I. PURPOSE AND DELEGATION
This Statement is intended to provide guidelines for the prudent investment of the City's temporary idle cash, and outline the policies for maximizing the efficiency of the City's cash management system. The investment goal is to enhance the economic condition of the City while insuring the safety of funds invested.
The City Council’s management responsibility for the investment program is hereby delegated to the City Treasurer. The Treasurer shall monitor and review all investments for consistency with this investment policy and assume full responsibility for those transactions until the delegation of authority is revoked or expires.
- "City" shall mean the City of Santee, the Santee Community Development Commission and any other Agency where the City Treasurer has the responsibility for depositing and/or investing surplus funds in accordance with applicable sections of the California Government Code.
- "Surplus" funds means those monies not immediately needed to pay demands against the City by vendors and other claimants.
- A1 is the highest rating given an issuer of securities by Standard and Poors Corporation.
- P1 is the highest rating given an issuer of securities by Moody's Investment Services Inc.
III. OBJECTIVES (Back to Top)
The City's cash management system is designed to accurately monitor and forecast expenditures and revenues, thus enabling the City to invest funds to the fullest extent possible. The City attempts to obtain the highest yield on its investments consistent with the criteria established for safety and liquidity.
IV. POLICY AND GUIDELINES (Back to Top)
The City Treasurer is responsible for depositing and/or investing the surplus funds in the City Treasury in accordance with the California Government Code, Sections 53601, 53607 and 53635. The City manages its investment program in accordance with California Government Code Sections 53600.3, under which those making investments on its behalf are deemed to act in a fiduciary capacity subject to the prudent investor standard.
The three objectives of safety, liquidity and yield are to be taken into consideration when making investment decisions in accordance with
Section 53600.5 of the California Government Code.
- SAFETY IS THE PRIMARY OBJECTIVE Safety and the minimizing of risk associated with investing refers to attempts to reduce the potential for loss of principal, interest or combination of the two. The City invests only in those instruments that are considered very safe.
- LIQUIDITY IS THE SECONDARY OBJECTIVE Liquidity refers to the ability to convert an investment to cash promptly with minimum risk of losing some portion of principal or interest. A portion of the portfolio should be maintained in liquid short-term securities which can be converted to cash if necessary to meet disbursement requirements.
Investments must not have a term remaining to maturity in excess of three years without prior approval from the City Council at least three months prior to making the investment not withstanding that the California Government Code Section 53601 allows for maturities of up to five years without City Council approval.
- YIELD IS THE THIRD OBJECTIVE Yield is the average annual return on an investment based on the interest rate, price, and length of time to maturity. The City attempts to obtain the highest yield possible, provided that the basic criteria of safety and liquidity have been met.
V. INVESTMENT INSTRUMENTS (Back to Top)
- Eligible Securities:
The City of Santee may invest in the following instruments under the guidelines as provided herein and in accordance with Sections 53601, 53635, 53637, 53638, 53651, 53652 and 53653 of the California Government Code. Percentage limitations on the purchase of securities apply at the time of purchase.
- CERTIFICATES OF DEPOSIT Time Certificates of Deposit will be made only in accounts insured pursuant to Federal laws. For deposits in excess of the insured maximum of $100,000, approved collateral shall be required in accordance with California Government Code Section 53652. Purchase of Time Certificates of Deposit are restricted to a maximum of 30% of the City’s surplus funds and a maximum maturity of one year.
- SECURITIES OF THE U.S. GOVERNMENT OR ITS AGENCIES include obligations issued by banks for cooperatives, federal land banks, federal intermediate credit banks, federal home loan banks, the Federal Home Loan Bank Board, the Tennessee Valley Authority, or in obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association; or in guaranteed portions of Small Business Administration notes; or in obligations, participations, or other instruments of, or issued by, a federal agency or a United States government-sponsored enterprise.
- TREASURY BILLS AND NOTES U.S. Treasury Bills, 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.
- LOCAL AGENCY INVESTMENT FUND (LAIF) Investment of funds in the California LAIF which allows the State Treasurer to invest through the Pooled Money Investment Account subject to the State's annual investment policy. Maximum investment is subject to State regulation.
- CALIFORNIA ASSET MANAGEMENT PROGRAM The Program consists of the California Asset Management Trust, a California common law trust organized in 1989 that currently offers a professionally managed money market investment portfolio, the Cash Reserve Portfolio ( the "Pool"). The Program also offers individual professionally managed accounts ("Individual Portfolios"). The Individual Portfolios are not part of the assets of the Trust.
Cash in the Pool and the Individual Portfolios will be invested by the California Asset Management Trust investment advisor in accordance with the prudent investor standard of the California Government Code. To the extent prohibited by the California Government Code, the Pool, and Individual Portfolios will not invest in a any inverse floaters, range notes, or interest-only strips that are derived from a pool of mortgages, or in any security that could result in zero interest accrual if held to maturity. Only those investments authorized by the California Government Code will be used in the Cash Reserve Portfolios and/or the Individual Portfolios.
- BANKERS ACCEPTANCES Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as Bankers Acceptances, both domestic and foreign, which are eligible for purchase by the Federal Reserve System. Purchases of Bankers Acceptances must be from banks rated A1/P1 and may not exceed 270 days maturity or 40% of the City's surplus money which may be invested. However, no more than 30% of the City's surplus funds may be invested in the Bankers Acceptances of any one commercial bank.
- COMMERCIAL PAPER Paper of "prime" quality of the highest rating as provided by Moody's Investors Service, Inc., or Standard and Poor's Corporation (A-1;P-1). Purchases of eligible commercial paper may not exceed 90 days maturity nor represent more than 10% of the outstanding paper of an issuing corporation, nor 15% of the City's surplus money which may be invested. An additional 15%, or a total of 30% of the City’s surplus money may be invested in commercial paper if the dollar-weighted average maturity of the entire amount does not exceed 31 days. Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000). The issuing corporation must have an "A" or higher rating for the issuer’s debt, other than commercial paper, if any, as provided by Moody’s Investors Services Inc. or Standard and Poor’s Corporation.
- NEGOTIABLE CERTIFICATES OF DEPOSIT Issued by a nationally or State-charted bank or a State or Federal savings and loan association or by a State-licensed branch of a foreign bank . Issuers must be rated A1/P1. Purchases of Negotiable Certificates of Deposit may not exceed 30% of the City's surplus money which may be invested.
- REPURCHASE AGREEMENTS (Repos) A purchase of securities by the City pursuant to an agreement by which the seller will repurchase such securities on or before a specified date, or on demand of either party, and for a specified amount. No more than 10% of the City’s surplus funds shall be invested in repurchase agreements. Investments in repos will be used solely as short term investments not to exceed 90 days and the market value of the securities used as collateral that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities, and the value shall be marked to market daily. The collateral shall be limited to obligations of the United States government and its agencies. Securities used as collateral shall be held by the City’s depository bank trust department. Said securities shall be held in a manner that establishes the City’s right of ownership.
- SHARES OF BENEFICIAL INTEREST (MONEY MARKET MUTAL FUNDS) ISSUED BY DIVERSIFIED MANAGEMENT COMPANIES Money Market Mutual funds must consist of highly-rated short -term debt instruments. The management companies shall either (1) attain the highest ranking or the highest letters and numerical rating provided by not less than two of the three largest nationally recognized rating services, or (2) have an investment advisor registered with the Securities and Exchange Commission with not less than five years experience investing in the securities and obligations as authorized above and with assets under management in excess of five hundred million dollars ($500,000,000) and (3) follow regulations specified by the SEC under the Investment Company Act of 1940 (15 U.S.C. Section 80a-1, et seq.). The purchase price of shares for beneficial interest shall not include any commission these companies may charge and shall not exceed 15% of the City's surplus money which may be invested.
- MEDIUM TERM NOTES TO A MAX. MATURITY OF THREE YEARS Medium-term notes of a maximum maturity of three years 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 shall be rated in a rating category of "AA" or its equivalent or better by at least two nationally recognized rating agencies (Standard & Poors, Moodys, Duff & Phelps and Fitch). Furthermore, the Medium Term Note may not be rated below "AA" by any rating agency. Investments may not exceed 30% of the City’s surplus funds.
- STATE AND LOCAL AGENCY OBLIGATIONS include bonds, notes, warrants, or other evidence of indebtedness of any local agency within the State of California and/or the State of California. Investment in State and Local Agency Obligations are limited to taxable issues rated "AAA" by one of the three nationally recognized rating agencies and further limit investments to 30% of the City’s surplus funds.
- OTHER Other investments that are, or may become, legal investments through the State of California Government Code and with prior approval of the City Council.
- Prohibited Securities:
- Those securities not enumerated under Section V. A. "Eligible Securities" as well as:
- Inverse floaters, range notes, interest only strips derived from a pool of mortgages (collateralized mortgage obligations) and any security that could result in zero interest accrual if held to maturity as specified in Section 53601.6 of the California Government Code.
- Securities lending agreements.
VI. BOND PROCEEDS (Back to Top)
Bond proceeds shall be invested in securities permitted by the applicable bond documents. If the bond documents are silent as to permitted investments, bond proceeds will be invested in securities permitted by this Policy. With respect to maturities, if in the opinion of the Treasurer matching segregated investment portfolio of the bond reserve fund with the maturity schedule of an individual bond issue is prudent given current economic analysis, the Policy authorizes extending beyond the five year maturity limitation as outlined in this document.
VII. DIVERSIFICATION AND MATURITY (Back to Top)
Investments shall be diversified among institutions, types of securities and maturities to maximize safety and yield with changing market conditions.
The table below shall be used as a guide for the investment portfolio maturities:
Overnight to 90 days
30% to 60%
91 days to 1 year
15% to 40%
1 year to 18 months
10% to 30%
18 months to 2 years
0% to 15%
2 years to 3 years
0% to 10%
The portfolio will be considered in compliance with the maturity policy if it maintains a minimum of 45% maturing overnight to 1 year and does not exceed 30% for portfolio maturities of 1 year to 18 months, 15% for 18 months to 2 years, and 10% for 2 to 3 years.
While the Government Code permits investments having maturities of up to five years without City Council approval, this investment policy limits maturities to three years without City Council approval.
No investment shall be made in any security, other than a security underlying a repurchase agreement authorized by section V. A. 9), that at the time of the investment has a term remaining to maturity in excess of three years, unless the City Council has granted express authority to make that investment either specifically or as a part of an investment program approved by the City Council no less than three months prior to the investment.
The Investment Policy further limits the percentage holdings with any one issuer to a maximum of 10% of the City’s surplus funds, except for investments in U.S. Treasury securities, Federal Agency securities, CAMP and LAIF.
VIII. INTERNAL CONTROLS (Back to Top)
Internal controls are designed to ensure that the assets of the City are protected from loss, theft or misuse. The internal controls shall address the following points:
- Control of Collusion - Collusion is a situation where two or more employees are working together to defraud their employer.
- Separation of duties - By separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved.
- Safekeeping - Securities purchased from any bank or dealer including appropriate collateral (as defined by State law) shall be placed with the City’s depository bank in its trust department for safekeeping. Said securities shall be held in a manner that establishes the City’s right of ownership.
- Clear Delegation of Authority - Subordinate staff members must have a clear understanding of their authority and responsibility to avoid improper actions.
- Written Confirmation of Telephone Transactions for Investments and Wire Transfers - Due to the potential for error arising from telephone transactions, all telephone transactions shall be supported by written communications and approved by the appropriate person.
- Delivery vs. payment - All investment transactions of the City shall be conducted using standard delivery-vs.-payment procedures.
IX. CRITERIA FOR SELECTING BROKERS AND DEALERS (Back to Top)
A Broker is a firm that does not own the securities being offered. A firm could be both a Broker and a Dealer. A Dealer owns a position in the securities being offered. As used below, the term "Dealer" refers to both Brokers and Dealers.
- A qualified dealer must be a bank, savings and loan, or an investment securities dealer. Commercial paper issuers may be considered qualified dealers for direct issuance of their commercial paper.
- Investment Securities dealers must be primary dealers or regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 15C3-1 (uniform net capital rule).
- A qualified dealer must have a minimum capital requirement under SEC Rule 15C3-1 of $250,000 and have a least five years of experience.
- A qualified dealer must supply proof of National Association of Securities Dealers (NASD) certification and State of California registration.
- A qualified dealer must certify that it has reviewed and understands the California Government Code Sections 53600 et seq. and the City's Investment Policy and that all securities offered to the City will comply fully with all provisions of the Government Code and with the City's Investment Policy.
- Broker/Dealers must be approved by the City Council prior to doing business with the City of Santee.
X. INVESTMENT REPORTS AND POLICY (Back to Top)
- The City Treasurer shall submit a monthly investment report to the City Manager and City Council. The report shall list the information required by law regarding all securities being purchased by or on behalf of the City. The report shall state whether the investments comply with the investment policy and whether the City will be able to meet its needs for cash for the next six months.
- The City Treasurer shall annually render a statement of investment policy to the City Council for consideration at a public meeting.
Last updated date: 11/1/2006 6:03:29 PM