AGENDA ITEM
TO: HONORABLE MAYOR
AND MEMBERS OF THE CITY COUNCIL
FROM: CARLO TOMAINO
CITY MANAGER
BY: SIAMLU COX
ADMINISTRATIVE SERVICES OFFICER/FINANCE DIRECTOR
SUBJECT:
title
ADOPTION OF THE CITY'S INVESTMENT POLICY FOR PUBLIC FUNDS
summary
Summary:
The City’s Statement of Investment Policy establishes a prudent and systematic framework for managing the City of Signal Hill’s investments, aiming to achieve the objectives of safety, liquidity, and yield through a diversified portfolio that fully complies with State and local laws. This policy guides the investment of all City funds in accordance with applicable statutes, including California Government Code Section 53646, and aligns with industry best practices and recommendations from the Government Finance Officers Association (GFOA), California Debt and Investment Advisory Commission (CDIAC), and the California Municipal Treasurers Association (CMTA). To align with evolving legislation and emerging financial trends and remain consistent with industry standards, the City Council will consider adopting the updated Investment Policy that guides the City’s investment options.
Strategic Plan Goal(s):
Goal No. 1 Financial Stability: Ensure the City’s long-term financial stability and resilience.
Goal No. 5 High-Functioning Government: Strengthen internal communication, recruitment, retention, systems, and processes to increase the effectiveness and efficiency of City services.
recommendation
Recommendation:
1. Adopt a City Council resolution, entitled:
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA, ADOPTING ITS INVESTMENT POLICY FOR PUBLIC FUNDS
2. Adopt a Successor Agency resolution, entitled:
A RESOLUTION OF THE CITY COUNCIL AS SUCCESSOR AGENCY OF THE CITY OF SIGNAL HILL, CALIFORNIA, ADOPTING ITS INVESTMENT POLICY FOR PUBLIC FUNDS
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Fiscal Impact:
There is no fiscal impact associated with the proposed recommendations.
Background:
The primary objective of the City’s Investment Policy is to provide a framework of approved securities in which the City can legally invest. The Investment Policy drives the City's cash, treasury, and investment management functions and serves as a guide for setting and achieving program objectives, defining rules, establishing benchmarks, and reducing exposure to risk. Staff would also note that rating agencies pay close attention to the City’s Investment Policy and portfolio to determine its credit rating, which is a key element when seeking financing options.
The Investment Policy is based on State of California Government Code Sections 53600 through 53609 and 53630 through 53686. These laws, as well as guidelines set forth by the Association of Public Treasurers of the United States and Canada, the California Municipal Treasurers Association (CMTA), and the Government Finance Officers Association (GFOA), have aided City staff in policy development. The State laws and established guidelines encompass a broad array of allowable investments and investment standards to suit the different needs of California's local agencies.
Periodic adoption of the City’s Investment policy provides an opportunity to regularly review the policy to ensure its consistency with the overall objectives of safety, liquidity, and yield, as well as its relevance to current law and economic trends. The Investment Policy applies to the City's Pooled Investment Portfolio, Bond Proceeds Portfolio, and the Special Districts Portfolio; these portfolios encompass all funds under the oversight of the City Treasurer or approved designee.
The Investment Policy is more conservative than what is allowed by State law as it further restricts the percentage of allowable credit investments (Appendix C of Exhibit A to the Resolutions). Currently, the Finance Department presents the Schedule of Investments on a monthly basis. This level of disclosure exceeds the quarterly reporting requirement by the State. The City’s banking investment broker also reviews the policy periodically to ensure compliance with applicable State statutes and also provides recommendations for strategic changes to position the portfolio in a way that maximizes yield while maintaining safety and liquidity.
Staff intends to continue presenting the Investment Policy periodically for adoption and will continue to present the monthly Schedule of Investments.
Staff is recommending the following substantive changes to the Investment Policy:
• Adding an Ethics and Conflicts of Interest section to the Policy as recommended by the California Municipal Treasurers Association
• Adoption of strategies to control and mitigate the City’s exposure to market risk which are:
o Maintaining a minimum of six months of budgeted operating expenditures in short-term investments to provide sufficient liquidity for expected disbursements;
o Limiting the stated final maturity of individual securities in the portfolio to five years;
o Ensuring the duration of the portfolio is approximately equal to the duration of a Market Benchmark, an index selected by the City based on investment objectives, constraints and risk tolerances.
• Allowing the City to engage the services of external investment advisers.
• Modifying the City’s investment options, in accordance with the government code, to diversify holdings and maximize returns. This includes the addition of Collateralized and Non-Negotiable Certificates of Deposit, as well as Mortgage Pass-Through and Asset-Backed Securities.
• Adding a Collateralization section to the Policy wherein collateralization requirements are enumerated for various types of investments.
• Adding an Internal Controls section to the Policy that specifies that the Director of Finance is responsible for establishing and maintaining an internal control structure designed to ensure the assets of the entity are protected from loss, theft or misuse.
• Adding descriptions of investments to Appendix A:
o Asset Backed Securities (ABS) are securities supported by pools of installment loans or leases or by pools of revolving lines of credit.
o Collateralized Mortgage Obligations (CMO) are classes of bonds that redistribute the cash flows of mortgage securities (and whole loans) to create securities that have different levels of prepayment risk, as compared to the underlying mortgage securities.
o Placement Service Deposits represent a private service that allows local agencies to invest in FDIC-insured deposits with one or more banks, savings and loans, and credit unions located in the United States. IntraFi (formerly known as CDARS) is an example of an entity that provides this service.
o Mortgage Pass-Through Securities (MPT or MBS) reflect a securitized participation in the interest and principal cash flows from a specified pool of mortgages. Principal and interest payments made on the mortgages are passed through to the holder of the security.
Conclusion:
The periodic adoption of the Investment Policy ensures that the City remains in compliance with State law while maintaining a conservative framework that prioritizes the safety of public funds. Staff updated the Investment Policy consistent with the proposed amendments discussed in this report and attached the revised document for the City Council’s review (Attachment A). This strategic expansion of the City's investment options supports long-term financial stability by diversifying the portfolio and enhancing earnings potential without compromising principal or liquidity. Staff recommends that the City Council and Successor Agency adopt the provided Resolutions (Attachments B and C).
Reviewed for Fiscal Impact:
_________________________
Siamlu Cox
Attachment(s):
A. Statement of Investment Policy 2026
B. City Council Investment Resolution
C. Successor Agency Investment Resolution