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Home My WebLink About13 Investment Policy Agenda Item # 13 a Public Utility District ACTION To: Board of Directors From: Mary Chapman Date: December 15, 2010 Subject: Investment Policy: a) Review of Investment Policy b) Appoint Treasurer of the District for Purposes of Investment 1. WHY THIS MATTER IS BEFORE THE BOARD The Board last reviewed its investment policy in December, 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 11/30/10 (Attachment 2). Earnings on the District's investments have been very low due to the current economic conditions. Safety, liquidity and yield are the fundamental criteria of the District's investment policy (Section 3.20.012.2). 4. FISCAL IMPACT There is no fiscal impact with this agenda item. 5. RECOMMENDATION 1) Receive investment report through November 30, 2010. 2) Review and comment on the investment policy. /417 Mary Chap, n Michael D. Holley Administrative Services Manager General Manager Attachment 1 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 an acceptable 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. a 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 Distript, 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 uipder 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. a 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 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. a a Attachment 2 TRUCKEE DONNER PUD INVESTMENT BALANCES As of Month Ended 11/30/10 LAIF FIDELITY FEDERATED FEDERAL FIDELITY FEDERAL FSA-GUARANTEED US BANK 0.45% MONEY MKT US TREASURY HOME LN MTG INSTL PRIME FARM CREDIT INVESTMENT CHECKING CASH Matures Daily 0.01%-Matures Daily 0.00%-Matures Daily 5.50%-Matures 9/2011 0.01%-Matures Daily 5.25%-Matures 3/2021 4.75%-Matures 1212010 Matures Daily 0.00% Total ELECTRIC FUNDS General Fund $4,408,404 $0 $0 $0 $0 $0 $0 $438,916 $1,200 $4,848,521 Facilities Fees 1,033,939 0 0 0 0 0 0 0 0 1,033,939 2003 Purchase Power Buy-Out 0 0 4,718,651 0 0 0 0 0 0 4,718,651 Electric Rate Reserve 2,273,505 0 0 0 0 0 0 0 0 2,273,505 Capital Replacement Fund 341,381 0 0 0 0 0 0 0 0 341,381 Electric Vehicle Reserve 334,789 0 0 0 0 0 0 0 0 334,789 Total Electric Investments $8,392,019 $0 $4,718,651 $0 $0 $0 $0 $438,916 $1,200 $13,550,786 WATER FUNDS General Fund $405,905 $0 $0 $0 $0 $0 $0 $0 $0 $405,904.65 Facilities Fees 1,452,120 0 0 0 0 0 0 0 0 1,452,120 2006 COP Funds 0 0 0 1,893,116 328,080 0 540,827 0 0 2,762,023 Capital Replacement Fund 3,881,202 0 0 0 0 0 0 0 0 3,881,202 DSC and Operating Reserve Fund 1,841,515 0 0 0 0 0 0 0 0 1,841,515 Reserve for Future Meters 184,313 0 0 0 0 0 0 0 0 184,313 West River St.Assessment District 34,297 0 0 0 0 0 0 0 0 34,297 Prepaid Connection Fees 82,302 0 0 0 0 0 0 0 0 82,302 Glenshire Loan Repayment Fund 173,240 0 0 0 0 0 0 0 0 173,240 Glenshire Lease Fund 17,880 0 0 0 0 0 0 0 0 17,880 Donner Lake Assessment District Fund 930,957 0 0 0 0 0 0 10,906 0 941,863 Donner Lake Assessment District Surcharge 121,735 0 0 0 0 0 0 0 0 121,735 Donner Lake Assessment District Investment 0 0 0 0 0 1,698,880 0 0 0 1,698,880 SRF Reserve Fund 361,304 0 0 0 0 0 0 0 0 361,304 TSA SAD II Improvement Fund 16,544 0 0 0 0 0 0 0 0 16,544 TSA SAD V Improvement Fund 69,961 0 0 0 0 0 0 0 0 69,961 Water Vehicle Reserve 296,903 0 0 0 0 0 0 0 0 296,903 Prop 55 Reserve Fund 306,946 0 0 0 0 0 0 0 0 306,946 Total Water Investments $10,177,125 $0 $0 $1,893,116 $328,080 $1,698,880 $540,827 $10,906 $0 $14,648,934 MELLO ROOS-OLD GREENWOOD $1,256,390 $348,639 $0 $0 $0 $0 $0 $0 $0 $1,605,030 Total Mello Roos-Old Greenwood $1,256,390 $348,639 $0 $0 $0 $0 $0 $0 $0 $1,605,030 MELLO ROOS-GRAY'S CROSSING $1,741,012 $0 $2,178,200 $0 $0 $0 $0 $0 $0 $3,919,212 Total Mello Roos-Gray's Crossing $1,741,012 $0 $2,178,200 $0 $0 $0 $0 $0 $0 $3,919,212 Total Investments $21,566,546 $348,639 $6,896,851 $1,893,116 $328,080 $1,698,880 $540,827 $449,822 $1,200 $33,723,962 MARKET ADJUSTMENTS I i ' Prior Year Market Adjustment $17,537 $0 $2,250 $97,617 $0 $24,926 $0 $0 $0 $142,331 Current Year Market Adjustment 0 0 (2,250) (61,993) 0 242,775 0 0 0 178,532 Cumulative Market Adjustment $17,537 $0 $0 $35,624 $0 $267,702 $0 $0 $0 $320,863 Total Investments at Market Value $21,584,083 $348,639 $6,896,851 $1,928,739 $328,080 $1,966,582 $540,827 $449,822 $1,200 $34,044,824 Agenda Item # 13 b ,, TRUCKEE .R Public Utility District ACTION To: Board of Directors From: Mary Chapman Date: December 15, 2010 Subject: Appoint Treasurer of the District for Purposes of Investment 1. WHY THIS MATTER IS BEFORE THE BOARD Only the Board can appoint the Treasurer to perform investments for FY11. 2. HISTORY At the December 16, 2009 Board meeting, staff reviewed Section 3.20 Investments with the Board of Directors. At that time, no changes to the policy were proposed. 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 On December 16, 2009, the Board re-authorized Mary Chapman, District Treasurer to invest District funds for FY10. The Board now needs to make the delegation for FY11. 4. FISCAL IMPACT There is no fiscal impact with this delegation. 5. RECOMMENDATION Approve the attached resolution authorizing Robert Mescher, District Treasurer, to perform investments of District funds pursuant to District Code 3.20 for FY11. Mary CQman Michael D. Holley Administrative Services Manager General Manager O R Public Resolution No. 2010 - XX AUTHORIZING THE DISTRICT TREASURER TO INVEST DISTRICT FUNDS FOR FYI WHEREAS, it is the intent of the Board of Directors that the District's investment policy be reviewed on an annual basis; and WHEREAS, the Board of Directors of the Truckee Donner Public Utility District last reviewed its investment policy on December 16, 2009 with no revisions being proposed; and WHEREAS, no revisions to the District's investment policy Title 3.20 are being proposed at this time; and WHEREAS, Section 53607 of the Government Code states that certain investment related duties may be delegated to the Treasurer of the District for a one-year period; and NOW THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby authorize Robert Mescher, who will be performing as the District's Treasurer effective January 4, 2011, to perform the duties described in Title 3.20 Investments of the District Code for FY11 pursuant to Government Code Section 53607. PASSED AND ADOPTED by the Board of Directors at a meeting duly called and held within the District on December 15, 2010 by the following roll call vote: AYES: ABSTAIN: NOES: ABSENT: TRUCKEE DONNER PUBLIC UTILITY DISTRICT By President ATTEST: Michael D. Holley, Clerk of the Board