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HomeMy WebLinkAboutMINUTES - 03132001 - HA.1 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA TO: BOARD OF COMMISSIONERS FROM: Robert McEwan, Executive Director DATE: March 13, 2001 SUBJECT: ACCEPT REVISED INVESTMENT POLICY FOR THE HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION I. RECOMMENDED ACTION: ACCEPT the revised Investment Policy for the Housing Authority of the County of Contra Costa in order to be in compliance with the U. S. Department of Housing and Urban Development (HUD) and California Governmental Code (CGC) 53600.6. II. FINANCIAL IMPACT: None. III. REASONS FOR RECOMMENDATION/BACKGROUND The U. S. Department of Housing & Urban Development has established requirements governing cash management and investments for certain funds under the control of Public Housing Authorities, and all Housing Authorities are required to comply with these HUD regulations. The initial requirements were in HUD PIH Notice 95-27. At the March 19, 1996 Board of Supervisors meeting the Housing Authority presented Resolution No. 3770, with a Board Order and received approval for the Investment Policy. In reviewing the policy it was determined some changes are necessary to better define the requirements and compliance of the HUD regulations and California Governmental Code (CGC) 53600.6. Revised requirements were published in HUD PIH Notice 96-33. Attached for your review and approval is a copy of the revised Investment Policy for the Housing Authority of the County of Contra Costa that includes provisions to have the policy reviewed annually, and better define the scope, prudence, authority, ethics and conflict of interest, and requires certification by the investment bank that the policy has been read and is understood. Also included is a copy of the current policy. CONTINUED ON ATTACHMENT: X YES SIGNATURE RECOMMENDATION OF EXECUTIVE DIRECTOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S): ACTION OF BOARD ON APPROVED AS RECOMMENDED�_OTHER VOTE OF COMMISSIONERS I HEREBY CERTIFY THAT THIS IS A UNANIMOUS (ABSENT ) TRUE AND CORRECT COPY OF AN AYES: NOES: ACTION TAKEN AND ENTERED ON THE ABSENT: ABSTAIN: MINUTES OF THE BOARD OF COMMISSIONERS ON THE DATE SHOWN. ATTESTED P IL BATCH OR, CLERK OF THE BOARD OF COMMISSIONERS AND COUNTY ADMINISTRATOR BYA. ° DEPUTY H:\judyhmtz\MSOFFICE\WINWORD\BOARD\BO-Investment Policy.doc IV. CONSEQUENCES OF NEGATIVE ACTION: Should the Board of Commissioners elect not to accept the revisions in the Investment Policy for the Housing Authority of the County of Contra Costa, the agency would not be in compliance with HUD regulations and California Governmental Code (CGC) 53600.6. \\I-IOUSAUTH_l\USER\judyhmtz\MSOFFICE\WTNWORD\BOARD\BO-Invcstmcnt Policy.doc ' /VE v✓ Housing_4uthorily gfthe County of Conbw Costa Ines tentPolicy Policy WHEREAS; The U. S. Department of Housing and Urban Development (HUD) has established requirements governing cash management and approved investment instruments for certain funds under the control of Public Housing Authorities; and WHEREAS; the Legislature of the State of California has declared that the deposit and investment of public funds by local officials and local agencies is an issue of statewide concern California Government Code (CGC) Section 53600.6; and WHEREAS; the legislative body of a local agency may invest surplus monies not required for the immediate necessities of the local agency in accordance with the provisions of HUD and the California Government Code (CGC) Sections 5922 and 53601; and WHEREAS; the Executive Director of the Housing Authority of the County of Contra Costa shall annually prepare and submit a statement of investment policy and such policy, and any changes thereto, shall be considered by the Board of Commissioners of the Housing Authority at a public meeting [CGC 53646(a)]; now; THEREFORE; it shall be the policy of the Housing Authority to invest funds in a manner which will provide the maximum safety, liquidity and reasonable investment return while meeting the daily cash flow demands of the Housing Authority and conforming to all statutes govefning the investment of Housing Authority funds. Scope This investment policy applies to all financial.assets of the Housing Authority. These funds are listed and accounted in the Housing Authority's Annual Financial Report and include the Section 8 Earned Administrative Fee and Housing Assistance Payment Fund; HUD Affordable Conventional Housing Fund; State of California grant funds and reserve; and the Housing Authority General Fund. Prudence Investments shall be made with judgement and care; under circumstances then prevailing, 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. The standard of prudence to be used by investment officials shall be the "prudent person' standard (CGC 53600.3) and shall be applied in the context of managing an overall portfolio. The Executive Director and his designees acting in accordance with written procedures and this investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes. Any information received which identifies potential security risks or market price changes of significance shall be reported in a timely fashion and efforts to, control adverse developments shall be pursued. Ohjectrve When investing, reinvesting, purchasing, acquiring, exchanging, selling and managing public funds the primary objectives, in priority order, of the investment activities shall be: _ 1. Safety: Safety of principal is the foremost objective of this investment policy. Investments of the Housing Authority shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. 2, Liquidity: The investment portfolio will remain sufficiently liquid to enable the Housing Authority to meet all operating requirements which might be reasonably anticipated. All investments will be capable of being liquidated on one days notice. No investments will be made which impose a longer notice period for redemption or which are not readily marketable. 3. Return on Investments: The investment portfolio.shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles consistent with the HA investment policy, taking into consideration investment risk constraints and cash flow characteristics of the portfolio. (CGC 53600.5) Delegation of Authority Authority to manage the investment program is derived from Section 401(E) of the Annual Contribution Contract between HUD and the Housing Authority and the CGC Sections 53601, et seq. Management responsibility for the investment program is hereby delegated to the Executive. Director of the Housing Authority who shall establish written procedures for the operation of the investment program consistent with this investment policy. Procedures should include references to safekeeping. and repurchase agreements, wire transfer agreements, collateral/depository agreements and banking services contracts, as appropriate. 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 policy and procedures established by the Executive Director. The Executive Director, as authorized by the Housing Authority Board of Commissioners; shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. The Executive Director is a trustee and a fiduciary subject to the prudent investor standard. (CGC 53600.3) Ethics and Conflicts of Interest Officers and employees of the Housing Authority and such investment underwriters, bond counsel and other financial advisors or consultants involved in the investment process shall refrain from personal business activity which could conflict with the proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Investment Policy Page 3 Authorized Financial Institutions and Dealers A) The Executive.Director will maintain a list of financial institutions that are authorized to provide investment services. Selection for placement on this list will be on the basis of credit worthiness, financial strength, experience and minimal capitalization. In addition, a list will also be maintained of approved security broker/dealers or investment bank underwriters who are authorized to provide investment and financial advisory services in the State of California. No public deposit shall be made except in a qualified public depository as established by state laws. B) Selection: For brokers/dealers or investment bank underwriters of government securities and other investments, the Executive Director shall select only brokers/dealers or investment bank underwriters who are licensed and in good standing with the California Department of Securities, the Securities and Exchange Commission, the National Association of Securities Dealers or other applicable self-regulatory organizations; and, cannot have made any campaign contributions to any member of the Housing Authority's Board of Commissioners. C) Certification: Before engaging in investment transactions with a broker/dealer or investment bank underwriter, the Executive Director shall have received from said firm a signed Certification Form (See Exhibit 1). This form shall attest that the individual responsible for the Housing Authority's account with that firm has reviewed the Housing Authority's Investment Policy and that the firm understands the policy and intends to present investment recommendations and transactions to the Housing Authority that are appropriate under the terms and conditions of the Investment Policy. Authorized and Suitable Investments The Housing Authority is empowered by the HUD to invest HUD funds in the following: A. United States Treasury Bills, Notes & Bonds. B. Obligations issued by Agencies or Instrumentality's of the U.S. Government. C. State or Municipal Depository Funds, such as The Local Agency Investment Fund (LAIF). D. Insured Demand and Savings Deposits, provided that deposits in excess of the insured amounts must be 100 percent collateralized by securities listed in A & B above. E. Insured Money Market Deposit Accounts, provided that deposits in excess of the insured amount must be 100 percent collateralized by securities listed in A & B above. F. Insured Super NOW Accounts, provided that deposits in excess of the insured amount must be 100 percent collateralized by securities listed in A & B above. G. Repurchase Agreements of any securities authorized by this Section. Securities purchased under repurchase agreements shall"be no less than 102 percent of market value. (See special limits in HUD Notice 96-33 (Exhibit 3) and CGC 53601.0 (Exhibit 2).) H. Reverse Repurchase Agreements of any U. S. Treasury and Federal Agency Securities in Investment Policy Page 4 portfolio. Securities purchased under reverse repurchase agreements shall be for temporary and unanticipated cash flow needs only. (See also special limits in HUD Notice 96-33 (Exhibit 3) and CGC 53601.0 (Exhibit 2).) I. .. Sweep.Accounts that are 100 percent collateralized by securities listed in A & B above. J. Shares of beneficial interest issued by diversified management companies investing in the securities and obligations authorized by this Section (Money Market Mutual Funds). Such Funds must carry the highest rating of at least two national rating agencies. Not more than 15 percent or 20 percent of surplus funds can be invested in Money Market Mutual Funds. K. Funds held under the terms of a Trust Indenture or other contract or agreement, including the HUD/Public Housing Agency Annual Contributions Contract, may be invested according to the provisions of those indentures or contracts. L. Any other investment security authorized under the provisions of HUD Notice PIH 95-27. The Housing Authority is empowered by California Government Code (CGC) Sections 5922 and 53601 et seq. to invest non-HUD funds in. the following: A. Bonds issued by local government agencies with a maximum maturity of five years(See Attachment 2). B. United States Treasury Bills, Notes & Bonds. C. Registered state warrants or treasury notes or bonds issued by the State of California. D. Bonds,-notes, warrants or other evidence of debt issued by a local agency within the State of California, including pooled investment accounts sponsored by the State of California, County Treasurer, other local agencies or Joint Powers Agencies. E. Obligations issued by Agencies or Instrumentality of the U.S. Government. F. Bankers Acceptances with a term not to exceed 270 days. Not more than 40 percent of surplus funds can be invested in Bankers Acceptances and no more than 30 percent of surplus funds can be invested in the bankers acceptances of any single commercial bank. G. Prime Commercial Paper with a term not to exceed 180 days and the highest ranking issued by Moody's Investors Service or Standard & Poor's Corp. Commercial paper cannot exceed 15 percent of total surplus funds, provided, that if the average maturity of all Commercial paper does not exceed 31 days, up to 30 percent of surplus funds can be invested in Commercial paper. H. Repurchase Agreements of any securities authorized by this Section. Securities purchased under repurchase agreements shall be no less than 102 percent of market value. (See special limits in CGC 53601 (Exhibit 2).) I. Reverse Repurchase Agreements of any U. S. Treasury and Federal Agency Securities in portfolio. Securities purchased under reverse repurchase agreements shall be for temporary . Investment Policy Page 5 and unanticipated cash flow needs only. (See also special limits in CGC 53601.0 (Exhibit 2).) J Medium term notes (not to exceed 2 Years) of U.S. corporations rated AAA or better by Moody's or S&P Not more than 30 percent of surplus funds can be invested in medium term notes. K Shares of beneficial interest issued by diversified management companies investing in the securities and obligations authorized by this Section. (Money Market Mutual Funds) Such Funds must carry the highest rating of at least two national rating agencies. Not more than 15% of surplus funds can be invested in Money Market Mutual Funds. L Funds held under the terms of a Trust Indenture or other contract or agreement may be invested according to the provisions of those indentures or agreements. M Collateralized bank deposits with a perfected security interest in accordance with the Uniform Commercial Code (UCC) or applicable federal security regulations. N Any mortgage pass-through security, collateralized mortgage obligation, mortgaged backed or other pay-through bond, equipment lease-backed certificate, consumer receivable pass- through certificate or consumer receivable backed bond of a maximum maturity of five years. A national rating service must rate securities in this category AA or better. No more than 30% of surplus funds can be invested in this category of securities. O. Any other investment security authorized under the provisions of CGC 5922 and 53601. Exhibit 3, HUD Notice 96-33, HUD Approved Investment Instruments, and Exhibit 2, CGC Section 53601, also provide a detailed summary of the limitations and special conditions that_apply,.to .each of the above listed investment securities. These attachments are included by reference in this investment policy. Prohibited Investments Under the provisions of CGC Section 53631.5, the Housing Authority shall not invest any funds covered by this Investment Policy in inverse floaters, range notes, interest-only STRIPS derived from mortgage pools or any investment that may result in a zero interest accrual if held to maturity. Collateralization U.S. Treasury Obligations must collateralize all certificate of deposits. Collateral must be held by a third party and valued on a monthly basis. The percentage of collateralization on repurchase agreements will conform to the amount required under CGC 53601(1)(2). Safekeeping and custody All security transactions entered into by the Housing Authority shall be conducted during the normal business hours of the Housing Authority, on Housing Authority premises and on a delivery-versus-payment (DVP) basis. Only during an extreme emergency shall security Investment Policy Page 6 transactions be conducted during non-business Housing Authority hours, not on Housing Authority premises. All securities purchased or acquired shall be delivered to the Housing Authority by book entry, physical delivery or by third party custodial agreement. (CGC 53601) Diversification It is the policy of the Housing Authority to diversify its investment portfolio. The Housing Authority will diversify its investments by security type and, within each type, by institution. Assets shall be diversified to eliminate the risk of loss resulting from over concentration of assets in a specific maturity, a specific issuer or a specific class of securities. Diversification strategies shall be determined and revised periodically. In establishing specific diversification strategies, the following guidelines shall apply: A) Portfolio maturities shall be matched against projected liabilities to avoid an over concentration in a specific series of maturities. B) Maturities selected shall provide for stability and liquidity. C) Disbursement and payroll dates shall be covered by the scheduled maturity of specific investments, marketable U.S. Treasury Bills or notes or other cash equivalent instruments, such as money market mutual funds. Reporting The Executive Director shall submit to each member of the Housing Authority Board of Commissioners a quarterly investment report. The report shall include a complete description of the portfolio, the type of investments, the issuers, maturity dates, par values and the current -market-values of each component of the portfolio, including funds managed by third party contractors. The report will also include the source of the,portfolio valuation`..In the case of funds invested in The Local Agency Investment Fund (LAIF), Federal Deposit Insurance Corporation (FDIC) accounts or county investment pools, current statements from those institutions will satisfy the above reporting requirement. The report will also include a certification that (1) all investment actions executed since the last report have been made in full _ compliance with the Investment Policy and; (2) the Housing Authority will meet its expenditure obligations for the next six months (CGC 53646(b)). The Executive Director and/or his designee shall maintain a complete and timely record of all investment transactions. investment Policy Adoption The Investment Policy shall be adopted by resolution by the Housing Authority Board of Commissioners. Moreover, the Policy shall be reviewed on an annual basis, and modifications must be approved by the Housing Authority Board of Commissioners. Exhibit 1 Housing Authority Investment Policy Certification I hereby certify that: 1) 1 have personally read the Housing Authority of the County of Contra Costa (HACCC) Investment Policy, U. S. Department of Housing and Urban Development Notice PIH 96-33 and the California Government Code pertaining to the investments of the HACCC ; and 2) 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 HACCC investment objectives, strategies and risk constraints. As a duly authorized representative of this firm, we' pledge to exercise due diligence in informing the HACCC staff of all foreseeable risks associated with financial transactions conducted with our firm. We further pledge not to offer the HACCC any types of securities not authorized by the HACCC Investment Policy and California Law. All sales personnel will be routinely informed or your investment objectives, strategies and risk constraints whenever we are so advised. We will notify the HACCC immediately by telephone and in writing of any material adverse change in our financial condition. The supervising officer agrees to exercise due diligence in monitoring the activities of other officers and subordinate staff members engaged in transactions with the HACCC. Print Name: Date: Investment VP, Analyst, Officer Signed: Investment Firm: Countersignature: Signature of Investment Firm's President or Manager (Countersigned by Company President or person in charge of government securities operations.) Exhibit 2 Investments for non-HUD Funds Investments Authorized Under California Government Code 53601 CGC Investment Type Maximum Authorized Required Rating Section Maturity Limit(%) 53601(a) Local Agency Bonds 5 Years None None 53601(b) U.S. Treasury Bills,Notes or Bonds 5 Years None None 53601(c) State Warrants,Notes, Bonds 5 Years None None 53601(d) Notes&Bonds of other Local Agencies 5 Years None None 53601(e) U. S. Agencies 5 Years None None 53601(f) Bankers Acceptances 270 Days 40% None 53601(g) Prime Commercial Paper 180 Days 15%or 30%* Al/P1 53601(h) Negotiable Certificates of Deposit 5 Years 30% None 53601(i) Repurchase Agreements 5 Years None None 536016) Medium Term Corporate Notes 5 Years 30% A 53601(k) Money Market Mutual Funds& Mutual 5 Years** 15% AAA Funds 53601(m) Collaterized Bank Deposits 5 Years None None 53601(n) Mortgage Pass-Through Securities 5 Years 20% AA Local Agency Investment Fund(LAIF) N/A None None County Pooled Investment Funds N/A None None * 30% if dollar weighted average maturity of all CP does not exceed 31 days. ** Mutual Funds maturity may be defined as the weighted average maturity. ROUSING AUTHORITY OL'� of the COUNTY OF CONTRA. COSTA INVESTMENT POLICY The purpose of this investment policy is to set forth the procedures, guidelines and criteria for the operation of the investment program of the Housing Authority of the County of Contra Costa. This guideline covers the investment of funds, not required for immediate disbursement, as required by the State of California Government Code and/or the Department of Housing and Urban Development. I. INVESTMENT OBJECTIVES The following objectives are ranked in order of importance. However, within the constraints imposed by the desire for safety of principal and liquidity, the investment goal is to obtain the highest possible yield. Speculative activity on securities is not permitted. A. To assure the safety of principal. B. To retain liquidity to meet both anticipated and unexpected cash needs of the Housing Authority of the County of Contra Costa. C. To attain the best available yield while retaining liquidity and minimizing risk. II. AUTHORIZED INVESTMENT SECURITIES I.N. Investments not sub'ect to insurance or collateral security: i Direct obligations of the Federal Government, backed by the foil faith and credit of the United States. Page 1 Hu USING AUTHORITY of the COUNTY OF CONTRA COSTA INVESTMENT POLICY - Continued 2. Municipal Depository Funds (Local Agency Investment Fund with the State of California), as permitted by the respective State and Federal regulations. B. Investments that require insurance and/or collateral security: 1. Certificates of Deposit in any FDIC insured U.S. financial institution with which the Housing Authority may have a business relationship. Maturity not to exceed (1) year. 2. Demand and savings deposits at commercial banks, mutual saving banks, savings and loan associations and credit unions. Care should be taken that withdrawals may be made on demand without loss of interest and without penalty. III. INVESTMENT PRACTICES A. In addition to the primary objectives of safety of principal and liquidity of funds, the underlying goal is to maximize the rate of return. Within the constraints of liquidity to meet cash flow needs, the portfolio may be shifted to tape best advantage of rising or falling interest rates. B. The investment authority will be with the Executive Director who will be directly responsible to the Board of Commissioners. The Executive Director may delegate the authority to implement the Investment Policy. Page 2 HU USING AUTHORITY of the COUNTY OF CONTRA COSTA INVESTMENT POLICY - Continued C. A record of all investments shall be maintained by the Fiscal Director. Investment reports will be provided to the Board of Commissioners at least quarterly, or upon request. D. The Housing Authority will not normally take delivery of investment securities purchased._ Timely confirmation of the sale and/or safekeeping receipt giving full particulars of the transaction and security purchased will be required. When a confirmation is accepted in lieu of a safekeeping receipt, such confirmation must indicate that the securities are held in safekeeping and the location. Page 3