the benefit of the investor. Money market mutual funds - Mutual funds which invest in short term securities and strive to maintain a share price of $1. Page 8 . TOWN OF DANVILLE INVESTMENT POLICY Local Agency Investment Fund (LAIF) - An investment pool managed by the California State Treasurer's Office to provide a safe, low cost, and highly liquid investment alternative for California's local governmental agencies. Demand Deposits - A deposit of monies where the monies are payable by the bank upon demand of the depositor. Page 9 TOWN OF DANVILLE INVESTMENT POLICY PERMITTED INVESTMENTS AND LIMITATIONS ON INVESTMENT Percent of Investment Type Portfolio a. US Treasury No limit b. Agencies of US Government No limit c. Certificates of Deposit 25% d. Banker's Acceptances 40°/0 e. Commercial Paper 15% Maximum Life 5 years 5 years 2 years 180 days 270 days f. Repurchase Agreements 15% g. Corporate Medium Term Notes 30% h. Mortgage Pass-throughs 15°/0 k. Money Market Mutual Funds 30 days 5 years 5 years Collateralized Mortgage 15% of CMOs plus 5 years Obligations Asset-Backed Securities Asset-Backed Securities 15% of CMOs plus 5years Asset-Backed Securities 15% N/A 1. LAIF 30% or $10 M N/A m. Demand Deposits No limit N/A Other Requirements No Strips Rated Al/PI Rated Al/PI Rated Al/P1 US Corporations Assets>S500 M LTD rated A Collateralized Market>102% Rated A US Government only Rated A Rated A Assets>S500 M Invests only in a-h above Highest rating possible Registered advisor FDIC or collateralized Page 10