REPORT TO THE CITY COUNCIL
June 19, 2015
FROM: MICHAEL LIMA, Controller/Finance Director/(ex-officio) Treasurer
Finance Department
BY: KAREN M. BRADLEY, Assistant Controller
Finance Department
GREGORY S. WILES, Treasury Officer
Finance Department
SUBJECT
title
Approve the City of Fresno (the "City) Investment Policy for Fiscal Year 2015-2016
body
RECOMMENDATION
Staff recommends that Council approve the accompanying Resolution to adopt the City Investment Policy (the "Policy") for Fiscal Year 2015-2016.
EXECUTIVE SUMMARY
The Fresno Municipal Code ("FMC") requires that Council annually approve and adopt an Investment Policy, and delegate its authority to invest City funds to the City Treasurer. State Law refers to "surplus money" that is not needed for current operations. Good cash management includes investing these funds, in accordance with an approved Investment Policy. Interest earnings on investments are allocated to all Funds based on the amount of cash the Fund has invested in the City-wide Pool. There is one change in the Investment Policy from last Fiscal Year. State Law now allows local agencies to invest in AA-rated issues of the International Bank for Reconstruction and Development ("IBRD"), the International Finance Corporation ("IFC"), and the Inter-American Development Bank ("IADB"). The Investment Policy has been amended to include these instruments as possible investments for the City's Portfolio.
BACKGROUND
Although State Law no longer requires it, good cash management necessitates a detailed plan for handling cash resources. The Fresno Municipal Code (the "FMC") therefore requires that Council annually adopt an investment policy for public funds. An investment policy establishes the objectives, guidelines, and types of investments for a government's public funds investment program. State Law does contain numerous other stipulations regarding the City's investment program.
Government Code Section 53601("Section 53601") sets forth certain parameters that govern a local agency's investment program. This Law states that "The legislative body of a local agency having money in a sinking fund of, or surplus money in, its treasury not required for the immediate needs of the local agency may invest any portion of the money that it deems wise or expedient
"
The Treasury Section of the Finance Department is responsible for balancing the operating cash needs of the City with the amount of money available for investment ("surplus money"). These monies are aggregated together in a City-wide Pool for investment purposes. Each PeopleSoft Fund owns "shares" in the Pool, based on the Fund's cash balance. Cash from the Pool is invested in financial instruments allowed by State Law, and the interest earnings are credited back to each Fund.
Section 53601 sets forth the types of investment instruments eligible for purchase by a local agency, the investment grade of those instruments, and the percentage of the local agency's surplus monies that can be invested in each type of security. Since the City's first investment objective is conformity with State Law, the Investment Policy generally conforms to Section 53601.
Effective January 1, 2015, Section 53601 was amended to include three more investment types. These include AA-rated issues of the IBRD, the IFC, and the IADB. Following suit, the Investment Policy has been amended to include these types of investments as well.
The IBRD is an international financial institution that offers loans to middle-income developing countries. It is the first of five member institutions that compose the World Bank Group and is headquartered in Washington, D.C. It was established in 1944 to assist in financing the reconstruction of European nations devastated by World War II and its purpose now is to advance worldwide economic development and eradicate poverty.
The IFC is an international financial institution that offers investment, advisory, and asset management services to encourage private sector development in developing countries. The IFC is also a member of the World Bank Group and is headquartered in Washington, D.C. It was established in 1956 as the private sector arm of the World Bank Group to advance economic development by investing strictly in for-profit and commercial projects that intend to reduce poverty and promote development.
The IADB is the largest source of development financing for Latin America and the Caribbean. Established in 1959, the IADB supports Latin American and Caribbean economic development, social development and regional integration by lending to government and government agencies, including State corporations.
The addition of these three investment types will increase the eligible possibilities from which the City must choose its investments without incurring additional unacceptable risk.
Staff recommends that Council approve the City's Investment Policy for Fiscal Year 2015-2016.
ENVIRONMENTAL FINDINGS
By the definition provided in the California Environmental Quality Act Guidelines Section 15378 this item does not qualify as a "project" and is therefore exempt from the California Environmental Quality Act requirements.
LOCAL PREFERENCE
Local preference was not considered because this Resolution does not include a bid or award of a construction or service contract.
FISCAL IMPACT
Approving this Resolution adopting an Investment Policy for Fiscal Year 2015-2016 will provide staff with direction on how to manage the City's cash resources, specifically, how they shall be used to fund operations, or invested to obtain interest earnings if not currently needed. Interest earnings are allocated to PeopleSoft Funds based on their cash balances.
Attachments:
Attachment 1: Resolution adopting Investment Policy for Fiscal Year 2015-2016
Exhibit A: Investment Policy for Fiscal Year 2015-2016