HomeMy WebLinkAbout2012/03/13 Item 06CITY COUNCIL
A STATEMENT
~~~ CITY OF
CHULA VISTA
MARCH 13, 2012, Item
ITEM TITLE: RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CHULA VISTA ACKNOWLEDGING RECEIPT OF
COUNCIL POLICY 220-01, THE CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES; AND
AMENDING THE EXISTING POLICY
INVESTMENT REPORT FOR THE QUARTER ENDED
DECEMBER 31, 2011
SUBMITTED BY: DIRECTOR OF FIN /TREASUREI~G~
REVIEWED BY: CITY MANAGER
ASSISTANT CITY ANAGER L~
4/STHS VOTE: YES ~ NO ^X
SUMMARY
Per California Government Code Section 53646, the City Treasurer may annually present the
City's Investment Policy to the City Council to reaffirm or make any changes to the existing
policy. The Investment Policy provides guidelines for the investment of idle funds and affords
the City various investment opportunities, as long as the investment is deemed prudent and is
allowable under Government Code Section 53600, et seg. The City received the Certificate of
Excellence Award from the Association of Public Treasurers United States and Canada (APT-
US&C) in August 2007 for its Investment Policy, and most recently, the Policy was reviewed
and adopted by City Council on February 22, 201.1. At this time, staff is recommending an
amendment to Section 2.0 adding the provision for sufficient liquidity to its stated policies, and
to include the Associate Accountant to the list of authorized city staff covered under Sections
4.1, 6.0 and 15.0, and other minor language changes for administrative clarity.
Transmitted herewith is the City's investment report for the quarter ended December 31, 2011. To
meet the reporting requirements set forth in the California Government Code Sections 53600 et seq.
and the City of Chula Vista Investment Policy, a separate report was distributed to the City Council
last month.
ENVIRONMENTAL REVIEW
The Environmental Review Coordinator has reviewed the proposed activity for compliance with
the California Environmental Quality Act (CEQA) and has determined that the activity is not a
"Project" as defined under Section 15378 (b)(4) of the State CEQA Guidelines; therefore,
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MARCH 13, 2012, Item (o
Page 2 of 3
pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to
CEQA. Thus, no environmental review is necessary.
RECOMMENDATION
Council adopt the resolution and accept the report.
BOARDS/COMMISSION RECOMMENDATION
Not applicable.
DISCUSSION
Investment Policy
The City's Investment Policy and Guidelines adopted on February 22, 2011 by Resolution 2011-020
intended to provide direction for the prudent investment of temporarily idle cash, and for
maximizing the efficiency of the cash management process. The stated goal is to enhance the
economic condition of the City while ensuring the safety of funds invested. The policy includes a
list of specific investment instruments available under the relevant California Government Code
sections, 53600 et seq. and 53635. Each investment transaction is made in the context of first
ensuring the "safety" of principal, second, investing only for that timeframe that the cash is not
needed for operational purposes ("liquidity"), and last seeking the highest return possible ("yield")
provided that the first two factors are met.
Due to personnel changes and a desire to ensure sufficient back up staff for critical cashflow and
investment functions, an Associate Accountant will be added to the relevant sections of the Policy
as an investment officer and will be responsible for the day-to-day investment administration and
wire transactions under the general direction of the Assistant Director of Finance.
Quarterly Investment Report
The total cash and investment portfolio as of December 31, 2011 was $180,892,007. This is an
increase of approximately $1,743,283 from September 30, 2011 to December 31, 2011. For the
quarter ended December 31, 2011 the earned interest yield was 1.121%, a decrease from the
1.208% reported for the quarter ended September 30, 2011, reflecting reinvestment in lower
yielding investments with longer maturity dates. The weighted average maturity as of December
31, 2011 was 2.63 years, an increase from the 2.55 years in the prior quarter. The weighted
average maturity remains sufficiently liquid to enable the City to meet all operating requirements
which might be reasonably anticipated.
DECISION MAKER CONFLICT
Staff has determined that the action contemplated by this item is ministerial, secretarial, manual,
or clerical in nature and does not require the City Council members to make or participate in
making a governmental decision, pursuant to California Code of Regulations section 18702.4(a).
Consequently, this item does not present a conflict under the Political Reform Act (Cal. Gov't
Code & 87100, et seq.).
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MARCH 13, 2012, Item
Page 3 of 3
CURRENT YEAR FISCAL IMPACT
Considering the projected timing of cash receipts and disbursements and the structure of the
Pooled Investment Portfolio, the City should be able to comfortably meet overall cash flow
needs over the next six months. There is no direct fiscal impact by this action.
ONGOING FISCAL IMPACT
There is no ongoing fiscal impact by this action.
ATTACHMENTS
A. Investment Report for the Quarter Ended December 31, 2011
B. Council Policy 220-01, City of Chula Vista Investment Policy and Guidelines
C. Proposed Amendments to City of Chula Vista Investment Policy and Guidelines
Prepared by: E. Adachr, Associate Accountant, Finance Dept.
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CHULAVISTA
Finance Departrr
Investment Report for the Quarter Ended December 31, 2011
March 13. 2012
Honorable Mayor and City Council,
I am pleased to present this report of investment
2011 in compliance with the reporting requiremei
Code Sections 53600 et seq. and the City of Chi
presented in this report highlights the investment
2011 as well as provides a comparison to the
December 31, 2010.
activity for the quarter ended December 31,
is as set forth in the California Government
la Vista Investment Policy. The information
activity for the quarter ended December 31,
quarters ended September 30, 2011 and
Market Overview
The Federal Open Market Committee (FOMC) continues to maintain the key Fed Funds rate at
a target range of 0.00% to 0.25% in hopes of stimulating the economy. Two-year Treasuries
yielding 0.25% at the beginning of October remained the same at the end of December with
very little fluctuation during the quarter.
The overall consumer price index (CPI) rose 3.0% on ayear-over-year basis, and the core CPI
(excluding food and energy) showed a 2.2% increase year-over-year. The Federal Reserve
continues to monitor these increases to ensure that inflation remains under control.
Portfolio Composition
The table below provides a summary of the City's total investment portfolio as of December 31,
2011. The Investment Portfolio ($173,597,159), Cash/Time Deposits ($7,294,848) and Bank
Trustee/Fiduciary Funds ($80,745,052) continue to be invested in accordance with the
Government Code, bond covenants and the Council Investment Policy as adopted on February
22, 2011.
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Honorable Mayor and City Council
Investment Report Quarter ended 12/31/2011
Page 2 of 4
Summary of Cash and Investments as of December 31, 2011
Investment Type Par Value Market Value Book Value Portfolio
Investment Portfolio
Federal Securities 130,000,000 130,303,436 130,000,000 49.69%
Pooled Investments 41,597,159 41,647,590 41,597,159 15.90%
Corporate Bonds 2 000 000 2 018 360 1 998,700 0.76%
Subtotal 173,597,159 173,969,386 173,595,859 65.59%
Total Cash & Investments Held by the City $180 892,007 $181,264,234 $180,890,707 69.14%
Held by Bank Trustee/Fiduciary Funds (1)
U. S. Govemment 2,021,563 2,098,900 2,021,563 0.77%
InvestmentAgreements* 14,897,830 14,897,830 14,897,830 5.69%
Mutual Funds* 59,569,656 59,569,656 59,569,656 22.77%
Cash with Fiscal Agents 3,351 3,351 3,351 0.00%
Total Portfolio $261,637,059 $262,086,623 $261,635,759 100.00%
(1) Reflects bond proceeds held by trustee in accordance with band covenants.
The graph below provides a snapshot of the portfolio composition by investment type for that
portion of the portfolio not held by the bank trustee or in a fiduciary fund.
Portfolio Composition
as of December 31, 2011
US Govemment Agency
74%
Corporate Coupon
Bonds
1%
LAIF (State Pool)
18%
CalTrustJ \ SD County Pool
1% 6%
6-5
Honorable Mayor and City Council
Investment Report Quarter ended 12/31/2011
Page 3 of 4
Portfolio Performance
Portfolio performance is provided in more detail in the attachments to the report. The summary
information provided below includes the total portfolio income recognized for the last quarter as
compared to the prior quarter and the same quarter one year ago.
December 31, 2011 September 30, 2011 December 31, 2010
Quarter-End
Net Interest Earnings 505,055 561,193 $ 614,188
Net Gains (Lossesl from Sales 5,740 .
Fiscal Year-to-Date
NetlnterestEarnings $ 1,066,248 $ 561,193 $ 1,281,100
Net Gains (Losses) from Sales $ 5 740 $ 4,700
Net TotallncomeRecognized $ 1,071,988 $ 561,193 $ 1,285,800
This info comes from the monthly Sympro "Interest Earnings Summary" reports.
This table shows the City's average yield to maturity as of
December 31, 2011 as compared to the County of San Diego
and other cities in the county. Carlsbad and Oceanside both
have dedicated staff that actively manage their portfolios by
buying and selling investments daily as opposed to our more
passive "hold-to-maturity" investment style. Liquidity needs and
risk tolerance can also affect yields.
Benchmark Comparison
enc Yield
Chula Vista 1.12%
County of San Diego 0.40%
Carlsbad 1.66%
EI Cajon 0.95%
Oceanside 1.32%
San Die o 0.95%
The following graph compares the monthly earned interest yield of the City's Porfclio Fund with
the monthly average yields for the same period of the State of California Local Agency
Investment Fund (IAIF) and the two-year and three-year treasury from December 2009 through
December 2011.
2.5%
2.0
L5%
1.°Ye
O.SYe
0.0°h
Dec-09
Mar-10 Jun-t0 Sep-1° Dec40 Mar-tt Jun-it Sep-11
6-6
Dec-11
Monthly Benchmark Comparison
Honorable Mayor and City Council
Investment Report Quarter ended 12/31/2011
Page 4 of 4
Per Section 16.1 of the City's Investment Policy, the two-
year U.S. Treasury and the Local Agency Investment
Fund yields are the performance benchmarks to be used
when determining whether market yields are being
achieved. The three-year U.S. Treasury is added as an
additional point of reference in order to provide an upper
range that is above the weighted average maturity of the
City's portfolio, which is at 959 days.
Investment Activity
~_
City 1.12% 959
LAIF 0.38% 256
Year Treasury 0.25% 730
3 Year Treasu 0.36% 1,095
ADM = Avera a Da s to Maturit
During the quarter, eleven investments totaling $33,000,000 were redeemed prior to their
maturity dates, and one investment for $2,000,000 matured. These monies represent pooled
cash received from various funding sources such as sewer, RDA, TDIF, PAD, General Fund,
etc. These funds were reinvested through the purchase of fourteen Federal Agency Securities
totaling $44,000,000 using the City's Investment Policy guideline to ensure safety, liquidity and
yield. There is no further activity to report on other than routine investments in money market
mutual funds by the City's fiscal agents.
Conclusion
The total cash and investment portfolio held by the City as of December 31, 2011 was
$180,892,007. This is an increase of approximately $1,743,283 from September 30, 2011 to
December 31, 2011. For the quarter ended December 31, 2011, the earned interest yield was
1.121%, a decrease from the 1.208% reported for the quarter ended September 30, 2011,
reflecting higher yielding investments being redeemed and then reinvested at lower interest
rates.
The weighted average maturity as of December 31, 2011 increased from the previous quarter's
2.55 years to 2.63 years which is within the Council Policy of less than 3.0 years. The weighted
average maturity remains sufficiently liquid to enable the City to meet all operating requirements
that might be reasonably anticipated.
Considering the projected timing of cash receipts and disbursements and the structure of the
Pooled Investment Portfolio, the City should be able to comfortably meet overall cash flow
needs over the next six months. There is no direct fiscal impact by this action.
I certify that this report reflects the City of Chula Vista and related agencies pooled investments
and is in conformity with the State of California Government Code on authorized investments and
with the Investment Policy of the City of Chula Vista as stated in Resolution No. 2011-020 dated
February 22, 2011.
Respectfully submitted,
Maria K chadoorian
Director of Finance/Treasurer
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COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND POLICY EFFECTIVE
GUIDELINES NUMBER DATE PAGE
220-O1 03/13/12 1 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01);.2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
1.0 Purpose:
This "Investment Policy and Guidelines" (the "Investment Policy") Policy is intended to provide
guidelines for the prudent investment of the City of Chula Vista's (the "City") cash balances, and
outline policies to assist in maximizing the efficiency of the City's cash management system, while
meeting the daily cash flow demands of the Ciry.
2.0 Policy:
The investment practices and policies of the City of Chula V ista are based upon state law and prudent
money management. The primary goals of these practices are:
A. To ensure compliance with all Federal, State, and local laws governing the investment of public
funds under the control of the Director of Finance/Treasurer.
B. To protect the principal monies entrusted to the City's Finance Department.
C. To provide sufficient liquidity such that funds are available as needed to meet those immediate
and/or future operating requirements of the City, including but not limited to payroll, accounts
payable, capital projects, debt service and any other payments.
D. Achieve a reasonable rate of return within the parameters of prudent risk management while
minimizing the potential for capital losses arising fiom market changes or issuer default.
3.0 Scope:
This Investment Policy applies to all financial assets of the City of Chula Vista, as indicated in 3.1
below. These funds are accounted for in the City's Comprehensive Annual Financial Report.
3.1 Funds:
The Director ofFinance/Treasurer is responsible for investing the unexpended cash in the City
Treasury for all funds, except for the employee's retirement funds, which are administered separately,
and those funds which are managed separately by trustees appointed under indenture agreements. The
Director ofFinance/Treasurer will strive to maintain the level of investment of this cash as close as
possible to 100%. These funds are described in the City's annual financial report and include:
• General Fund
• Special Revenue Funds
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COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND POLICY EFFECTIVE
GUIDELINES NUMBER DATE PAGE
220-01 03/13/12 2 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
• Capital Project Funds
• Enterprise Funds
• Trust and Agency Funds
• Any new fund created by the legislative body, unless specifically exempted
This Investment Policy applies to all transactions involving the financial assets and related activity of
the foregoing funds.
4.0 Prudence•
The standard of prudence to be used by the Director of Finance/Treasurer shall be the "prudent
investor standard". This shall be applied in the context of managing an overall portfolio.
The "prudent investor standard" is applied to local agencies, pursuant to California Government
Code Section 53600.3 which provides, in pertinent part:
` ... all governing bodies of local agencies or persons authorized to make investment
decisions on behalf of those local agencies investing public fixnds pursuant to this
chapter are trustees and therefore fiduciazies subject to the pendent investor standazd.
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 safeguazd the principal and maintain the liquidity
needs of the agency...."
4.1 Personal Responsibility:
The Director of Finance/Treasurer, Assistant Director of Finance, Treasury Manager and Associate
Accountant as investment officers acting in accordance with written procedures and the Investment
Policy and exercising due diligence, shall be relieved of personal responsibility for an individual
security's credit risk or market price changes, provided deviations from expectations are reported to
the City Council in a timely fashion and appropriate action is taken to control adverse developments.
5.0 Obiective:
Consistent with this aim, investments aze made under the terms and conditions of California
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COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND POLICY EFFECTIVE
GUIDELINES NUMBER DATE PAGE
220-01 03/13/12 3 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
Government Code Section 53600, et seq. Criteria for selecting investments and the absolute order of
priority are:
5.1 Safety:
Safety of principal is the foremost objective of the investment program. Investments of the City of
Chula Vista shall be undertaken in a manner that seeks to ensure the preservation of capital in the
overall portfolio. To attain this objective, diversification is required in order that potential losses on
individual securities do not exceed the income generated from the remainder of the portfolio.
5.2 Liquidity:
The City of Chula Vista's investment portfolio will remain sufficiently liquid to enable the City to
meet all operating requirements which might be reasonably anticipated and to maintain compliance
with any indenture agreement, as applicable. Liquidity is essential to the safety of principal.
5.3 Return on Investments:
The City of Chula Vista's investment portfolio shall be designed with the objective of attaining a
market-average rate of return throughout budgetary and economic cycles (market interest rates),
within the City's Investment Policy's risk parameters and the City's cash flow needs. See also Section
16.1.
6.0 Delectation of Authority:
The Director of Finance/Treasurer shall be responsible for all transactions undertaken and shall
establish a system of controls and written procedures to regulate the activities of subordinate officials.
The responsibility for the day-to-day investment of City funds will be delegated to the Associate
Accountant under the general direction of the Assistant Director of Finance.
7.0 Ethics and Conflicts of Interest:
In addition to state and local statutes relating to conflicts of interest, all persons 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. Employees and investment officers are required to file annual disclosure statements as
required for "public officials who manage public investments" [as defined and required by the
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COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND POLICY EFFECTIVE
GUIDELINES NUMBER DATE PAGE
220-01 03/13/12 4 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
Political Reform Act and related regulations, including Government Code Sections 81000, et seq., and
the rules, regulations and guidelines promulgated by California's Fair Political Practices Commission
(FPPC)].
8.0 Authorized Financial Dealers and Institutions:
The City's Director of Finance/Treasurer will maintain a list of the financial institutions and
brokers/dealers authorized to provide investment and depository services and will perform an annual
review of the financial condition and registrations of qualified bidders and require annual audited
financial statements to be on file for each company. The City will utilize Moody's Securities or other
such services to determine financially sound institutions with which to do business. The City shall
annually send a copy of the current Investment Policy to all financial institutions and brokers/dealers
approved to do business with the City.
As far as possible, all money belonging to, or in the custody of, a local agency, including money paid
to the City's Director of Finance/Treasurer or other official to pay the principal, interest, or penalties
of bonds, shall be deposited for safekeeping in state or national banks, savings associations, federal
associations, credit unions, or federally insured industrial loan companies in this state selected by the
City's Director of Finance/Treasurer; or may be invested in the investments set forth in Section 9.0.
To be eligible to receive local agency money, a bank, savings association, federal association, or
federally insured industrial loan company shall have received an overall rating of not less than
"satisfactory" in its most recent evaluation by the appropriate federal financial supervisory agency of
its record of meeting the credit needs of California's communities, including low- and moderate-
income neighborhoods.
To provide for the optimum yield in the investment of City funds, the City's investment procedures
shall encourage competitive bidding on transactions from approved brokers/dealers. In order to be
approved by the City, the dealer must meet the following criteria: (i) the dealer must be a "primary"
dealer or regional dealer that qualifies under Securities and Exchange Commission Rule 15C3-1
(Uniform Net Capital Rule); (li)the dealer's institution must have an office in California; (iii)the
dealer must be experienced in institutional trading practices and familiar with the California
Government Code as related to investments appropriate for the City; and (iv) all other applicable
criteria, as may be established in the investment procedures. All brokers/dealers and financial
institutions who desire to become qualified bidders for investment transactions must submit a
"Broker/Dealer Application" and related documents relative to eligibility including a current audited
annual financial statement, U4 form for the broker, proof of state registration, proof of National
Association of Securities Dealers certification and a certification of having read and understood the
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COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND POLICY EFFECTIVE
GUIDELINES NUMBER DATE PAGE
220-01 03/13/12 5 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
City's Investment Policy and agreeing to comply with the Investment Policy. The City's Director of
Finance/Treasurer shall determine if they aze adequately capitalized (i.e. minimum capital
requirements of $10,000,000 and five yeazs of operation).
9.0 Authorized & Suitable Investments:
The City is authorized by California Government Code Section 53600, et. seq., to invest in specific types
of securities. Investments not specifically listed below are deemed inappropriate and prohibited:
A. BANKERS' ACCEPTANCES, maximum 25% of portfolio (up to 40% with Council approval).
Maximum term 180 days.
Banks must have a short term rating of at least Al/Pl and along-term rating of A or higher as
provided by Moody's Investors Service or Standard and Poor's Corp. No more than 30% of the
agency's money may be invested in the bankers' acceptances of any one commercial bank pursuant
to this section.
B. NEGOTIABLE CERTIFICATES OF DEPOSIT, These aze issued by commercial banks and thrift
institutions against funds deposited for specified periods of time and earn specified or variable
rates of interest. Negotiable certificates of deposit (NCD) differ from other certiftcates of deposit
by their liquidity. NCDs aze traded actively in secondazy markets. In compliance with California
Code 53601.8, all FDIC insured CD's, whether directly placed or placed through a private sector
entity, will be classified as a Negotiable Certificate of Deposit.
a. Maximum Maturity
1. The maximum maturity of a NCD issue shall be 5 years.
2. The maximum maturity of any FDIC insured CD's, whether directly placed or placed through a
private sector entity, shall be 13 months.
b. Maximum Exposure of Portfolio -The maximum exposure to the Portfolio for this category shall
be 30%.
c. Maximum Exposure Per Issue -The maximum exposure to a single issue shall be 2.5% of the
Portfolio value.
d. Maximum Exposure Per Issuer -The maximum exposure to a single issuer shall be 5% of the
Portfolio value.
e. Minimum Credit Requirement
1. All NCD must have the following investment grade from one of these rating firms. If
umated by Standard & Poor's, security would need to be authorized by Standard & Poor's with
a shadow rating prior to purchase.
a) Standard & Poor's - A-1 or A (long-term when applicable)
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COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND POLICY EFFECTIVE
GUIDELINES NUMBER DATE PAGE
220-01 03/13/12 6 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
b) Moody's - P-1 or A (long-term when applicable)
c) Fitch - F-1 or A (long-term when applicable)
(For NCD's 1 year or less, use short-term rating)
(For NCD's over 1 year, use long-term rating)
2. There is no minimum credit requirement for FDIC insured CD's, whether directly placed or
placed through a private sector entity.
C. COMMERCIAL PAPER, maximum 25% of portfolio. Maximum term 270 days. Commercial
paper of prime quality of the highest ranking or of the highest letter and number rating as provided
for by Moody's Investor Services, Standard & Poor's and Fitch Financial Services. The issuing
corporation must be organized and operating within the United States, with total assets in excess
of $500 million and shall issue debt, other than commercial paper, that is rated "A" or higher by
Moody's, S&P and Fitch. Split ratings (i.e. A2/PI) are not allowable. No more than 10% of the
outstanding commercial paper of any single corporate issue may be purchased.
D. BONDS ISSUED BY THE CITY OR ANY LOCAL AGENCY WITHIN THE STATE OF
CALIFORNIA.
Bonds must have an "A" rating or better from a nationally recognized authority on ratings.
E. OBLIGATIONS OF THE UNITED STATES TREASURY
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. There
is no limit on the percentage of the portfolio that can be invested in this category.
F. FEDERAL AGENCIES
Debt instruments issued by agencies of the Federal government. Though not general obligations
of the U.S. Treasury, such securities are sponsored by the government or related to the
government and, therefore, have high safety ratings. The following are authorized Federal
Intermediate Credit Bank (FIGS), Federal Land Bank (FLB), Federal Home Loan Bank (FHLB),
Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation
(FHLMC), Government National Mortgage Association (GNMA), Tennessee Valley Authorities
(TVA), Student Loan Marketing Association (SLMA) and Small Business Administration
(SBA). There is no limit on the percentage of the portfolio that can be invested in this category.
G. REPURCHASE AGREEMENT, maximum term 3 months.
Investments in repurchase agreements may be made, on any investment authorized in this section,
when the term of the agreement does not exceed 3 months. A Master Repurchase Agreement
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COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND POLICY EFFECTIVE
GUIDELINES NUMBER DATE PAGE
220-O1 03/13/12 7 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
must be signed with the bank or broker/dealer who is selling the securities to the City.
H. REVERSE-REPURCHASE AGREEMENTS (Requires Council approval for each transaction)
Reverse repurchase agreements or securities lending agreements may be utilized only when all of
the following conditions are met:
a) The security to be sold on reverse repurchase agreement or securities lending
agreement has been owned and fully paid for by the local agency for a minimum of 30
days prior to sale.
b) The total of all reverse repurchase agreements and securities lending agreements on
investments owned by the local agency does not exceed 20% of the base value of the
portfolio.
c) The agreement does not exceed a term of 92 days, unless the agreement includes a
written codicil guaranteeing a minimum earning or spread for the entire period between
the sale of a security using a reverse repurchase agreement or securities lending
agreement and the final maturity date of the same security.
d) Funds obtained or funds within the pool of an equivalent amount to that obtained from
selling a security to a counter party by way of a reverse repurchase agreement or
-
not be used to purchase another security with a
securities lending agreement, shall
maturity longer than 92 days from the initial. settlement date of the reverse repurchase
agreement or securities lending agreement, unless the reverse repurchase agreement or
securities lending agreement includes a written codicil guaranteeing a minimum
earning or spread for the entire period between the sale of a security using a reverse
repurchase agreement or securities lending agreement and the final maturity date of the
same security. Investments in reverse repurchase agreements, securities lending
agreements, or similar investments in which the local agency sells securities prior to
purchase with a simultaneous agreement to repurchase the security shall only be made
with primary dealers of the Federal Reserve Bank of New York or with a nationally or
state,chartered bank that has or has had a significant banking relationship with a local
agency.
e) For purposes of this policy, "significant banking relationship" means any of the
following activities of a bank:
i. Involvement in the creation, sale, purchase, or retirement of a local agency's
bonds, warrants, notes, or other evidence of indebtedness.
ii. Financing of a local agency's activities.
iii. Acceptance of a local agency's securities or funds as deposits.
I. MEDIUM-TERM CORPORATE NOTES, maximum 20% of portfolio (30% with Council
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COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND POLICY EFFECTIVE
GUIDELINES NUMBER DATE PAGE
220-01 03/13/12 8 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
approval), with a maximum remaining maturity of five years or less.
Notes eligible for investment shall be "A" rated or its equivalent or better as determined by a
nationally recognized rating service.
J. TIME DEPOSITS-CERTIFICATES OF DEPOSIT (non-negotiable certificates of deposit.)
Maximum of 3 years.
Deposits must be made with banks or savings & loan that have a short term rating of Al/Pl or a
long term rating of at least a single A from a generally recognized authority on ratings.
K. OBLIGATIONS OF THE STATE OF CALIFORNIA
Obligations must be "A" rated or better from a nationally recognized authority on ratings.
L. MONEY MARKET FUNDS, maximum 15% of portfolio. (Requires Council approval for each
transaction)
No more than 10% of the agency's surplus funds may be invested in shares of beneficial interest of
any one Money Market fund. Local agencies may invest in "shares of beneficial interest" issued
by diversified management companies which invest only in direct obligations in U.S. Treasury
bills, notes and bonds, and repurchase agreements with a weighted average of 60 days or less.
They must have the highest rating from two national rating agencies, must maintain a daily
principal per share value of $1.00 per share and distribute interest monthly, and must have a
minimum of $500 million in assets under management. The purchase price of the shares may
not include commission.
M. THE LOCAL AGENCY INVESTMENT FUND (LAIF)
LAIF is a special fund of the California State Treasury through which any local government may
pool investments. The City may invest up to $50 million in this fund. Investments in LAIF are
highly liquid and may be converted to cash within 24 hours.
N. Investment Trust of California (Ca1TRUST)
The City may invest in shares of beneficial interest issued by the Investment Trust of California
(Ca1TRUST), a local government investment pool established by local entities as a joint powers
authority pursuant to California Government Code Sections 6509.7 and 53601(p), provided:
• Ca1TRUST investments are limited to the securities and obligations authorized for local
agency investment pursuant to Subdivisions (a) to (n), inclusive, of California Government
Code Section 53601; and
• Ca1TRUST shall have retained an investment adviser that:
Is registered or exempt from registration with the Securities and Exchange
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COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND POLICY EFFECTIVE
GUIDELINES NUMBER DATE PAGE
220-O1 03/13/12 9 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
Commission;
Has not less than five years experience investing in the securities and obligations
authorized for local agency investment pursuant to subdivisions (a) to (n), inclusive, of
California Government Code Section 53601; and
Has assets under management in excess of five hundred million dollars
($500,000,000).
9.1 Investment Pools:
The City's Director of Finance/Treasurer or designee shall be required to investigate all local
government investment pools and money market mutual funds prior to investing and performing at
least a quarterly review thereafter while the City is invested in the pool or the money market fund.
LAIF is authorized under provisions in Section 16429.1 of the California Government Code as an
allowable investment for local agencies even though some of the individual investments of the pool
are not allowed as a direct investment by a local agency.
10.0 Portfolio Adjustments:
Should any investment listed in section 9.0 exceed apercentage-of-portfolio limitation due to an
incident such as fluctuation in portfolio size, the affected securities may be held to maturity to avoid
losses. When no loss is indicated, the Director of Finance/Treasurer shall consider reconstructing the
portfolio basing his or her decision on the expected length of time the portfolio will be unbalanced. If
this occurs, the City Council shall be notified.
11.0 Collateralization:
Under provisions of the Califomia Government Code, California banks, and savings and loan
associations are required to secure the City's deposits by pledging government securities with a value
of 110 % of principal and accrued interest. California law also allows financial institutions to secure
City deposits by pledging first trust deed mortgage notes having a value of 150% of the City's total
deposits. Collateral will always be held by an independent third party. A clearly marked evidence of
ownership (safekeeping receipt) must be supplied to the City and retained. The market value of
securities that underlay a repurchase agreement shall be valued at 102% or greater of the funds
borrowed against those securities and the value shall be adjusted no less than quarterly. Since the
market value of the underlying securities is subject to daily market fluctuations, the investments in
repurchase agreements shall be in compliance if the value of the underlying securities is brought back
up to 102% no later than the next business day. The Director of Finance/Treasurer, at his or her
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COUNCIL POLICY
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SUBJECT: INVESTMENT POLICY AND POLICY EFFECTIVE
GUIDELINES NUMBER DATE PAGE
220-01 03/13/12 10 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2113/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
discretion, may waive the collateral requirement for deposits that are fully insured up to $100,000 by
the Federal Deposit Insurance Corporation. The right of collateral substitution is granted.
12.0 Safekeepin¢ and Custody:
All City investments shall identify the City of Chula Vista as the registered owner, and all interest and
principal payments and withdrawals shall indicate the City of Chula Vista as the payee. All securities
shall be safe kept with the City itself or with a qualified financial institution, contracted by the City as
a third party. All agreements and statements will be subject to review annually by external auditors in
conjunction with their audit. In the event that the City has a financial institution hold the securities, a
separate custodial agreement shall be required. All securities shall be acquired by the safekeeping
institution on a "Delivery-Vs-Payment" (DVP) basis. For Repurchase Agreements, the purchase may
be delivered by book entry, physical delivery or by third-party custodial agreement consistent with the
Government Code. The transfer of securities to the counter party bank's customer book entry account
may be used for book entry delivery.
13.0 Diversification:
The City's investment portfolio will be diversified to avoid incurring unreasonable and avoidable risks
associated with concentrating investments in specific security types, maturity segment, or in
individual financial institutions. With the exception of U.S. Treasury securities and authorized pools,
no more than 60% of the total investment portfolio will be invested in a single security type or with a
single financial institution. In addition, no more than 10% of the investment portfolio shall be in
securities of any one issuer except for U.S. Treasuries and U.S. Government Agency issues.
A. Credit risk, defined as the risk of loss due to failure of the insurer of a security, shall be mitigated
investing in those securities with an "A" or above rating and approved in the Investment Policy
b
y
and by diversifying the investment portfolio so that the failure of anyone issuer would not unduly
harm the City's cash flow.
B. Mazket risk, defined as the risk of mazket value fluctuations due to overall changes in the general
level of interest rates, shall be mitigated by structuring the portfolio so that securities mature at the
same time that major cash outflows occur, thus eliminating the need to sell securities prior to their
maturity. It is explicitly recognized herein, however, that in a diversified portfolio, occasional
measured losses are inevitable and must be considered within the context of overall investment
return. The City's investment portfolio will remain sufficiently liquid to enable the City to meet
all operating requirements which might be reasonably anticipated.
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COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND POLICY EFFECTIVE
GUIDELINES NUMBER DATE PAGE
220-O1 03/13/12 11 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
14.0 Maximum Maturities:
To the extent possible, the City will attempt to match its investments with anticipated cash flow
requirements. Unless matched to a specific cash flow, the City will not directly invest in securities
maturing more than five (5) years from the date of purchase, unless, the legislative body has granted
express authority to "make that investment either specifically, or as a part of an investment program
approved by the City Council.
15.0 Internal Control:
The Director ofFinance/Treasurer shall establish a system of internal controls designed to prevent loss
of public funds due to fraud, employee error, misrepresentation by third parties, or unanticipated
market changes. No investment personnel may engage in an investment transaction except as
provided for under the terms of this Investment Policy and the procedure established by the Director
ofFinance/Treasurer.
The external auditors shall annually review the investments with respect to the Investment Policy.
This review will provide internal control by assuring compliance with policies and procedures for the
investments that are selected for testing. Additionally, account reconciliation and verification of
general ledger balances relating to the purchasing or maturing of investments and allocation of
investments to fund balances shall be performed by the Finance Department and approved by the
Director of Finance/Treasurer. To provide further protection of City funds, written procedures
prohibit the wiring of any City funds without the authorization of at least two of the following five
designated City staff:
1. Director ofFinance/Treasurer
2. Assistant Director ofFinance
3. Treasury Manager
4. Fiscal Operations Manager
5. Associate Accountant
16.0 Performance Standards:
This Investment Policy shall be reviewed at least annually by the Director of Finance/Treasurer to
ensure its consistency with the overall objective of preservation of principal, liquidity, and return, and
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PAGE
GUIDELINES DATE
220-O1 03/13/12 12 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
its relevance to current law and financial and economic trends. All financial assets of all other funds
shall be administered in accordance with the provisions of this Investment Policy.
The monies entrusted to the Director ofFinance/Treasurer will be held in a passively managed ("hold
to maturity") portfolio. However, the Director ofFinance/Treasurer will use best efforts to observe,
review, and react to changing conditions that affect the portfolio, and to do so in a manner that is
consistent with this Investment Policy.
16.1 Market Yield (Benchmark):
The investment portfolio shall be managed to attain amarket-average rate of return throughout
budgetary and economic cycles, taking into account the City's investment risk constraints and cash
flow. Investment return becomes a consideration only after the basic requirements of investment
safety and liquidity have been met. Because the investment portfolio is designed to operate on a'hold-
to-maturity' premise (or passive investment style) and because of the safety, liquidity, and yield
priorities, the performance benchmark that will be used to determine whether market yields are being
achieved shall be the average of the monthly LAIF rate and the 12-month rolling average 2 -Year
Constant Maturity Treasury (CMT) rate. While the City will not make investments for the purpose of
trading or speculation as the dominant criterion, the Director of Finance/Treasurer shall seek to
enhance total portfolio return by means of ongoing portfolio and cash management. The prohibition
of highly speculative investments precludes pursuit of gain or profit through unusual risk and
precludes investments primarily directed at gains or profits from conjectural fluctuations in market
prices. The Director of Finance/Treasarer will not directly pursue any investments that are leveraged
or deemed derivative in nature. However, as long as the original investments can be justified by their
ordinazy earning power, trading in response to changes in mazket value can be used as part of on-
goingportfolio management.
17.0 Reportine:
The Director of Finance/Treasurer shall submit a quarterly investment report to the City Council and
City Manager following the end of each quarter. This report will include the following elements:
• Type of investment
• Institutional issuer
• Purchase date
• Date of maturity
• Amount of deposit or cost of the investment
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GUIDELINES DATE
220-01 03/13/12 13 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
• Face value of the investment
• Current market value of securities and source of valuation
• Rate of interest
• Interest earnings
• Statement relating the report to its compliance with the Statement of Investment Policy or the
manner in which the portfolio is not in compliance
• Statement on availability of funds to meet the next six month's obligations
• Monthly and year-to-date budget amounts for interest income
• Percentage of portfolio by investment type
• Days to maturity for all investments
• Comparative report on monthly investment balances & interest yields
• Monthly transactions
• Compare portfolio yield to the yield attained by the County of San Diego and the five largest
cities in the county for the same period.
In addition, a commentary on capital markets and economic conditions may be included with the
report.
18.0 Investment Policy Adoption:
Each fiscal year, the Finance Director shall provide a copy of the City's current Investment Policy and
Guidelines to the City Council. By virtue of a resolution of the City Council of the City of Chula
Vista, the Council shall acknowledge the receipt of the Policy for the respective fiscal year.
GLOSSARY
AGENCIES: Federal agency securities.
ASKED: The price at which securities are offered. (The price at which a firm will sell a security to an
investor.)
BANKERS' ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust
company. The accepting institution guarantees payment of the bill, as well as the issuer. The drafts
are drawn on a bank by an exporter or importer to obtain funds to pay for specific merchandise. An
acceptance is a high-grade negotiable instrument.
BASIS POINT: One one-hundredth of a percent (i. e., 0.01 %)
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GUIDELINES DATE
220-O1 03/13/12 14 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.)
BROKER: A broker brings buyers and sellers together for a commission. He does not take a
position.
CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a
certificate. Large-denomination CDs are typically negotiable.
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.
COMMERCIAL PAPER: Short term unsecured promissory note issued by a corporation to raise
working capital. These negotiable instruments are purchased at a discount to par value or at par value
with interest bearing. Commercial paper is issued by corporations such as General Motors
Acceptance Corporation, IBM, Bank of America, etc.
COUPON: a). The annual rate of interest that a bond's issuer promises to pay the bondholder on the
bond's face value. b) A certificate attached to a bond evidencing interest due on a payment date.
DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling
for his own account.
DEBENTURE: A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus
payment and delivery versus receipt. Delivery versus payment is delivery of securities with an
exchange of money for the securities. Delivery versus receipt is delivery of securities with an
exchange of a signed receipt for the securities.
DISCOUNT: The difference between the cost price of a security and its maturity when quoted at
lower than face value. A security selling below original offering price shortly after sale also is
considered to be at a discount.
DISCOUNT SECURITIES: Non-interest bearing money market instruments that aze issued at a
discount and redeemed at maturity for full face value (e.g., U.S. Treasury Bills).
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GUIDELINES DATE
220-O1 03/13/12 15 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
DIVERSIFICATION: Dividing investment funds among a vaziety of securities offering independent
returns.
FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to
vazious classes of institutions (e.g., S&Ls, small business firms, students, farmers, farm cooperatives,
and exporters).
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A Federal agency that insures
bank deposits, currently up to $100,000 per deposit.
FEDERAL FUNDS RATE: The rate of interest at which Federal funds are traded. This rate is
currently pegged by the Federal Reserve though open-market operations.
FEDERAL HOME LOAN BANKS (FHLB): The institutions that regulate and lend to savings and
loan associations. The Federal Home Loan Banks play a role analogous to that played by the Federal
Reserve Banks vis-a-vis member commercial banks.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC): Created to promote the
development of a nationwide secondary market in mortgages. It does this by purchasing residential
mortgages from financial institutions insured by an agency of the federal government and selling its
interest in them through mortgage backed securities. The interest and principal payments from the
mortgages pass through to the investors either monthly, semiannually or annually.
FEDERAL LAND BANK (FLB): Long-term mortgage credit provided to farmers by Federal Land
Banks. These bonds are issued at irregular times for various maturities ranging from a few months to
ten years.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was
chartered under the Federal National Mortgage Association Act in 1938. FNMA is a Federal
corporation working under the auspices of the Department of Housing and Urban Development
(HUD). It is the lazgest single provider of residential mortgage funds in the United States. Fannie
Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation's
purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate
mortgages. FNMA's securities aze highly liquid and are widely accepted. FNMA assumes and
uarantees that all security holders will receive timely payment of principal and interest.
g
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COUNCIL POLICY
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PAGE
GUIDELINES DATE
220-O1 03/13/12 16 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal
Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of the New
York Federal Reserve Bank is a permanent member, while the other presidents serve on a rotating
basis. The committee periodically meets to set Federal Reserve guidelines regarding purchases and
sales of Government Securities in the open market as a means of influencing the volume of bank
credit and money.
FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and
consisting of aseven-member Board of Governors in Washington, D.C.; 12 regional banks and about
5,700 commercial banks are members of the system.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA OR GINNIE MAE):
Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage
bankers, commercial banks, savings and loan associations and other institutions. Security holder is
protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the
FHA or VA mortgages. The term "pass-through" is often used to describe Ginnie Maes.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a
substantial loss of value. In the money market, a security is said to be liquid if the spread between bid
.and asked prices is narrow and reasonable size can be done at those quotes.
LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from
political subdivisions that are placed in the custody of the State Treasurer for investment and
reinvestment.
MARKET VALUE: The price at which a security is trading and could presumable be purchased or
sold.
MARKET REPURCHASE AGREEMENT: A written contract covering all future transactions
between the parties to repurchase-reverse agreements that establish each party's rights in the
transactions. A master agreement will often specify, among other things, the right of the buyer-lender
to liquidate the underlying securities in the event of default by the seller-borrower.
MATURITY: The date upon which the principal or stated value of an investment becomes due and
payable.
NEGOTIABLE CERTIFICATES OF DEPOSIT: Unsecured obligations of the financial
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GUIDELINES DATE
220-O1 03/13/12 17 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
institution, bank or savings and loan, bought at par value with the promise to pay face value plus
accrued interest at maturity. They are high-grade negotiable instruments, paying a higher interest rate
than regular certificates of deposit.
OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for an
offer).
OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities
in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to
influence the volume of money and credit in the economy. Purchases inject reserves into the bank
system and stimulate growth of money and credit: Sales have the opposite effect. Open market
erations are the Federal Reserve's most important and most flexible monetary Policy tool.
o
p
PORTFOLIO: Collection of securities held by an investor.
PRIMARY DEALER: A group of government securities dealers who submit daily reports of market
activity and positions and monthly financial statements to the Federal Reserve Bank of New York and
are subject to its informal oversight. Primary dealers include Securities and Exchange Commission
(SEC)-registered securities broker/dealers, banks and a few unregulated firms.
PRUDENT PERSON RULE: An investment standard. In some states, the law requires that a
fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody state-
the so -called "legal list". hi other states, the trustee may invest in a security if it is one that would be
bought by a prudent person of discretion and intelligence who is seeking a reasonable income and
preservation of capital.
RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current
market price.
REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these securities to an
investor with an agreement to repurchase them at a fixed date. The security "buyer" in effect lends the
"seller" money for the period of the agreement, and the terms of the agreement are structured to
compensate him for this. Dealers use RP extensively to finance their position. Exception: when the
Fed is said to be doing RP, it is lending money that is, increasing bank reserves.
SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and
valuables of all types and descriptions are held in the bank's vaults for protection.
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GUIDELINES DATE
220-O1 03/13/12 18 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01);2002-039 (2/12/02);2005-184 (6/7/05);2006-176 (6/13/06);2008-054 (2/12/08);2010-045
(3/2/10); 2011-020 (2/22/11)
STUDENT LOAN MARKETING ASSOCIATION (SLMA or SALLIE MAE): A U.S.
Corporation and instrumentality of the U.S. Government. Through its borrowings, funds are targeted
for loans to students in higher education institutions. SLMA securities are highly liquid and are widely
accepted.
SMALL BUSINESS ADMINISTRATION (SBA): The portion of these securities which aze
guaranteed by the Federal government to provide financial assistance through direct loans and loan
guarantees to small businesses. Cash flows from these instruments may not be in equal installments
because of prepayments.
SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following
the initial distribution.
SECURITIES & EXCHANGE COMMISSION: Agency created by Congress to protect investors
in securities transactions by administering securities legislation.
SEC RULE 15C3-1: See "Uniform Net Capital Rule".
TENNESSEE VALLEY AUTHORITIES (TVA): A U.S. Corporation created in the 1930s to
electrify the Tennessee Valley area; currently a major utility headquartered in Knoxville, Tennessee.
TVA securities aze highly liquid and are widely accepted.
TREASURY BILLS: Anon-interest bearing discount security issued by the U.S. Treasury to finance
the national debt. Most bills are issued to mature in three months, six months, or one year.
TREASURY BOND: Long-term U.S. Treasury securities having initial maturities of more than 10
years.
TREASURY NOTES: Intermediate-term coupon bearing U.S. Treasury having initial maturities of
one yeaz to ten years.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that
member firms as well as nonmember broker/dealers in securities maintain a maximum ratio of
indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness
covers all money owed to a firm, including margin loans and commitments to purchase securities, one
reason new public issues are spread among members of underwriting syndicates. Liquid capital
includes cash and assets easily converted into cash.
6-25
COUNCIL POLICY
CITY OF CHULA VISTA
SUBJECT: INVESTMENT POLICY AND POLICY
NUMBER EFFECTIVE
PAGE
GUIDELINES DATE
220-O1 03/13/12 19 OF 19
ADOPTED BY: Resolution No. 17578 DATED: 07/26/94
AMENDED BY: Resolution Nos. 18571 (2/4/97); 19375 (2/16/99); 2000-050 (2/15/00); 2001-026
(2/13/01); 2002-039 (2/12/02); 2005-184 (6/7/05); 2006-176 (6/13/06); 2008-054 (2/12/08); 2010-045
(3/2/10); 2011-020 (2/22/11)
YIELD: The rate of annual income return on an investment, expressed as a percentage. (a) Income
Yield is obtained by dividing the current dollar income by the current market price for the security.
(b) 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.
6-26
PROPOSED AMENDMENTS TO
CITY OF CHULA VISTA
INVESTMENT POLICY AND GUIDELINES
2.0 Policy:
The investment practices and policies of the City of Chula Vista are based upon state law and
prudent money management. The primazy goals of these practices are:
A. To ensure compliance with all Federal, State, and local laws governing the investment of
public funds under the control of the Director of Finance/Treasurer.
B. To protect the principal monies entrusted to the City's Finance Department.
C. To rovide sufficient li uidit such that funds are available as needed to meet those
immediate and/or future operating requirements of the City includine but not limited to
roll accounts payable capital proiects debt service and any other payments.
D. Achieve a reasonable rate of return within the pazameters of prudent nsk management while
minimizing the potential for capital losses arising from market changes or issuer default.
4.1 Personal Responsibility:
The Director of Finance/Treasurer, Assistant Director of Finance, axd Treasury Manager and
Associate Accountant as investment officers acting in accordance with written procedures and
the Investment Policy and exercising due diligence, shall be relieved of personal responsibility
for an individual security's credit risk or market price changes, provided deviations from
expectations aze reported to the City Council in a timely fashion and appropriate action is taken
to control adverse developments.
6.0 Delegation of Authority:
The Director of Finance/Treasurer shall be responsible for all transactions undertaken and shall
establish a system of controls and written procedures to regulate the activities of subordinate
officials. The responsibility for the day-to-day investment of City funds will be delegated to the
:Ia;..~ Associate Accountant under the general direction of the Assistant Director of
Finance.
9.0 Authorized & Suitable Investments:
SECTION F. FEDERAL AGENCIES
Debt instruments issued by agencies of the Federal government. Though not general obligations
of the U.S. Treasury, such securities aze sponsored by the government or related to the
government and, therefore, have high safety ratings. The following are authorized Federal
Intermediate Credit Bank (FICB), Federal Land Bank (FLB), Federal Home Loan Bank (FHLB),
Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation
(FHLMC), Government National Mortgage Association (GNMA), Tennessee Valley Authorities
(TVA), Student Loan Marketing Association Netes (SLMA) and Small Business Administration
(SBA). There is no limit on the percentage of the portfolio that can be invested in this category.
SECTION M. THE LOCAL AGENCY INVESTMENT FUND (LAIF)
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LAIF is a special fund of the California State Treasury through which any local government may
pool investments. The City may invest up to $5049 million in this fund. r' `' `''° r""''"°
v ,a ~ * ~ ~~„d-Investments in LAIF are highly liquid and may be converted to
.._.__.. -o- -
.-------
cash within 24 hours.
15.0 Internal Control:
...To provide further protection of City funds, written procedures prohibit the wiring of any City
funds without the authorization of at least two of the following five designated City staff:
1. Director of Finance/Treasurer
2. Assistant Director of Finance
3. Treasury Manager
4. Fiscal Operations Manager
5. Associate Accountant
17.0 Reporting:
The Director of Finance/Treasurer shall submit a quarterly investment report to the City Council
and City Manager following the end of each quarter. This report will include the following
elements:
• Type of investment
• Institutional issuer
• Purchase date
• Date of maturity
• Amount of deposit or cost of the investment
• Face value of the investment
• Current market value of securities and source of valuation
• Rate of interest
• Interest earnings
• Statement relating the report to its compliance with the Statement of Investment Policy or
the manner in which the portfolio is not in compliance
• Statement on availability of funds to meet the next six month's obligations
• Monthly and year-to-date budget amounts for interest income
• Percentage of portfolio by investment type
• Days to maturity for all investments
• Comparative report on monthly investment balances & interest yields
• Monthly transactions
• Compare portfolio yield to the yield attained by the County of San Diego and the five
largest cities in the county for the same period.
1~4aaager: In addition, a commentary on capital markets and economic conditions may be
included with the report.
6-28
RESOLUTION NO.2012-
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CHULA VISTA ACKNOWLEDGING RECEIPT OF COUNCIL
POLICY 220-01, THE CITY OF CHULA VISTA INVESTMENT
POLICY AND GUIDELINES; AND AMENDING THE EXISTING
POLICY
WHEREAS, the City of Chula Vista's "Investment Policy and Guidelines," adopted on
February 22, 2011, by Resolution No.2011-020 (the Policy), is intended to provide direction for the
prudent investment of temporarily idle cash and to maximize the efficiency of the cash management
process; and
WHEREAS, the stated goal of the Policy is to enhance the economic condition of the City
while ensuring the safety of funds invested; and
WHEREAS, the Policy includes a list of specific investment instruments available pursuant
to California Government Code sections 53600, et. seq.; and
WHEREAS, each investment transaction is made in the context of first ensuring the "safety"
of principal, second, investing only for that timeframe that the cash is not needed for operational
purposes ("liquidity"), and last seeking the highest return possible ("yield") provided that the first
two factors aze met; and
WHEREAS, in accordance with Section 18.0 of the Policy, staff has provided the City
Council with a copy of the City's Investment Policy; and
WHEREAS, staff recommends that the Policy be amended to more clearly state the
importance of providing for liquidity in the operation of the City; and
WHEREAS, due to personnel changes and responsibilities, as well as a need to provide back-
up staff for critical cashflow and investment functions, an Associate Accountant will be added to the
Policy as an investment officer; and
WHEREAS, the Associate Accountant will be responsible for the day-to-day investment
administration under the general direction of the Assistant Director of Finance, as set forth in the
Policy; and
WHEREAS, the Policy requires authorization from two designated City staff for the wiring
of any City funds, and the Associate Accountant will be added to the list of City staff so designated;
and
WHEREAS, with the State of California elimination of Redevelopment Agencies, the City
closed the RDA LAIF fund; and
6-29
Resolution No. 2012-
Page 2
WHEREAS, City staff recommends that the Policy be amended to reflect these changes.
NOW, THEREFORE, BE IT RESOLVED by the City Council ofthe City of Chula Vista that
it amends the City Investment Policy and Guidelines, in the form submitted to the City Council, and
on file in the Office of the City Clerk.
Presented by
Maria Kachadoorian
Director of Finance
6-30
Approved as to form by