August 16, 2005
SUBJECT: Investment and Cash Management Policy Update for Fiscal Year 2005/2006
REPORT IN BRIEF
The City’s Investment and Cash Management Policy requires that it be reviewed annually to ensure consistency with respect to the objectives of safety, liquidity, and yield and relevance to current laws and financial and economic trends. Section 53646(2) of the California Government Code also requires that the City’s Investment Policy be rendered annually to the City Council. A separate item will come before the Redevelopment Agency for approval at tonight’s Redevelopment Agency meeting.
Staff is recommending no changes to the existing Investment Policy. The City’s Investment Policy has been reviewed and certified by the Association of Public Treasurers of the United States and Canada (APT US&C) since 1999 and staff will be submitting the Investment Policy for FY 2005/2006 (once approved by Council) to be re-certified.
BACKGROUND
In accordance with State law, the City Council adopted a policy governing investment of City funds on July 30, 1985. This policy has been updated on an annual basis since that time.
EXISTING POLICY
The key provisions of the existing policy are as follows:
1. Safety of principal is the foremost objective of the investment program. Diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio.
2. Liquidity- the portfolio will remain sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated.
3. Return on Investment-the portfolio will be maintained with the objectives of safety and liquidity first, and then the objective of obtaining a market rate of return throughout the budgetary and economic cycles, taking into account the City’s investment risk constraints and the cash flow characteristics of the portfolio.
DISCUSSION
As required in the City’s Investment Policy, a report of portfolio performance and compliance with the Investment Policy for the prior year shall be presented to the City Council as part of the annual Investment Policy review.
Safety: The City’s portfolio is diversified by type of investment, issuer, and maturity date. All investments fully comply with the requirements that the City have all instruments either in direct custody or in safekeeping by a third party bank trust department. All eligible investments are held for safekeeping by the Trust Department of the City’s contract bank (currently Union Bank).
Liquidity: A schedule of major revenues and expenditures for at least 12 months is maintained in order to determine liquidity needs. Liquidity requirements have been met through utilizing the State’s Local Agency Investment Fund (LAIF), overnight repurchase agreements, and the City’s interest-bearing business checking account.
Yield: For Fiscal Year 2004/2005, the portfolio yield has averaged 3.15% while the average yield of a Treasury security with an average life similar to our portfolio was 2.67%; a difference of 0.48%.
Use of Security Dealers and Brokers: During FY 2004/2005 staff has complied with all requirements specified in the existing Investment Policy regarding the use of security dealers and brokers. In addition, in accordance with policy, when staff has purchased an investment, quotations have been solicited from at least three financial dealers or institutions.
Written Investment Policy Certification: As previously mentioned, the City’s Investment Policy has been certified by the Association of Public Treasurer’s of the United States and Canada (APT US&C) beginning in 1999. This organization provides guidance and assistance in improving investment policies in the public sector and their program involves a review by at least three experts in the field, with certification that it meets their standards. Those jurisdictions which comply with APT US&C’s criteria are presented with the Association’s Written Investment Policy Certification. Once approved by Council, staff will be submitting the Investment Policy for FY 2005/2006 to be re-certified.
FISCAL IMPACT
There is no fiscal impact associated with adoption of the Investment and Cash Management Policy. Interest earnings for FY 2004/2005 for all City funds totaled $6.4 million.
Conclusion
State law and the City’s current Investment and Cash Management Policy require that the policy be reviewed annually to ensure consistency with respect to the objectives of safety, liquidity, and yield and relevance to current laws and financial and economic trends. Staff is recommending no changes to the Investment Policy.
PUBLIC CONTACT
Public Contact was made through posting of the Council agenda on the City’s official notice bulletin board, posting of the agenda and report on the City’s web page, and the availability of the report in the Library and the City Clerk’s Office.
ALTERNATIVES
1. Adopt the attached Investment Policy as presented.
2. Adopt the attached Investment Policy with changes as proposed by the City Council.
RECOMMENDATION
It is recommended that the City Council adopt the attached Investment Policy for FY 2005/2006 as presented.
Prepared by:
Therese B. Balbo
Finance Manager
Reviewed by:
Mary J. Bradley
Director, Finance
Approved by:
Amy Chan
City Manager
Attachments
Investment and Cash Management Policy for Fiscal Year 2005/2006 (.pdf format)