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Home My WebLink AboutRes 2020-79, SA-RDA 080, FA-70, HA-99 PD Investment Policy (FIN-002) As AmendedSTAFF REPORT CITY OF PALM DESERT FINANCE DEPARTMENT MEETING DATE: November 19, 2020 PREPARED BY: Thomas J. Metz, Deputy City Treasurer REQUEST: Adopt resolutions approving the City of Palm Desert Invesment Policy (FIN-002), as amended: 1) City Council Resolution No. 2020-79; 2) Successor Agency Resolution No. SA-RDA-080; 3) Financing Authority Resolution No. FA-70; and 4) Housing Authority Resolution No. HA-99. Recommendation Waive further reading and adopt the City of Palm Desert Investment Policy (FIN-002), as amended: 1) City Council Resolution No. 2020-79; 2) Successor Agency Resolution No. SA-RDA-080; 3) Financing Authority Resolution No. FA-70; and 4) Housing Authority Resolution No. HA-99. Strateaic Plan Obiective Not Applicable. Committee Recommendation At an October 27, 2020 meeting, the Palm Desert Finance Committee voted 4-0 to recommend that the City Council adopt the proposed changes to the City investment policy (FIN-002), as amended. Backaround Analvsis Cal. Govt. Code, section 53646.2 authorizes the treasurer of a local agency to submit the agency's investment policy to the governing body for review and adoption. Proposed policy changes may be considered at that time. The proposed changes for 2021 are the culmination of a two-year review process. The purpose of this review was to adapt the City investment policy to the City's current administrative policy format, while consolidating paragraphs and writing in plain, succinct language. In addition to the format change, the annual review includes the following proposed content changes: ➢ Lowering the portfolio concentration limits for negotiable and time certificates of deposit from 15 percent to 5 percent (more conservative than state law). November 19, 2020 - Staff Report Amendments to Investment Policy (FIN-002) Page 2 of 2 ➢ Lowering the portfolio concentration limit for repurchase agreements from 20 percent to 10 percent (more conservative than state law). ➢ Limiting single issuer commercial paper and medium -term note exposure to 10 percent of total portfolio assets, pursuant to the provisions of Senate Bill No. 998. ➢ Increasing minimum bank total assets from $5 billion to $50 billion and creating a limited exception for smaller banks. ➢ Changing the investment policy review cycle from every year to every five years, absent a material change in relevant state law, so that staff resources are used more efficiently. These chanaes are shown in more detail in Attachment "A" which is attached. Attachment "B" is a copy of the 2019 city investment policy that the City Council and the Finance Committee previously approved, which may be used for comparison purposes. Staff recommends that Council approve the City investment policy, as amended. Fiscal Analvsis So long as short-term interest rates are near zero, portfolio profitability will be minimally affected by the changes to this policy. Once interest rates begin to rise, however, the new state -mandated ten percent (10%) single issuer concentration limit on corporate debt may mildly diminish portfolio profitability. This new limit is intended to reduce the exposure of local agencies to a single debt issuer in order to mitigate investment losses. LEGAL REVIEW Robert W. Hargreaves City Attorney DEPT. REVIEW ya"61,W1. ? 00l Janet M. Moore Director of Finance FINANCIAL REVIEW yaoo rt". W100,&& Janet M. Moore Director of Finance City Manager Randy Bynder: Randy Byndes- ATTACHMENTS: Resolution No. 2020 - 79 Resolution No. SA -RDA - 080 Resolution No. FA - 70 Resolution No. HA - 99 ASSISTANT CITY MANAGER tlndp Firestrae Andy Firestine Assistant City Manager Attachment "A" - Proposed 2021 Palm Desert Investment Policy Attachment'B" -- Approved 2019 Palm Desert Investment Policy RESOLUTION NO.2020-79 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM DESERT, APPROVING THE PALM DESERT STATEMENT OF INVESTMENT POLICY, AS AMENDED WHEREAS, pursuant to California Government Code section 53646, the Treasurer of the City of Palm Desert (hereafter referred to as the `city treasurer") has proposed a Statement of Investment Policy for consideration by the City Council of the City of Palm Desert, California (hereafter referred to as the "City Council'), which is attached hereto, and incorporated herein by reference; and WHEREAS, pursuant to Palm Desert Municipal Code section 3.08.020, the City Council has delegated the authority to invest all public funds that the City holds, to the city treasurer. NOW, THEREFORE BE IT RESOLVED, by the City Council, as follows: Section 1. The City of Palm Desert Statement of Investment Policy is hereby approved and adopted. Section 2. The authority to invest and reinvest all public funds that the City of Palm Desert holds, and to sell or exchange the securities so purchased, in compliance with the terms of the approved Statement of Investment Policy, is hereby delegated to the city treasurer. PASSED, APPROVED, AND ADOPTED at a regular meeting of the Palm Desert City Council, held on this 19th day of November, 2020, by the following vote to wit: AYES: NOES: ABSENT: ABSTAIN: ATTEST: GRACE L. ROCHA, ACTING CITY CLERK CITY OF PALM DESERT, CALIFORNIA APPROVED AS TO FORM: ROBERT W. HARGREAVES, CITY ATTORNEY BEST, BEST & KRIEGER, LLP GINA NESTANDE, MAYOR RESOLUTION NO. SA -RDA - 080 A RESOLUTION OF THE SUCCESSOR AGENCY TO THE PALM DESERT REDEVELOPMENT AGENCY APPROVING THE PALM DESERT STATEMENT OF INVESTMENT POLICY, AS AMENDED WHEREAS, pursuant to California Government Code section 53646, the treasurer has proposed a Statement of Investment Policy for consideration by the Successor Agency to the Palm Desert Redevelopment Agency (hereafter referred to as the "Successor Agency'), which is attached hereto, and incorporated herein by reference; and WHEREAS, pursuant to Palm Desert Municipal Code section 3.08.020, the Successor Agency Board has delegated the authority to invest all public funds that the Successor Agency holds, to the treasurer. NOW, THEREFORE BE IT RESOLVED, by the Successor Agency, as follows: Section 1. The Palm Desert Statement of Investment Policy is hereby approved and adopted. Section 2. The authority to invest and reinvest all public funds that the Successor Agency holds, and to sell or exchange the securities so purchased, in compliance with the terms of the approved Statement of Investment Policy, is hereby delegated to the treasurer. PASSED, APPROVED, AND ADOPTED at a regular meeting of the Successor Agency to the Palm Desert Redevelopment Agency, held on this 19'" day of November, 2020, by the following vote to wit: AYES: NOES: ABSENT: ABSTAIN: GINA NESTANDE, CHAIR ATTEST: GRACE L. ROCHA, ACTING SECRETARY SUCCESSOR AGENCY TO THE PALM DESERT REDEVELOPMENT AGENCY APPROVED AS TO FORM: ROBERT W. HARGREAVES, CITY ATTORNEY BEST, BEST & KRIEGER, LLP RESOLUTION NO. FA-70 A RESOLUTION OF THE PALM DESERT FINANCING AUTHORITY APPROVING THE PALM DESERT STATEMENT OF INVESTMENT POLICY, AS AMENDED WHEREAS, pursuant to California Government Code section 53646, the treasurer has proposed a Statement of Investment Policy for consideration by the Palm Desert Financing Authority (hereafter referred to as the "Financing Authority'), which is attached hereto, and incorporated herein by reference; and WHEREAS, pursuant to Palm Desert Municipal Code section 3.08.020, the Financing Authority Board has delegated the authority to invest all public funds that the Financing Authority holds, to the treasurer. NOW, THEREFORE BE IT RESOLVED, by the Financing Authority, as follows: Section 1. The Palm Desert Statement of Investment Policy is hereby approved and adopted. Section 2. The authority to invest and reinvest all public funds that the Financing Authority holds, and to sell or exchange the securities so purchased, in compliance with the terms of the approved Statement of Investment Policy, is hereby delegated to the treasurer. PASSED, APPROVED, AND ADOPTED at a regular meeting of the Palm Desert Financing Authority, held on this 19'h day of November, 2020, by the following vote to wit: AYES: NOES: ABSENT: ABSTAIN: ATTEST: GRACE L. ROCHA, ACTING SECRETARY PALM DESERT FINANCING AUTHORITY ROBERT W. HARGREAVES, CITY ATTORNEY BEST, BEST & KRIEGER, LLP GINA NESTANDE, PRESIDENT RESOLUTION NO. HA-99 A RESOLUTION OF THE PALM DESERT HOUSING AUTHORITY APPROVING THE PALM DESERT STATEMENT OF INVESTMENT POLICY, AS AMENDED WHEREAS, pursuant to California Government Code section 53646, the treasurer has proposed a Statement of Investment Policy for consideration by the Palm Desert Housing Authority (hereafter referred to as the "Housing Authority'), which is attached hereto, and incorporated herein by reference; and WHEREAS, pursuant to Palm Desert Municipal Code section 3.08.020, the Housing Authority Board has delegated the authority to invest all public funds that the Housing Authority holds, to the treasurer. NOW, THEREFORE BE IT RESOLVED, by the Housing Agency, as follows: Section 1. The Palm Desert Statement of Investment Policy is hereby approved and adopted. Section 2. The authority to invest and reinvest all public funds that the Housing Authority holds, and to sell or exchange the securities so purchased, in compliance with the terms of the approved Statement of Investment Policy, is hereby delegated to the treasurer. PASSED, APPROVED, AND ADOPTED at a regular meeting of the Palm Desert Housing Authority, held on this 191h day of November, 2020, by the following vote to wit: AYES: NOES: ABSENT: ABSTAIN: ATTEST: GRACE L. ROCHA, ACTING SECRETARY PALM DESERT HOUSING AUTHORITY APPROVED AS TO FORM: ROBERT W. HARGREAVES, CITY ATTORNEY BEST, BEST & KRIEGER, LLP GINA NESTANDE, CHAIRMAN CITY OF PALM DESERT ADMINISTRATIVE PROCEDURES_ Subject Aft Investment Policy Policy No. FIN - 002 1W Date Issued: April 11, 2019 R9vtgl Ngvpmber_, 2020 Approved by Resolution Nos. 2020-_ (prey. 2019-15, SARDA 076, HA-91, FA-69) Authoredby Finance Department 1.0 Policy The policy of the City of Palm Desert, the Successor Agency to the Palm Desert Redevelopment Agency, the Palm Desert Housing Authority, the Palm Desert Financing Authority, and the Palm Desert Recreational Facilities Corporation (hereafter referred to collectively as the "City") is to invest public funds with the goals of preserving capital, meeting the City's daily cash needs, and achieving a market rate of return, while complying with all federal, state, and local laws. 2.0 Scope This investment policy will apply to all funds over which the Treasurer's Office has fiduciary responsibility and di,control. 3.0 Prudence The Treasurers Office follows the "Prudent Investor Standard" which requires r�l e,s t�m�q@9� the City investment pgfjWjip ryjJ� j)p c,�r�. skill, - ��terandmMnl:'Treaa�ryore�era°naabean treaSU Offs f C (r V" menhe[ Pprudence, dnd di ence that a prudent investor who is simiail itula d would Muted forrmestment officers' since the former.bi 9 P y broad ore accurate representation of what'he aty use, based upon general economic conditions and the City's anticipated needs, treasurer and the deputy dry treasurer do For example, in in order to safeguard principal and to maintain liquidity (Cal. Govt. Code, section 1 addition to doing Investments, they also do cash 53601 management Treasury officers who follow the provisions of this policy and who exercise due diligence will be relieved of personal responsibility for a security's credit risk or market price risk, if they report substantial deviations from expectations to the city manager and to the Finance Committee in a timely manner, and if they take appropriate action to control adverse developments. "Substantial deviations" is defined as either a decline of 10 percent or more in the market value of a security due to issuer default, a credit risk downgrade, or the sale of a security prior to maturity at 10 percent or more below its acquisition cost. Investment Policy Effective January 1, 2021 4.0 Objectives The City's investment objectives, in order of priority, are: 4.0.1 Safety Safety of principal is foremost. Investments should be made with the aim of avoiding capital losses due to credit risk and market price risk. Credit risk can be mitigated by investing in high -quality securities, diversifying investments, and pre -qualifying securities brokers and public depositories. Market price risk can be mitigated by matching debt maturities with anticipated cash requirements so that a premature sale of securities will not be necessary. It is recognized, however, that in a diversified portfolio, occasional measured losses are inevitable and must be considered within the context of overall investment return. 4.0.2 Liquidity The City investment portfolio should be kept sufficiently liquid so that all operating requirements which might be reasonably anticipated can be met. The portfolio should consist largely of relatively low -duration securities with active secondary markets. An amount equal to the City's annual budget must be held in cash or invested in laddered securities that mature in less than one year. 4.0.3 Yield Yield should be considered only after the basic requirements of safety and liquidity have been met. The City investment portfolio should be structured to achieve a market rate of return, without compromising safety and liquidity. The average monthly yield of the State of California Local Agency Investment Pool ("LAIF") will represent the market rate of return and will serve as the portfolio performance benchmark. 5.0 Delegation of Authority The Palfn pr�sej lily foy 7 �5 ry, thorize[j tQ1(ivest, to deposit, and to provide for the safe eeping of ifte l y s hinds, or }I d llegate those responsibilities to a city treasurer (Cal. Govt. Code, sections 53607 and 53608). The City Council has delegated those responsibilities to the city treasurer (Palm Desert, California, Municipal Code, section 3.08.010). The director of finance serves ex officio as city treasurer (Palm Desert, California, Municipal Code, section 2.16.010). The city treasurer, or their designee, has exclusive authority to buy and sell securities on the City's behalf. The city treasurer must authorize all investment Page 2 Canmerted [MTit: SeMons 150, "Pertormance Standards' ar d 16 0,'Portfolio Benchmadt' from previous approved pohcy have been incorporated into this season, w that all information relating to yield is together in one place_ Commented [MT3t: Five paragraphs are ccnsol datetl inko one paragraph Investment Policy Effective January 1, 2021 transactions, in writing, prior to initiation. If the city treasurer is unavailable, then the assistant fi, Id„uc ZwUatu, ,n,.:,, Nel,+uluu that task. 6.0 Investment Procedures The city treasurer will develop written procedures for the City's investment program that are consistent with the provisions of this policy. These procedures will include safekeeping, repurchase agreements, banking service contracts, and collateral/depository agreements. They will also address the explicit delegation of authority to individuals who are responsible for investment transactions. No ,,a.su,t ,.,. j ongage in an investment transaction except as provided for under the terms of this policy and under the procedures that the city treasurer establishes. 7.0 Conflicts of Interest must refrain from Dersonal business with the proper execution of the City's investment program, or that could impair their ability to make impartial investment decisions. They must disclose to the City Council any material financial interest in financial institutions that do business in the City of Palm Desert, 8.0 Authorized Broker -Dealers and Financial Institutions The City Council will review and approve the securities broker -dealers that are authorized to do business with the City. Authorized broker -dealers are listed in Appendix A of this policy. Only primary government securities dealers ("primary dealers) that regularly report to the Federal Reserve Bank of New York will be eligible for inclusion on the City's authorized list. The only exception to the foregoing will be that the City Council may, at its discretion, accept, review, and approve Requests for Information ("RFI") from secondary securities brokers that: (1) have been in existence for more than five years; (2) have a net capital position in excess of $100 million; (3) are licensed as brokers by the State of California, and (4) are headquartered or have a branch office in California. The total number of authorized broker -dealers must not exceed four. The City will accept and review new broker -dealer applications only when there is an immediate need to fill a vacancy on the authorized list. The Treasurer's Office will only accept RFIs from and transact business with the Institutional securities sales departments of broker -dealers. The Treasurer's Office must not transact business with an authorized broker -dealer until all of the documentation that both parties require has been executed and delivered. Page 3 Cdnlmentled [firl The requirement Mat treasury officers disclose any personal Investment positions Mat could relate to the performance of the city investment portfolio would be deleted This is why. First city investment transactions are typically from $3 million to $15 million. If treasury officers had personal financial resources on that scale, they would probably not be working for the city Second treasury officersas financially knowledgeable individuals, are more likely to Invest in Me stock market Man Me bond market Since bcel agendas cannot buy stock, Mere would be no confilct Investment Policy Effective January 1, 2021 All broker -dealers who wish to apply for inclusion on the authorized list must, at a minimum, provide the Treasurer's Office with a copy of the following documents unless otherwise noted: 8.0.1 Completed "Broker -Dealer Request for Information" (signed original only). 8.0.2 The firm's most recent Annual Report and Securities and Exchanae Commission ("SEC") Form 10-K or 20-F. 8.0.3 The firm's National Association of Securities Dealers ("NASD") Form BD — Uniform Application for Broker -Dealer Registration or, in the case of an investment department within a commercial bank, SEC Form MSD. 8.0.4 The firm's current NASD Form BD Status Report. 8.0.5 NASD Form U-4 -- Uniform Apolication for Securities Industry Reaistration or Transfer for each employee would who might be trading with the City. 8.0.6 Current NASD Form U-4 Status Report on each employee who might be trading with the City. 8.0.7 A resume from each of the firm's employees who might be trading with the City. 8.0.8 The firm's delivery and wiring instructions. 8.0.9 An executed corporate resolution that identifies employees who are authorized to trade with the City. 8.0.10 The firm's current investment policy. In addition to the above documents, secondary brokers must also submit: 8.0.11 The firm's most recent SEC Farm X-17 A-5 or, in the case of an investment department within a commercial bank, SEC Consolidated, Reports of Condition and Income for A Bank with Domestic and Foreian Offices -- FFIEC 031. The Treasurer's Office will investigate all broker -dealer applicants in order to determine if they: (1) are adequately capitalized; (2) are subject to pending legal action (either the firm or the trader); (3) make markets in securities that are appropriate for the City's needs; (4) are licensed as a broker by the State of California Department of Corporations; and (5) are a member of the National Association of Securities Dealers. Broker -dealer applicants will be required to provide California state or local government references. Page 4 Investment Policy Effective January 1, 2021 Any broker -dealer that has made a political contribution to any member of or candidate for the City Council, the RDA Successor Agency — Palm Desert Board, the Housing Authority Commission, or the Palm Desert Finance Committee in an amount that exceeds the limits in Municipal Securities Rulemaking Board ("Iti Rule G-37, within any consecutive four-year period following January 1, 1996, will be ineligible to transact ouslness wun the City The City Council will consider the submitted documents, along with the treasury officers' recommendations, and decide if any new broker -dealers should be added to the authorized list. If, in the City's opinion, a broker -dealers RFI is missing, incomplete, or late (submitted after the specified deadline), contains false or misleading information, or if the broker has not submitted all of the documents that the City requires, then the City will automatically reject the broker -dealers RFI and that broker -dealer will not be eligible to submit another RFI to the City for three years. The city treasurer may terminate a broker -dealer for trade fails, trade errors, excessive staff turnover, failure to provide notice of a significant event, inflated pricing, adverse change in financial condition, failure to comply with solicitation instructions, pending litigation against broker -dealer by City, violation of City's gift ban policy, selling inappropriate investments, unethical behavior, collusion on pricing, tardiness in submitting offers, yield burning, lack of business due to a mismatch between city needs and broker -dealer inventory, or an insufficient volume of City business to justify broker -dealer retention. The City Council must review and approve all commercial banks, savings associations, federal associations (as defined by Cal. Fin. Code, section 5102), and trust companies that are authorized as public depositories of City monies in the form of checking, savings, and money market accounts and certificates of deposit. Authorized financial institutions are listed in Appendix A of this policy. The City will only deposit public monies in financial institutions that have: 8.0.12 At least illion in total assets. The only exception to the , foregoing Is that under special circumstances, the City may procure limited a "o xu ,l . financial institution that has at least $5 billion in total assets. Such services may Include those that a la, Institution does not provide, are more expensive if a larger financial institution does provide them, or are offered by a smaller financial institution on more flexible terms that better suit the City's needs. Under this exception, deposits made will not exceed one -tenth of one percent (0.1%) of the City investment portfolio. 8.0.13 A core capital -to -total assets ratio of at least five percent. Page 5 Cammtl te6 [MT5]: In tNs section, it would be appropriate 11 to indude under what arcumsNncas Na dty could Dismiss a broker. The grounds for terminal on are taken Gam to pobcy and Procedure No 7, "Dismissal of Brokers', "to Me Cary Cour¢il approved on February 8: 2007. FCanmenta6 [MT63: This limit is being increased in oWer to reflect mergers and acquisitions activity over In past few years. In general City funds should only be placed wiN large. , well capitalized finanaal institutions Nat are likely M recerve U B Govemmenl assistance in Me event of a severe. un."pectetl shock to the finanaal system 8: e., 2008),_ Investment Policy Effective January 1, 2021 8.0.14 Favorable statistical ratings from a nationally recognized statistical rating organization ("NRSRO"), as determined by the city treasurer. 8.0.15 A federal or state charter. 8.0.16 A branch office within Riverside County 8.0.17 A "satisfactory" overall rating in their most recent evaluation by the appropriate federal financial supervisory agency in terms of meeting the credit needs of California communities, pursuant to federal law. The City cannot deposit funds into a financial institution if the sum of the City's deposits would exceed the total shareholders' equity of the institution. 9.0 Authorized Investments The City Council has authorized the Treasurer's Office to invest in the following financial instruments under the terms and conditions stated below (Cal. Govt. Code, section 53600, at seq.).Ali non -pooled securities must mature within five commented tMn1: section too Maximum Mawnnes' years unless the City Council has approved longer maturities for the investment j from previews approved policy has been mcorpoa ea mo riffs I section. of bond reserve, bond escrow. and other funds. -- - _-- ---" % of Portfolio No. Type of Investment Authorized Other Restrictions 1. United States Treasury bills, 100% Maximum maturity: 5 Years notes, bonds, or certificates of indebtedness, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest. 2. Federal Agency or United 100% Maximum maturity: 5 years States government - sponsored enterprise ("GSE") No more than 30% of the portfolir• obligations, participations, or may be invested in any single isiP,or other instruments, including (excluding the proceeds of tax - those that Federal Agencies exempt bonds). or GSEs have either issued or fully guaranteed as to principal and interest. Page 6 Investment Policy Effective January 1, 2021 % of Portfolio No. Type of Investment Authorized I 3. California State and Local 25% Agency debt obligations that a state or local agency, or a department, board, agency, or authority of a state or local agency has issued as general obligation bonds or revenue bonds. 4. Commercial Paper ("CP") (Non -Pooled Fund) that general corporations organized and operating in the United States with assets exceeding $500 million issue. I 5. Negotiable Certificates of Deposit ("NCD") that a nationally- or state -chartered I bank, a savings association, a federal association, or a state -licensed branch of a foreign bank issue. 6. Time Certificates of Deposit ("TCD") that qualified public depositories issue. 25% Other Restrictions Maximum maturity: 5 Years Rated "A" or higher by S&P or by Moody's. Maximum maturity: 270 days Rated "A-1" by S&P or"P-1" by Moody's. No more than 10% of the portfolio may be invested in the CP and MTNs of a l / g �L, Asset -backed CP is ineligible for purchase. I Maximum maturity: 5 years 5% Long-term debt rated "AA-" . higher by S&P or by Moody's, Maximum maturity: 1 year _. 5% Page 7 TCDs exceeding the FDIC limit must be collateralized. TCDs must be centralized at one location for each bank or S&L. If TCD is uncollateralized, then no more than 90�ipjoent of the FDkCh Commented [lirl This requirement is no longer in the California Government Code due to the enactment of $8 998. Basing the single issuer concentration limit upon outstanding issuance was a Code mistake. Thisiswhy Mostofthe commercial paper issuers that local agencies buy have between $5 billion to $25 billion of annual issuance. Toyota. for example, issues $25 billion of commercial paper annually: a local agency could. therefore. Invest up to $2.5 billion (10%) in Toyota commercial paper. If the local agency has a $300 million investment portfolio, then it couldin theory, invest $75 million (25% portfolio concentration limit for all commercial paper) in Toyota, and remain well below the $2 5 billion threshold So the local agency s single issuer concentration limit would effectively be 25%. not 10%. Commented [MT91: This aligns the policy wiM Me provisions of Be 998 A local agency'a single issuer exposure in command at paper r�gmedium-tern notes cannot exceed 10%. The local agency has the freedom to delemune how it will apportion this 10% between the commercial paper and medium -tern notes of a single issuer. Ca plianted [Mile]: Proposed change is more conservative than state law. Proposed change is more Investment Policy Effective January 1, 2021 e/ of Portfolio No. i Type of Investment Authorized Other Restrictions d Repurchase Agreement ("RP") that authorized brokers sell. limit may be invested per TCD. Issuing public depository must meet qualifying criteria on Pages 5 and 6 of this policy. 10% MaximdKmaturity: 30 ddys Collateral must be United States Treasury, Federal, Agency, or GSE obligations. Zero coupon and stripped coupon instruments are not acceptable as collateral. Collateral ,,,,.a. Ve v9ldeu at 102% of cost and adjusted weekly. City must have first lien and security interest in all collateral. I City's custodian must hold collateral. An authorized broker must file a Public Securities Association ("PSA") Master Repurchase Agreement with the city treasurer, and the city attorney must review the agreement, I prior to the transaction of RP business with that broker. 8. Medium -Term Notes 25% Maximum maturity: 5 years ("MTNs") that corporations organized and operating in Rated "A" or higher by S&P or by the United States, or Moody's. 0�PUU401y liad�utions operating in the United No more than 10% of the portfolio States and licensed by the may be invested in the CP and United States or by any state, MTNs of any single issued_ issue. Page 8 [amrrmted [MTlgj: Proposed! mange is mars Canmaleatea [MT131: This maxporates the provisions of S9 998. Previously, there was no single issuer concentration limit for medium -term notes. A local agency could, in theory, invest up to 30%of its portfolio in a single corporate issuer's MTNs, in addition to having a CP concentration in the same issuer of 10% or more. Investment Policy Effective January 1, 2021 of Portfolio No. Type of Investment Authorized Other Restrictions '.. 9. Money Market Mutual 20% Either rated "AAA" by S&P, "Aaa' by Funds ("MMF") that are (excluding bond Moody's, or "AAA-V-1+" by Fitch (2 registered with the SEC proceeds) of 3), or retains an investment under the Investment Act of advisor registered or exempt from 1940, registration with SEC, with at least 5 years of experience managing a MMF with $500 million or more in assets. MMF must have dollar -weighted average maturity of 90 days or less. MMF must buy securities that mature in 13 months or less. No commission may be charged. 10. State of California Local i. Fund ("LAIF") that the State Treasurer's Office manages. 11. Structured Notes in the form of callable securities or "STRIPS" that the United States Treasury, Federal Agencies, or government - sponsored enterprises ("GSEs") issue. Up to maximum ($75,000,000 per account) City Council and Redevelopment Agency approved participation in LAW orb 12l12/81 in Resolution No.- commented 81-161. 1 (Bond trustee accounts have no deposit limit) 20% Maximum maturity: 5 years 12. Local Government 75% As required by law under the Cal. I Investment Pools, such as (excluding bond Govt. Code. LAIF, CAMP, or California proceeds) county investment pools. Page 9 mr ent uw mmunt omit. Investment Policy Effective January 1, 2021 10.0 Prohibited Investments ana avategies The purchase of inverse floaters, range notes, mortgage -derived, interest -only strips, and securities that result in zero -interest accrual if held to maturity are prohibited (Cal. Govt. Code, section 53601.6). The purchase of asset -backed securities, bond mutual funds, mortgage -backed securities, reverse -repurchase agreements, and derivative contracts (forwards, futures, options, and swaps) are also prohibited. Active investment strategies, such as market timing, sector rotation, or benchmark indexing are prohibited. Securities lending, short selling, and other hedging strategies are also prohibited. Wcall government investment pools and money market mutual funds will be Commented[Mns]:e.amptonisbroadenedfromrAiFto exempt from the prohibitions on derivative contracts, derivative securities, °`at govemmentinves"ent pools° in order to inuuda ma [California reverse repurchase agreements, securities lending, short selling, and other California Asset Management Program ('CAMP") mrd county iovesbnent pools. hedging strategies. 11.0 Investment Pools/Mutual Funds The Treasurer's Office must conduct a thorough investigation of an investment pool or mutual fund prior to purchasing its shares. The Treasurer's Office will develop a questionnaire that addresses the following issues with respect to the pool or fund: 11.0.1 A description of eligible investment securities and a written statement of investment policy and objectives. 11.0.2 A description of interest calculations, how interest is distributed, and how gains and losses are treated. 11.0.3 A description of how the securities are safeguarded (including the settlement process), how often they are priced, and how often the pool or fund is audited. 11.0.4 A description of who may invest in the pool or fund, how often, and the size of deposits and withdrawals that are allowed. 11.0.5 A schedule for receiving statements and portfolio listings. 11.0.6 Verification of whether the pool or fund uses reserves or retained earnings. 11.0.7 A fee schedule and when and how it is assessed. 11.0.E The eligibility of the pool or fund for bond proceeds, and whether the pool or fund will accept them. Page 10 Investment Policy Effective January 1, 2021 12.0 Portfolio Management Strategy The Treasurer's Office will invest public funds using a passive strategy of j buying and holding fixed -income securities. Whenever possible, a bond ladder will be constructed with laddered maturities that match anticipated cash Flow dates. Securities may be sold prior to maturity only to: 1) address an actual or i potential deterioration in credit quality; 2) rebalance the portfolio; or 3) meet unanticipated financial obligations. The Treasurer's Office, however, may actively manage the City's holdings in I local government investment pools that seek to maintain a constant net asset 1 value of $1.00 per share, in order to maximize income, so long as there is no risk of principal loss. , 13.0 Portfolio Rebalancing If portfolio percentage constraints are violated due to a temporary imbalance in the portfolio, then treasury officers should hold the affected securities to maturity in order to avoid capital losses. If no capital losses would be realized upon sale, however, then treasury officers should consider rebalancing the portfolio after evaluating the expected length of time that it will be imbalanced. i Portfolio percentage limits are in place in order to ensure diversification of the i City investment portfolio. A small, temporary imbalance will not significantly impair that strategy. 14.0 Credit Downgrading t This policy sets forth minimum credit -risk criteria for each security. This criteria applies to the initial purchase of a security. It does not automatically force the 4 sale of a security if the security's credit -risk ratings fall below policy limits. ! If a security is downgraded below the minimum credit -risk criteria specified in this policy, then treasury officers should evaluate the downgrade on a case -by -case basis in order to determine whether the security should be held or sold. The city treasurer will inform the city manager and the Finance Committee at its next meeting of the credit downgrade and the treasury officers' decision to hold or sell the downgraded security. Treasury officers should review the credit standing of all securities in the City's investment portfolios annually, at a minimum. Page 11 Investment Policy Effective January 1, 2021 15.0 Safekeeping and Custody All securities transactions will be done on a delivery -versus -payment ("DVP") or a receipt -versus -payment ("RVP") basis. A third -party bank trust department ("Custodian") that acts as an agent for the City, under the terms of a custody agreement executed between both parties, will hold the securities. The custodial bank must be one of the 20 largest commercial banks in the world, as measured by total assets. The City's Custodian is listed in Appendix A of this policy. The only exception to the foregoing will be securities purchases made with: 15.0.1 Local government investment pools. 15.0.2 Money market mutual funds. 15.0.3 Federal Reserve Banks ("Treasury Direct Program") since the purchased securities are not deliverable. No securities broker or investment advisor should have access to City monies, accounts, or investments. The city treasurer's prior approval, in writing, is required for any transfer of monies to or through a securities broker. If the city treasurer is unavailable, then the assistant finance director must authorize the transfer, in writing. Broker trade confirmations are required for all trades. These confirmations must be reviewed immediately upon receipt, for conformity with the terms of the City's trade sheets. 16.0 Collateralization All demand deposits and time deposits that are not insured by the Federal Deposit Insurance Corporation ("FDIC"), the Federal Savings and Loan Insurance Corporation ("FSLIC"), or the National Credit Union Administration ("NCUA") must fully collateralized in accordance with Cal. Govt. Code, section 53652. An independent third party must hold the collateral. Collateralized investments and demand deposits may require substitution of collateral. The city treasurer must approve all requests from financial institutions for substitution of collateral that involves interchanging classes of securities. 17.0 Bond Proceeds The city treasurer must segregate the gross proceeds of tax-exempt bonds from the City general pool and keep them in a separate pool. They must be invested in accordance with the instructions in their respective bond indentures of trust. The city's bond trustee ("Trustee") will hold all tax-exempt securities in third -party Page 12 Investment Policy Effective January 1, 2021 safekeeping. DVP and RVP rules will apply. The City's Trustee is listed in Appendix A of this policy. Under the Tax Reform Act of 1986, the City is required to perform annual arbitrage calculations and to rebate excess earnings from the investment of the gross proceeds of tax-exempt bonds that were sold after the effective date of this law, to the United States Treasury. The city treasurer may contract with qualified outside financial consultants to provide the necessary technical expertise that is required in order to comply with this law. 18.0 Internal Controls The city treasurer should ensure that all investment transactions comply with City policy. The Treasurer's Office should establish internal controls that are designed to prevent losses due to fraud, negligence, and third -party misrepresentation. Internal controls deemed most important would include avoidance of collusion, separation of duties and administrative controls, separating transaction authority from accounting and recordkeeping, custodial safekeeping, clear delegation of authority, management approval and review of investment transactions, specific limitations regarding securities losses and remedial action, written confirmation of telephone transactions, documentation of investment transactions and strategies, and monitoring of results. The city treasurer must also establish a process of independent review by an audit firm of the City's investment program every three years. The audit firm must review the program's management in terms of compliance with the internal controls that City policy specifies. A Finance Committee consisting of City officials and community representatives will be responsible for reviewing the City investment reports, transactions, policies and procedures, and strategies on at least a quarterly basis. The City Council will establish bylaws for the Finance Committee. 19.0 Reporting The city treasurer must provide the City Council with a monthly investment report within 30 days after Finance Committee review of that report. In accordance with the provisions of Governmental Accounting Standards Board ("GASB") Statement Number 40, as amended March 2003, the monthly investment report must: 19.0.1 Organize individual securities, such as U.S. Treasuries, corporate bonds, and commercial paper, by investment type. Dissimilar Page 13 Investment Policy Effective January 1, 2021 investments, such as U.S. Treasury bills and Treasury strips, should not be aggregated. 19.0.2 List the credit -risk ratings of at least two NRSROs for each security, mutual fund, or investment pool. If the security, mutual fund, or investment pool has no rating, then it should be shown as "unrated". 19.0.3 Disclose the amount of individual securities and issuers that exceed five percent of net plan assets, except for securities that the U.S. Government guarantees, money market mutual funds, and external investment pools. 19.0.4 Use the specific identification method to reflect interest -rate risk by investment type and amount. The monthly inva< P,ro1„ iCvuiv must include a complete portfolio inventory with details on issue, par value, book value, coupon/rate, original settlement date of purchase, final maturity date, CUSIP number, average -weighted yield, average days -to -maturity, and market value (including source of market valuation). The report must also include a statement on compliance or noncompliance with the City investment policy, and a statement on whether there are sufficient funds to meet the City's anticipated cash requirements for the next six months. 20.0 Investment Policy Adoption This policy will be updated, as needed, and will remain in effect until a new policy is adopted, Mleast once every five years Any proposed revisions to the policy ,- - ! commented EMT161: Change rn an annual review cyde must first be submitted to the Finance Committee for review and then to the City L°a8-yearreviewcyde. Council for review and adoption. i Page 14 Investment Policy Effective January 1, 2021 Appendix A: List of Authorized Financial Institutions The Treasurer's Office is authorized to transact investment and depository business With the following financial institutions. UNITED STATES GOVERNMENT 1. Federal Reserve Bank PRIMARY DEALERS 1. J.P. Morgan Securities LLC 2. Wells Fargo Securities LLC oc6u,iauiatsI Qm,,AQAJ 1. Piper Sandler & lCompanyl 2. Stifel, Nicolaus & Company PUBLIC DEPOSITORIES' 1. Citibank, N.A. 2. JP Morgan Chase & Co. 3. MUFG Union Bank, N.A. L_ - CUSTODIAN 1. Union Bank Global Custody Services TRUSTEE 1. U.S. Bank Global Corporate Trust Services 'Exceptions are limited to those financial institutions defined in section 8.0.12. Page 15 Cormented [MT17]: Piper Affrays business name changed in 2020 after a merger. Commentetl [MT387: ftabobank has been removed from this list It has sold all of its California branches and has exited California retail banking Commented [MT39]: Wells Fargo has been removed from this list. It will be paying a $3 billion fine to the federal government for account fraud in its retail bank and for breach of fiduciary duty In Its private bank. CITY OF PALM DESERT STATEMENT OF INVESTMENT POLICY PREPARED BY THE CITY TREASURER'S OFFICE Thomas J. Metz, J.D., M.B.A. Deputy City Treasurer REVIEWED AND APPROVED BY Janet M. Moore City Treasurer Administrative Policy No. FIN002 (Revision No. 21) Adopted by the City Council on April 11, 2019 Palm Desert Treasury Policies and Procedures Revision No. 21 No. 2: "Statement of Investment Policy" Adopted: 4/11119 TABLE OF CONTENTS OVERVIEW PAGE 1.0 Policy..........................................................................................................1 2.0 Scope........................................................................................................1 3.0 Prudence...................................................................................................1 4.0 Objectives..................................................................................................1 INVESTMENT AUTHORITY 5.0 Delegation of Authority..............................................................................2 6.0 Investment Procedures..............................................................................3 7.0 Conflicts of Interest....................................................................................3 INVESTMENTS 8.0 Authorized Broker -Dealers and Financial Institutions................................3 9.0 Authorized Investments.............................................................................6 10.0 Prohibited Investments............................................................................10 11.0 Investment Pools/Mutual Funds..............................................................10 PORTFOLIO MANAGEMENT 12.0 Collateralization.......................................................................................11 13.0 Safekeeping and Custody.......................................................................11 14.0 Diversification..........................................................................................12 15.0 Maximum Maturities................................................................................12 16.0 Basic Investment Strategy............................................................ 12 17.0 Portfolio Rebalancing..............................................................................13 18.0 Credit Downgrading.................................................................................13 19.0 Bond Proceeds........................................................................................13 20.0 Internal Controls......................................................................................14 PERFORMANCE MEASUREMENT 21.0 Performance Standards...........................................................................14 22.0 Portfolio Benchmark................................................................................14 23.0 Reporting.................................................................................................15 LEGAL REQUIREMENTS 24.0 Investment Policy Adoption.....................................................................15 APPENDIX A: List of Authorized Financial Institutions...................................................16 Palm Desert Treasury Policies and Procedures Revision No. 21 No. 2: "Statement of Investment Policy" Adopted: 4/11/19 1.0 Policy It is the policy of the City of Palm Desert, the Successor Agency to the Palm Desert Redevelopment Agency, the Palm Desert Housing Authority, the Palm Desert Financing Authority, and the Palm Desert Recreational Facilities Corporation (hereafter referred to collectively as the "City") to: (1) comply with applicable law governing the investment of public monies under the city treasurer's control; (2) protect the principal monies entrusted to the City; and (3) achieve a market rate -of -return. 2.0 Scope This investment policy will apply to all funds over which the Treasurer's Office has fiduciary responsibility and direct management control. 3.0 Prudence Pursuant to CaL Govt. Code, section 53600.3, investment officers, as trustees of public monies, shall adhere to the "Prudent Investor Standard" when managing the City's investment portfolio. They shall invest "...with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency." Investment officers who follow the provisions of this policy and who exercise due diligence shall be relieved of personal responsibility for a security's credit risk or market price risk; provided that they report substantial deviations from expectations to the city manager and to the Audit, Investment & Finance Committee ("Finance Committee") in a timely manner, and that they take appropriate action to control adverse developments. "Substantial deviations" shall be defined as either a decline of 10 percent or more in the market value of a security due to issuer default or a credit risk downgrade, or the sale of a security prior to maturity at 10 percent or more below its acquisition cost. 4.0 Objectives The City's investment objectives, in order of priority, shall be: 4.0.1 Safety. Safety of principal shall be the foremost objective. Investments shall be made with the aim of avoiding capital losses due to issuer default; broker default; or market value erosion. Principal shall be preserved by mitigating: Page 1 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" Revision No. 21 Adopted: 4/11119 Credit Risk, the risk of loss due to the failure of the issuer of the security, shall be mitigated by investing in only the highest quality securities; by diversifying investments; and by pre -qualifying securities brokers and public depositories; and Market Risk, the risk of loss due to a decline in bond prices because of rising market interest rates, shall be mitigated by structuring the portfolios so that issues mature concurrently with the City's anticipated cash requirements, thereby eliminating the need to sell securities prematurely on the open market. It is recognized, however, that in a diversified portfolio, occasional measured losses are inevitable, and must be considered within the context of overall investment return. 4.0.2 Liquidity. An adequate percentage of the portfolios shall be maintained in liquid, short-term securities that can be converted to cash, if necessary, to meet disbursement requirements. Since all cash requirements cannot be anticipated, the portfolios should consist largely of relatively low -duration securities with active secondary markets. Since not all possible cash demands can be anticipated, an amount equal to the City's annual expenditures shall be invested in securities that mature in less than one year. 4.0.3 Yield. Yield shall be considered only after the basic requirements of safety and liquidity have been met. Whenever possible and in a manner consistent with the objectives of safety and liquidity, a yield higher than the market rate of return shall be sought. 5.0 Delegation of Authority Cal. Govt. Code, sections 53607 and 53608 authorize the legislative body of a local agency to invest, deposit, and provide for the safekeeping of a local agency's funds or to delegate those responsibilities to the treasurer of the local agency. Palm Desert, California, Municipal Code, section 3.08.010 delegates the authority to invest, deposit, and provide for the safekeeping of City public monies to the city treasurer. Palm Desert, California, Municipal Code, section 2.16.010 authorizes the director of finance to serve ex officio as city treasurer. The city treasurer shall be responsible for all investment transactions that are executed on behalf of the City. The city treasurer and their designee shall have exclusive authority to buy and sell securities on behalf of the City. Page 2 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" Revision No. 21 Adopted: 4111/19 Investment transactions may be executed on behalf of the City only if the city treasurer has previously authorized them. If the city treasurer is unavailable, then the assistant finance director must authorize them prior to execution. 6.0 Investment Procedures The city treasurer shall establish written procedures for the operation of the City's investment program that are consistent with the provisions of this policy. The procedures shall include the following: safekeeping, PSA repurchase agreements, banking service contracts, and collateral/depository agreements. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and under the procedures that the city treasurer establishes. 7.0 Conflicts of Interest Investment officers shall not conduct any personal business activity that could conflict with the proper execution of the City's investment program or impair their ability to make impartial investment decisions. They shall disclose to the City Council any material financial interest in financial institutions that conduct business within the City's jurisdiction. They shall also disclose any personal investment positions that could be related to the performance of the City's investment portfolios. Investment officers shall subordinate their personal investment transactions to those of the City, particularly with regard to the timing of securities purchases and sales, and shall avoid transactions that might impair public confidence. Investment officers and their immediate relatives shall not accept or solicit any gifts, gratuities, honorariums, or favors from persons or entities who provide or who are seeking to provide financial services to the City. 8.0 Authorized Broker -Dealers and Financial Institutions After review by the Finance Committee, the City Council shall review and approve the securities broker -dealers that are authorized to do business with the City. Authorized securities broker -dealers are listed in Appendix A of this policy. Only primary government securities dealers ("primary dealers") that regularly report to the Federal Reserve Bank of New York shall be eligible for inclusion on the City's authorized list. The only exception to the foregoing shall be that the City Council may, at its discretion, accept, review, and approve Requests for Information ("RFI") from secondary securities brokers that: (1) have been in existence for more than five Page 3 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" Revision No. 21 Adopted: 4/11119 years; (2) have a net capital position in excess of $100 million; (3) are licensed as brokers by the State of California; and (4) are headquartered or have a branch office in California. The total number of broker -dealers on the authorized list shall not exceed four at any time. The City shall accept and review new broker -dealer applications only when there is an immediate need to fill a vacancy on the authorized list. In all cases, the City shall only accept RFIs from and transact business with the institutional securities sales departments of broker -dealers. The City shall not transact business with an authorized broker -dealer until all of the documentation that both parties require has been executed and delivered. All broker -dealers who wish to apply for inclusion on the authorized list must, at a minimum, provide the city treasurer with a copy of the following documents, unless otherwise noted: 8.0.1 Completed "Broker -Dealer Request for Information" (signed original only). 8.0.2 The firm's most recent Annual Resort and Securities and Exchanoe Commission ("SEC") Form 10-K or 20-F. 8.0.2 The firm's National Association of Securities Dealers ("NASD") Form BD -- Uniform ADDlication for Broker -Dealer Reaistration or, in the case of an investment department within a commercial bank, SEC Form MSD. 8.0.3 The firm's current NASD Form BD Status Report. 8.0.4 NASD Form U-4 -- Uniform ADDlication for Securities Industry Reaistration or Transfer for each employee would who might be trading with the City. 8.0.5 Current NASD Form U-4 Status Report on each employee who might be trading with the City. 8.0.6 A resume from each of the firm's employees who might be trading with the City. 8.0.7 The firm's delivery and wiring instructions. 8.0.8 An executed corporate resolution that identifies employees who are authorized to trade with the City. 8.0.9 The firm's current investment policy. In addition to the above documents, secondary brokers must also submit: Page 4 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" Revision No. 21 Adopted: 4/11/19 8.0.10 The firm's most recent SEC Form X-17 A-5 or, in the case of an investment department within a commercial bank, SEC Consolidated Reports of Condition and Income for A Bank With Domestic and Foreian Offices -- FFIEC 031. Investment officers shall investigate all broker -dealer applicants in order to determine if they: (1) are adequately capitalized; (2) are subject to pending legal action (either the firm or the trader); (3) make markets in securities that are appropriate for the City's needs; (4) are licensed as a broker by the State of California Department of Corporations; and (5) are a member of the National Association of Securities Dealers. Broker -dealer applicants shall be required to provide state or local government references from within California. Any broker -dealer that has made a political contribution within any consecutive four-year period following January 1, 1996 in an amount that exceeds the limits in Municipal Securities Rulemaking Board ("MSRB") Rule G-37, to any member of or candidate for the City Council, the RDA Successor Agency — Palm Desert Board, the Housing Authority Commission, or the Finance Committee shall be ineligible to transact business with the City. After review by the Finance Committee, the City Council shall consider the submitted documents, along with the investment officers's recommendations, and decide if any new broker -dealers should be added to the authorized list. If, in the City's opinion, a broker -dealer's RFI is missing, incomplete, late (submitted after the specified deadline), or contains false or misleading information, or if the broker has not submitted all of the documents that the City requires, then the City shall automatically reject the broker -dealer's RFI and that broker -dealer shall not be eligible to submit another RFI to the City for three years. The city treasurer shall provide all authorized broker -dealers with a copy of the City's investment policy and any amendments as they occur. After review by the Finance Committee, the City Council shall review and approve all commercial banks, savings associations, and federal associations (as defined by Cal. Fin. Code, section 5102), and trust companies that are authorized as public depositories of City monies, in the form of checking, savings, and money market accounts, and certificates of deposit. Authorized financial institutions are listed in Appendix A of this policy. The City shall only deposit public monies in financial institutions that have: 8.0.11 At least $5 billion in total assets. 8.0.12 A core capital -to -total assets ratio of at least five percent. Page 5 Palm Desert Treasury Policies and Procedures Revision No. 21 No. 2: "Statement of Investment Policy" Adopted: 4111119 8.0.13 Favorable statistical ratings from a nationally recognized rating service, as determined by the city treasurer. 8.0.14 A federal or a state charter. 8.0.15 A branch office within Riverside County. 8.0.16 A "satisfactory" overall rating in their most recent evaluation by the appropriate federal financial supervisory agency, in terms of meeting the credit needs of California communities, pursuant to federal law. Under no circumstances shall the City's deposits in a financial institution exceed the total shareholders' equity of that institution. 9.0 Authorized Investments The City Council has authorized the City Treasurer's Office to invest in the following financial instruments pursuant to Cal. Govt. Code, section 53600, et seq., under the terms and conditions stated below. All non -pooled securities must mature within five years unless the City Council has approved longer maturities for the investment of bond reserve, bond escrow, and other funds. % of No. Type of Investment Portfolio Authorized United States Treasury bills, 100% notes, bonds, or certificates of indebtedness, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest. 2. Federal Agency or United 100% States government -sponsored enterprise ("GSE") obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by Federal Agencies or by GSE. Page 6 Other Restrictions Maximum maturity: 5 Years Maximum maturity: 5 years No more than 30% of the portfolio may be invested in any one issuer (excluding the proceeds of tax-exempt bonds). Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" Revision No. 21 Adopted: 4/11119 % of No. Type of Investment Portfolio Other Restrictions Authorized 3. California State and Local 25% Maximum maturity: 5 Years Agency debt obligations that are general obligation bonds or Rated "A" or higher by S&P or revenue bonds that are issued by Moody's. by the state or local agency or by a department, board, agency, or authority of the state or a local agency. 4. Commercial Paper ("CP") 25% Maximum maturity: 270 days (Non -Pooled Fund) issued by general corporations organized Rated "A-1" by S&P or"P-1" and operating in the United by Moody's. States with assets exceeding $500 million. No more than 10% of the outstanding CP of any one issuer may be purchased. No more than 10% of the portfolio may be invested in the CP of any one issuer. Asset -backed CP is ineligible for purchase. 5. Negotiable Certificates of 15% Maximum maturity: 5 years Deposit ("NCD") issued by a nationally- or state -chartered Long-term debt rated "AA-" bank, a savings association, a higher by S&P or by Moody's. federal association, or by a state -licensed branch of a foreign bank. 6. Time Certificates of Deposit 15% Maximum maturity: 1 year ("TCD") issued by qualified public depositories. TCDs exceeding the FDIC limit must be collateralized. TCDs must be centralized at Page 7 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" No. Type of Investment % of Portfolio Authorized Revision No. 21 Adopted: 4/11/19 Other Restrictions one location for each bank or S&L. If TCD is uncollateralized, then no more than 90 percent of the FDIC limit may be invested per TCD. Issuing public depository must meet qualifying criteria on Pages 5 and 6 of this SOIP. Repurchase Agreement ("RP") 20% Maximum maturity: 30 days sold by authorized brokers. Collateral must be United States Treasury, Federal, Agency, or GSE obligations. Zero coupon and stripped coupon instruments are not acceptable as collateral. Collateral must be valued at 102% of cost and adjusted weekly. City must have first lien and security interest in all collateral. City's custodian must hold collateral. An authorized broker must file a Public Securities Association (PSA) Master Repurchase Agreement with the City treasurer, and the City Attorney must review the agreement, prior to the Page 8 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" No. Type of Investment 8. Medium -Term Notes ("MTNs") issued by corporations organized and operating in the United States, or by depository institutions operating in the United States and licensed by the United States or by any state. Money Market Mutual Funds ("MMF") that are registered with the SEC under the Investment Act of 1940. Revision No. 21 Adopted: 4/11/19 % of Portfolio Other Restrictions Authorized transaction of RP business with that broker. 25% Maturity maturity: 5 years Rated "A" or higher by S&P or by Moody's. No more than 10% of the portfolio may be invested in the MTNs of any one issuer. 20% Either rated "AAA" by S&P, (excluding "Aaa" by Moody's, or "AAA-V- bond 1+" by Fitch (2 of 3), or retains proceeds) an investment advisor registered or exempt from registration with SEC, with at least 5 years of experience managing a MMF with $500 million or more in assets. MMF must have dollar - weighted average maturity of 90 days or less. MMF must buy securities that mature in 13 months or less. No commission may be charged. 10. State of California Local Up to City Council and Agency Investment Fund maximum Redevelopment Agency ("LAIF") that is managed by the (currently approved participation in LAIF State Treasurer's Office. $65,000,000 on 12/12/81 in Resolution No. per account) 81-161. (except for bond trustee Page 9 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" No. Type of Investment 11. Structured Notes in the form of callable securities or "STRIPS" issued by the United States Treasury or by Federal Agencies or government - sponsored enterprises ("GSE"). Revision No. 21 Adopted: 4/11119 % of Portfolio Other Restrictions Authorized accounts which have no deposit limit) 20% Maximum maturity: 5 years 12. Local Government Investment 75% As required by law under the Pools ("LGIP") and Joint (excluding Cal. Govt. Code. Powers Authority ("JPA") bond Pools proceeds) 10.0 Prohibited Investments Investment officers shall not invest public monies in financial instruments that are not authorized under this policy. Prohibited investments shall include, but shall not be limited to, equity securities, bond mutual funds, reverse repurchase agreements, and derivative contracts (forwards, futures, and options). The purchase of derivative securities shall be prohibited, unless specifically authorized in this policy. Investment officers shall not engage in securities lending, short selling, or other hedging strategies. LAIF and MMFs shall be exempt from the prohibitions on derivative contracts, derivative securities, reverse repurchase agreements, securities lending, short selling, and other hedging strategies. 11.0 Investment Pools/Mutual Funds A thorough investigation of the pool/fund is required prior to investing and on a continual basis. There shall be a questionnaire developed which will answer the following general questions: Page 10 Palm Desert Treasury Policies and Procedures Revision No. 21 No. 2: "Statement of Investment Policy" Adopted: 4/11/19 11.0.1 A description of eligible investment securities, and a written statement of investment policy and objectives. 11.0.2 A description of interest calculations and how it is distributed, and how gains and losses are treated. 11.0.3 A description of how the securities are safeguarded (including the settlement processes), and how often the securities are priced and the program audited. 11.0.4A description of who may invest in the program, how often, what size deposit and withdrawal are allowed. 11.0.5 A schedule for receiving statements and portfolio listings. 11.0.6 A verification on whether or not reserves or retain earnings are utilized by the pool/fund. 11.0.7 A fee schedule, and when and how it is assessed. 11.0.8 The eligibility of the pool/fund for bond proceeds, and whether it will accept such proceeds. 12.0 Collateral ization Investment officers shall ensure that all demand deposits and all non-negotiable certificates of deposit that exceed the Federal Deposit Insurance Corporation ("FDIC") limit shall be fully collateralized with securities authorized under state law and under this SOIP. Collateral may be waived for the amount of the FDIC limit. Any amount on deposit that exceeds the FDIC limit plus accrued interest, however, shall be collateralized with United States Treasury or federal agency securities at a constant margin ratio of 110 percent or with mortgage -backed collateral at a constant margin ratio of 150 percent. Collateralized investments and demand deposits may require substitution of collateral. The city treasurer must approve all requests from financial institutions for substitution of collateral that involve interchanging classes of securities. An independent third party with which the City has a current custodial agreement shall always hold the collateral. The independent third party shall provide the city treasurer with a safekeeping receipt that they shall retain. 13.0 Safekeeping and Custody Investment officers shall conduct all security transactions on a delivery -versus - payment ("DVP") or on a receipt -versus -payment ("RVP") basis. A third -party Page 11 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" Revision No. 21 Adopted: 4/11/19 bank trust department ("Custodian") that acts as an agent for the City, under the terms of a custody agreement executed between both parties, shall hold the securities. The custodial bank shall be one of the 20 largest commercial banks in the world, as measured by total assets. The City's Custodian is listed in Appendix A of this policy. The only exception to the foregoing shall be securities purchases made with: 13.0.1 Local government investment pools. 13.0.2 Money market mutual funds. 13.0.3 Federal Reserve Banks ("Treasury Direct Program") since the purchased securities are not deliverable. No securities broker or investment advisor shall have access to City monies, accounts, or investments. Any transfer of monies to or through a securities broker must have the city treasurer's prior written approval. If the city treasurer is unavailable, then the assistant finance director must authorize the transfer, in writing. The City shall require Broker Trade Confirmations for all trades. Investment officers shall review these confirmations immediately upon receipt, for conformity with the terms of the City's Trade Sheets. 14.0 Diversification Investment officers shall diversify the City's investment portfolios by security type and by issuer, except for bond reserve monies; bond escrow monies; and any other monies that the City Council or the Finance Committee designates. 15.0 Maximum Maturities Investment officers shall not invest in securities with maturities exceeding five years. After review by the Finance Committee, the City Council may approve longer maturities for the investment of bond reserve, bond escrow, and other funds if the maturities of such investments are expected to coincide with the expected use of the funds. 16.0 Basic Investment Strategy The City portfolio shall be invested using a passive strategy of "buying and holding" fixed -income securities. Whenever possible, a bond ladder shall be constructed with laddered maturities that support anticipated cash flow dates. Securities may be sold prior to maturity only to: 1) address an actual or potential Page 12 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" Revision No. 21 Adopted: 4/11/19 deterioration in credit quality; 2) rebalance the portfolio; or 3) meet unanticipated financial obligations. Active strategies, such as market timing, sector rotation, or indexing to a benchmark shall be prohibited. 17.0 Portfolio Rebalancing If portfolio percentage constraints are violated due to a temporary imbalance in the portfolio, then investment officers shall hold the affected securities to maturity in order to avoid capital losses. If no capital losses would be realized upon sale, however, then investment officers shall consider rebalancing the portfolio after evaluating the expected length of time that it will be imbalanced. Portfolio percentage limits are in place in order to ensure diversification of the City investment portfolio; a small, temporary imbalance will not significantly impair that strategy. 18.0 Credit Downgrading This policy sets forth minimum credit risk criteria for each security. This credit risk criteria applies to the initial purchase of a security; it does not automatically force the sale of a security sale if its credit risk ratings fall below policy limits. If a security is downgraded below the minimum credit risk criteria specified in this policy, then investment officers shall evaluate the downgrade on a case -by -case basis in order to determine the security should be held or sold. The city treasurer shall inform the city manager and the Finance Committee at its next monthly meeting of the credit downgrade and of the investment officers's decision to hold or sell the downgraded security. Investment officers shall review the credit standing of all securities in the City's investment portfolios annually, at a minimum. 19.0 Bond Proceeds The city treasurer shall segregate the gross proceeds of tax-exempt bonds from the City general pool and shall keep them in a separate pool. They shall be invested pursuant to the instructions in the respective bond indentures of trust. All securities shall be held in third -party safekeeping with the bond trustee ("Trustee") and all DVP and RVP rules shall apply. The City's Trustee is listed in Appendix A of this policy. Page 13 Palm Desert Treasury Policies and Procedures No. 2: "Statement of Investment Policy" Revision No. 21 Adopted: 4111/19 The City is required under the "U.S. Tax Reform Act of 1986" to perform annual arbitrage calculations and to rebate excess earnings to the United States Treasury from the investment of the gross proceeds of tax-exempt bonds that were sold after the effective date of that law. The city treasurer may contract with qualified outside financial consultants to provide the necessary technical expertise that is required to comply with this law. 20.0 Internal Controls The city treasurer shall ensure that all investment transactions comply with the City's policy, and shall establish internal controls that are designed to prevent losses due to fraud, negligence, and third -party misrepresentation. Internal controls deemed most important shall include avoidance of collusion, separation of duties and administrative controls, separating transaction authority from accounting and record keeping, custodial safekeeping, clear delegation of authority, management approval and review of investment transactions, specific limitations regarding securities losses and remedial action, written confirmation of telephone transactions, documentation of investment transactions and strategies, and monitoring of results. The city treasurer shall establish a process of independent review by an external audit firm of the City's investment program every three years. The external auditor shall review the program's management in terms of compliance with the internal controls that are specified in the City's Treasury Policies and Procedures Manual. A Finance Committee consisting of City officials and community representatives shall be responsible for reviewing the City investment reports, transactions, policies and procedures, and strategies on at least a quarterly basis. The City Council shall establish bylaws for the Finance Committee. 21.0 Performance Standards The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with investment risk constraints and cash flow needs. 22.0 Portfolio Benchmark The City shall adopt the average monthly effective yield of the LAIF Pooled Money Investment Account as a performance benchmark for the City investment portfolio. Page 14 Palm Desert Treasury Policies and Procedures Revision No. 21 No. 2: "Statement of Investment Policy" Adopted: 4/11/19 23.0 Reporting The city treasurer shall provide the City Council with an investment report within 30 days after Finance Committee review of the report. Pursuant to Governmental Accounting Standards Board ("GASB") Statement Number 40, as amended March 2003, the monthly investment report shall: 23.0.1 Organized individual securities by investment type (e.g., U.S. Treasuries, corporate bonds, commercial paper, etc.). Dissimilar investments (e.g., U.S. Treasury bills and Treasury strips) should not be aggregated. 23.0.2 List credit risk ratings for each security, mutual fund, or investment pool from at least two nationally recognized statistical rating organizations ("NRSRO"). If the security, mutual fund, or investment pool has not rating, then it shall be shown as "unrated". 23.0.3 Disclose the amount of individual securities and corresponding issuers if they exceed five percent of net plan assets, except for securities guaranteed by the U.S. Government, money market mutual funds, and external investment pools. 23.0.4 Use the specific identification method to reflect interest -rate risk by investment type and amount. This report shall include a complete portfolio inventory with details on issue, par value, book value, coupon/rate, original settlement date of purchase, final maturity date, CUSIP number, average weighted yield, average days to maturity, and market value (including source of market valuation). The report will include a statement on compliance or noncompliance with the City's SOW and a statement on whether there are or are not sufficient funds to meet the City's anticipated cash requirements for the next six months. 24.0 Investment Policy Adoption The city treasurer shall submit a Statement of Investment Policy annually to the Finance Committee for review, and then to the City, Council, the Successor Agency to the Palm Desert Redevelopment Agency Board, the Housing Authority Board, the Financing Authority Commission, and the Recreational Facilities Corporation Board of Directors for their review and adoption. Page 15 Palm Desert Treasury Policies and Procedures Revision No. 21 No. 2: "Statement of Investment Policy" Adopted: 4/11119 Appendix A: List of Authorized Financial Institutions The City Treasurer's Office is authorized to transact investment and depository business with the following financial institutions. Investment and depository transactions with firms other than those appearing on this list are prohibited. UNITED STATES GOVERNMENT 1. Federal Reserve Bank PRIMARY DEALERS 1. J.P. Morgan Securities LLC 2. Wells Fargo Securities LLC SECONDARY BROKERS 1. Piper Jaffray & Company 2. Stifel, Nicolaus & Company PUBLIC DEPOSITORIES 1. Citibank, N.A. 2. JP Morgan Chase & Co. 3. Rabobank, N.A. 4. MUFG Union Bank, N.A. 5. Wells Fargo Bank, N.A. CUSTODIAN 1. MUFG Union Bank Global Custody Services TRUSTEE 1. U.S. Bank Global Corporate Trust Services Page 16