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Home My WebLink AboutSR - RES-10866 - 2015-16 STATEMENT OF INVESTMENT POLICYOf 0 ,p OA� ,wua� Py4 VN AGENDA ITEM Date: June 9, 2015 TO: Honorable Mayor and Members of the City Council FROM: Investment Oversight Commi Rick Otto, Interim City Mana; Richard A. Rohm, City TreasL William M. Kolbow, Financt7 Director-- ' 1,11'� ReviewedNerified By: City Manager Finance Director To Be Presented By: X Cons Calendar _ City Mgr Rpts Council Reports Legal Affairs Boards /Cmtes _ Public Hrgs Admin Reports Plan/Environ 1. SUBJECT Annual review and approval of the Statement of Investment Policy (SIP) for Fiscal Year 2015- 16. 2. SUMMARY Per recommendation from the Investment Advisory Committee, the Investment Oversight Committee, and staff, it is proposed that the following changes be made to the City's Statement of Investment Policy: a) Delete the requirement that the City shall invest only in fixed rate, fixed coupon securities b) Adjust the 1 year or less investment category from at least 30% to 25% of the portfolio and no more than 50% in this maturity sector. Increase the concentration limit for the 2 to 3 year maturity from no more than 30% to 35% c) Increase the maximum percentage of portfolio allowed for federal agencies from 65% to 70% and commercial paper from 10% to 20% d) Clean up language to specify the maximum concentration of commercial paper allowed is calculated at time of purchase 3. RECOMMENDATION /ACTION Adopt Resolution No. 10866. 4. FISCAL IMPACT No fiscal impact. — __ _ ---mow SJf" ITEM 6/9/15 C oPrinted on Recycled Paper 1 5. STRATEGIC PLAN GOAL(S) 2d. Be a Fiscally Healthy Community — Effectively manage and develop City assets. 6. GENERAL PLAN IMPLEMENTATION N/A 7. DISCUSSION and BACKGROUND The California Government Code Section 53646 requires that the Statement of Investment Policy be reviewed and approved by the legislative body on an annual basis. The City's Investment Policy is one of the most conservative policies in the State and it is proposed that the very conservative features of the policy be maintained. Many of the allowable investments under the State Code are not permitted in the City's policy. Also, our policy puts additional specific limits on U.S. Government Agency investments and the Local Agency Investment Fund (LAIF). The proposed revisions to the Statement of Investment Policy have been the result of a review and recommendations from staff, the Investment Advisory Committee, and the Investment Oversight Committee. A joint meeting of both Committees was held on May 6, 2015 to discuss the proposed investment policy changes. These proposed changes to the investment policy are listed as follows: Change # 1 Take out the requirement that the City shall invest only in fixed rate, fixed coupon securities. This will allow us to invest in step -up bonds to earn more interests. Step -up bonds have coupon payments that increase over the life of the security according to predetermined schedules. Section 3.3 Mitigating Risk in the Portfolio : (See p.9 of SIP attached) b) Market Risk: r ate, (3) The Cit) shall invest only in fixed Change # 2 Revise the 1 year or less investment category from at least 30% to 25% of the portfolio and no more than 50% in this maturity sector. Increase the maximum concentration for the 2 to 3 year maturity level from no more than 30% to 35 %. The City is required to meet its expenditure obligations for the next six months required by the California Government Code. Based on the projected cash flow estimates and needs, staff has determined that having at least 25% of the portfolio in the 1 year or less maturity is sufficient to meet the State Code requirement. Reducing the allocation percentage from at least 30% to 25% of the portfolio for the 1 year or less investment category will allow us to invest more surplus cash in maturity longer than one year at a higher interest rate. The maximum limit for ITEM 6/9/15 C .s o Printed on Recycled Paper the 2 to 3 year maturity sector is recommended to be increased from no more than 30% to 35% so that we can have more flexibility to invest in short term investments. Section 3.3 Mitigating Risk in the Portfolio : (See p.8 of SIP attached) b) Market Risk: (2) Portfolio maturities shall be managed to avoid undue concentration at time of t purchase in any specific maturity sector with at least 3" 25% of the portfolio must be invested from one to 365 days and no more than 50% in this maturity sector, no more than 50% of the portfolio be invested from 366 days to 730 days, no more than 3" 35% of the portfolio be invested from 731 days to 1095 days, no more than 30% of the portfolio be invested from 1096 days to 1460 days, and no more than 30% of the portfolio be invested from 1461 days to 1825 days. Change # 3 Increase the maximum allocation of portfolio allowed for federal agencies from 65% to 70% and commercial paper from 10% to 20% as more funds will be available for investing due to the proposed change 42. Section 3.1 Investments Authorized (See pp.6 and 7 of SIP attached) (2) Obligations issued by banks for cooperatives, federal land banks, federal intermediate credit banks, the Federal Home Loan Bank, the Tennessee Valley Authority, the Federal National Mortgage Association, or other instruments of, or issued by, a federal agency or a United States government - sponsored enterprise. In every case, any issue purchased must be fully guaranteed as to principal and interest by the full faith and credit of the United States, or the issuing federal agency. (Limits: Maximum maturity at purchase 5 years; maximum concentration 6� 70% of portfolio at time of purchase with no more than 35% of total portfolio in any single agency and excluding completely Government National Mortgage Association bonds; i.e. GNMA's.) (8) Commercial Paper of prime quality having the highest ranking or the highest letter and number rating provided by a national rating agency issued by a domestic corporation having assets in excess of $500,000,000 and having an "A" or better rating on its debt other than commercial paper as provided by a national rating agency. (Limits: Maximum maturity of 270 days or less; maximum concentration �e 20% of portfolio and no more than 5% of the book value of the portfolio funds to a single issuer.) ITEM 6/9/15 O .s Printed on Recycled Paper Change # 4 A minor clean up language to clarify the maximum concentration of commercial paper applies at time of purchase, same as the other authorized investments. Since the portfolio balance fluctuates, this is to make it clear that we will be in compliance when we make a purchase. Section 3.1 Investments Authorized (See p.7 of SIP attached) (8) Commercial Paper of prime quality having the highest ranking or the highest letter and number rating provided by a national rating agency issued by a domestic corporation having assets in excess of $500,000,000 and having an "A" or better rating on its debt other than commercial paper as provided by a national rating agency. (Limits: Maximum maturity of 270 days or less; maximum concentration 44 20% of portfolio and no more than 5% of the book value of the portfolio funds to a single issuer at time of purchase. 8. ATTACHMENTS Resolution No. 10866 Statement of Investment Policy (Redlined Version) Statement of Investment Policy (Clean Version) ITEM 6/9/15 O Printed on Recycled Paper RESOLUTION NO. 10866 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ORANGE APPROVING AND ADOPTING A STATEMENT OF INVESTMENT POLICY FOR FISCAL YEAR 2015 -16 WHEREAS, California Government Code Sections 53600 et seq. set forth detailed provisions regarding permitted and prohibited investments by cities and accountability therefor; and WHEREAS, the City Council adopted Resolution No. 10796 on June 10, 2014 adopting the City's Statement of Investment Policy for Fiscal Year 2014 -15 (herein referred to as the "FY 2014 -15 SIP "); and WHEREAS, the FY 2014 -15 SIP requires that the City Council annually review its Statement of Investment Policy and adopt a policy annually within 120 days following the end of each fiscal year by a resolution and vote of the City Council at a public meeting; and WHEREAS, the City's Investment Advisory Committee and Investment Oversight Committee have reviewed the proposed Statement of Investment Policy for Fiscal Year 2015- 16 (herein referred to as the "FY 2015 -16 SIP ") in the form attached to this Resolution, and has recommended that the City Council adopt the FY 2015 -16 SIP; and NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Orange that the FY 2015 -16 SIP, in the form attached, is the City's Statement of Investment Policy for Fiscal Year 2015 -16 and is duly adopted in accordance with State law and Chapter 2.49 of Title 2 of the Orange Municipal Code. ADOPTED this day of , 2015. Teresa E. Smith Mayor of the City of Orange ATTEST: Mary E. Murphy City Clerk of the City of Orange I, MARY E. MURPHY, City Clerk of the City of Orange, California, do hereby certify that the foregoing Resolution was duly and regularly adopted by the City Council of