RDA Resolution 2006-006RESOLUTION NO. RA 2006-006
A RESOLUTION OF THE LA QUINTA REDEVELOPMENT
AGENCY OF THE CITY OF LA QUINTA APPROVING AND
ADOPTING THE AMENDED INVESTMENT POLICY FOR
FISCAL YEAR 2006/2007
WHEREAS, the general purpose of the Investment Policy is to provide the
rules and standards users must follow in investing funds of the City of La Quinta;
and ,
WHEREAS, the primary objectives, in order of priority, of the City of La
Quinta's investment activity shall be:
Safety of principal is the foremost objective of the investment program.
Investments of the City of La Quinta shall be undertaken in a manner that
seeks to ensure the preservation of capital in the overall portfolio.
The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated.
The investment portfolio shall be designed with the objective of attaining a
market rate of return or yield throughout budgetary and economic cycles,
taking into account the investment risk constraints and liquidity needs.
WHEREAS, authority to manage the City of La Quinta's investment portfolio
is derived from the City Ordinance. Management responsibility for the investment
program is delegated to the City Treasurer, who shall establish and implement
written procedures for the operation of the City's investment program consistent
with the Investment Policy; and
WHEREAS, the Investment Policy will be adopted before the end of June of
each year and amended as considered necessary; and
NOW, THEREFORE, BE IT RESOLVED by the Redevelopment Agency of the
City of La Quinta to adopt the 2006/2007 Fiscal Year Investment Policy (Exhibit
A).
PASSED, APPROVED and ADOPTED at a regular meeting of the La Quinta
Redevelopment Agency, held on this 20th day of June, 2006, by the following vote,
to wit:
Resolution No. RA 2006-006
Investment Policy / FY 2006-2007
Adopted: June 20, 2006
Page 2
AYES: Members Adolph, Henderson, Kirk, Sniff, Chairperson Osborne
NOES.: None
ABSENT: None
ABSTAIN: None
S13&�E, Ifflairperson
La Quinta Redevelopment Agency
ATTEST:
GREEK, MMC, 4gency Secretary
La Quinta Redevelopment Agency
(AGENCY SEAL)
APPROVED AS TO FORM:
F . I M —)R I
v1-VAT ERINE JE N,' Agency Counsel
La Quinta Redevel ment Agency
ATTACHMENT I
CITY OF LA QUINTA
Investment Policy
Table of Contents
Section
T.opi
Page
Executive Summary
2
General Purpose
4
Investment Policy
4
Scope
4
IV
Objectives.
4
00. Safety
10. Liquidity
10. Yield
Diversified Portfolio
V
Maximum Maturities
6
VI
Prudence.
6
Vill
Delegation'of Authority
6
Vill
Conflict of Interest
7
ix
Authorized Financial Dealers.and Institutions
7
Oo- Broker/Dealers
Oo- Financial Institutions
X
Authorized Investments and Limitations
8
XI
Investment Pools
12
Xii
Payment and Custody
12
Xill
Interest Earning Distribution Policy
12
XIV
Internal Controls and Independent Auditors'
13
XV
Benchmark
14
XVI
Reporting Standards
14
XVII
Financial Assets and Investment Activity Not Subject to this Policy
15
XVIII
Investment of Bond Proceeds
15
XIX
Professional Portfolio Manager
16
XX
Investment Advisory Board - City of La Quinta.
16
XXI
investment Policy Adoption
16
Appendices:
A. Summary of Authorized Investments and Limitations
18
B. Municipal Code Ordinance 2.70 - Investment Advisory Board
19
C. Municipal Code Ordinance 3.08. - Investment of Moneys and Funds
20
D. Segregation of Major Investment Responsibilities
22
E. Listing of Approved Financial Institutions
23
F. Broker/Dealer Questionnaire and Certification
24
G. Investment Pool Questionnaire
28
H. Request for Proposal for Portfolio Manager
32
1. Permissible Investment Chart
38
J. Glossary
39
Ci ty of La Qu*inta
Investment Policy
Executive Summary
The general purpose of this Investment 'Policy is to provide the rules and standards users
must follow in investing funds of the City of La'Quinta.
It is the Policy of -the City of I La Quinta to invest all public funds in a manner which will
-provide a diversified porffoliowith maximum security -while meeting'daily cash flow
demands and the highest investment return in conformity to all state and local statutes.
This Policy applies to all cash and investments of the City of La Ouinta, La Quinta
Redevelopment Agency and. the La Quinta Financing Authority, hereafter referred in this
document as the "City"i
The primary objectives, in order of pniority, of the' City of La Quintals investment -activity
shall be:
Safety of principal is ' the foremost objective of the investment program.
Investments of the City of La Quinta shall be undertaken in a m . anner that seeks
to. ensure the preservation of capital in the overall portfolio
The investment portfolio shall remain sufficiently liquid to meet all op e*rati.ng
requirements that may be reasonably anticipated.
The investment portfolio shall be designed with the objective of attaining a
market rate of return or yield throughout budgetary and economic cy I cles,
taking into account the investment risk constraints and liquidity needs.
Within the constrai fits of safety, liquidity and yield, the City will endeavor to
maintain a diversified portfolio by allocating assets between different types of
investments within Policy limitations.
-Investments shall be made with jud under circumstances then prevailing
gment and care
which Persons. of Prudence,. discretion, and intelligence exercise in the management of
their own affairs,. not for speculation, but for investment, considering the probable safety
of their capital as well as the probable income to be derived.
Authority to manage the City of La Quinta's investment portfolio is derived from the City
Ordinance. Management responsibility for the investment program is delegated to the
City Treasurer, who.shall establish a*nd implement written 'procedures for the operation of
the City$ s investment. . program -co n*sistent with the Investment Policy. The Treasurer shall
establish and implement a system of internal controls to maintain the safety. of the
portfolio. In addition, the internal control system will also insure the timely preparation
-and accurate reporting of the portfolio financial information. As part of the annual audit of
the City of La Quinta I s financial'statements the independent auditor reviews the adequacy
of those controls and comments if weaknesses are found.
FA
The City Treasurer may use a professional investment manager engaged by the City to
assist the City Treasurer in managing the investment program.
investment responsibilities carry added duties of insuring that investments are made
without improper influence or the appearance to a reasonable person of quest'
ionable or
.improper influence.
The City of La Quinta Investment Policy maintains a listing of financial institutions which
are approved for investment purposes. All Broker/Dealers and financial institutions
selected by the Treasurer to provide investment services will be approved by the City
Manager subject to City Council approval.
The Treasurer will be permifted to invest only in City approved investments up to the
maximum allowable percentages or dollar limitations and' where applicable, through the
bid process requirements. Authorized investment vehicles and- related maximum portfolio
positions are listed in Appendix A - Summary of Authorized Investments and Limitations.
At least two bids will be required of investments in the authorized investment vehicles.
Collateralization will be required for Certificates of Deposits in excess of $100,000.
Collateral Will always be held by an independent third party from the institution that sells the -
Certificates of Deposit to the City. Evidence of compliance with State Collateralization
policies must be supplied to the City and retained by the City Treasurer.
The City of La Quinta Investment Policy shall require that each individual investment have
a maximum maturity of two years unless specific approval is authorized by the City Council,
except the projected annual dollar amount as detailed in Section V, may be invested in
U.S. Treasury bills, notes and bonds maturing between 2 and 5 years. In addition, the
City's investment in the State Local Agency Investment Fund (LAIF) is allowable as long as
the average maturity does not exceed two years, unless specific approval is authorized by
the City Council. The City's investment in Money Market Mutual funds is allowable as long
as the average maturity does not exceed 60 days.
The City of La Quinta Investment Policy will use the six-month U.S. Treasury Bill as a
benchmark when measuring the performance of the investment portfolio.
,The Investment Policies shall be adopted by resolution of the La Quinta City Council on an
annual. basis. The Investment Policies will be adopted- before the end of June of each year.
This Executive Summary is an overall review of the City o . f La Quinta Investment Policies.
Reading this summary does not constitute a complete review, which can only be
accomplished by reviewing all the pages.
3
P.O. Box 1504
LA QUINTA, CALIFORNIA 92247-15 04
78-495 CALLE TAMPICO
LA QUINTA, CALIFORNIA 92253
City -of La Quinta
Statement of Investment Policy
July 1, 2006 through June 30, 2007
Adopted by the City Council on June 20, 2006
(760) -7-7 7-7000
FAX (760) 777-7101
GENERAL PURPOSE
The general purpose of th.is document is to provide the rules and standards users must
follow in administering the Cit'y.of La Quinta cash investments.
INVESTMENT POLICY
It is'the Policy of the -City of La Quinta to invest.public funds in a manner which will provide -
a diversified portfolio with safety of principal as the primary objective while meeting daily
cash flow demands with the highest investment return. In addition, the Investment Policy
will conform to all State and local statutes governing the investment of public funds.
III SCOPE
This Investment Policy applies to all cash and investments, except as further detailed in
Section *XVII of the: City of La Quinta, City of La Quinta Redevelopment Agency and the
City of La Quinta Financing Authority, hereafter referred in this document as the "City".
These funds are reported in the City.of La Quinta Comprehensive Annual financial Report
(CAFR) and include:
All funds within the following fund types:
10. General
10- Special Revenue
10. Capital Projects
00� Debt Service
.101 Enterprise
10- Internal Service
10. Trust and Agency
0, Any new fund types and fund,(s) that may be created.
IV QB�ECTIVES
The primary objective., in order of priority, of the City of La Q u*i'nta's investment activity shall
be:
Safety
Safety of Orincipal is the foremost objective of the investment program. Investments
of the City of La Quinta shall be undertaken in a manner that seeks to ensure the
4
preservation. of capital in the overall portfolio in accordance with the permitted
investments. The objective will be to mitigate credit risk and interest -rate risk.
A. Credit Risk
Credit Risk - is the risk.of loss due to the failure of the security issuer or
backer. Credit risk may be mitigated. by:
110. Limiting investments to the safest types of securities;
10- Pre -qualifying the financial institutions, and broker/dealers, which th e*
City of La Quinta will do business with; and
111. Diversifying the investment portfolio. so that potential losses on
individual securities will be minimized.
B. Interest Rate Risk
Interest Rate risk is the risk that the market value of securities in the portfolio
will fall due to changes
ingeneral interest. rates. Interest rate risk may be
mitigated by:
110. 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; and
00. By investing operating funds primarily in shorter -term securities.
2. Liquidity
The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated. This is accomplished by
structuring the portfolio so that sufficient liquid funds are available to meet
anticipated demands. Furthermore since all possible cash demands cannot be
anticipated the portfolio should be diversified and consist of securities with active
secondary or resale markets. Securities shall not.be sold,.prior to maturily with the
following exceptions:
10. A- declining credit quality security could be sold early to minimize loss of
principal;
10- Liquidity needs of the portfolio require that the security be sold.
3. Yield
The investment portfolio shall be designed with the objective of attaining a market
rate of return throughout budgetary and economic cycles, taking into account the
investment risk -constraints and liquidity needs. Return on investment is of least
importance compared to ' the safety and liquidity objectives described above. The
core of investments are limited to relatively low risk securities in anticipation of
earning a fair return relative to the risk being assumed'
�9
4. Diversified Portfolio - *
Within the constraints of safety, liquidity and yield, the City Will endeavor to maintain
a diversified portfolio by'allbcAilfi
9 �6sft between different typ es of investments
within policy limitations.
V M
_AXIMUM MATURITIES
It is the Policy of the City of La Quinta to hold securities and other.investients of cash
in financial instruments until maturity, . thus avoiding the risk that the market value on
investments fluctuates with overall market interest rates. The- hold until maturity policy
.shall not prevent the sale of a security to minimize loss of principal when. the . issuer or
backer suffers d ' eclining credit worthiness.- The ho,ld until maturity policy requires that
the City of La Quinta"s investment portfolio is structured so that sufficient fun '
available from maturing investments and other sou ds are
rces to meet:anticip'ated -cash needs.
TO meet anticipated cash -n'
accura eeds, it is essential that the Treasurer have' reasonably
te, diligently prepared cash flow projections.
Annually, -the.Treasurer shall project
the amount of funds not expected to be disbursed -
within five years. For FY 2006/07, the amount of such funds was' $8 million. Funds up
to that amount may be invested in. U.S. Treasury bills, notes and bonds maturing
between 2 and 5 years.- For all other funds, investments are limited to two years
maximum maturity.
VI PRUDENCE
The City shall follow the Uniform Prudent Investor Act as adopted by the I State of California'
in Probate Code Sections 16045. through 16054.
Section 16053 sets forth the terms of a prudent person which are as follows:
Investments shall be made with, judgment and care - under circumstances then prevailing -
-which persons of prudence, discretion, and intelligence exercise in the professional
nanagement of their own . affairs, not for speculation, but for investment,. considering the
:probable safety of their capital as -well -as. the probable income to be'derived.
VII DELEGATION OF AUTHORITY
Authority to manage the City of. La Quinta's investrn
ent portfolio is derived from the City
Ordinance. Management responsibility for the investment program is delegated to the City
Treasurer, who shall establish 'written procedures for the operation of the investment
program consistent with the Investment Policy. Procedures should'include reference to
safekeeping, wire transfer agreements, -banking service cobtracts, and collateral/depository
agreements. Such procedures shall include explicit delegation of authority to persons
responsible- for, investment transactions. No person may -engage in an investment
transaction except as. provided under the terms of this Investment Policy and* the
procedures established by the City Treasurer. The City Treasurer shall I be responsible for
all transactions undertaken. and shall establish a system of co'
ntrols to regulate 'the
activities of subordinate officials. The Cily
stant City Manager shall
6
approve in writing all purchases and sales of investments
_prior to their execution by the
Citv Treasurer.
Vill CONFLICT OF INTEREST
Investment responsibil ' ities carry added duties of insuring that investments are made
without improper influence or the appearance of improper influence.
Therefore, the City Manager, Assistant City Manager, and the City Treasurer shall adhere
to the State of California Code of Economic Interest and -to the following:
The City Manager, Assistant City Manager, and the City Treasurer shall not
personally or through a close relative maintain any accounts, interest, or private
dealings with any.firm with which the City places investments, with t I he exception of
regular savings, checking and money market accounts, or other similar transactions
that are offered on a non-negotiable basis to the general public. Such accounts
shall be, disclosed annually to the C'ity Clerk in conjunction with annual disclosure
statements of economic interest.
All persons authorized to place or approve investments shall report to the City Clerk
kinship -relations with principal employees of firms with which the City places
investments.
IX AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
The City of La Quinta Investment Policy maintains a listing of financial institutions which
are approved for direct investment purposes. In addition a list will also be maintained of
approved broker/dealers selected by credit worthiness, who maintain an office in the State
of California.
Broker/Dealers who desire to become bidders for direct investment transactions
must supply the City of La Quinta with the following:
10. Current audited financial statements;
111-- Proof of National Association of Security Dealers Certification;
1� Trading resolution;
10. Proof of California registration;
0- Resume ' of Financial broker; and
Completion of the City of La Quinta Broker/Dealer questionnaire which
contains a certification of having read the City of La Quinta Investment
Policy.
The City Treasurer shall evaluate the documentation submitted by the broker/dealer
and independently verify' existing reports on file for any firm and individual
conducting investment related business.
The City Treasurer will also contact the following agencies during the verification
process:
7
National Association of SecUrityPealer's Public Disclosure Report, File - 1 -
800-289-9999
State of California Department of Corporations 1-916-445-3062
All Broker/Dealers selected by the City T*�i%
re6surer to provide investment services 'will
be-., approved: by the City Manager subject to City Council approval. The City
a
Attorney will perform'a legal review'of the trading re'solution'rinvestment contr'
act
submitted by each Broker/Dealer.
Each securities dealer shall Provide monthly and quarte* rl
Y reports filed PU rsuant to U.S.
Treasury Department regulations. Each mutual fund shall provide a prospectus and
statement of additional, information.
2�- Financial tnstituflons . will be required to meet the following criteria in order to
receive City funds for -deposit or investment:
A. Insurance - Public Funds. shall be deposited only in financial
institutions having accounts.insured by the Federal Deposit Insurance
Corporation (FDIC)
B. Collateral - The amount of City of La'Quinta deposits'or investmen . ts
not insured by the FDIC -shall be. 110% collateralized by securities' or
150% mortgages' market valuesof that amount of invested funds plus
unpaid interest earnings.
C. Disclosure - Each financial institution maintaining invested funds in
excess of the FDIC insured amount shall furnish the City a copy of the
most recent Annual Call Report.
The City shall not invest in excess of the FDIC insured amount in
banking institutions which do not disclose to the city a current listing of
securities pledged for collateral ization in public monies.
X AUTHORIZED INVESTMENTS AND LIMITATIONS
The City Treasurer will be permitted to invest In the investments summarized in the
Appendix A.
K. STATE OF CALIFORNIA AND CITY OF LA QUINTA I LIMITATIONS
As provided in Sections 16429.1,.53601, 53601.1, and 53649 of the Government
Code, the State of.California limits the investment vehicles available to local
agencies as summarized in the following paragraphs. Section 53601, as no . w
amended, provides that unless Section 53601 specifies a limitation on an
investment's maturity, no investments with maturities exceeding five years shall be
made. The City of La Quinta Investment Policy has specified that no investment
may exceed two years, except the projected annual dollar amount, as detailed in
Section V, may be invested in U.S. Treasury bills, notes and. bonds maturing
between 2'and 5 years.
8
State Treasurer's Local Agency Investment Fund - As authorized in
Government Code Section 16429.1 and by LAW procedures, local government
agencies are each authorized to invest a maximum of $40 million per account in this
investment program administ6r'ed by the California State Treasurer. The City's
investment in, the State Lo ' cal Agency Investment Fund (LAIF) is allowable as long
as the average maturity of its investment portfolio does not exceed two years,
unless specific approval is authorized by the City Council. The City of La Quinta has
two accounts with LAIF. The City of La Quinta Investment Policy has a -limitation of
25% of the portfolio..
U.S. Government and Related Issues - As authorized in Government Code Sections
53601 (a) through,(n) as they pertain to surplus funds, this category includes'a wide
variety of government securities which include the following:
Local government bonds. or other indebtedness and State bonds or6ther
indebtedness. The City of La Quinta Investment Policy does not allow
investments in local and state indebtedness
U.S. Treasury bills, notes and bonds and Government National Mortgage
Association (GNMA) securities directly issued and backed by the full faith
and credit of the U.S. Government. The City of La Quinta Investment Policy
limits investments in U.S. Treasury issues and GNMA to 100% of the
portfolio.
U.S. Government instrumentalities and agencies commonly referred to as
government sponsored enterprises (GSEs), issuing securities not backed as
to principal and interests by the full fait h and credit of the U.S. Government.
Publicly owned GSEs include Federal National Mortgage Association
(FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Student
Loan Marketing Association (SLMA). Non -publicly owned GSEs include the
Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB),
Federal Land Bank (FLB) and Federal Intermediate Cred.it Bank (FICB). The
City of La Quinta Investment Policy allows invesitment only in securities of
FNMA, FHLMC, FHLB and FFCB and has a limitation of $10 million face
amount for each issuer.
Bankers'Acceptances - As authorized in Government Code Section 53601 (f), 40%
of the portfoliornay be invested in Bankers' Acceptances, although, no more than
30% of the portfolio may be invested in Bankers' Acceptances with any one
commercial bank. Additionally,- the maturity period cannot exceed 180 days. The
City of La Quinta Investment Policy does not allow investment in Bankers'
Acceptances.
Commercial Pape - As authorized in Government Code Section 53601 (g), 15% of
the portfolio may be -invested in commercial paper of the highest rating (A-1 or P-1)
as rated by Moody's or Standard and Poor's, with maturities not to exceed. 270
days. This percentage may be increased to 30% if the dollar weighted average
maturity does not exceed 31 days. There are a number of other qualifications
9
regarding investments in commercial paper based on the financial strength of the
corporation and the size of the investment., The City of La Quinta's Investment
Policy follows The Government Code with the following. additional limitations: (1)
maximum maturity per issue of 90 days and (2) a maximum of $3 million per issuer.
Neaotiable Certificates of DeDosit - As authorized in Government Code Section
53601 (h)! 30% of the. portfolio may be invested in negotiable certificates of deposit
issued: by commercial banks and savings and loan associations. The City of La
-Quinta investment Policy doe's not allow investment in Negotiable Certificates of
Deposit.
Reourchase and Reverse ReDurchase Aareements. -As authorized in Government
Code Section 53601(i), these investment vehicles are agreements between the
local a*gency and seller -for th
e purchase of government securities to be resold at a
specific date and for a specific. amount.. Repurchase agreements are generally
used for short term in -vestments varying from one -day to two weeks. There is no,
legal limitation on th ' e amount of the repurchase agreement., However, the maturity
period cannot exceed one year. The market value of securities 'underlying a
repurchase agreement shall be at least 102% of the
funds - invested and shall be valued at least. quarterly.
The City of La Quinta Investment Policy does not allow investment in Repurchase
Agreements.
The term "reverse repurchase agreement" means the sale of securities by th . e local
agenCY7 Pursuant to an agreement by which the local agency will repurchase such
securities on. or before a specific date and for a specific amount. As provided in
Government Code Section 53635, reverse repurchase agreements require the prior
approval of the City Council. The Ci . ty of La Quinta
Investment Policy does not allow investment. in Reverse Repurchase Ag
reements.
Corvorate Notes - As authorized in Government Code Section 53601 0), local
agencies may invest.in corporate notes for a maximum period of five years in an
.amount not to.exceed 30% of the agency's portfolio. 'The notes must be issued by
corporations �organized and operating in the United States or by depository
institutions licensed by the United States *or any other state and o . perating, in the
'United' States. The City of La Quinta Investment Policy allows investment in
corporate notes authorized by the Government Code with the following limitations.,
10. Maturities shall conform with Section V.
00. Eligible notes shall be regularly quoted and traded in the marketplace.
10- Eligible notes -shall be rated "AA" or "AAA" on the date of acquisition.
00. Total investment shall not exceed 15% of the portfolio, and
00. The maximum aggregate investment shall not exceed $3 million face amount
for each issurer.
Diversified Manaaement Companies - As authorized in Government Code Section
53601(k), local agencies are authorized to invest in shares of beneficial interest
issued by diversified management companies (mutual funds) in an amount not to
exceed 20% of the agency's portfolio. There are a number of other qualifi . cations
10
and restrictions regarding allowable investments in corporate notes and shares of
beneficial interest issued by mutual funds which include (1) attaining the highest
ranking or the highest letter and numerical rating provided by not less than two of
the three largest nationally recognized rating services, or (2) having an investment
advisor registered with the Securities and Exchange Commission with not less than
five years' experience :investing in the securities and- obligations and with assets
under management in excess of five hundred million dollars ($500,000,000). The
City of La Quinta Investment Policy only allows investme ' nts in mutual funds that are
money market funds maintaining a par value of $1 per share that invests in direct
,issues of the U.S. Treasury and/or US Agency Securities with an average maturity
of their portfolio not exceeding 90 days and the City limits such investments to 20%
of the portfolio.
Moitgage-Backed Securities - Asauthorized in Government . code Section 53601 (n),
local agencies may invest in mortgage -backed, securities such as mortgage pass -
through securities and collateralized mortgage obligations for a maximum . period of
five years in an amount not to exceed 20% of the agency's portfolio. Securities
eligible for investment shall have a "A" or higher rating. The City of La Quinta
Investment Policy does not allow investment in Mortgage -Backed Securities.
Financial Futures and Financial Option Contracts - As authorized in Government
Code Section 53601.1, local agencies may invest in financial futures or option
contracts in any of the above investment categories subject to the same overall
portfolio limitations.
The City of La Quinta Investment Policy does not allow investments in financial
futures and financial option contracts.
Certificates of Deposit - As authorized in Government Code Section 53649,
Certificates of Deposit are fixed term investments which are required t o be
collateralized from 110% to 150% depending on the specific security pledged as
collateral in accordance with Government Code Section 53652. There are no
portfolio limits on the amount or maturity for this investment vehicle.
Collateral ization will be required for Certificates of Deposits in excess of the FDIC
insured amount. The type -of collateral islimited to City authorized investments.
Collateral will always be held by an independent third party from the institution that
sells the Certificates of Deposit to the City. Evidence of compliance with State
Collat.eralization policies must be supplied 'to the City and retained by the City
Treasurer as follows:
Certificates of Deposits Insured by the FDIC.
The City Treasurer may waive collateralization of a deposit that is federally
insured.
2. Certificates of Deposit in excess of FDIC Limits.
The amount not federally insured shall be 110% collateralized securities or
150%..mortgages market value of that amount of invested funds plus unpaid
interest earnings.
11
The City of La Quinta Investment Policy limits the. percentage of Certificates of
Deposit to-60% of the portfolio.
Sweel) Accounts - As authorized by the City Council, a U.S. Treasury and/or U.S.
Agency Securities Money Ma rket Sweep Account with a $50,000 target balance.
may be m aintaine* d in conjunctibh With-thd checking account.
Derivatives - The City of La Quinta Inve
derivati stment Policy does not allow investment in
ves,
XI INVESTMENT POOLS
There are three (3) types of investment *pools: 1) state -run pools, 2) pools that are operated
by a polit ' ical subdivision where allowed by law and the political su'bdivi ion is the trustee
i.e. County Pool; and 3) pools that are operated for profit by third partiess.
The City of La Quinta Investment Policy has. authorized investment with the State of
California's Tre ' asuiers Office LocalAgency Investment- Fund commonly referred to as
LAIF. LAW was organized in 1977 through State Legislation Section .16429.1, 2 and
3. Each LAW account. is restricted to'' a maximum investable limit o* f $40 million. In addition,
LAIF.will provide quarterly market value information to the City ofia Quinta.
On an annual basis the City Treasurer will submit the Investment Pool Questionnaire to
LAIF.
Also, prior to opening any new Investment Pool account, which would require City Council
approval, the City Treasurer will require the completion of theAnvestment Pool
Questionnaire.
XII PAYMENT AND CUSTODY -
The City shall engage qualified third party': custodians to act in -a fiduciary. capacity to
maintain appropriate evidence of. the City's. ownership of securities and other eligible
investments.. Such custodians shall disburse funds, received from the City for a purchase,
to the broker, dealeror seller only after receiving evidence that the City has legal, record
ownershipof the securities. Even though ownership is evidenced in book -entry form rather
than by actual -certificates this procedure is commonly. accepted as the delivery ver sus
payment (DVP)
method for the transfer of securities.
XIII INTEREST -EARNING DISTRIBUTION POLICY
Interesfearnings are generated from
pooled investments and specific investments
Pooled Investments - It is the general policy of the City to pool all available
operating cash of the City of La Quinta, La Quinta Redevelopment Agency and La
Quinta Financing Authority and allocate interest earnings, in the following order, as
follows:
A. Payment to the General Fund of an amount equal to the total annual bank
service charges as incurred by the general fund for all operating funds as
-included in the annual operating budget.
12,
B. Payment to the. General Fund of'a ma'nagement fee equal to 5% of the
annual pooled cash fund investment earnings.
C. Payment to each fund of an amoun I t based on the average computerized
daily cash balance included, in the common portfolio for the earning period.
2. Specific Investments - Specific investments purchased by a fund shall incur all
earnings and expenses to that particular fund.
XIV INTERNAL CONTROLS AND INDEPENDENT AUDITOR
The City Treasurer shall establish a system of int . ernal controls to accomplish the following
objectives:
0. Safeguard assets;
110-� The orderly and efficient conduct of its business., including adherence to
,management policies;
0. Prevention or detection of errors and fraud;
10. The accuracy and completeness of accounting records; and
110. Timely preparation of reliable financial information.
While no internal control system, however elaborate, can guarantee absolute assurance
that the City's assets are safeguarde . d, it is the intent of the City's internal control to provide
a reasonable assurance that management of the investment function meets the City's
objectives.
The internal controls shall address the following:
a. Control of collusion. Collusion is a situation where two or more employees are
working in conjunction to defraud their employer.
b. Separation of transaction authority from accountinq and record. kee By
separating the person who authorizes or performs the transaction from the people
who record or otherwise account for the transaction, a separation of duties is
achieved.
C. Custodial safekeeping. Securities purchased from any bank or dealer including
appropriate collateral'(as defined by State Law) shall be placed with an independent
third party for custodial safekeeping.
d. Avoidance of Phvsical delivery securities. Book entry securities are much easier to
transfer and account for since actual deliveryof a document never takes place.
Delivered securities must be properly safeguarded against loss or destruction. The
potential for fraud ;and loss increases with physically delivered securities.
e. Clear dele-gation of authority to subordinate staff members. Subordinate staff
members must have a clear understanding of their authority and responsibilities to
avoid improper actions. Clear delegation of authority also preserves the internal
13
control structure that is contingent on the various staff positions and their respective,
responsibilitiesas outlined in.the Segregation of Major Investment Responsibilities
appendices.,.
Written confirmation or telephone transactions for investments a nsfers.
ndwire tra
Due to the -potential for error and improprieties arising from -telephone transactions
all telephone transactions shall be supported by written communications and
approved by the appropriate person. � Written communications ma . y be via fax if on
letterhead- and the safekeeping institution has a list of authorized signatures. Fax
correspondence must be supported by evidence of verbal or written follow-up.
9.1 Development -of a wire transfer aareement with the CibLs bank and third
party
urity
-custodian. This agreement should outline the various controls, sec'
provisions, and. delineate responsibilities of, each pa rty making and
transfers. receiving wire
The S
. ystern of Internal Controls developed by the City, shall be reviewed annually by
the independent auditor in connection with the annual audit' of the City of La Quintal s
Financial Statements.
The independent -auditor's management letter comments pertaining to cash and
investments, if any, shall be directed to the City Manager who will direct the City Treasurer
to provide a written response to the independent auditor's letter. The ma I nagement letter
comments- pertaining to cash and investment activities and the City Treasurer's response
shall be provided to the City's Investment Advisory Board for their consideration. Following
the completion of each annual audit, the independent auditor shall meet with the
Investment Advisory Board and discuss the auditing procedures performed and the review
of internal controls, for cash and investment activities.
XV BENCHMARK
The investment portfolio shall be designed with the objective of obtaining a rate of return
throughout budgetary and economic cy les co
c mmensurate with the investment risk
constraints and'the cash flow needs of the Ci
importance ty. Return on investment is of least
comparedto safety and liquidity objectives.
The City of La Quinta Investment Policy will use the six-month U.S. Treasury Bill as a
benchmark when measuring the' performance of the investment portfolio.
XVI REPORTING STANDARDS
SB564 section 3. requires a quarterly report to the Legislative Body of Investment activities.
The City of La QuintaInvestment Advisory Board has elected. to report the investment
activitie's to the City Council on a monthly basis through the Treasurers Report. AB 943
requires that the December 31't and June 30th Treasurers Reports be
s ent to the California Debt and Advisory Commission within sixty days of the end. of the
quarter.
14
The City Treasurer shall submit a monthly Treasurers Report to the City Councill and the
Investment Advisory Board that includes all cash and investments under the authority of
the Treasurer.
The Treasurers Report shall summarize cash and investment activity and changes in
balances and include the following:
0. A certification by City Treasurer.
10� A listing of Purchases and sales/maturities of investments.
111� Cash and Investments categorized by authorized investments, except for
LAIF which will be provided quarterly and show yield and maturity.
10. Comparison of month end actual holdings to Investment Policy limitations.
110. Current year and prior year monthly history of cash and investments for trend
analysis.
00. Balance Sheet.
10. Distribution of cash and investment balances by fund.
A comparison of actual and surplus funds.
10. A year to date historical cash flow analysis and projection for"the next six
months.
00. A two-year list of historical interest rates.
XVII FINANCIAL ASSETS AND INVESTMENT ACTIVITY NOT SUBJECT. TO THIS
POLICY
The City's Investment Policy does not apply to the following:
• Cash and Investments raised from Conduit Debt Financing;
• Funds held in trust in the City's name in pension or other post -retirement benefit
programs;
Cash and Investments held in lieu of retention by banks or other financial
institutions for construction projects;
Short or long term loans made to other entities by the City or Agency; and Short
term (Due to/from) or long term (Advances from/to) obligations made either
between the City and its funds or.between the, City and Agency.
XVIII INVESTMENT OF BOND PROCEEDS
The City's Investment Policy shall govern bond proceeds and bond reserve fund
investments. California Code Section 5922 (d) governs the investment of bond proceeds
and reserve funds in accordance with bond indenture provisions whichshall be structured
in accordance with the City's Investment Policy.
Arbitrage'Reguirement
The US Tax Reform Act of 1986 requires the City to perform arbitrage c . alculations as
required and return excess earnings to the US Treasury from investments of proceeds of
bond issues sold after the effective date of this law. This arbitrage calculations may be
15
contracted with an outside source to provide the necessary technical assistance to comply
with this regulation. Investable -fun'ds subject to t'
he 1986 Tax Reform Act will be kept
segregated, from other funds and records will. be kept in a fashion to facilitate the
calculations. The City9s investment position relative.to the new' arbitrage restrictions is to
continue pursuing the maximum yield on applicable investments while
ensuring the safety of capital an
d liquidity. It is the City's position to continue maximization
of yield'and to- rebate excess earnings', if necessary.
XIX PROFESSIONAL PORTFOLIO MANAGER*
With the Approval of the, City - Council, the City may engage a professional investment
-portfolio manager(s to assist the City Treasurer administer the delegated authority I to
manage and invest the City's Funds. The inves ent
trn portfolio managerswill be approved
by City.Council based upona request for -proposal process.as outlined in Appendix H..
Before. engagement ' 'by the City, except as'may be specifically waived or revised, the
professional manager or advisor shall commit to adhereto the provisions' of the Gity,of La
Quinta Investment Policy -Such managers may be granted the discretion to purchase'and
Sell investment securities in accordance with this Investment Policy as outlined inA pendix
P
1. Such managers shall have: (1) an established professional reputation for asset or
investment management; (2) knowledge and 'working familiarity with -State and Federal
laws governing and restricting the investment of public funds; (3) substantial experience'
Providing investment management servi to local public agencies whose investment
ices
policies and portfolio size are similar to those of the City; and (4) professional liability
(errors and omissions). insurance and fidelity bonding in such. amounts- as are required by -
the City. Such managers shall be registered under the Investment Advisers Act of 1940.
XX . INVESTMENT ADVISORY BOARD - CITY OF LA QUINTA
The Investment Advisory Board (IAB) consists of five members of the community that have
been -appointed by and report to the City Council. The IAB usually meets on a monthly
basis, but at least quarterly to ' (1) review at least annually the City's Investment Policy and
recommend appropriate changes; (2) review monthly Treasury Report and note
c . omplian,ce. with the Investment Policy. and adequacy of cash and investments -for
anticipated obligations; (3) receive' and consider other reports provided by the City
Treasurer; (4) meet with the independent auditor after completion of the -a ual uditofthe
nn a
City's financial statements, and receive and consider the auditors comments onauditing
procedures, internal controls and findings for cash and investment activities, an d; (5) serve
as a resource for the City Treasurer on matters
such as proposed investments, internal controls, use or change of financial institutions,
custodians, brokers and dealers.
The appendices include City of La Quinta Ordinance 2.70 entitled Investment Advisory
Board Provisions.
XXI INVESTMENT POLICY . ADOPTION
On an annual'basis, the Investment policies will be initially reviewed by the Investment
Advisory Board and the City Treasurer.' The Investment Advisory Board will forward the
Investment policies, with any revisions, to the City. Manager and City Attorney for their
review and comment. A joint meeting will be held with.th.e Investment Advisory Board, City
16
Manager, City Attorney, and 'City Treasurer to, review the Investment policies and
comments, prior to submission to. the City Council for their consideration.
The Investment Policies shall be adopted by resolution of the City of La Quinta City Council
on an annual basis. The Investment Policies. will be adopted before the end of June of
each year..
AB 943 requires that the Investment Polici e-s be sent to the Califor'
nip Debt and Investment
Advisory Commission within sixty days of a changeto the Investment Policy.
17
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Appendix B
Chapter 2.70
INVESTMENT ADVISORY E30ARD PROVISIONS
Sections:
2.70.010 General Rules Regarding- Appointment
2,70.020 Board meetings.
2.70'.030 Board functions.
2.70.010, General rules regarding appointment
A. Except as set out below, -see Chapter 2.06 for General Provisions.
B. The Investment Advisory Board (the"board") is a standing board composed of five (5) - members
from the public that are appointed by city council. La Quinta residency is. required except for Board
Members currently serving on the Board as of June 30, 2003.
C. Background in the investme I nt field and/or related experience is preferred. Background
information will be required and p . otential candidates must agree to a background check and
verification.
� . D. On an annua I basis, in conjunction with the Political R , eforrh Act disclosure statutes, or at any
time if a change in circumstances warrants, each board member will provide the City Council with a
disclosure statement which identifies any matters that have'a bearing on the appropriateness of that
member's service on the board. Such matters may include, but are not limited to, changes in
employment, changes in residence, or changes in clients.
2.70-020 Board meetings.
The Board usually will meet monthly, but this schedule may be extended to quarterly meetings
upon the concurrence of the Board and the City Council. The specific meeting dates will be
determined by the Board Members and meetings may be called for on an as needed basis.
2.70.030 Board functions.
1 - The principal functions of the Board are: (1) review at least annually the City's Investment Policy
and recommend appropriate changes; (2) review monthly Treasury Report and note compliance
with . the Investment Policy and adequacy of cash and investments for anticipated obligations; (3)
receive and consider other reports provided by the City Treasurer; (4) meet with the independent
auditor after completion of the annual audit of the City's financial statements, and receive and
consider the auditor's comments on auditing procedures, internal controls, and findings for cash
and investment activities, and; (5) serve as a resource for the City Treasurer on matters such as
.proposed investments, internal controls, use or change of financial institutions, custodians,
brokers and dealers.
2. The Board will report to the City Council after each meeting either in person or through
correspondence at a regular City Council meeting.
19
C.hapter 3.08
INVESTMENT OF MONE . YS AND FUNDS
Sections:
3.08.010 Investment of city moneys and deposit of securiti e*s.
3.08.020 Authorized investments.
3.08.030 Sales of securities.
3.08.040 City bonds.
3.08-050 Reports.
3-608.060 Deposits of securities.
3.08.070 Trust fund administration.
Appendix C
3.081-1010 Investment of city moneys and deposit o' f securities.
Pursuant to, and in accordance with, and to the extent allowed by, Sectio*ns 53607
and 53608 of the Government Code, the authority to invest a n*d reinvest moneys of the
city, to sell or exchan
ge securities, and to deposit them, and provide for their
safekeeping, is delegated to the city treasurer.'(Ord. 2 § 1 (part), 1982) -
3.08.020 Authorized investments.
Pursuant to the delegation of authority in Section 3 ' 08.010, . the I city treasurer is
authorized to purchase, at their original sale or after they have been issued, securities
which are permissible investments under any provision of state law relating to the investing
of * general city funds, including but hot limited to Sections 53601 and'5363'5 of the
Government Code, as said sections, now read or may hereafter be amended , from moneys
in his custody which are not required for the immediate necessities of the city and as he
may deem wise and expedient, and to sell or exchange for other eligible securities and
reinvest the proceeds of the securities so purchased. (Ord. 2 § 1 (part), 1982)
3.08.030 Sales of Securities.
From time to time the city treasurer shall sell the securities in which city moneys have
been invested pursuant to this chapter, so that the proceeds may, as appropriate, be
applied to the purchase for which the original purchase money may have . been designated
or placed in the city treasury. (Ord.2 § I (part),
3.08.040 City bonds.
Bonds issued by the city and purchased pursuant to this chapter may be canceled
either in satisfa ction of sinking fund obligations or otherwise if proper and app r* o*priate;
provided, however, th ' at the bonds may be held uncancelled and while so held may be
resold. (Ord. 2 § 1 (part), 1982)
3.08-050 Reports.
The city treasuref shall make a monthly report to the city council of all investments
made pursuant to the authority delegated in this chapter. (Ord. 2 § I (part), 1982)
20
3.08.060 Deposits of securities.
Pursuant to the delegation of authority in Section 3.08.010, the city treasurer is
authorized to deposit for . safekeeping, I the securities in which city moneys have been
invested pursuant to this chapter, in any Ihs"fitutid,hi or depository authorized by the terms of
any state law, including but not limited to Section 536,08 of the Government.Code as it now
reads or may hereafter be amended'. In accordance with said section, the city treasurer
shall take from the institution or depository a receipt for the securities so deposited and
shall not be responsible for the securities delivered to and receipted for by the institution or
depository untit they are withdrawn therefromby the city treasurer. (Ord. 2 § 1 (part), 1982
3.08.070 Trust fund administration.
Any departmental trust fund established by the city council pursuant to Section 36523
of the Government Co ' de shall be administered by the city. treasurer in accordance with
Section 36523 and 26524 of the Government code and any other applicable provisions of
law. (Ord. 2 § 1 (part), 1982)
21
Appendix D
SEGREGATION It t A q. �. -
OF MAJOR INVEStm"A' EtPONSIBILITIES-
Function
Develop formal Investment. Policy
Recommend modifications to Investment Policy
RevieW: formal Investment Policy and recommend
City Council action
Adopt formal Investment Poli
CY
Review Financial Institutions & Select Investments
Approve investments
Execute investment transactions
Confirm wires, if applicable
Record investment transactions in City's
accounting records
Investment verification - match brokerconfirmation
to City investm ent records
Reconcile investment records
to accounting records and bank stat ements
Reconcile investment records
to- Treasurers Report -
of investments'
Security of investments at City
Security of investments Outside -City*
Review internal control procedures-
22
Resoonsibilities
City Treasurer
Investment Advisory Board -
City Manager and
City Attorney
City Council
City Treasurer
city Manager or
Assistant '
. City Manager
City Manager or Treasurer
Account ' ing Manager or
Financial Services Assistant
Accounting Manager or
Financial Services Assistant
.City Treasurer and Financial
Services Assistant
Financial Services Assistant
Accounting Manager
Vault
Third Party.Custodian
External Auditor
Appendix E
LISTING OF APPROV80 FINANCIAL INSTITUTIONS
1. Banking Services
Wells Fargo Bank, Government Services,
Los Angeles, California
2. Custodian Services
Bank of New York, Los Angeles,
California
3. Deferred Compensation
International City/County Management
Association Retirement Corporation
4. Broker/Dealer Services
Merrill Lynch, Los Angeles,.CA
Morgan Stanley, Los Angeles, CA
CitiGroup, San Francisco, CA
5. Government Pool
State of California Local Agency
Investment Fund
City of La Quinta Account
La Quinta Redevelopment Agency
6. Bond Trustees
1991 City Hall Revenue Bonds - US Bank
1991 RDA Project Area 1 - US Bank
1992 RDA Project Area 2 - US Bank
1994 RDA Project Area 1 - US Bank
1998 RDA Project Area 1 &2 — US Bank
2001 RDA Project Area 1 — US Bank
2002 RDA Project Area 1 — US Bank
2003 RDA Project Area 1 — US Bank
Assessment Districts — US Bank
No Changes to this listing may be made without City Council approval
23
Appendix F
BROKER/DEALER 0
UESTIONNAIRE AND CERTIFICATION
Name of Firm:
2. Address:
Telephone:
4. Broker's ' Representative to. the City (attach resume):
Name:
Title:
Telephone:
.5. Manager/Partner-in-charge (attach resume):
Name:
Title:
Telephone:
6. List all personnel who will be trading with or quoting securities to City employees
(attach resume)
Name:
Title:
Telephone: (__J C_j
7. Which of the abovepersonnel have read the City's Investment Policy?
8. Which instruments are offered regularly by your local office? (Must equal
100%)
%U.S. Tr'
# easuries % Repos
% BAS
% Reverse Repos
%- Commercial Paper %'CMO's
_% CD's % Derivatives*
% Mutual Funds % Stocks/Equities
..--% Agencies (specify): % Other (specify):
9. References Please identify your most directly comparable public sector clients in'
our geographical area.
24
Entity
Contact
Telephone
Client Since
Entity
Contact
Telephone
Client Since
10. Have any of your clients ever sustained a loss on a securities transaction arising from
a misunderstanding or misrepresentation o'
If so, explain. f the risk characteristics of the instrument?
Has your firm or your local office ever been subject to a -regulatory or state/ federal
agency investigation for alleged improper, fraudulent, disreputable or unfair
activities related to the sale of securities? Have any of your employees been so
investigated? If so, explain.
12. Has a client ever claimed in writing that yqu were responsible for an
investment loss? Yes No If yes, please provide
action taken
Has a client ever claimed in writing that your firm. was responsible for an
investment loss? Yes No If yes, please provide
action taken
Do yqu have any current or pending complaints that are unreported to the
NASD?
Yes . No If yes, please provide action taken
Does your firm have any current, or pending complaints that are unreported
to the NASD? Yes— No— If yes, please provide action
taken
25
13. Explain your. clearing and safeke e*pihg procedures, custody and delivery proce . ss.
Who audits these fiduciary responsibilities?
Latest Audit Report Date
.14. How many and what percentage of your transactions failed.
Last month? $
Last year? % $
Describe the method your firm would use',to establish capital trading limits for the City
of La Quinta.
16. Is your firm a member in the S. 1. P.C., insurance program. Yes No
If yes, explain primary and excess coverage and carriers.
17. What portfolio infor
mation, if any, do you require from your clients?.
18. What reports and transaction confirmations or any other research publications will the
Cityreceive?
19. Does your firm offer investment train-ing to your clients? Yes No
,20. Does your firm have professional liability Insurance. Yes No
.If yes, please provide the insurance carrier, limits a I nd expiration date..
21. Please list your NASD Registration Number
22. Dolyou have any relatives who work at the City of La Quinta?
Yes No If yes, Name and Department
23. Do. you -maintain an office in California. Yes No
24. Do you maintain an office in La Quinta or Riverside County? Yes. No
26
25. Please enclose the following:
11 Latest audited financial 80te*?b6ht§.
0 Samples of reports, transaction confirmations and any other
research/publications the City will receive.
11 Samples of research reports and/or publications that your firm regularly
provides to clients.
0 Complete schedule of fees -and charges.for various transactions.
'CERTIFICATION'
I hereby certify that I have personally read the. Statement of Investment Policy . of the City of
La Quinta, and have implemented reasonable procedures and a system of controls designed
to preclude imprudent investment activities arising out of transactions conducted'between our
firm and the. City of La Quinta. All sales personnel will, be routinely informed of the City's
�investment objectives, horizons, outlooks, strategies and risk constraints whenever we are so
advised by the City. We pledge to exercise due diligence in informing the City of La Quinta of
all foreseeable. risks associated with financial transactions conducted with our firm.
By signing this document the City of La Quinta is authorized to conduct any and all
background checks.
Under penalties of perjury, the responses to this questionnaire are true and accurate to the
best of my knowledge.
Broker
Representative
Date Title
Sales Manager and/or Managing Partner*
Date— Title
27
Appendix 0
INVESTMENT POOL QUESTIONNAIRE
Note: This Investment Pool Que - stionnaire was developed by the Government Finance
Offic'ers Association (GOOA).
Prior to entering -a pool, the following questions and issues should
be considered.
SECURITIES
Government pools may invest in. a broader range of.secu'rities than your entity i nvests; in. It i I s
important that you are aware of, and'are c*
ornfortable with, the securities the. pool buys.
1.. -Does the pool provide a written statement of Investment Policy and -objectives?
2. Does the statement contain:
a.. A description of eligible. investment instruments?
b. The. credit standards.for investment . s!
c. The allowable maturity range of investments?
d. The.maximurn allowable dollar weighted average por . tfolio maturity?
The limits of portfolio concentration permitted for each type.of security?
f. Thepolicy on reverse -repurchase agreements, options, short sales and futures?
3.. Are changes in th6policies communicated to the pool participants I ?
4. Does the pool contain only the types of securities that are permitted by yoUr Investment
Policy?
INTEREST'
Interest is not reported in _a standard format,'so it is important that you know how interest is
quoted., calculated and distributed so that you c*an make comparisons with other investment
alternatives.
Interest Calcula
ations
1 Does the pool disclose the following about yield calculations
a. The methodology -used to calculate interest? (Simple maturity, - yield to -maturity, etc.)
b. The frequency of in'terest.payments?
c. How interest is p,aid? (Credited to principal at the end of the month, eac . h quarter;
mailed?)-
d.
.How are gains/losses �reported? Factored monthly or only W,
hen r6alized?
REPORTING
1. Is the yield reported to participants of the pool monthly? (If not, 'how often?)
28
2. Are expenses of the pool deducted before quoting the yield?
3. Is the yield gen e*rally in line W,Mth the market yields forsecurities in which you usually
invest?
4. How often does the pool report, and does that report include the market value of
securities?
SECURITY
The following questions are designed to help you safeguard your funds from loss of principal
and loss of market -value.
1. Does the pool disclose safekeeping practices?
2. Is the pool subject to audit by an independent auditor?
3. . Is a copy of the audit report available to participants?
4. Who makes the portfolio decisions?
5. How does the manager monitor the credit risk of the securities in the pool?
6. Is the pool monitored by someone on the board of a separate neutral party external to the
investment function to ensure compliance with written policies?
7. Does the pool have specific policies with regards to the various investment vehicles?
a. What are the different investment alternatives?
b. What are the policies for each type of investment?
8. Does the pool mark the portfolio to its market value?
9. Does the pool disclose the following about how portfolio securities are valued:
a. The frequency with which the portfolio securities are valued?
b. The method used to value the portfolio (cost, current value, or some other method)?
OPERATIONS
The answers to these questions will help you determine whether this pool meets your
operational requirements:
1 . Does the pool limit eligible participants?
29
2. What entities are permitted to invest in the pool?
3. Does the pool allow multiple accounts and. sub -accounts?
Is there a minimum or maximum account size?
5. Does the -pool limit the number of transacti o*ns each month? What is the number of
transactions permitted each month?
6. Is there a. limit on transaction amounts for withdrawals and deposits?
a. What is the minimum and maximum wit
hdrawal amount permitted?
b. What is the minimum and maximum deposit amount'permitte'd?
7. How much notice is required for withd.raWals/deposits?
.8. What is the cutoff time for 'deposits and withdrawals?
9. Canwithdrawals be denied?
10. Are.the funds 100% withdrawable at anytime?
.11. What are the procedures for making deposits and withdrawals?
a. What is the paperwork required, if any?
b. What is the wiring process?
-12. Can an account remain open with a zero balance?
13. Are confirmations sent following each transaction?
STATEMENTS
�.It it important for you and *the agency's trustee (when applicable), to receive statements
monthly -so the pool's
records of your activity and holding are reconciled by you and -your
trustee.
1. Are statements for each account sent to participants?
a. What are the fees?
b. How often are they passed?.
c. How are they paid?
d. Are there add,itional fees for wiring funds .(what is the fee)?
-2. Are expenses deducted before quoting the yield?
30
QUESPONS TO CONSIDER FOR BOND PROCEEDS
It is important to know (1) whether the pool accepts bond proceeds and (2) whether the pool
qualifies with the U.S. Department of the TrO;§S'L!ry as an acceptable commingled fund for
arbitrage purposes.
1. Does the pool,accept bond proceeds subject to arbitrage rebate?
2. Does the pool provide accounting and investment records suitable for proceeds of bond
issuance subject to arbitrage rebate?
3. Will the yield calculation reported by the pool be acceptable to the IRS or will it have to be
recalculated?
4. Will the pool accept transaction instructions from a trustee?
5. Are you allowed to have separate accounts for each bond issue so that you do not
commingle the interest earnings of funds subject to rebate with funds not subject to
regulations?
31
Appendix H
ReqUest for Proposals
InvestrA "on" t AdVi $"-dry Services
City of La Quinta, CA.
The City of La Q.uinta, CA -is soliciting Requests for Proposals.(RFP) from interested firms for
.the provision of.a discretionary investment management services, . fo City of La Q' uinta, CA.
r
The portfolio to be managed of the invested assets is estimated to be $1'0 million and will be'
.invested between 0 — 5 year$.
The investment of City of La Quinta, CA's funds is guided . by the applicable State statutes and
the City.of La Quin'ta,. CA's investment policy. A copy of the investment policy is attached'for
your information.
Questions regarding this RFP should be d'ire*cted to:
Name:
John M. Falconer
Title:
Finance Director/Treas'
urer
City of:
La W
inta, CA
Address:
78-495 Calle Tampico
City, State
Zip Code: La Quinta, CA 92253
Phone Number: (760)777-7150
I. CRITERIA FOR EVALUATION AND SELE C*TION
• Experience of the firm in providing.services to public sector ent . ities of similar
size and with similar investment objectives
• Professional experience and qualifications of the individuals assigned to the
account
• Portfolio man ' agement resources, investment philosophy- and appr I oach
• Responsiveness to the RFP, communicating an understanding of the overall
program and services requi r*ed
• Reporting capabilities
• Fees
II. SELECTION TIMETABLE
A. [Month Day, Year] Proposals due by [Time] 'PST.
B. [Month Day, Year] Proposals evaluated: to be determined
C. [Month Day, Year] [City of La Quinta, CA] [Board/Council] approves
selection and awards contract.
32
Ill. FORMAT FOR PROPOSALS
Please format your response to this RFP in the following m . anner:
A. Organization
Describe your organization, date founded, ownership and other business
affiliations. Provide number and location of affiliated offices. Specify the
number of. years your organization has provided investment management
service.
7
2. Describe your firm.s revenue sources (e.g.., investment management,
institutional research, etc.) and comment on your firm's financial condition.
3. Within the past three years, have there been any significant developments in
your organization (e.g., changes in ownership, new business ventures)? Do
you expect any changes in the near future?
4. Describe any U.S. Securities and Exchange Commission (SEC) censures or
litigation. involving your organization, any officer, or employee at any time in the
last ten years.
5. Describe the firm's fiduciary liability and/or errors and omissions insurance
coverage. Include dollar amount of coverage.
B. Personnel
Identify the number of professionals employed by your firm by classification.
2. Provide an organization chart showing function, positions, and titles of all the
professionals in your organization.
3. Provide biographical information on investment professionals that will be
involved in. the decision -making process for our portfolio, including number of
years at your firm. Identify the person who will be the primary portfolio manager
assigned to the account.
4. Describe your firms compensation policies for investment pro . fessionals and
address any incentive compensation programs.
33
Assets Under Management
1 Summarize your institutional investment management asset tot. Is by category for
a
your latest reporting period in thd" f 116W'ing table:
Number of Operating Funds Number Other Restrictive
Clients
of Clients Funds
Governmental
Governmental. Pension
Non Goverri'mental
Pension
Corporate
High Net Worth Client $
EndowmentaVFoundation
2. Providethe number -of separate accounts whose portfolios consist of,
operating funds..
3. List in the following table the percentage by market value of aggregate
assets under all governmental accounts under management for your latest
reporting period:
Type of Asset Percent by Market
Value
U.S. Treasury securities
Federal Agency obligations
Corporate securities rated AAA -AA
Corporate securities rated A
Corporate securities rated.BBB or lower
Other
(speci
.4. Describe the procedures thatyour firm has in place to address the potential
or actual credit downgrade of an issuer -and to disclose an,d'advise. a -client of
-the situation.
34
5. Provide data -on account/asset growth over the past five years. Indicate the
number of government accounts gained and the number of government
accounts lost.
6. List your five governmental largest clients. Identify those that are exclusively
operating fund relationships and/or those that are other relationships (e.g., bond
-fund, retirement fund).
7. Provide a copy of the firm's Form ADV, Parts I and 11 (including all schedules).
8. Provide proof of State of California Registration, if your.,firm is not eligible for
SEC registration.
9. Provide a sample contract for services.
D. Phi losophy/Ap p roach
1 Describe your firm's investment philosophy for public clients, including your
firm's philosophy regarding average duration, maturity, investment types, credit
quality, and yield.
2. Describe in detail your investment process, -as you would apply it to City of La
Quin.ta, CA's portfolio.
3. What are the primary strategies for adding value to portfolios?
4. Describe the process you would recommend for establishing the investment
- objectives and constraints for this account.
5. Describe in detail your process of credit risk management, including how you
analyze credit quality, monitor credits on an ongoing basis, and report credit to
governmental accounts.
6. Describe your firm's trading methodology.
7. Describe your firm's decis.ion-making process in terms of structure, committees,
membership, meeting frequency, responsibilities, integration of research ideas,
and portfolio management.
8. Describe your research capabilities as they would pertain to governmental
accounts. What types of analysis do you use?
9. Describe the firm's approach to managing relationships with the broker -dealer
community.
35
E. Portfolio Management
Are portfolios managed by teams or by one individual?
2.. What is the average number of accounts handled per manager?
3. Which professional staff member will be the prim*
ary client contact for City of La
Quinta,'CA?
4. How frequently are you willing to meet with us?
5. Describe -procedures used to ensure that portfolios comply with client
-investment objectives, policies, and b
ond resolutions.
F. Fees Charged
11. Please include a copy of your firm's fee schedule applicable to this RFP.
2. Identify any.e'xpenses that would not be covered through this fee structure
and would be required in order to implement the firm's program.
3. Isthere a minimum annual fee?
G. Performance Reporting
Please report on all accounts under $100 million.
2. Ple a*se provide performance history for governmental accounts for the last
five years.
3. Please provide risk measurements for governmental accounts for the last
five years.
1 ndicate whether your- returns are calculated arid compiled in accordance
wfth-tho Association for Investment Management and Research (AIMR/CFA
Institute) standards.
5.. Do your reports 'conform to the State of California reporting standards? Are you
willing to customize your reports to meet our specifications?
6. How will you notify, us of investment transactions?
7. Are confirmation of investment transactions sent directly by the broker/dealer to
the client?
8., Do your reports include rating information on investments which is required
by GASB 40?
36
H. References
Provide a list of at least five (5) client references in California. References should be
public agencies with portfolio size and. investment objectives similar to City of La
Quinta, CA. Include length of timelmanaging the assets, contact name, and phone
-number.
1. Insurance Requirements
Exhibit A defines the'insurance requirements that will need to be met prior to the
[Board/Council] I s approval of any agreement for services.
J. Submittal of proposals
Seven, (7) copies of the proposal shall be "submitted in a sealed envelope
bearing the. caption RFP for (City of La Quinta, CA) and addressed -to:\
City of La Quinta, CA
78-495 Calle Tampico
La Quinta, CA 92253
Attention: John M. Falconer, Finance Director/Treasurer
2. Proposal must be received no later than [Time] PST on [Month, Day, Year].
3. Proposals should be verified before submission. The City of La Quinta, CA
shall not be responsible for errors or omissions on the part of the respondent
in preparation of a proposal. The City of La Quinta, CA reserves the right to
reject any and all proposals, to wave any irregularities, or informalities in the
proposals, and to negotiate modifications to any proposal.
Enclosures: Investment Policy
Treasurers Report
37
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Appendix I
Appendix J
GLOSSARY
(Adopted from the Municipal Treasurers Association)
The purpose of -this glossary is -to provide the n�ace r of the City of La Quinta investment policies
with a better understanding of financial terms used in municipal investing.
AGENCIES: Federal agency securities and/or
Government -sponsored enterprises.
ASKED: The price at which securities are offered.
BANKERS' ACCEPTANCE (BA): A draft or bill of
exchange accepted by a bank or trustcompany.
The accepting institution guarantees payment of the
bill, as well as the issuer.
BID: The price offered by a buyer Of securities.
(When you are selling securities, you ask for a bid.)
See Offer.
BROKER: A broker brings buyers and sellers
together for a commission.
CERTIFICATE OF DEPOSIT (CD): A time deposit
with a specific maturity evidenced by a certificate.
La rge-denomi nation CD's 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 notes issued by a corporation to raise
working capital. These negotiable instruments are
purchased at a discount to par value or at par valu e
with interest bearing. Commercial paper is issued
by corporations such as General Motors Acceptance
Corporation, IBM, BankAmerica, etc.
COMPREHENSIVE ANNUAL FINANCIAL
REPORT (CAFR): The official annual report for the
City of La Quinta. It includes five combined
statements for each individual fund and account
group prepared in conformity with GAAP. . It also
includes supporting schedules necessary to
demonstrate compliance with finance -related legal
and contractual provisions, extensive introductory
material, and a detailed Statistical Section.
39
CONDUIT) FINANCING: A form,of Financing in
which a government or a government agency lends
its name to a bond issue, although it is acting only as
a ' conduit between a . specific project and bond
holders. The bond holders can look only to the
revenues from the project being financed for
repayment and not to the government or agency
whose name app I ears on the bond.
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.
DERIVATIVES: (1) Financial instruments whose
return profile is linked to, or derived from,. the
movement of one or more underlying index or
security, and may include a leveraging factor, or (2)
financial contracts based upon notional amounts
whose value is derived from an underlying index or
security (interest rates, foreign exchange rates,
equities or commodities).
DISCOUNT: The difference between the'dost 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
Trioney market instruments that are issued a
�,d.is ' count. and redeemed at maturity for full face
value, e.g., U.S.. Treasury Bills.
DIYERSIFICATION: Dividing investment funds
among a variety of securities offering independent
returns.
FEDERAL CREDIT AGENCIES: Agencies of the
Federal government set up to supply - credit to
various classes of institutions and individuals, e.g.,
S&L's, small busines's firms, students, farmers, farm
cooperatives, and exporters.
1. FNMAs .-. (Federal National Mort-ga-ge
Association) - Used to assist the home
mortgage- market by purchasing mortgages
insured.; by the Federal Housing
Administration and the Farmers Home
Administration, as well as those g*uara . nteed by the
Veterans Administration. They are issued in
various maturities and in minimum denominations of
'$10,000. Principal and Interest is paid monthly.-
2. FHLBs. (Federal Home Loan Bank Notes and
Bonds) - Issued by the Federal Home Loan
Bank System' to help finance the housing
industry.. The notes. ' and bonds provide liquidity
,and home mortgage credit to savings and loan
associations, mutual savings -banks, cooperative
banks, insurance 'companies, and mortgage -
lending institutions. They are issued'irregularly
for various maturities. The minimum
denomination is $5,000. The note's are issued
with maturities of less tha
n one year and interest
is paid at maturity.
3. FLBs (Federal Land Bank Bonds) - Long-term
mortgage credit provided to farmers by Federal
Land Banks.. These bonds are issued at
irregular times for various maturities ranging
from 6 few months to,ten years. The minimum
denomination is $1,000. They -carry semi-
annual 'coupons. Interest, is calculated on a
360-day, 30 day month basis.
4. FFCBs. (Federal Farm Credit Bank) - Debt
instruments used to finance the short and
intermediate term needs of farmers and the
40
national agricultural industry. They are issued
monthly with three- and six-month maturities.
The, FFCB issues larger issues (one to ten year)
on.a periodic basis. These issues are hi hi
9 y
liquid..
5. RCBs (Federal* Intermediate Credit . bank
Debentures) - Loans to lending- institutions used
-to finance. the shorf4erm and intermediate needs
of farmers, such as seasonal production. They
are usually issued monthly in minimum
deno ' minations of $3,000 with - a nine.�-month
maturity. Interest is-payableat maturity'and is
calculated on a 360-day, 30-day month basis.
6.. FHLMCs - (Federal Home. Loan - Mort -gage
Corporation) �, a I government sponsored entity
established in 1970 to provide a -secondary
market for conventional home mortgages.
Morgages are purchased solely from the Federal
home, Loan 8 ank System member lending
institutions whose. deposits are insured by
agencie s* of the Unite d States* Government. They
are issued for various'
maturities and in minimum
denominations of $10,000, Princi pal and Interest
is paid monthly' Other federal agency issues are
Small Business Administration notes (SBAS),
Government National Mortgage Association
notes (GNMAs)., Tennessee Valley 'Authority
notes (TVAs), and Student Loan Association
notes (SALLIE-MAEs).
FEDERAL DEPOSITOR INSURANCE
CORPORATION (FDIC);. A. federal agency that
insures bank deposits, currently up to $10.0,000 per
deposit.
FEDERAL FUNDS RATE: The rate of interest at
which Fed funds. are traded. I.' This 'rate is currently
pegged by the Federal Reserve through open -market.
operations.
FEDERAL HOME LOAN BANKS (FHLB):
Government sponsored wholesale banks (currently
12 regional banks) which lend funds' and provide
correspondent banking . services to member
commercial banks, thrift institutions credit unions
and insurance I companies. The �ission 'of the
FHLBs -is to liquefy the. housing related assets of its
members who, must purchase stock in their district
Bank.
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 Fed e*ral
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
co nsisting of a seven member Board of Governors
in.Washington, D.C., 12 regional banks and about
5,700 commercial banks that 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, VA or
FMHM mortgages. The term "passthrough" is often
used to describe Ginnie Maes.
LAIF ( Local Agency Investment Fund) - A special
fund in the State Treasury which local agencies may
use to deposit funds for investment. There is no
minimum investment period and the minimum
transaction is $5,000, in multiples of $1,000 above
that, with a maximum balance of $30,000,000 for
any agency. The City is restricted to a maximum of
ten transactions per month. It offers high liquidity
.because deposits can be. converted to cash in 24
hours and no interest is. lost. All interest is
distributed to those agencies participating on a
proportionate share basis determined by the
amounts deposited and the length of time they are
deposited. Interest is paid quarterly. The State
retains.an amount for reasonable costs of making
the investments, not to exceed one -quarter of one
percent of the earnings.
LIQUIDITY: A liquid asset is one that can be
converted easily and rapidly into cash without a
41
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 Junds 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 presumably be purchased or sold.
MASTER REPURCHASE AGREEMENT: A written
contract covering all future transactions between the
parties to repurchase --reverse repurchase
agreements that esta blishes 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 vent of default by the seller -borrower.
MATURITY: The date upon which the principal or
stated -value of an investment becomes due and
payable
MONEY MARKET: The market in which short-term
debt instruments (bills, commercial paper, bander'
acceptances, etc.) are issued and traded.
OFFER: The price asked by a seller of securities.
(When you are buying securities, you ask for an
offer.) See Asked and Bid.
OPEN MARKET OPERATIONS: Purchases and
sales of government and certain other securities in
the open market by the New York Federal Reserve
Bank asdirected 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 operations are the
Federal Reserve's most important and mostflexible
monetary policy tool.
PORTFOLIO: Collection of all cash and securities
under the direction of the City Treasurer, including
Bond Proceeds.
PRI , MARY DEALER: A group of 'government
sec * urities; dealers who submit daily reports of
market activity and depositions and mon.t.'hly
financial statements to the Federal Reserve Bank of
New York a * nd are subject to its' inform- al oversig . ht.
.Primary dealers include Securities and Exchange
.Co ' mmission _. (SEC) -registered securities broker -
dealers, banks and a fe w* unregulated firms.
QUALIFIED PUBLIC DEPOSITORIES:.A financial
institution which does not claim ex . mption from the
e
payment of any. sales or compensating use or. ad
valorem taxes under the laws of this state, which
has segregated for the benefit of the
commission eligible collateral having. a.va-lue of not
less than its maximum liability and which has been
approved by - the Public Deposit Protection
!Commission to hold public deposits.
RATE OF RETURN: Th" ield obtainable on'a
e y
-security based on i purchase p rice or its current
its
market price. This may be the amortized yield to
maturity on a bond the current income return.
REPURCHASEAGREEMENT (RP OR REPO): A
repurchase agreement is -a short-term* investment
transaction. Banks buy temporarily *idle funds from
a customer by selling U.S. Governmenfor other
securities with a contractual 'agreement to
repurchase the same securities on a future date.,
Repurchase agreements are typically for one to ten
days in "maturity. The, customer receives interest
.from the bank. The interest rate reflects both the
prevailing demand for Federal funds and the'
maturity of the repo. Some banks will execute
repu , rchase agreements for a minimum of $100,000
to $50.0,000, but most banks have a minimum of
$1,000,000.
REVERSE REPURCHASE AGREEMENTS (RRP or
RevRepo). - A holder of securities sells these
securities to an investor with an agreement to
repurchase them at a fixed price on' a fix - ed 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 - RRP
extensively to finance their positions. Exception:
When. the- Fed is said to be doing RRP, it is lending
money that is increasing bank reserves'.
42
SAFEKEEPING: A service to customers rendered by
banks for a fee 'whereby secu I rities and valuables of
all types and descriptions are hield in the bank's
vaults for protection.
SECONDARY MARKET: A market made for the
pur chase 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 legisl . ation.
SEC RULE 16C3-1: See Uniform Net Capital'Rule.
STRUCTURED 'NOTES: Notes' issued by
Government Sponsored Enterprises (FHLB, FNMAS,
SLMA, etc.) And Corporations which have imbedded
options (e.g., call features, step-up coupons, floating
rate coupons,. derivative -based, returns) into their
debt structure. Their market performance is impacted
by the fluctuation of interest rates,. the volatility of the
imbedded options and shifts in the Shape of the' yield
curve.
SURPLUS ' FUNDS: Section 53601 of the California
Government Code defines surplus funds as -any
money not required for immediate necessities of the
local agency. The City has defined. immediate
necessities to be payment due within one week.
TREASURY BILLS: A non -interest bearing discount
security.issued by the U.S. Treasury to finance the
national debt. M . ost bills are issued to mature in
three months, six months"or one year.
TREASURY BONDS: Long-term coupon -bearing
U.S. Treasury securities issued as direct obligations
Of the U.S. Government and having initial maturiti e*s
of more than 10 years.
TREASURY NOTES: Medium -term coupon -bearing
U.S. Treasury, securities issued as direct obligations
of the U.-S. Government and having initial maturities
from two to 10 years.
UNIFORM NET CAPITAL RULE: Securities and
Exchange Commission requirement that member
firms as well as nonmemb er 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.
'UNIFORM PRUDENT INVESTOR ACT: The State
of California has adopted this Act. The Act contains
the following sections: duty of care, diversification,
review of assets, costs, compliance determinations,
delegation of investments, terms of prudent investor
rule, and application.
YIELD: The rate of annual income return on an
investment, expressed as a percentage. (a)
INCOME YIELD is obtained by dividing the current
dollar incom e 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 of 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.
43