HomeMy WebLinkAbout53-20RESOLUTION 53-20
RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF LOS ALTOS HILLS
ADOPTING THE REVISED INVESTMENT POLICY
WHEREAS, on October 17, 2019 the City Council reviewed and adopted the Revised Town of
Los Altos Hills Investment Policy; and
WHEREAS, investment policies guide staff and their advisors for all investment activities on
behalf of local government agencies; and
WHEREAS, those investment activities are primarily governed by the individual entity's adopted
investment policy and by California state law (Government Code sections 53600-53610); and
WHEREAS, the Investment Policy for the Town of Los Altos Hills is consistent with state law
and, for the purpose of added safety and liquidity, is more restrictive than the state law; and
WHEREAS, the Finance and Investment Committee (FIC) has reviewed changes to the
Investment Policy (Attachment A) and voted in favor of sending the amended policy to Council
for its review and approval; and
NOW THEREFORE, resolved by the City Council of the Town of Los Altos Hills that the
Council hereby adopts the Town's Revised Investment Policy as presented.
The above and foregoing resolution was passed and adopted by the City Council of the Town of
Los Altos Hills at a regular meeting held on the 15th day of October 2020 by the following vote:
AYES: Wu, Tanlcha, Corrigan, Spreen, Tyson
NOES: None
ABSTAIN: None
ABSENT: None
ATTEST:
eborah Padova;, City Cleric
BY:
Michelle Wu, Mayor
Resolution 53-20 Page I
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1.0 Philosophy
It is the policy of the Town of Los Altos Hills to invest public funds in a manner that will
provide a reasonable rate of investment return while minimizing exposure to loss of capital
and thereby maintaining a consistent source of revenues for the Town. This policy
establishes the parameters for the Town's investment strategies.
2.0 Delegation of Authority
Authority to manage the Town of Los Altos Hills' investment program is derived from the
California Government Code Section 53600 et seq. The City Council shall approve all
modifications to the investment strategy and the selection or dismissal of an investment
advisor. Administration of the Council -approved investment strategy is hereby delegated
to the City Manager, who shall be responsible for supervising all treasury activities of the
Town's Finance Director and who shall establish written procedures for the operation of
the investment program consistent with this investment policy. Procedures should include
reference to: safekeeping, delivery vs. payment, investment accounting, wire transfer
agreements, banking service contracts and collateral/depository agreements. Such
procedures shall include explicit delegations of authority to persons responsible for
investment transactions. No person may engage in any investment transactions except as
provided under the terms of this policy and the procedures established by the City Manager
or her/his designee. The City Manager or her/his designee shall be responsible for all
transactions undertaken and shall establish a system of controls to regulate the activities of
subordinate officials.
3.0 Scope
This investment policy applies to all financial assets of the Town of Los Altos Hills. These
funds are accounted for in the Town of Los Altos Hills' Comprehensive Annual Financial
Report and include:
General Fund
Special Revenue Funds
Trust and Agency Funds
Enterprise Funds
Capital Projects Funds
Any new fund, unless specifically exempted
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3.2 The following financial assets are excluded.
Deferred Compensation Plans — Investments are directed by the individual
plan participants.
Debt Service Funds Held by Trustees — Investments are placed in
accordance with bond indenture provisions.
Notes and Loans — Investments are authorized by separate agreements
approved by City Council.
Retiree and Retiree Medical Plans
Except as noted, the Town of Los Altos Hills will consolidate cash balances from all funds
to maximize investment earnings. Investment income will be allocated to the various funds
based on their respective participation and in accordance with generally accepted
accounting principles.
4.0 Prudence
Investments shall be made with judgment and care — under circumstances then prevailing
— which persons of prudence, discretion and intelligence exercise in the management of
their own affairs, not for speculation, but for investments, considering the probable safety
of their capital as well as the probable income to be derived.
4.1 Standard ofprudence: The standard of prudence to be used by investment
officials shall be the "prudent investor" standard and shall be applied in the
context of managing an overall portfolio. When investing, reinvesting,
purchasing, acquiring, exchanging, selling, or managing public funds, a
trustee shall act 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.
5.0 Objective
The primary objective, in priority order, of the Town of Los Altos Hills' investment
activities shall be:
5.1 Safety. Safety of principal is the foremost objective of the investment
program. Investments of the Town of Los Altos Hills shall be undertaken
in a manner that seeks to ensure the preservation of capital in the overall
portfolio. The objective is to minimize (1) credit risk, through diversifying
the portfolio among the authorized investment types with pre -qualifying
financial institutions and broker dealers, and (2) interest rate risk, by
structuring portfolio maturities to match cash requirements and investing
operating funds in shorter -term securities.
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5.2 Liquidity: The Town of Los Altos Hills' investment portfolio will remain
sufficiently liquid to enable the Town of Los Altos Hills to meet all
operating requirements which might be reasonably anticipated. In addition
to structuring the portfolio so that securities mature concurrent with cash
needs, suitable investments (Section 6.0) consist largely of securities with
active secondary or resale markets,
5.3 Return on Investments: The Town of Los Altos Hills' investment portfolio
shall be designed with the objective of attaining a rate of return throughout
budgetary and economic cycles, commensurate with the Town of Los Altos
Hills' investment risk constraints and the cash flow characteristics of the
portfolio.
6.0 Authorized and Suitable Investments
Where this section specifies a percentage limitation for a particular security type, that
percentage is applicable only on the date of purchase. Credit criteria listed in this section
refers to the credit rating at the time the security is purchased. Where credit requirements
in this section refer to a minimum credit rating, this minimum is regardless of any category
modifiers such as "+99 or ...... If an investment's credit rating falls below the minimum
rating required at the time of purchase, the City Manager will perform a timely review and
decide whether to sell or hold the investment.
The Town of Los Altos Hills is empowered by Government Code Section 53601, and
further limited by this investment policy, to invest in the following types of securities:
1. United States Treasury notes, bonds, bills, or certificates of indebtedness, or
those for which the faith and credit of the United. States are pledged for the
payment of principal and interest.
2. Federal agency or United States government-sponsored enterprise obligations,
participations, or other instruments, including those issued by or fully guaranteed
as to principal and interest by federal agencies or United States government-
sponsored enterprises.
Obligations of the State of California or any local agency within the state,
including bonds payable solely out of revenues from a revenue-producing
property owned, controlled or operated by the state or any local agency or by a
department, Commission, agency or authority of the state or any local agency;
provided that the obligations are rated in one of the three highest categories by a
nationally recognized statistical rating organization (NRSRO). Purchases of
municipal obligations in sections 3 and 4 combined may not exceed 30 percent
of the Town's investment portfolio.
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4. Registered treasury notes or bonds of any of the other 49 states in addition to
California, including bonds payable solely out of the revenues from a revenue-
producing property owned, controlled, or operated by a state, or by a department,
board, agency, or authority of any of these states; provided that the obligations
are rated in one of the three highest categories by a NRSRO. Purchases of
municipal obligations in sections 3 and 4 combined may not exceed 30 percent
of the Town's investment portfolio.
Bankers' Acceptances with a rating of the highest ranking or highest letter and
number rating as provided for by a NRSRO. Purchases of bankers' acceptances
may not exceed 180 days. No more than 4.0% of the Town's investment
portfolio may be invested in bankers' acceptances and no more than 30% of the
Town's investment portfolio may be invested in the bankers' acceptances of
any one commercial batik.
6. Commercial paper of "prime" quality of the highest ranking or of the highest
letter and number rating as provided for by a nationally recognized statistical
rating organization (NRSRO). The entity that issues the commercial paper shall
meet all of the following conditions in either paragraph (1) or (2):
(1) The entity meets the following criteria:
(A) Is organized and operating in the United States as a general
corporation.
(B) Has total assets in excess of five hundred million dollars
($500,000,000).
(C) Has debt other than commercial paper, if any, that is rated in a rating
category of "A" or its equivalent or higher by an NRSRO.
(2) The entity meets the following criteria:
(A) Is organized within the United States as a special purpose corporation,
trust, or limited liability company.
(B) Has program -wide credit enhancements including, but not limited to,
overcollateralization, letters of credit, or a surety bond.
(C) Has commercial paper that is rated "A-1" or higher, or the equivalent,
by an NRSRO.
Eligible commercial paper shall have a maximum maturity of 270 days or
less. Local agencies, other than counties or a city and county, may invest no
more than 25% of their moneys in eligible commercial paper. The Town may
purchase no more than 10% of the outstanding commercial paper of any single
issuer.
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7. FDIC insured or fully collateralized time certificates of deposit in financial
institutions located in California, including U.S.. branches of foreign banks
licensed to do business in California. All time deposits must be collateralized
in accordance with California Government Code section 53651. Purchase of
FDIC insured or fully collateralized time certificates of deposit may not exceed
50% of the Town's investment portfolio.
8. Negotiable Certificates of Deposit (CD) issued by a nationally or state -
chartered bank, a savings association or a federal association (as defined by
Section 5102 of the Financial Code), a state or federal credit union, or by a
federally- or state -licensed branch of a foreign bank. No more than 30% of the
Town's portfolio may be invested in negotiable CDs and eligible CDs must be
rated in one of the three highest categories by a NRSRO.
9. Local Agency Investment Fund (LAIF). Investments in LAIF shall not exceed
$75 million.
10. Insured savings account or bank money market account. In accordance with
California Government Code Section 53635.2 to be eligible to receive local
agency deposits a financial institution must have received a minimum
overall "satisfactory" rating for meeting the credit needs of California
communities in its most recent evaluation.
11. Shares of beneficial interest issued by diversified management companies that
are money market funds registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-
1, et seq.). To be eligible for investment pursuant to this subdivision these
companies shall either: (1) attain the highest ranking letter or numerical rating
provided by not less than two of the three largest nationally recognized rating
services or (2) have an investment advisor registered or exempt from registration
with the Securities and Exchange Commission with not less than five years'
experience managing money market mutual funds and with assets under
management in excess of $500,000,000. The purchase price of shares shall not
exceed 20% of the investment portfolio.
12. California Asset Management Program. (CAMP).
13. Medium-term notes, defined as all corporate and depository institution debt
securities with a maximum remaining maturity of five years or less, issued by
corporations organized and operating within the United States or by depository
institutions licensed by the United States or any state and operating within the
United States. Notes eligible for investment under this subdivision shall be rated
in a rating category of "A" or its equivalent or better by a nationally recognized
rating service. Purchases of medium-term notes shall not include other
instruments authorized by this section and may not exceed 30% of the agency's
money that may be invested pursuant to this section.
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14. United States dollar denominated senior unsecured unsubordinated obligations
issued or unconditionally guaranteed- by the International Bank for
Reconstruction and Development, International Finance Corporation, or Inter -
American Development Bank, with a maximum remaining maturity of five years
or less, and eligible for purchase and sale within the United States. Investments
under this subdivision shall be rated in a rating category of "AA" or its
equivalent or better by an NRSRO and shall not exceed 30% of the agency's
moneys that may be invested pursuant to this section. (Supranationals).
Summary Table of Permitted Investments
Calif. Code Limitation
Town Policy Limitation
Investment Instruments
(Maturity, % of
(Maturity, % of
Portfolio, RatjU-)_____
Portfolio, Rating)
U.S. Treasury
5 years
5 years
100% of portfolio
100% of portfolio
Federal Agency
(including mortgage-
5 years
5 years
backed securities and
100% of portfolio
100% of portfolio
callable securities)
Municipal Obligations
5 years
(including notes issued by
5 years
30% of portfolio
the State of California,
100% of portfolio
Credit rating category of
"A"
California local agencies,
or its equivalent or
and the other 49 states)
higher by a NRSRO
180 days
180 days
Bankers' Acceptances
40% of portfolio
40% of portfolio
30% per issuer
5% per issuer
270 days
270 days
25% of portfolio
25% of portfolio
Long term credit rating
"A"
5% per issuer
Long term credit rating
Commercial Paper
category of and short
"A-1"
category of "A" and short
term rating of or
term rating of "A-1" or its
its equivalent or higher
equivalent or higher by a
by a NRSRO
NRSRO
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Summary Table of Permitted Investments
... . ...... -
Calif. Code Limitation Town Policy Limitation
Investment Instruments (Maturity, % of (Maturity, % of
Portfolio, Rating) Portfolio, Rating)
Deposits
50%1 of portfolio
5 years
(Collateralized/FDIC)
50% of portfolio
. ... . .......
5 years
30% of portfolio
Negotiable CDs
5 years
5% per issuer
30% of portfolio
Credit rating category of
"A" or its equivalent or
higher by a NRSRO
LAW
$75 million
$75 million
20% of portfolio
20% of portfolio
Money Market Funds
20% per fund
20% per fund
AAAm
. . .........
JPA
(CAMP)
. . . ...... .
100% of portfolio
100% of portfolio
5 years
5 years
30% of portfolio
30% of portfolio
Medium-Term Notes
Credit rating category of
"A"
5% per issuer
Credit rating category of
or its equivalent or
"A" or its equivalent or
higher by a NRSRO
higher by a NRSRO
5 years
5 years
30% of portfolio
30% of portfolio
Supranationals
Credit rating category of
Credit rating category of
"AA" or its equivalent
"AA" or its equivalent or
or higher by a NRSRO
higher by a NRSRO
I For deposit placement services.
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7.0 Authorized Financial Dealers and Institutions
To provide for the optimum yield in the Town's portfolio, the Town's procedures shall be
designed to encourage competitive bidding on transactions from an approved list of
broker/dealers.
The Town may engage the services of an external investment advisor to assist in the
management of the Town's investment portfolio in a manner consistent with this
investment policy. If the Town hires an investment adviser to provide investment
management services, the adviser is authorized to transact with its direct dealer
relationships on behalf of the Town.
Approved investment adviser firms must provide their services to the Town on a fiduciary
capacity and be registered with the Securities and Exchange Commission (SEC) under the
Investment Advisor's Act of 1940. The advisor shall have more than five years' experience
in managing public funds, and shall have at minimum $1 billion under management.
The City Manager, or the Town's investment advisor, shall maintain a list of authorized
broker/dealers and financial institutions that are approved for investment purposes. This
list will be developed after a comprehensive credit and capitalization analysis indicates the
firm is adequately financed to conduct business with public entities. It shall be the policy
of the Town to purchase securities only from those authorized institutions or firms.
8.0 Safekeeping and Custody
All security transactions entered into by the Town of Los Altos Hills shall be conducted on
a delivery -versus -payment (DVP) basis. Securities will be held by a third party custodian,
in the Town of Los Altos Hills' name and control, designated by the City Manager or
her/his designee and evidenced by safekeeping receipts.
9.0 Collateralization
Collateralization will be required on certificates of deposit as specified under Government
Code Section 63630 et seq in order to anticipate market changes and provide a level of
security for all funds. All time deposits must be collateralized in accordance with California
Government Code section 53651.
The Town of Los Altos Hills chooses to limit collateral to the following:
Collateral will always be held by an independent third party. A clearly marked
evidence of ownership (safekeeping receipt) must be supplied to the Town of Los
Altos Hills and retained.
The right of collateral substitution is granted.
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10.0 Internal Control
The Town of Los Altos Hills is responsible for establishing and maintaining an internal
control structure designed to ensure that the assets of the Town are protected from loss,
theft or misuses. The internal control structure shall be designed to provide reasonable
assurance that these objectives are met. The concept of reasonable assurance recognizes
that (1) the cost of a control should not exceed the benefits likely to be derived and (2) the
valuation of costs and benefits requires estimates and judgments by the City Manager and
staff.
The City Manager or designee shall arrange for an annual audit by an external CPA firm
in compliance with the requirements of state law and generally accepted accounting
principles as pronounced by the Government Accounting Standards Board (GASB). As a
part of the audit investment transactions will be tested. The annual audit will be an integral
part, but not the sole part of management's program of monitoring internal controls.
The internal controls shall address the following points:
* Control of collusion
* Separation of transaction authority from accounting a recordkeeping
* Custodial safekeeping
* Avoidance of physical delivery securities
* Clear delegation of authority to subordinate staff members
• Written confirmation of transactions for investments and wire transfers
• Development of a wire transfer agreement with the lead bank and third -party
custodian
11.0 Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from personal
business activity that could conflict with proper execution of the investment program, or
which could impair their ability to make impartial investment decisions. These officers
and employees involved in the investment process shall disclose to the City Manager any
material financial interest in financial institutions that conduct business with this
jurisdiction, and they shall further disclose any large personal financial/investment
positions that could be related to the performance of the Town of Los Altos Hills,
particularly with regard to the time of purchases and sales. Employees and investment
officials shall refrain from undertaking personal investment transactions with the same
individual with whom business is conducted on behalf of the Town of Los Altos Hills.
12.0 Diversification
The Town of Los Altos Hills will diversify its investments by security type and institution.
Limits are provided for in Section 6.0. With the exception of U.S. Treasury and Federal
Agency securities, municipal bonds, supranational bonds, and authorized pools such as
CAMP or LAlF, no more than 5% of the Town of Los Altos Hills' total investment
portfolio will be invested in a single issuer.
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13.0 Maximum Maturities
To the extent possible, the Town of Los Altos Hills will attempt to match its investments
with anticipated cash flow requirements. The Town of Los Altos Hills will not directly
invest in securities maturing more than five (5) years from the date of purchase unless City
Council has provided approval for a specific purpose at least three (3) months before the
investment is made.
Debt reserve funds may be invested in securities exceeding five (5) years if the maturities
of such investments are made to coincide as nearly as practicable with the expected use of
the funds.
The Town of Los Altos Hills will retain operating reserves as adopted by the City Council.
The amount of active deposits and inactive investryients with a maturity of one year or less
shall always be equal to greater than any draw on these reserves required by the annual
operating budget.
Securities may. be sold prior to maturity to accommodate the Town's cash flow
requirements, to reposition the portfolio to perform well in the current market, or to take
advantage of market opportunities to increase the Town's rate of return.
14.0 Performance Standards
The investment portfolio shall be designed with the objective of obtaining a rate of return
throughout budgetary and economic cycles, commensurate with the investment risk
constraints and the cash flow needs.
14.1 Market Yield (Benchmark)® Suitability should be the standard for
evaluating the success of the Town's investment portfolio. Given this
strategy and the active investment management utilized by the Town, the
basis used to determine whether market yields are adequate shall be the ICE
BofAML 1-5 year U.S. Treasury Index.
15.0 Reporting
The City Manager is charged with the responsibility of including a market report on
investment activity and returns in the Town of Los Altos Hills' Cash and Investment
Report. The Report will be in compliance with California Government Code Section
53646.
16.0 Investment Policy Adoption
The Town of Los Altos Hill's investment policy shall be adopted by the City Council. The
policy shall be reviewed annually by the Finance and Investment Committee and any
modifications made thereto must be approved by the City Council.
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Bankers' Acceptances
Short-term credit arrangements that enable businesses to obtain funds to finance
commercial transactions. They are time drafts drawn on a bank by an exporter or importer
to obtain funds to pay for specific merchandise. By its acceptance, the bank becomes
primarily liable for the payment of the draft at maturity. An acceptance is a high-grade
negotiable instrument.
Benchmark
A comparative base for measuring the performance or risk tolerance of the investment
portfolio. A benchmark should represent a close correlation to the level of risk the average
duration of the portfolio's investments.
Broker
Someone who brings buyers and sellers together and is compensated for her/his service.
California Asset Management Program (CAMP)
CAMP is ajoint powers authority which provides investment services to local governments
through its investment pool. The pool is AAAm-rated by Standard and Poor's, and provides
same-day availability to funds up to I I:OOAM Pacific. The pool strives to maintain stable
asset value.
Certificates of Deposit
1. Negotiable Certificates of Deposit are large -denomination CDs. They are
issued at face value and typically pay interest at maturity, if maturing in less
than 12 months. CDs that mature beyond this range pay interest semi-annually.
Negotiable CDs are issued by U.S. banks (domestic CDs), U.S. branches of
foreign banks (Yankee CDs), and thrifts. There is an active secondary market
for negotiable domestic and Yankee CDs. However, the negotiable thrift CD
secondary market is limited. Yields on CDs exceed those on U.S. treasuries and
agencies of similar maturities. This higher yield compensates the investor for
accepting the risk of reduced liquidity and the risk that the issuing bank might
fail. State law does not require the collateralization of negotiable CDs.
2. Non-negotiable Certificates of Deposit are time deposits with financial
institutions that earn interest at a specified rate for a specified term. Liquidation
of the CD prior to maturity incurs a penalty. There is no secondary market for
these instruments; therefore, they are not liquid. They are classified as public
deposits, and financial institutions are required to collateralize them. Collateral
may be waived for the portion of the deposits that are covered by FDIC
insurance.
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Collateral
Securities, evidence of deposit or other property, which a borrower pledges to secure
repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public
monies.
Collateralization
Process by which a borrower pledges securities, property or other deposits for the purpose
of securing the repayment of a loan and/or security. Also refers to securities pledged by a
bank to secure deposits of public moneys.
Dealer
Someone who acts as a principal in all transactions, including buying and selling from
her/his own account.
Delivery v. payment
The preferred method of delivering securities, with an exchange of money for the
securities.
Demand deposits
A deposit of monies which are payable by the bank upon demand of the depositor.
Derivative
Securities that are based on, or derived from, some underlying asset, reference date, or
index.
Diversification
Dividing investment funds among a variety of securities offering independent returns.
Federal Depository Insurance Corporation (FDIC)
A federal agency that insures bank deposits, currently up to $250,000 per deposit.
Federal Home Loan Bank (FHLB)
A federal agency that provides credit and liquidity in the housing market. FHLB issues
discount notes and serni-annual pay coupon securities.
Federal Home Loan Mortgage Corporation (FHL C)
A federal agency that provides credit and liquidity in the housing market. FHLMC, also
called "Freddie Mac," issues discount notes, semi-annual pay coupon securities and
mortgage-backed securities.
Federal National Mortgage Association (FNMA)
A federal agency that provides credit and liquidity in the housing market. FHLMC, also
called "Fannie Mae," issues discount notes, setni-annual pay coupon securities and
mortgage-backed securities.
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Liquidity
An asset that can easily and rapidly be converted into cash without significant loss of value.
Local Agency Investment Fund (LAIF)
The LAIF was established by the State of California to enable treasurers to place funds in
a pool for investments. There is a limitation of $50 million per agency subject to a
maximum of fifteen total transactions per month. The Town uses this fund when market
interest rates are declining as well as for short-term investments and liquidity. Town funds
in LAIF are limited to $40 million.
Maturity
The date upon which the principal or stated value of an investment becomes due and
payable.
Mortgage -Backed Security
Debt obligations that represent claims to the cash flows from pools of mortgage loans, most
commonly on residential property.
Portfolio
Combined holding of more than one stock, bond, commodity, cash equivalent or other
asset. The purpose of a portfolio is to reduce risk by diversification.
Repurchase Agreement
A form of collateralized loan involving the sale of a security with a simultaneous
agreement by the seller to buy the same security back from the purchaser at an agreed -on
price and future date. The party who sells the security at the inception of the repurchase
agreement and buys it back at maturity is borrowing money from the other party, and the
security sold and subsequently repurchased represents the collateral.
Safekeeping
Offers storage and protection of assets provided by an institution serving as an agent.
Supranational Bonds
A bond issued by a supranational agency such as the World Bank.
U.S. Treasury Bills
Commonly referred to as T -Bills, these are short-term marketable securities sold as
obligations of the U.S. Government. They are offered in three-month, six-month and one
year maturities. T -Bills do not accrue interest but are sold at a discount to pay face value
at maturity.
U.S. Treasury Notes
These are marketable, medium-term interest- bearing securities sold as obligations of the
U.S. Government with original maturities of one to ten years. Interest is paid semi-
annually.
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U.S. Government Agency Issues
Issues which are unconditionally backed by the full faith and credit of the United States.
Yield
The rate of annual income return on an investment, expressed as a percentage. Income
yield is obtained by dividing the current dollar income by the current market price for the
security. Net yield or yield to maturity is the current income yield minus any premium
above par or plus any discount from par in purchase price, with the adjustment spread over
the period from the date of purchase to the date of maturity of the bond.
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