HomeMy WebLinkAboutAdopt Palm Desert Statement of Investment Policy as Amended - Joint ConsiderationCITY OF PALM DESERT
OFFICE OF THE CITY TREASURER
STAFF REPORT
REQUEST: ADOPTION OF THE PALM DESERT STATEMENT OF
INVESTMENT POLICY, AS AMENDED (JOINT CONSIDERATION
WITH THE PALM DESERT CITY COUNCIL, THE RDA
SUCCESSOR AGENCY — PALM DESERT, THE FINANCING
AUTHORITY, AND THE HOUSING AUTHORITY).
SUBMITTED BY: Paul S. Gibson, C.C.M.T., City Treasurer
DATE: March 8, 2012
CONTENTS: Proposed Amendments to Statement of Investment Policy
Recommendation
By Minute Motion: That the City Council adopt the Palm Desert Statement of
Investment Policy, as amended.
Background
At its February 28, 2012 meeting, the Audit, Finance, and Investment Committee
reviewed the proposed amendments, and voted unanimously to recommend that
the City Council adopt the investment policy as amended.
Both amendments are necessitated by the dissolution of the Palm Desert
Redevelopment Agency ("RDA") on January 31, 2012, and the establishment of the
"RDA Successor Agency -- Palm Desert" on February 1, 2012.
Amendment No. 1 would update the Palm Desert Statement of Investment Policy by
substituting "RDA Successor Agency — Palm Desert" for "Palm Desert Redevelopment
Agency" wherever that phrase is found in the body of the policy.
Amendment No. 2 would raise the concentration limit for local agency investment pools
("LGIPs") from 30 percent to 50 percent. Traditionally, both the City of Palm Desert
("City") and the City's outside auditor have calculated the concentration limit for LGIPs
by adding together all investments in LGIPs (numerator), and dividing by the sum of the
Staff Report
Adoption of Statement of Investment Policy as Amended
March 8, 2012
Page 2 of 2
City and RDA investment portfolios (denominator). With the elimination of the RDA, a
much smaller denominator must now be used, consisting only of the City's investment
portfolio. This will drive the City's concentration percentage significantly above the
existing 30 percent limit. This effect is further amplified by the increased sums of cash
that Staff is investing in LGIPs since they often provide greater profit opportunities than
do individual short-term securities under current market conditions.
Amendment No. 2 also includes the removal of a textual reference to the Local Agency
Investment Fund ("LAIF"), which is discussed under another section of the policy.
Proposed additions to the investment policy are highlighted with "shading''; proposed
deletions with "stFiker".
Fiscal Analysis
Under prevailing market conditions, raising the concentration limit for LGIPs to 50
percent would significantly increase interest income for both the City and the RDA
Successor Agency — Palm Desert investment portfolios, as well as enhance their
liquidity. N co �j S�cc>Gss�� y
Submitted By:
Paul S. GibsoAn,. ity Treasurer
Approval:
M. Wohlmuth, City Manager
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Original on File with City'diews Office
Palm Desert Treasury Policies and Procedures
No. 2: "Statement of Investment Policy"
1.0 Policy
It is the policy of the:
Revision No. 18
Adopted: 5/12/11
➢ City of Palm Desert;
➢ Palm Desert Redevelopment Agency RDA Successor Agency — Palm
Desert
➢ Palm Desert Housing Authority;
➢ 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) maximize profit within
the parameters of prudent risk management.
For the purposes of this policy:
➢ "Investment Officers" shall be defined as the City Treasurer and the Deputy
City Treasurer.
➢ "Finance Committee" shall be defined as the Audit, Investment, and Finance
Committee.
➢ "City Council" shall be defined as the Palm Desert City Council.
2.0 Scope
This policy shall apply to all funds that are under the City Treasurer's control
including, but not limited to, the general fund; special revenue funds; debt service
funds; capital project funds; enterprise funds; and trust and agency funds. These
funds are accounted for in the City's Comprehensive Annual Financial Report.
The City's Deferred Compensation Plan ("Plan") shall be excluded from the
scope of this policy if the following three conditions exist: (1) a third -party
administrator manages the Plan; (2) individual plan participants have control over
the selection of investments; and (3) the City has no fiduciary responsibility to act
as a "trustee" for the Plan.
The only exception to the foregoing shall be that if the City retains the fiduciary
responsibility to act as a trustee for the Plan, then the Plan shall be deemed to be
within the scope of this policy.
The City Treasurer shall provide the Finance Committee with a quarterly report
on the investment of Plan assets.
Page 1
Palm Desert Treasury Policies and Procedures
No. 2: "Statement of Investment Policy"
Revision No. 18
Adopted: 5/12/11
Securities Dealers. Broker applicants shall be required to provide state or local
government references from within California.
Any broker 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 not be eligible to transact business with the City.
The Finance Committee and the City Council shall review the submitted
documents, along with the Investment Officers's recommendations, and decide if
any new brokers should be added to the authorized list. If, in the City's opinion, a
broker'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
that broker's RFI, and the broker shall not be eligible to submit another RFI to the
City for three years.
The City Treasurer shall provide all authorized brokers annually, in January, with
a copy of the City's investment policy for that calendar year. The City
Treasurer's Office shall retain, on file, the annual financial statements of each
authorized broker for the preceding three years.
The City Treasurer shall maintain an authorized list (see Page 18) of all
commercial banks, savings associations, and federal associations (as defined by
California Financial Code Section 5102), and trust companies that the Finance
Committee and the City Council have authorized as public depositories of City
monies, in the form of checking, savings, and money market accounts, and
certificates of deposit. This list shall be provided to all members of the City
Council and the Finance Committee.
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.
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.
Page 6
Palm Desert Treasury Policies and Procedures
No. 2: "Statement of Investment Policy"
Revision No. 18
Adopted: 5/12/11
% of
No
Type of Investment
Portfolio
Other Restrictions
Authorized
11.
Structured Notes in the form
20%
Maximum maturity: 5 years
of callable securities or
"STRIPS" issued by the United
States Treasury or by Federal
Agencies or government -
sponsored enterprises ("GSE")
0.°/a.. .
12.
Local Government Investment
39°6
Must meet above criteria for
Pools ("LGIPS")
(excluding
MMFs (except for ' ^'tea
bond
the Riverside County
proceeds)
Treasurer's Pooled
Investment Fund).
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.
Page 12
Palm Desert Treasury Policies and Procedures
No. 2: "Statement of Investment Policy"
Revision No. 18
Adopted: 5/12/11
The City shall obtain a minimum of three competitive offers. Any exceptions to
this policy shall be documented and shall be reported to the Finance Committee
at its next monthly meeting.
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.
19.0 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 a monthly basis. The Mayor; the
Mayor Pro Tempore; the City Manager; the City Attorney; the Redevelopment
Ageeey RDA Successor Agency— Palm Desert Executive Director; the City
Treasurer; the Deputy City Treasurer; and various citizens who are appointed by
the City Council pursuant to City ordinance, shall sit on this committee.
20.0 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.
Page 15
Palm Desert Treasury Policies and Procedures
No. 2: "Statement of Investment Policy"
Revision No. 18
Adopted: 5/12/11
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 SOIP 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.
23.0 Investment Policy Adoption
The City Treasurer shall submit a Statement of Investment Policy to the Finance
Committee, the City Council; the RDA Successor
Agency - Palm Desert Board; the Housing Authority Commission; the Financing
Authority Commission; and the Recreational Facilities Corporation Board of
Directors annually for their review and adoption.
Page 17