HomeMy WebLinkAbout#12 Investment Policy Agenda Item # 12
Public Utility District
WORKSHOP
To: Board of Directors
From: Mary Chapman
Date: December 16, 2009
Subject: Review of Investment Policy
1. WHY THIS MATTER IS BEFORE THE BOARD
The Board last updated its investment policy in July, 2008. The policy was reviewed
again in January, 2009. It was the Board's intent to review the investment policy
annually.
2. HISTORY
The Governmental Accounting Standards Board (GASB) in their GASB 40
pronouncement described the reporting requirements for a local government's
investments and also requires the disclosure of the Board's policy for addressing
specific risks relating to investing public funds.
Section 53607 of the Government Code states:
"The authority of the legislative body to invest or to reinvest funds of a local agency, or
to sell or exchange securities so purchased, may be delegated for a one-year period
by the legislative body to the treasurer of the local agency, who shall thereafter
assume full responsibility for those transactions until the delegation of authority is
revoked or expires, and shall make a monthly report of those transactions to the
legislative body. Subject to review, the legislative body may renew the delegation of
authority pursuant to this section each year."
3. NEW INFORMATION
The following attachments are for your review:
A) Copy of the District's Investment Policy which complies with the requirements of
GASB 40; there are no revisions being proposed at this time (Attachment 1).
B) Investment status report through 11/30/09 (Attachment 2). Earnings on the
District's investments have been very low due to the current economic
conditions. We have asked Sandra McDonald to review the District's portfolio to
see if she has any recommendations to improve the yield on the District's
investments without sacrificing safety and liquidity. Safety, liquidity and yield are
the fundamental criteria of the District's investment policy (Section 3.20.012.2).
Sandra McDonald has provided financial advise to the District for several years
relating to investment of reserve funds and power supply contracts.
4. FISCAL IMPACT
There is no fiscal impact with this agenda item.
5. RECOMMENDATION
1) Receive investment report through November 30, 2009.
2) Review and comment on the investment policy.
`1'Yl rmc� d
Mary Chapm Michael D. Holley
Administrative Services Manager General Manager
ATTACHMENT 1
CHAPTER 3.20
INVESTMENTS
Sections:
3.20.005 Local Agency Investment Fund Investments
3.20.008 Fund Transfers
3.20.010 Investment of Surplus Funds
3.20.012 Investment Policy
3.20.005 Local Agency Investment Fund Investments
3.20.005.1 Authorization has been given for the deposit and withdrawal of monies in
the Local Agency Investment Fund (LAIF) in the State Treasury in accordance with the
provisions of Section 16429.1 of the Government Code for the purpose of investment as
stated therein.
3.20.005.2 Any two of the following officers or employees of the District, the President of
the Board, the General Manager or the Treasurer, may execute documents to add or
delete District accounts and authorized persons to make transfers to and from those
accounts with the LAIF.
3.20.008 Fund Transfers
3.20.008.1 The Board approved commercial bank (Bank) is requested to honor, execute
and process the District's telephonic, electronic, written or oral requests for the transfer
of funds between the accounts of the District at Bank and the Local Agency Investment
Fund, subject to such terms and conditions as may from time to time be agreed upon by
the District.
3.20.008.2 Any one of the following listed officers or employees of the District, the
President of the Board, the General Manager or the Treasurer are hereby authorized,
directed and empowered for and on behalf of and in the name of the District as follows:
3.20.008.2(A) To execute agreements with the Bank providing for such funds
transfers and to make and verify requests for such transfers, and the Bank shall
be entitled to honor and charge this District for all such requests, when given (or
purported to be given) by any one of the above.
3.20.008.2(B)To make, execute and deliver such other agreements as may be
required by the Bank; and
3.20.008.2(C) To perform or cause to be performed all further acts and execute
and deliver all further instruments which Bank may deem necessary to carry out
the purposes of this policy.
3.20.008.3 The District hereby ratifies and confirms the acts of its officers, agents or
employees in heretofore requesting transfers of funds from this District's accounts with
the Bank by wire or comparable transfer together with any acts performed in relation
hereto.
3.20.008.4 That the Clerk of the District is hereby authorized and directed to execute,
acknowledge and deliver a certified copy of the Resolution related hereto to the Bank
and any other person or agency which may require copies, and that the certification of
the (Secretary) Clerk as to the signatures of the above named officers will be binding on
this District.
3.20.008.5 That the Bank is authorized to act upon this policy until written notice of the
revocation thereof by a resolution duly adopted by the Board of Directors of this District
is delivered to the Bank, such revocation in no way to affect the obligations of this
District to the Bank incurred pursuant to the terms of this policy prior to receipt by the
Bank of such notice or revocation.
3.20.010 Investment of Surplus Funds
The District Treasurer shall invest surplus funds, both restricted and general, pursuant
to the District's Investment Policy (District Code 3.20.12). A regular accounting of all
fund activities shall be presented to the Board of Directors in the monthly Treasurer's
Report.
3.20.012 Investment Policy
3.20.012.1 Investment Authority In accordance with Section 53600 et seq. of the
Government Code of the State of California, the authority to invest public funds is
expressly delegated to the Board of Directors for subsequent delegation to the
Treasurer. The Treasurer of the District receives direction and authority to invest any
and all District funds from the Board of Directors of the District.
3.20.012.2 Statement of Objectives Per section 53600.5 of the California Government
Code, the primary objective of the Treasurer shall be to safeguard the principal of the
funds under his/her control when investing public funds. The secondary objective shall
be to meet all liquidity requirements and the third objective shall be to achieve a return
on the funds under his/her control.
In order of priority, three fundamental criteria shall be followed in the investment
program:
1. Safety - Safety of principal is the foremost objective of the investment program.
Investments shall be undertaken in a manner that seeks to ensure the
preservation of capital in the overall portfolio. The objective will be to mitigate
credit risk and interest rate risk.
a. Credit Risk: The District will minimize credit risk, the risk of loss due to the
failure of the security issuer or backer, by:
i. Limiting investments to the safest types of securities.
ii. Pre-qualifying the financial institutions, broker/dealers, intermediaries
and advisers with which the District will do business (custodial risk).
iii. Diversifying the investment portfolio so that potential losses on individual
securities will be minimized (concentration of risk).
b. Interest Rate Risk: The District will minimize the risk that the market value of
securities in the portfolio will fall due to changes in general interest rates,
by:
i. Structuring the investment portfolio so that securities mature to meet
cash requirements for ongoing operations, thereby avoiding the need to
sell securities on the open market prior to maturity.
ii. Investing operating funds primarily in shorter-term securities, money
market mutual funds, or similar investment pools.
2. Liquidity — In an effort to ensure that the District's portfolio will be sufficiently
liquid to meet current and anticipated operating requirements, periodic cash flow
analysis will be performed. Investments shall be made so that the maturity date
is compatible with cash flow needs and safety of principal.
3. Yield — Investments shall be undertaken to produce an acceptable rate of return
after first considering safety of principal and liquidity and the prudent investor
standard.
Investment Strategy — The portfolio will be managed to meet the District's
cash flow needs. The maximum maturity of any security will not exceed 5
years except as specifically noted below. All investment activity shall be
consistent with prudent investor standard and in accordance with the
authorized investments included under District Code 3.20.012.5.
3.20.012.3 Prudent Investor Standard As applicable to the District, the prudent
investor standard is a standard of conduct whereby any person authorized to make
investment decisions on behalf of the District acts 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 District, that a prudent
person acting in like capacity and familiarity with those matters would use in the conduct
of funds of a like character and with like aims, to safeguard the principal and meet the
liquidity needs of the District.
3.20.012.4 Portfolio Any reference to the portfolio shall mean the total of the District's
cash and securities under management by the Treasurer.
Except for cash in certain Board designated, restricted and special funds,
the District will consolidate cash and reserve balances from all funds to
maximize investment earnings and to increase efficiencies with regard to
investment pricing, safekeeping, and administration. Investment income
will be allocated to the various funds or accounts based on their respective
participation and in accordance with generally accepted accounting
principles.
The Treasurer may invest in any security authorized for investment under the
California Government Code, subject to the limitations described herein:
1. Maturity Limitations —
a. The aggregate maturity of the total portfolio must not exceed five (5) years
for the general operating funds of the District.
b. Funds which represent debt service reserve funds may be invested up to
a term of ten years, as long as the period invested does not exceed the
term of the debt repayment.
c. Investments of restricted funds held for the Donner Lake Assessment
District that are not expected to be needed to pay debt service on the SRF
loan may be invested up to the term of the SRF loan.
d. Construction funds may be invested to mature on or before the date funds
are expected to be needed for construction purposes.
2. Investment Transactions — the purchase of any investment other than those
purchased directly from the issuer shall be, to the extent possible, from a firm
designated as a Primary Dealer by the Federal Reserve of New York.
3. Sale of Securities — Securities may be sold to provide needed liquidity, to
restructure the portfolio to reduce risk or to increase the expected return of the
portfolio. In no instance shall a sale of securities be used for speculative
purposes. All sales are to be reported to the Board on a monthly basis.
4. Prohibited Investments — Prohibited investments include 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. (Zero interest accrual means the security has the potential to
realize zero earnings depending upon the structure of the security. Zero coupon
bonds and similar investments that start below the face value are legal because
their value does increase.)
5. Safekeeping
a. All securities transactions entered into by the District shall be conducted
on a delivery versus payment (DVP) basis.
b. Securities shall be held by an independent custodian designated by the
Treasurer and held in safekeeping pursuant to a safekeeping agreement.
c. All financial institutions which provide safekeeping services for the District
shall be required to provide reports or safekeeping receipts directly to the
Treasurer to verify securities taken into their possession.
3.20.012.5 Authorized Investments
1. The District's authorized commercial bank in an interest bearing checking or
savings account. The Treasurer is authorized to make daily deposits and
withdrawals for purposes of the safekeeping of District monies and payments of
District financial obligations.
2. Local Agency Investment Fund (LAIF) — Deposits for the purpose of investment
in the Local Agency Investment Fund of the State of California Treasury may be
made up to the maximum amount permitted by State Treasury policy. Any LAIF
investments made by the District shall be considered to be short-term in nature
even if the LAIF has invested in individual longer-term securities. The Treasurer
is authorized to make regular transfers to and from LAIF up to the limit of
transactions established by the LAIF investment policy for purposes of meeting
the District's daily cash flow needs and earning interest on surplus funds.
3. Any other investments authorized and listed in the Government Code Sections
53600-53609. The Treasurer will consult with the Board of Directors when
recommending any of the investments within these sections other than
subsections 1 and 2 above. From time to time, the Board may also consult with
an investment professional pursuant to Title 3.20.012.2 Section 1 a ii. Each
investment will be specifically authorized by the Board of Directors.
4. Bond proceeds and reserve funds will be invested only in permitted investments
or authorized investments defined in the Trust Agreement for each particular
financing which has previously been approved by the Board of Directors
(Government Code Section 53601 1).The Treasurer will consult with the Financial
Advisor or Trustee on the financing for investment recommendations to submit to
the Board of Directors for approval. The Treasurer is authorized to invest funds
in a money market fund or LAIF with the Trustee pending investment of those
funds in a longer-term investment, which will be approved by the Board of
Directors.
3.20.012.6 Reporting In accordance with Section 53646 of the California Government
Code, the Treasurer shall submit a quarterly report to the Board of Directors within 30
days following the end of the quarter covered by the report. The report shall include
investment activity, including yield and earnings, and the status of cash by depository.
3.20.012.7 Internal Controls Annually, the Truckee Donner Public Utility District will
have an independent audit by an external auditor. This audit will provide internal control
by assuring compliance with policies and procedures.
3.20.012.9 Annual Review of Investment Policy The Investment Policy shall be
submitted at least annually to the Board of Directors for adoption. The policy shall be
reviewed annually to ensure its consistency with the overall objectives of preservation of
principal, liquidity, yield and its relevance to current law and financial and economic
trends. The review will also include the review of the diversification of the investments in
the portfolio and the custodial risk of the portfolio. Any modifications made thereto must
be approved by the Board of Directors.
INVESTMENT STATUS Prepared 11-30-09 by Mary Chapman, Treasurer ATTACHMENT 2
Amount Invested Average Interest
General Investment Information Funds Managed By at 11/30/09 Maturity Effective Yield Last 2-4 Years
iquid investment and available to the District on demand; State of California-State $19,370,366 234 days average maturity .90%7/1 9/30/09 7/05 6/06 3.87%
3d by the State of California Pooled Money Investment Treasurer's Pooled Money 1st quarter rate 7/06-6107 5.12%
staff;per Government Code Section 16429.3,the funds Investment Staff 7/07-6/08 4.32%
t be borrowed or seized by the State of California or used 7/08-6/09 2.224%
State of California for any reason. Contains most District
s including General Funds,Board Designated and
tedFunds
)enwood CFD Reserve Funds-required by debt instruments State of California-State $1,249,409 234 days average maturity .90%7/1-9/30/09 7/05-6/06 3.87%
Treasurer's Pooled Money 1st quarter rate 7/06-6/07 5.12%
Investment Staff 7/07-6/08 4.32%
E
7/08-6/09 2.224%
Crossing CFD Reserve Funds-required by debt instruments State of California-State $1,731,338 234 days average maturity .90%7/1-9/30/09 7/05-6/06 3.87%
Treasurer's Pooled Money 1st quarter rate 7/06-6/07 5.12%
Investment Staff 7/07-6/08 4.32%
7/08-6/09 2.224%
System Improvement Construction Funds-will be completely FSA Capital Management $2,931,187 Can withdraw as needed w/o penalty 4.75% 4.75%/year
ed by the end of 2010 on pipeline projects Final maturity December,2011
urchased Power Reserve Fund-required by debt Bank of New York $4,420,478 Matures daily .01%thru 10/31/09 2005-2.57%
cents;funds will be used to make final principal and interest 2006-4.39%
2007-4.20%
it on 1/1/2013 2008-1.23%
Crossing CFD Reserve Fund-required by debt instruments Bank of New York $1,940,971 Matures daily .01%thru 10/31/09 2005-2.90%
2006-4.74%
2007-5.02%
2008-2.69%
OP Reserve Funds-required by debt instruments Bank of New York $1,893,116 Matures on September 15,2011 5.50% 5.5%/year
;OP Principal&Interest Fund-accumulated payments by Bank of New York $389,216 Matures daily .34%YTD 2005-2.90%
to make the next principal and interest payments 2006-4.74%
2007-5.02%
2008-2,69%
i
r Lake Assessment District Investment-will be needed Bank of New York $1,698,880 Matures on March 2,2021 5.25% 5.25%/year
i s the end of the SRF loan to make final principal and
t payments
i
eenwood Surplus Funds-required by debt instruments Bank of New York $225,010 Matures daily 01%YTD 2005-1.81%
i 2006-2.83%
I 2007-3.04%
{ 2008-1.45%
` $35,849,972
TRUCKEE DONNER PUBLIC UTILITY DISTRICT-INVESTMENT STATUS Prepared 11-30-09 by Mary Chapman, Treasurer ATTACHMENT 2
Amount Invested
Agency General Investment Information Funds Managed By at 11/30/09 Maturity
1 Local Agency Investment Fund(LAIF) Highly liquid investment and available to the District on demand; State of California-State $19,370,366 234 days average ma
Not rated managed by the State of California Pooled Money Investment Treasurer's Pooled Money
Agency staff;per Government Code Section 16429.3,the funds Investment Staff
may not be borrowed or seized by the State of California or used
by the State of California for any reason. Contains most District
deposits including General Funds,Board Designated and
RestrictedFunds
2 Local Agency Investment Fund(LAIF) Old Greenwood CFD Reserve Funds-required by debt instruments State of California-State $1,249,409 234 days average ma'
Not rated Treasurer's Pooled Money
Investment Staff
3 Local Agency Investment Fund(LAIF) Gray's Crossing CFD Reserve Funds-required by debt instruments State of California-State $1,731,338 234 days average ma
Not rated Treasurer's Pooled Money
Investment Staff
i
i
4 FSA Capital Management(Guaranteed Water System Improvement Construction Funds-will be completely FSA Capital Management $2,931,187 Can withdraw as needed w/
Investment Contract)Rated Aa3 by Moodys, disbursed by the end of 2010 on pipeline projects Final maturity Decembe
AAA by S&P
5 Federated US Treasury Cash Reserves 2003 Purchased Power Reserve Fund-required by debt Bank of New York $4,420,478 Matures daily
Rating Aaa by Moody's,AAA by S&P instruments;funds will be used to make final principal and interest
{ payment on 1/1/2013
I
6 Federated US Treasury Cash Reserves Gray's Crossing CFD Reserve Fund-required by debt instruments Bank of New York $1,940,971 Matures daily
Rating Aaa by Moody's,AAA by S&P
7 Federal Home Loan Mortgage 2006 COP Reserve Funds-required by debt instruments Bank of New York $1,893,116 Matures on September 1
Rating: Moody's Aaa S&P AAA
8 Fidelity Institutional Prime Money Market 2006 COP Principal& Interest Fund-accumulated payments by Bank of New York $389,216 Matures daily
Rating: Rated Aaa by Moody's,AAA by District to make the next principal and interest payments
S&P
9 Federal Farm Credit Banks Donner Lake Assessment District Investment-will be needed Bank of New York $1,698,880 Matures on March 2,
Rating: Moody's Aaa,S&P AAA towards the end of the SRF loan to make final principal and
interest payments
10 Fidelity Tax Exempt Daily Money Market Old Greenwood Surplus Funds-required by debt instruments Bank of New York $225,010 Matures daily
Not Rated
Total Investment Funds $35,849,972