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RESOLUTION NO. 2014-191 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA AMENDING COUNCIL POLICY NO. 220-01, THE CITY OF CHULA VISTA INVESTMENT POLICY AND GUIDELINES
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RECOMMENDED ACTION
Recommended Action
Council adopt the resolution.
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SUMMARY
Per Government Code Section 53646, the City Treasurer may annually present the City's Investment Policy (Council Policy 220-01) to the City Council to reaffirm or make any changes to the existing policy. A review recently completed by an outside investment advisor recommended some revisions to the Investment Policy that increases the flexibility of the City to be able to take advantage of additional investment opportunities while still maintaining the safety and liquidity of the City's investment portfolio. Staff recommends that the Council approve these revisions.
ENVIRONMENTAL REVIEW
The Development Services Director has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a "Project" in accordance with Section 15378(b)(5) of the State CEQA because it involves only amending of a Council Policy regarding the City's Investment Policy and Guidelines therefore it is an organizational or administrative activity of government that will not result in a direct or indirect physical change in the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no environmental review is necessary.
BOARD/COMMISSION RECOMMENDATION
Not Applicable
DISCUSSION
The City's Investment Policy and Guidelines (amended most recently on March 11, 2014 by Resolution 2014-039) is intended to provide direction for the prudent investment of temporarily idle cash, and for maximizing the efficiency of the cash management process while meeting the daily cash flow demands of the City. The policy includes a list of specific investment instruments available under the relevant California Government Code sections, 53600 et seq. 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.
The City hired PFM Asset Management (PFM) as an investment advisor on June 17, 2014. PFM conducted a review of the Investment Policy as part of its engagement with the City. Their review included checking for compliance with the California Government Codes that regulate the investment of public funds. In addition, PFM reviewed the policy to determine if the Investment Policy included best practices recommended by the Association of Public Treasurers of the U.S. and Canada (APT). PFM found that the Investment Policy is comprehensive and is in compliance with all applicable California Government Code statutes regulating the investment of public funds and incorporates the best practice recommendations from the APT.
PFM's review did generate some recommendations to update parts of the Investment Policy. The recommendations will increase the flexibility of the City to be able to take advantage of additional investment opportunities while still maintaining the safety and liquidity of the City's investment portfolio. The changes will also enhance the organization and clarity of the Investment Policy.
Attachments to this staff report include a "marked up" copy of the Investment Policy with the recommended changes as well as a "final" version of the Investment Policy with the recommended changes incorporated into the document. To follow is a summary of the recommended changes by Investment Policy section and the reason for each change.
Recommended Changes by Investment Policy Section
Section 2.0 Policy
· Removes language in this section that could be redundant or contradict Section 5 Objective.
Section 6.0 Delegation of Authority
· Edit the section to remove reference to the Associate Accountant and add language "or designee" to reflect a change in staff assignments.
· Add that the City may delegate day-to-day investment decision making and execution authority to an investment advisor. This change allows PFM to execute trades allowed by the Investment Policy and within the parameters of written instructions provided by City staff.
Section 8.0 Authorized Financial Dealers and Institutions
· Update reference for securities industry regulatory agency
· Add that the City's investment advisor may utilize its own list of authorized brokers/dealers when conducting transactions for the City.
Section 9.0 Authorized & Suitable Investments
· Add that compliance is measured at the time of investment purchase consistent with the California Government Code and that credit downgrades on investments in the City's portfolio prompt a review rather than automatically triggering a sale to prevent unnecessary losses.
· Revisions to investments generally to update and bring the Investment Policy requirements in line with the California Government Code due to the City's Investment Policy being more restrictive than Code.
· The Investment Policy remains more conservative than the California Government Code.
Section 13.0 Diversification
· Reduce per issuer maximum from 10% to 5% to promote a high level of diversification for risk management.
· Update description of how market risk will be mitigated to be more consistent with an active-management investment strategy versus the passive-management investment strategy employed before engaging PFM.
Section 14.0 Maximum Maturities
· Include California Government Code requirement that City Council decisions to allow for investments with maturities longer than 5 years must precede these investments by three months.
Section 15.0 Internal Control
· Remove reference to a system of controls for unanticipated market changes.
· Update list of City staff permitted to authorize wires.
Section 16.0 Performance Standards
· Move section on annual Investment Policy review to Section 18.0.
· Edit section to be more consistent with active-management investment strategy and total return benchmark.
Section 17.0 Reporting
· Remove language that the City's portfolio yield will be compared to the five largest Cities in the County.
Section 18.0 Investment Policy Review and Adoption
· Insert language previously in Section 16.0 regarding the annual Investment Policy review. Moving the language is more appropriate for this Section 18.0 of the Investment Policy.
Glossary
· Remove definitions for terms not in the Investment Policy as the glossary is a tool for readers of the Investment Policy.
DECISION-MAKER CONFLICT
Staff has reviewed the decision contemplated by this action and has determined that it is not site specific and consequently, the 500-foot rule found in California Code of Regulations section 18704.2(a)(1), is not applicable to this decision. Staff is not independently aware, and has not been informed by any Councilmember, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.
LINK TO STRATEGIC GOALS
The City's Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy Community, Strong and Secure Neighborhoods and a Connected Community. The investment portfolio supports the Operational Excellence goal as it seeks to maintain the safety and liquidity of the City's investment portfolio while enhancing the City's financial condition with investment portfolio earnings.
CURRENT YEAR FISCAL IMPACT
There is no direct fiscal impact by this action.
ONGOING FISCAL IMPACT
There is no ongoing fiscal impact by this action.
ATTACHMENTS
1. Investment Policy and Guidelines with Markup
2. Investment Policy and Guidelines without Markups
Staff Contact: Phillip Davis, Assistant Director, Finance Department