City of Culver City, California
Agenda Item Report
RECOMMENDATION:
Staff recommends that the City Council consider recommendations from the Finance
Advisory Committee and, if desired, adopt proposed resolutions approving the
following policies:
1. Budget Development and Administration
2. Financial Policies
3. Recreation Facilities Reserve
4. Investment Policy
BACKGROUND:
Item 5 of the Finance Advisory Committee (FAC) Work Plan is to review and make
recommendations on the City’s current financial policies. The FAC created an Ad-
Hoc Budget Process and Financial Policies Subcommittee consisting of three
members which presented recommendations regarding financial policies that were
approved by the FAC in December 2013. Staff subsequently revised two existing
policies and created a third in line with the recommendations provided. Additionally,
minor revisions to the City’s existing Investment Policy have also been made. The
recommended policies were all reviewed and discussed by the FAC at their February
and March 2014 meetings.
Meeting Date: 06/23/2014 Item Number: A-4
CITY COUNCIL AGENDA ITEM: (1) Consideration of a Recommendation from the
Finance Advisory Committee and (2) (If Desired) Adoption of Resolutions
Approving City Council Policies on the Following Subjects: Budget Development
and Administration; Financial Policies; Recreation Facilities Reserve; and
Investment Policy.
Contact Person/Dept.: Jeff Muir, Finance
Department
Phone Number: (310) 253-5865
Fiscal Impact: Yes [] No [X] General Fund: Yes [] No [X]
Commission Action Required: Yes [X] No [] Date: Several
Finance Advisory Committee
Public Hearing: [] Action Item: [X] Attachments: [X]
Public Notification: (Email) Meetings and Agendas – City Council (06/17/14); (Email)
Meetings and Agendas – Fiscal and Budget Issues (06/17/14)
Department Approval:
Jeff Muir (06/12/14)
City Attorney Approval:
Carol Schwab (by H. Baker) (06/16/14)
Chief Financial Officer Approval:
Jeff Muir (06/12/14)
City Manager Approval:
John M. Nachbar (06/17/14) City of Culver City, California
Agenda Item Report
DISCUSSION:
Budget Development and Administration (Revised)
This policy was formerly titled Mission Driven Budgeting. This policy has been
completely rewritten and, therefore, retitled to better reflect the contents. The policy
outlines the process for budget development, budget organization, certain
assumptions, the general process, and administration of the budget once adopted.
This policy also includes procedures on authority for budget transfers or amendments
that was previously included in the annual budget resolution. Staff feels this
information is better contained in a policy document.
Financial Policies (Revised)
This is a lengthy document that combines various financial policies into one central
document. The sections include:
Long-Term Financial Planning
Auditing, Financial Reporting, and Disclosure
Revenue Collection
Cash Management
Capital Improvement Projects
Financial Reserves
Grant Administration
Debt Management
While the recommendations from the FAC’s Ad-Hoc Budget Process and Financial
Policies Subcommittee dealt specifically with the Reserves portion of the existing City
policy, staff also significantly modified other areas of this document. The General
Fund Contingency Reserve is maintained at thirty percent (30%), along with a clearer
description of circumstances where this Reserve may be used. Two additional
reserve accounts are established. A Facilities Planning Reserve will be established
to offset the cost of replacement or major refurbishment to critical City facilities such
as City Hall, the Police Department building, fire stations, etc. The policy states that
in years where the General Fund ends in a surplus, first priority for the surplus will be
to ensure full funding of the Contingency Reserve. Second priority, if the Contingency
Reserve is fully funded, shall allocate forty percent (40%) of the surplus into the
Facilities Planning Reserve, with the remaining balance reverting to unassigned fund
balance. In any year, the City Manager may recommend a different allocation of
surplus revenues for City Council approval. Additionally, a Recreation Facilities
Reserve is proposed for creation under a new policy, described below.
City of Culver City, California
Agenda Item Report
Recreation Facilities Reserve (Proposed)
This is a newly proposed policy based on prior City Council discussions and a model
policy from another city. For several years, when the discussion of the Master Fee
Schedule comes before City Council, the topic of a portion of Parks, Recreation and
Community Services (PRCS) fees being set aside towards facility and equipment
improvement funding has been raised. Staff is proposing a policy where 10% of
defined fee revenues would be set aside into a reserve fund to cover the cost of certain
recreation facility and equipment improvements. While this will certainly never cover
the full cost of such repairs, it ensures some reinvestment of these revenues into the
facilities that make them possible.
FY 2014-2015 Investment Policy (Revised)
This policy is in a different format than the others, as the intention is that it be adopted
annually. Updates for Fiscal Year 2013/2014 have been delayed due to departmental
time constraints. Normally, this policy does not change much from year to year unless
there are changes to the relevant provisions of the California Government Code. The
City’s investment of idle funds is strictly controlled by the Government Code, and this
policy conforms to those requirements. The City’s investment advisor (currently
Cutwater Asset Management) will, in turn, manage the City’s portfolio, in consultation
with the Chief Financial Officer, within the constraints of the policy.
FISCAL ANALYSIS:
There is no direct fiscal impact associated with the approval of the proposed
financial and investment policies.
ATTACHMENT(S):
1. Proposed City Council Resolution including Exhibit ‘A’ Budget Development and
Administration
2. Proposed City Council Resolution including
3. Exhibit ‘A’ – Financial Policies
4. Proposed City Council Resolution including
5. Exhibit ‘A’ – Recreation Facilities Reserve
6. Proposed City Council Resolution including
7. Exhibit ‘A’ Fiscal Year 2014-2015 Investment Policy
City of Culver City, California
Agenda Item Report
MOTION:
That the City Council:
1. Adopt a resolution approving a City Council Policy related to Budget
Development and Administration; and,
2. Adopt a resolution approving a City Council Policy related to Financial Policies;
and
3. Adopt a resolution approving a City Council Policy related to Recreation
Facilities Reserve; and
4. Adopt a Resolution approving the Fiscal Year 2014-2015 Investment Policy.
MEETING DATE: 06/23/14
AGENDA ITEM: Adopt Resolutions Approving Financial and
Investment Policies.
ATTACHMENTS
1. Proposed City Council Resolution
|1010|2. Exhibit ‘A’ – City Council Policy – Budget
Development & Administration |1010|
3. Proposed City Council Resolution 11
4. Exhibit ‘A’ – City Council Policy – Financial Policies 13
5. Proposed City Council Resolution 43
6. Exhibit ‘A’ – City Council Policy – Recreation
Facilities Reserve
45
7. Proposed City Council Resolution 47
8. Fiscal Year 2014-2015 Investment Policy 48
12Exhibit ‘A’
CITY OF CULVER CITY
COUNCIL POLICY STATEMENT Policy Number 5001
General Subject: Budget Date Issued 1/23/95
Specific Subject: Budget Development and Date Revised 06/23/14
Administration
Effective Date 06/24/14
Resolution No. 2014-Rxxx
_____________________________________________________________________
PURPOSE:
To establish the policy for the preparation, adoption, and administration of the City's
Annual Budget.
STATEMENT OF POLICY:
A. Budget Development.
General
The City Manager shall prepare and submit a proposed budget to the City
Council at least 45 days prior to the beginning of the upcoming fiscal year, as
required by Section 801 of the City Charter. The budget shall be adopted by
July 1, of each year, as required by Section 803 of the City Charter. The
budget shall incorporate a results-based budgeting approach that allows the
public and the City Council to prioritize City expenditures strategically aligned
with core community values. The operating budget shall serve as the annual
financial plan of the City for implementing the goals and objectives of the City
Council, City Manager and departments. The budget shall provide the
necessary resources to accomplish City Council determined service levels.
City Council directs and controls the planned use of reserves through
budget appropriation process. Appropriations for operating expenditures shall
be balanced in relation to current revenue sources and will not over-rely on
one- time revenue sources or reserves. This is not intended to limit the
periodic use of financial resources that were accumulated over time for a
specific project or purpose.
The budget may be developed with one or more contingency plans to
protect against volatile or unexpected events. When significant uncertainty
exists concerning revenue volatility or threatening/pending obligations, the
City Council and City Manager reserve the right to impose any special fiscal
3Exhibit ‘A’
control measures, including a personnel hiring freeze, and other spending
controls, whenever circumstances warrant. The City Council may authorize
the use of Contingency Reserves only during emergency situations as set
forth by Council Policy 5002. Any approved use of contingney reserves shall
require the City Manager to present a plan to City Council to replenish reserves
within five years.
Revenues
1. The City will estimate annual General Fund revenues using an objective,
analytical process; specific assumptions will be documented and
maintained. Budgeted revenues will be estimated conservatively using
accepted standards and estimates provided by the state, other
governmental agencies, and/or reliable economic forecasters when
available.
2. Specific revenue sources will not be dedicated for specific purposes,
unless required by law or Generally Accepted Accounting Principles
(GAAP). All non-restricted revenues will be deposited in the General Fund
and appropriated through the budget process.
3. The City shall prepare a comprehensive report at mid-year which
discusses revenue projections in light of actual receipts, and shall provide
new projections, as appropriate.
Appropriations
1. The City will estimate annual General Fund expenditures using current
position control and payroll data, actual pay and benefit factors for the
upcoming year when available, estimated pay and benefit factors when
actuals are not available, and estimated inflation rates. Estimates will be
based on data provided by the state, other governmental agencies, and/or
reliable economic forecasters when available.
B. Organization of the Annual Budget.
The Annual Budget is published in one volume, generally organized into the
following sections:
? An introductory section which includes the City Manager’s Budget
Message and a list of reductions and enhancements.
? A Budget Summary section that includes various charts and summary
tables of revenue, expenditure and authorized position information.
4Exhibit ‘A’
? A Revenue Detail section which includes line-item level revenue
information for each fund.
? A section with departmental information including mission descriptions,
work plans, position detail and line-item level expenditure data by
division.
? The Capital Improvements section provides a summary of current and
future planned projects, basic descriptions of each project, the funding
source and the scope of work to be performed. CIPs are generally major
facility or infrastructure improvement projects managed by the Public
Works Department, although other departments do manage certain
projects.
C. Budget Assumptions.
1. If not otherwise communicated to the City Manager during the course of
the current fiscal year, it is assumed the City Council has determined that
the current array and level of City services is reasonable and desirable.
2. Each department’s existing on-going funding level provides the starting
point for implementation for the following budget cycle. The existing base
budget should be thoroughly examined throughout the annual budget
process to assure alignment with City Council and community priorities.
3. Residential/commercial and outside regional growth impact may not affect
all City departments equally.
4. Generally inflation impacts all departments equally.
5. As a results-based system, performance expectations and service
objectives of all departments need to be clearly established and
understood.
6. The City shall ensure adequate funding is available for operation and
maintenance of any proposed capital facilities or other public
improvements, or new project construction will be delayed.
7. Elected officials provide policy direction. The City Manager and Executive
Management then have the flexibility to administer operations within that
overall policy framework.
8. Council will approve and maintain a balanced budget during the fiscal
year.
D. Budget Process.
5Exhibit ‘A’
During January of each year, the Finance Department shall prepare updated
revenue estimates and fund balance projections for the current year (Mid-Year
Review) and prepare a forecast of preliminary revenue projections for at least
the next five fiscal years (Financial Forecast). These reports will be presented
to City Council by the end of February. At the same City Council meeting,
there will be a public comment period to solicit any public input on the budget
for the upcoming year. A second public comment period may be held in
March. Also in March of each year, the Finance Department shall issue budget
instructions and packets to each department for use in preparation of the next
year's City budget. Included in these instructions will be budget guidelines and
appropriation targets for each department. These guidelines will be developed
by the Chief Financial Officer and approved by the City Manager.
During this period, City Commissions, Boards and Committees may submit
budget recommendations to their appropriate Department Director liaisons and
the City Manager for consideration.
After further refinements of revenue estimates and the completion of
Department proposed expenditure appropriation requests, the Finance
Department will summarize department requests for review by the City
Manager. After the City Manager has reviewed and amended the
Department Head requests, the Finance Department shall prepare the City
Manager’s proposed budget for the next fiscal year and shall submit it to the
City Council. The City Council shall hold as many budget study sessions as it
deems necessary. All proposed Council changes to the City Manager's
proposed budget shall be itemized on a budget checklist of revisions. The City
Council shall hold a public hearing and adopt the proposed budget with any
checklist revisions on or before July 1 by formal budget resolution. When
adopted, the proposed budget along with the finalized checklist, become the
final budget.
E. Administration of the Annual Budget.
During the budget year, Department Heads and their designated
representatives may authorize only those expenditures that are based on
appropriations previously approved by City Council action, and only from
accounts under their organizational responsibility. Any unexpended
appropriations, except valid encumbrances, expire at fiscal year end unless
specifically re-appropriated by the City Manager for expenditure during the
new fiscal year. Department Heads are responsible for not authorizing
expenditures above budget appropriations in any given expenditure
classification within their purview, without additional appropriation or transfer
as specified further below. Appropriation control shall be maintained within
each division or project level unit, aggregating individual line-item accounts into
Classifications of: Salaries and Benefits, Operations and Maintenance, Capital
Outlay and Other Financing Uses.
6Exhibit ‘A’
The following broad parameters shall govern the transfer of appropriations
during the year:
1. Overall appropriation control is established at the fund level. Appropriation
authority may not be transferred from one fund to another.
2. Position control is established by the adopted budget. City Manager
approval and then City Council approval is required for any new, substitute
or reclassified positions.
3. The purchase of capital equipment shall require specific budget
appropriation. Any changes or additions to capital accounts after the
budget is adopted shall require City Manager approval and identification of
the source of funds for transfer.
4. Significant changes in department or division operations affecting service or
service levels different from that approved in the adopted budget shall have
the prior approval of the City Manager and, as appropriate, the City Council.
Appropriations may be transferred, amended or reduced subject to the following
limitations:.
Departmental Authority
1. Transfers within Divisions or Projects. Appropriation transfers between
line items of the same Classification within a division or project budget
may be requested by the Department Director and approved by the
Chief Financial Officer.
2. Transfers between Departmental Divisions or Projects. If a total
departmental budget, within a specific Classification, is not exceeded,
upon a request by the Department Director the Chief
Financial Officer has the authority to transfer funds within that
Classification and Department, to make the most efficient use of
funds appropriated by the City Council.
City Manager Authority
1. Transfers between Departments. Funds may be realigned between
one Department and another, within the same Classification, with City
Manager approval. For example, if a Fire Department function and the
employee who accomplishes it are replaced by a slightly different
function assigned to the Police Department, the City Manager may
authorize the transfer of appropriate funds to support this function.
2. New Appropriations. During the Budget Year, the City Council may
appropriate additional funds for special purposes by a City Council
7Exhibit ‘A’
Budget Amendment, which requires a 4/5 vote approval. The City
Manager has authority to approve requests for budget increases not to
exceed $30,000 per department per fiscal year. Additionally, under the
following circumstances the City Manager may approved budget
increases in excess of $30,000:
a. To cover contract costs incurred for tax audits that are performed
on a contingency fee basis.
b. To cover contract costs based on the volume of transactions
incurred in connection with red-light enforcement activities, with a
corresponding revenue budget increase.
c. To cover reimbursable contract costs such as plan review
services, building inspection services, recreation enrichment
classes and youth sport programs, or other services to be
reimbursed by an applicant
3. Appropriated Reserves. No direct expenditures shall be charged to the
Appropriated Reserves account. Transfer requests from the
Appropriated Reserves account to a departmental operating account
shall be approved by the City Manager.
4. Equipment Replacement Fund. The City Manager may approve
appropriation adjustments of up to 5% of the cost of an individual piece
of equipment when the actual cost exceeds the budget estimate.
5. Strike Team Reimbursements. The City Manager may increase the
budgeted revenues and appropriations of the Fire Department for the
Administrative Surcharge and Apparatus Reimbursement portion of
Strike Team Reimbursements to purchase items directly related to strike
team deployments.
6. Central Stores. The City Manager is authorized to increase revenues
and appropriations in the Central Stores fund as necessary.
7. Grants & Donations. The City Manager may accept grants or donations
of up to $30,000 on behalf of the City. The City Council will be
formally notified of such actions on a quarterly basis by way of the City
Manager newsletter to the City Council.
Additionally, grant appropriations approved by City Council may be
carried forward to the following fiscal year(s) as long as the grant
terms remain valid, the expenditures are consistent with the previous
Council authorization, and the funds would otherwise need to be
returned to the granting or donor agency. Also, see Council Policy 5002
for specific grant acceptance and administration procedures.
Grant agreements and restricted donations in excess of $30,000
8Exhibit ‘A’
must be specifically approved by the City Council. Occasionally, the
terms and conditions of a grant are approved by City Council in a year
prior to when the program activity will take place and therefore, the
funds are not appropriated to carry out the grant at that time. In such
cases, the City Manager may appropriate the funds when they are
received, provided the expenditures clearly meet the amount, terms,
nature and intent of the grant or donation previously approved by City
Council.
8. Transfers between Expenditure Categories. Any reprogramming of
funds among the three Classifications (Salaries and Benefits,
Maintenance and Operations, and Capital Outlay and Other
Financing Sources) within a given fund requires the City Manager’s
approval.
9. Capital Improvement Projects (CIP). Appropriation for capital
improvement projects may be transferred from one funding source to
another with the approval of the City Manager. Additionally, the
following transfers may occur:
a. Excess Project Appropriations or savings may be transferred to
a “Project Savings Account,” within the same fund. Such
savings may be re-appropriated to a new or existing project
with the approval of City Council. Any appropriation balance
remaining in the Project Savings account will lapse at Fiscal Year
End.
b. Excess Project Appropriations may also be transferred from
one CIP project to another, provided that the projects utilize the
same funding source and are for substantially the same project
purpose. Project appropriation transfers of this nature require the
approval of the City Manager.
All proposed budget amendments and transfers will be submitted to the Chief
Financial Officer for review and processing prior to City Manager or Council
authorization.
In annual budget funds (General Fund and most Special Revenue Funds), all
unexpended and unencumbered appropriations will be canceled on June 30
of each fiscal year, unless a re-appropriation is specifically approved by the
City Manager. Multi-year funds will carry unexpended appropriations forward,
adding any additional appropriations approved by the City Council for the new
budget year.
F. Management Authorization & Responsibilities. . Once the final Budget has
9Exhibit ‘A’
been approved by the City Council, specific City Council approval to make
expenditures consistent with the Budget will not be required except as
provided by other Council Policies and Administrative Procedures. It is the
responsibility of the City Manager and management to administer the City’s
budget within the framework of policy and appropriation as approved by the
City Council.
1. The Chief Financial Officer is responsible for checking purchase
requests against availability of funds and authorization as per the
approved Budget.
2. Unless otherwise directed, routine filling of vacancies in staff
positions authorized within the Budget, will not require further City
Council approval. However, new positions, not addressed by the
adopted budget, do require City Council approval.
3. At fiscal year end, the Chief Financial Officer is authorized to record
accruals and transfers between funds and accounts in order to close
projects or the books of accounts of the City of Culver City in
accordance with generally accepted governmental accounting
principles as established by the Government Accounting Standards
Board, Government Finance Officers Association, and other
appropriate accounting pronouncements. Any net shortage within a
Fund will be recorded as a decrease in Fund Balance. Any net
excess will be recorded as an increase to one or more appropriate
Reserve Accounts as recommended by the Chief Financial Officer and
approved by the City Manager or as is otherwise dictated by Council
Financial Policies (5002). The net change in fund balances will be
reported to City Council through various documents including Year-
End Financial Reports, the Comprehensive Annual Financial Report
(CAFR), Budget Documents and other financial presentations. Funds
that exceeded appropriations during the year or ended the year with
a deficit fund balance are reported annually in the CAFR notes to
the financial statements. (Information regarding the policy parameters
and administration of City Reserves is contained in City Council Policy
5002.)
101112Exhibit ‘A’
Page 1 of 30
CITY OF CULVER CITY
COUNCIL POLICY STATEMENT Policy Number 5002
General Subject: Finance Date Issued 1/23/1995
Specific Subject: Financial Policies Dates Revised 7/16/2007
6/22/2009
Effective Date 06/24/2014
Resolution No. 2014-Rxxx
__________________________________________________________________
PURPOSE:
To establish a comprehensive set of financial policies for the City that will serve as a
guideline for operational and strategic decision making related to financial matters.
STATEMENT OF POLICY:
The following financial policies are intended to establish a comprehensive set of
guidelines for use by the City Council and City staff on decision-making that has a
fiscal impact. The goal is to maintain the City’s financial stability in order to be able to
continually adapt to local and regional economic changes. Such policies will allow the
City to maintain and enhance a sound fiscal condition. This policy should be
implemented in conjunction with associated subsidiary policies, i.e. Budget
Development and Administration (5001), Purchasing Policy, Investment Policy, etc.
These financial policies will be reviewed annually to ensure that they remain current.
The policy will be included as part of the City’s annual Adopted Budget. The City’s
comprehensive financial policies shall be in conformance with all state and federal
laws, generally accepted accounting principles (GAAP) and standards of the
Governmental Accounting Standards Board (GASB) and the Government Finance
Officers Association (GFOA).
Financial policies included are:
? Long-term Financial Planning
? Auditing, Financial Reporting and Disclosure
? Revenue Collection
? Cash Management
? Capital Improvement Projects
? Financial Reserves
? Grant Administration
? Debt Management
13Exhibit ‘A’
Page 2 of 30
LONG-TERM FINANCIAL PLANNING
1. The City shall create a General Fund Financial Forecast that looks forward at
least five fiscal years into the future. The City shall consider immediate
proactive measures when deficits between anticipated revenues and
expenditures exist, even in outer years. The Forecast shall be updated as part
of the Mid-Year Budget Report and as part of the annual Proposed budget.
2. The City Council, City Manager and Executive Management will consider the
effects of proposals for new or enhanced services, employee negotiations,
tax/fee changes, or similar items, on the General Fund Financial Forecast. The
City should be able to fund any such enhancements or changes in both the
short-term and long-term.
3. The City shall develop and implement a financial plan to address its funding
needs for issues like deferred maintenance and unfunded liabilities, which will
be included in the General Fund Financial Forecast.
4. The City shall seek a balance in the overall revenue structure between more
stable revenue sources (e.g. Property Tax and Utility Taxes) and economically
sensitive revenue sources (e.g. Sales Tax and Transient Occupancy Tax).
5. The City will proactively seek to protect and expand its tax base by
encouraging a healthy underlying economy.
6. The City will work to enhance and protect the property values of all Culver
City residents and property owners.
7. The City shall encourage the economic development of the community as a
whole in order to provide stable and increasing revenue streams. It should be
the City’s goal to not only attract new businesses but also to retain successful
businesses in the City. Objectives of the revenue strategy should also include:
avoiding an over reliance on revenue from any one particular industry;
recruitment and retention efforts to ensure a balance of revenue sources;
ensuring compatible uses; encouraging business synergies; and promoting the
growth of amenities and ancillary services to support business districts and
established industries.
8. The City shall develop and maintain methods for the evaluation of future
development and related fiscal impacts on the City budget.
9. Every reasonable effort will be made to establish revenue measures which will
cause the transients and recreation visitors to Culver City to carry a fair portion
of the expenses incurred by the City as a result of their use of public facilities.
10. The City will establish appropriate cost-recovery targets for its fee structure
14Exhibit ‘A’
Page 3 of 30
and will annually adjust its Master Fee Schedule to ensure that the fees
continue to meet cost recovery targets. The Finance Department may study,
internally or using an outside consultant, the costs of providing such services
and recommend fees to each department.
11. Special services, which can be identified with the recipients, will be self-
supported from service fees to the maximum extent possible. Service fees
shall be established in the Master Fee Schedule in compliance with applicable
State law, and shall be periodically reviewed for compliance with applicable
State law.
12. The City will oppose efforts of the State and County governments to divert
revenues from the City or to increase unfunded service mandate of City
taxpayers.
13. The City will seek additional intergovernmental funding and grants, with a
priority on funding one-time capital projects. Grant-funded projects that require
multi-year support will be reviewed by City Council.
14. The City will not rely on one-time revenue sources to fund operations. One-
time revenues sources, whenever possible, will be used to fund one-time
projects, augment reserve balances or fund unfunded liabilities.
15Exhibit ‘A’
Page 4 of 30
AUDITING, FINANCIAL REPORTING AND DISCLOSURE POLICIES
Accounting standards boards and regulatory agencies set the minimum standards and
disclosure requirements for annual financial reports and continuing disclosure
requirements associated with municipal securities. The City places a high value on
transparency and full disclosure in all matters concerning the City’s financial position
and results of operations. To this end, the City endeavors to make superior disclosure
in the City’s Comprehensive Annual Financial Report and Continuing Disclosure filings
by going above and beyond the minimum reporting requirements including certificate
of achievement programs and voluntary event disclosure filings.
The City prepares its financial statements in conformance with Generally Accepted
Accounting Principles (GAAP). Responsibility for the accuracy and completeness of
the financial statements rests with the City. However, the City retains the services of
an external accounting firm to audit the financial statements on an annual basis. The
primary point of contact for the auditor is the Chief Financial Officer, but the auditors
will have direct access to the City Manager, City Attorney, Financial Planning and
Budget Subcommittee or City Council on any matters they deem appropriate.
The financial statement audit and compliance audits will be conducted in accordance
with the United States Generally Accepted Auditing Standards (GAAS), standards
applicable to financial audits contained in Government Auditing Standards, issued by
the Comptroller of the United States, and standards set by regulatory agencies if
applicable.
After soliciting and receiving written proposals from qualified independent accounting
firms, the Chief Financial Officer shall submit a recommendation to the Financial
Planning and Budget Subcommittee and City Council. Under the premise that multi-
year audit agreements are more cost efficient, allow for greater continuity and reduce
audit disruption, the City may engage auditors in multi-year contracts but the term of
each contract shall not exceed five years. Generally, the City will request proposals
for audit services every five years. It is the City’s policy to require mandatory audit firm
rotation after ten years of consecutive service.
After audit results have been communicated to the City, the Finance Department is
then responsible for responding to all findings within six months to the City Manager
and Financial Planning and Budget Subcommittee and appropriate regulatory
agencies, if applicable.
16Exhibit ‘A’
Page 5 of 30
REVENUE COLLECTION POLICY
1. The City will pursue revenue collection and auditing to ensure that
monies due the City are accurately received in a timely manner.
2. The City will seek reimbursement from the appropriate agency for State
and Federal mandated costs whenever possible and cost-effective.
3. The City should centralize accounts receivable/collection activities
wherever possible so that all receivables are handled consistently.
4. Accounts receivable management and diligent oversight of collections
from all revenue sources are imperative. Sound financial management
principles include the establishment of an allowance for doubtful
accounts. Efforts will be made to pursue the timely collection of
delinquent accounts. When such accounts are deemed uncollectible,
they should be written-off from the financial statements.
a. The Chief Financial Officer, with the approval of the City Manager, is
authorized to write off uncollectible individual accounts less than or
equal to $1,000.00. In such cases, the Chief Financial Officer must
prepare a memorandum for City Manager review and approval
documenting the accounts to be written off, the age of the debt,
reasons for writing off each account and evidence of collection
attempts taken on the account.
b. Past due accounts of $1,000.00 or greater may be written off with
approval by the City Council. To write off accounts exceeding
$1,000, the Chief Financial Officer must prepare an Agenda Report
for City council review and approval documenting the accounts to be
written off, the age of the debt, reasons for writing off each account
and evidence of collection attempts taken on the account.
17Exhibit ‘A’
Page 6 of 30
CASH MANAGEMENT POLICY
1. Cash and investment programs will be maintained in accordance with California
Government Code Section 53600 et seq. and the City’s adopted Investment
Policy and will ensure that proper controls and safeguards are maintained.
Pursuant to State law, the City, at least annually, revises, and the City Council
affirms, a detailed Investment Policy.
2. Reports on the City’s investment portfolio and cash position will be developed
and presented to the City Council on at least a quarterly basis, in conformity
with the California Government Code.
3. City funds will be managed in a prudent and diligent manner with emphasis on
safety, liquidity, and yield, in that order.
18Exhibit ‘A’
Page 7 of 30
CAPITAL IMPROVEMENT PROJECTS POLICY
1. A five-year Capital Improvement Plan shall be developed and updated annually,
including anticipated funding sources. Capital improvement projects are
defined as infrastructure or equipment purchases or construction which result in
a capitalized asset and have a useful (depreciable) life of two years or more.
2. The capital improvement plan will identify, where applicable, current operating
maintenance costs and funding streams available to repair and/or replace
deteriorating infrastructure and to avoid significant unfunded liabilities.
3. The City should develop and implement a post-implementation evaluation of its
infrastructures condition on a specified periodic basis, estimating the remaining
useful life, and projecting replacement costs.
4. The City shall actively pursue outside funding sources for all Capital
Improvement Projects. Outside funding sources, such as grants, shall be used
to finance only those Capital Improvement Projects that are consistent with the
five-year Capital Improvement Project and local governmental priorities, and
whose operating and maintenance costs have been included in future operating
budget forecasts.
5. Capital improvement lifecycle costs will be coordinated with the development of
the Operating Budget. Future operating, maintenance and replacement costs
associated with new capital improvements will be forecasted, matched to
available revenue sources, and included in the Operating Budget. Capital
project contract awards will include a fiscal impact statement disclosing the
expected operating impact of the project and when such cost is expected to
occur.
6. Financing of capital improvement projects shall be considered pursuant to the
Debt Management Policy section.
19Exhibit ‘A’
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FINANCIAL RESERVES POLICY
Prudent financial management dictates that some portion of the funds available to
the City be reserved for future use.
As a general budget principle concerning the use of reserves, the City Council
decides whether to appropriate funds from Reserve accounts. Even though a
project or other expenditure qualifies as a proper use of Reserves, the Council may
decide that it is more beneficial to use current year operating revenues or bond
proceeds instead, thereby retaining the Reserve funds for future use. Reserve
funds will not be spent for any function other than the specific purpose of the
Reserve account from which they are drawn without specific direction in the
annual budget; or by a separate City Council action. Information regarding Annual
Budget Adoption and Administration is contained in City Council Policy 5001.
GOVERNMENTAL FUNDS AND FUND BALANCE DEFINED
Governmental Funds including the General Fund, Special Revenue Funds, Capital
Projects Funds, Debt Service Funds and Permanent Funds have a short-term or
current flow of financial resources, measurement focus and basis of accounting
and therefore, exclude long-term assets and long-term liabilities. The term Fund
Balance, used to describe the resources that accumulate in these funds, is the
difference between the fund assets and fund liabilities of these funds. Fund
Balance is similar to the measure of net working capital that is used in private
sector accounting. By definition, both Fund Balance and Net Working Capital
exclude long-term assets and long-term liabilities.
PROPRIETARY FUNDS AND NET WORKING CAPITAL DEFINED
Proprietary Funds including Enterprise Funds and Internal Service Funds have a
long- term or economic resources measurement focus and basis of accounting and
therefore, include long-term assets and liabilities. This basis of accounting is very
similar to that used in private sector. However, instead of Retained Earnings, the
term Net Position is used to describe the difference between fund assets and
fund liabilities. Since Net Position includes both long-term assets and liabilities,
the most comparable measure of proprietary fund financial resources to
governmental Fund Balance is Net Working Capital, which is the difference
between current assets and current liabilities. Net Working Capital, like Fund
Balance, excludes long-term assets and long-term liabilities.
GOVERNMENTAL FUND RESERVES (FUND BALANCE)
For Governmental Funds, the Governmental Accounting Standards Board
(“GASB”) Statement No. 54 defines five specific classifications of fund balance.
The five classifications are intended to identify whether the specific components of
fund balance are available for appropriation and are therefore “Spendable.” The
classifications also are intended to identify the extent to which fund balance is
20Exhibit ‘A’
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constrained by special restrictions, if any. Applicable only to governmental funds,
the five classifications of fund balance are as follows:
CLASSIFICATIONS NATURE OF RESTRICTION
Non-spendable Cannot be readily converted to cash
Restricted Externally imposed restrictions
Committed City Council imposed commitment
Assigned City Manager/CFO assigned purpose/intent
Unassigned Residual balance not otherwise restricted
A. Non-spendable fund balance: That portion of fund balance that includes
amounts that are either (a) not in a spendable form, or (b) legally or
contractually required to be maintained intact. Examples of Non-spendable
fund balance include:
1. Reserve for Inventories: The value of inventories purchased by the
City but not yet issued to the operating Departments is reflected in this
account.
2. Reserve for Long Term Receivables and Advances: This
Reserve is used to identify and segregate that portion of the City’s
financial assets which are not due to be received for an extended
period, so are not available for appropriation during the budget year.
3. Reserve for Prepaid Assets: This reserve represents resources
that have been paid to another entity in advance of the accounting
period in which the resource is deducted from fund balance. A
common example is an insurance premium, which is typically payable
in advance of the coverage period. Although prepaid assets have yet
to be deducted from fund balance, they are no longer available for
appropriation.
B. Restricted fund balance: The portion of fund balance that reflects constraints
placed on the use of resources (other than non-spendable items) that are
either (a) externally imposed by creditors, grantors, contributors, or laws or
regulations of other governments; or (b) imposed by law through
constitutional provisions or enabling legislation. The City operates
approximately twenty special revenue funds that account for items such as
gas tax revenues distributed by the State, local return portions of County-wide
sales tax overrides dedicated to transportation, grants from federal or State
agencies with specific spending restrictions, Section 8 and CDBG funds from
21Exhibit ‘A’
Page 10 of 30
the federal government with very specific spending limitations, and a number
of others. Since these funds are established because of the specific
spending limitations on them, any year-end balances are still restricted for
these purposes. Some specific examples of restricted fund balance are:
1. Reserve for Debt Service: Funds are placed in this Reserve at the
time debt is issued. The provisions governing the Reserve, if
established, are in the Bond Indenture and the Reserve itself is
typically controlled by the Trustee.
2. Park In Lieu: Per CCMC 15.06.305 and California Government Code
Section 664777 (The 1975 “Quimby Act”), a dedication of land or
payment of fees for park or recreational purposes in conjunction with
residential development is required. The fees collected can only be
used for specific park or recreation purposes as outlined in CCMC
15.06.305 through 15.06.330.
C. Committed fund balance: That portion of a fund balance that includes
amounts that can only be used for specific purposes pursuant to constraints
imposed by formal action by the government’s highest level of decision
making authority, and remain binding unless removed in the same manner.
The City considers a resolution to constitute a formal action for the
purposes of establishing committed fund balance. The action to constrain
resources must occur within the fiscal reporting period; however the
amount can be determined subsequently. City Council imposed
Commitments are as follows:
1. Contingency Reserve: The Contingency Reserve shall have a target
balance of thirty percent (30%) of General Fund “Operating Budget” as
originally adopted. Operating Budget for this purpose shall include
current expenditure appropriations and shall exclude Capital
Improvement Projects and Transfers Out. Appropriation and/or
access to these funds are reserved for emergency situations only.
The parameters by which the Contingency Reserve could be
accessed would include the following circumstances:
a. A catastrophic loss of critical infrastructure requiring an
expenditure of greater than or equal to five percent (5%) of the
General Fund, Operating Budget, as defined above.
b. A State or Federally declared state of emergency where the City
response or related City loss is greater than or equal to five
percent (5%) of the General Fund, Operating Budget.
c. Any settlement arising from a claim or judgment where the loss
exceeds the City’s insured policy coverage by an amount greater
22Exhibit ‘A’
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than or equal to five percent (5%) of the General Fund, Operating
Budget.
d. Deviation from budgeted revenue projections in the top three
General Fund revenue categories, namely, Sales Taxes, Utility
Users’ Taxes and Business Taxes in a cumulative amount greater
than or equal to five percent (5%) of the General Fund, Operating
Budget.
e. Any action by another government that eliminates or shifts revenues
from the City amounting to greater than or equal to five percent
(5%) of the General Fund, Operating Budget.
f. Inability of the City to meet its debt service obligations in any
given year.
g. Any combination of factors 1) a.-f. amounting to greater than or
equal to five percent (5%) of the General Fund, Operating Budget in
any one fiscal year.
Use of the Contingency Reserve must be approved by the City Council.
Should the Contingency Reserve commitment be used, the City Manager
shall present a plan to City Council to replenish the reserve within five
years.
2. Facilities Planning Reserve: The Facilities Planning Reserve has been
established to offset the cost of replacement or major refurbishment to
critical City facilities such as, but not limited to, the City Hall building and
Police Department buildings, Fire Stations, and other Facility
Improvement Projects. Use of this Reserve must be approved by City
Council. This Reserve shall be funded by allocations of General Fund
surplus revenues, as defined later in this policy, or by specific City Council
allocations. The eligible uses of this reserve include the cash funding of
public facility improvements or the servicing of related debt.
3. Recreational Facilities: City Council Policy 5003 requires ten percent
(10%) of gross annual revenues derived from specified recreational
classes and rentals to be set aside for the refurbishment of certain
recreational facilities, fee-based activity programs and equipment used
in connection with fee-based recreation classes.
D. Assigned fund balance: That portion of a fund balance that includes
amounts that are constrained by the City’s intent to be used for specific
purposes but that are not restricted or committed. This policy hereby
delegates the authority to the City Manager or Chief Financial Officer to
modify or create new assignments of fund balance. Constraints imposed on
23Exhibit ‘A’
Page 12 of 30
the use of assigned amounts may be changed by the City Manager or
Chief Financial Officer. Appropriations of balances are subject to Council
Policy 5001 concerning budget adoption and administration. Examples of
assigned fund balance may include but are not limited to:
1. Reserves for Encumbrances: Purchase Orders and contracts executed
by the City express an intent to purchase goods or services. Generally
such documents include a cancellation clause, where the City would
then only be responsible to pay for goods received or services provided.
The City recognizes the obligation to pay for these goods and services
as a reservation of fund balance, but because the City can ultimately
free itself of this obligation if necessary, it does not meet the
requirements of the more restrictive fund balance categorizations.
2. Change in Fair Market Value of Investments: As dictated by GASB 31,
the City is required to record investments at their fair value (market
value). This accounting practice is necessary to insure that the City’s
investment assets are shown at their true value as of the balance
sheet. However, in a fluctuating interest rate environment, this
practice records market value gains or losses which may never be
actually realized. The City Manager or Chief Financial Officer may
elect to reserve a portion of fund balance associated with an
unrealized market value gain. However, it is impractical to assign a
portion of fund balance associated with an unrealized market value
loss.
When the City Manager or Chief Financial Officer authorizes a change in
General Fund, Assigned Fund Balance, City Council shall be notified
quarterly.
E. Unassigned fund balance: The residual portion of available fund balance that
is not otherwise restricted, committed or assigned.
GENERAL FUND SURPLUS
At the end of each fiscal year, the difference between General Fund revenues and
expenditures results in either a surplus (adding to fund balance) or deficit (subtracting
from fund balance). In the case of a surplus, the policy for allocation shall follow these
priorities:
1. Full funding of the Contingency Reserve.
2. If the Contingency Reserve is fully funded, 40% of the remaining surplus
amount shall be placed in the Facilities Planning Reserve, and the remainder
shall revert to Unassigned fund balance.
The City Manager may recommend a different allocation for approval by the City
24Exhibit ‘A’
Page 13 of 30
Council.
PROPRIETARY FUND RESERVES (NET WORKING CAPITAL)
In the case of Proprietary Funds (Enterprise and Internal Service Funds),
Generally Accepted Accounting Principles (“GAAP”) does not permit the reporting of
reserves on the face of City financial statements. However, this does not preclude
the City from setting policies to accumulate financial resources for prudent financial
management of its proprietary fund operations. Since proprietary funds may
include both long-term capital assets and long-term liabilities, the most comparable
measure of liquid financial resources that is similar to fund balance in proprietary
funds is net working capital which is the difference between current assets and
current liabilities. For all further references to reserves in Proprietary Funds, Net
Working Capital is the intended meaning.
A. Refuse Disposal Fund
1. Stabilization and Contingency Reserve: This Reserve is used to
provide sufficient funds to support seasonal variations in cash flows and in
more extreme conditions, to maintain operations for a reasonable period of
time so the City may reorganize in an orderly manner or effectuate a rate
increase to offset sustained cost increases. The intent of the Reserve is to
provide funds to offset cost increases that are projected to be short-lived,
thereby partially eliminating the volatility in annual rate adjustments. It is
not intended to offset ongoing, long-term pricing structure changes. The
target level of this reserve is twenty-five percent (25%) of the annual
operating budget. This reserve level is intended to provide a reorganization
period of 3 months with zero income or 12 months at a twenty-five percent
(25%) loss rate. The City Council must approve the use of these funds,
based on City Manager recommendation. Funds collected in excess of the
Stabilization reserve target would be available to offset future rate
adjustments, while extended reserve shortfalls would be recovered from
future rate increases. Should catastrophic losses to the fleet or transfer
station occur, the Stabilization and Contingency Reserve may be called upon
to avoid disruption to refuse disposal.
B. Municipal Bus Lines Fund
1. Stabilization and Contingency Reserve: This Reserve is used to
provide sufficient funds to support seasonal variations in cash flows and in
more extreme conditions, to maintain operations for a reasonable period of
time so the City may reorganize in an orderly manner or effectuate a fare
increase to offset sustained cost increases. The intent of the Reserve is to
provide funds to offset cost increases that are projected to be short-lived,
thereby partially eliminating the volatility in fare adjustments. It is not
intended to offset ongoing, long-term cost of operations changes. The
target level of this reserve is twenty-five percent (25%) of the annual
25Exhibit ‘A’
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operating budget. This reserve level is intended to provide a reorganization
period of 3 months with zero income or 12 months at a twenty-five percent
(25%) loss rate. The City Council must approve the use of these funds,
based on City Manager recommendation. Funds collected in excess of the
Stabilization reserve target would be available to offset future fare
adjustments, while extended reserve shortfalls would be recovered from
future fare increases. Should catastrophic losses to the fleet or
transportation building occur, the Stabilization and Contingency Reserve may
be called upon to avoid disruption to public transporation.
C. Sewer Enterprise Fund
1. Stabilization and Contingency Reserve: This Reserve is used to
provide sufficient funds to support seasonal variations in cash flows and in
more extreme conditions, to maintain operations for a reasonable period of
time so the City may reorganize in an orderly manner or effectuate a rate
increase to offset sustained cost increases. The intent of the Reserve is to
provide funds to offset cost increases that are projected to be short-lived,
thereby partially eliminating the volatility in annual rate adjustments. It is
not intended to offset ongoing, long-term pricing structure changes. The
target level of this reserve is fifty percent (50%) of the annual operating
budget. This reserve level is intended to provide a reorganization period of 6
months with zero income or 24 months at a twenty-five percent (25%) loss
rate. The City Council must approve use of these funds, based on City
Manager recommendation. Funds collected in excess of the Stabilization
reserve target would be available to offset future rate adjustments, while
extended reserve shortfalls would be recovered from future rate increases.
Should catastrophic losses to the infrastructure system occur, the
Stabilization and Contingency Reserve may be called upon to avoid
disruption to sewer service.
2. Infrastructure Replacement Funding Policy: This funding policy is intended
to be a temporary repository for cash flows associated with the funding of
infrastructure replacement projects provided by the Sewer Master Plan.
The contribution rate is intended to level-amortize the cost of
infrastructure replacement projects over a long period of time. The annual
funding rate of the Sewer Master Plan is targeted at an amount that,
when combined with prior or future year contributions, is sufficient to
provide for the eventual replacement of assets as scheduled in the plan.
This contribution policy should be updated periodically based on the most
current Wastewater Master Plan. There are no minimum or maximum
balances contemplated by this funding policy. However, the contributions
level should be reviewed periodically or as major updates to the
Wastewater Master Plan occur. Annual funding is contingent on many
factors and may ultimately involve a combined strategy of cash funding and
debt issuance with the intent to normalize the burden on Sewer customer
rates.
26Exhibit ‘A’
Page 15 of 30
D. Internal Service Funds
Background.
Internal Service Funds are used to centrally manage and account for specific
program activity in a centralized cost center. Their revenue generally comes
from internal charges to departmental operating budgets rather than direct
appropriations. They have several functions.
? They work well in normalizing departmental budgeting for programs that
have life-cycles greater than one year; thereby facilitating level budgeting
for expenditures that will, by their nature, be erratic from year to year.
This also facilitates easier identification of long term trends.
? They act as a strategic savings plan for long-term assets and
liabilities.
? From an analytical standpoint, they enable appropriate distribution of city-
wide costs to individual departments, thereby more readily establishing
true costs of various operations.
Since departmental charges to the internal service fund duplicate the ultimate
expenditure from the internal service fund, they are eliminated when
consolidating entity-wide totals.
The measurement criteria, cash flow patterns, funding horizon and acceptable
funding levels are unique to each program being funded. Policy regarding
target balance and/or contribution policy, gain/loss amortization assumption,
source data, and governance for each of the City’s Internal Service Funds is set
forth as follows:
1. For all Internal Service Funds: The Chief Financial Officer may transfer part or
all of any unencumbered fund balance between the Internal Service Funds
provided that the withdrawal of funds from the transferred fund would not
cause insufficient reserve levels or insufficient resources to carry out its intended
purpose. This action is appropriate when the decline in cash balance in any fund
is precipitated by an off-trend non-recurring event. The Chief Financial Officer
will make such recommendations as part of the annual budget adoption or
through separate Council action.
2. Equipment Maintenance Fund and Equipment Replacement Fund:
The Equipment Maintenance and Replacement Funds receive operating money
from the Departments to provide equipment maintenance and to fund the
regular replacement of major pieces of equipment (mostly vehicles) at their
economic obsolescence.
27Exhibit ‘A’
Page 16 of 30
a. Equipment Maintenance Fund: The Equipment Maintenance Fund acts solely
as a cost allocation center (vs. a pre-funding center) and is funded on a
pay- as-you-go basis by departmental maintenance charges by vehicle
type and usage requirement. Because of this limited function, the target
year-end balance is zero.
Contribution rates (departmental charges) are set to include the direct costs
associated with maintaining the City vehicle fleet, including fleet
maintenance employee salary and benefits, operating expenses,
administrative overhead and maintenance related capital outlay.
Maintenance facility improvements and replacement costs are to be provided
outside of this cost unit.
Because of the limited purpose of this fund, a gain/loss assumption is not
needed.
Source data is ongoing city fleet inventory and maintenance cost information.
Governance is achieved through annual management adjustment of
contribution rates on the basis of maintenance cost by vehicle and distribution
of costs based on fleet use by department/division.
b. Equipment Replacement Fund: Operating Departments are charged annual
amounts sufficient to accumulate funds for the replacement of vehicles,
communications equipment, technology equipment and other equipment
replacement determined appropriate by the Chief Financial Officer. The
City Manager recommends annual rate adjustments as part of the budget
preparation process. These adjustments are based on pricing, future
replacement schedules and other variables.
The age and needs of the equipment inventory vary from year to year.
Therefore the year-end fund balance will fluctuate in direct correlation to
accumulated depreciation. In general, it will increase in the years preceding
the scheduled replacement of relatively large percentage of the equipment, on
a dollar value basis. However, rising equipment costs, dissimilar future needs,
replacing equipment faster than their expected life or maintaining equipment
longer than their expected life all contribute to variation from the projected
schedule.
In light of the above, the target funding level is not established in terms of a
flat dollar figure or even a percentage of the overall value of the equipment
inventory. It is established at fifty percent (50%) of the current accumulated
depreciation value of the equipment inventory, calculated on a replacement
value basis. This will be reconciled annually as part of the year-end close
out process by the Finance Department. If departmental replacement
charges for equipment prove to be excessive or insufficient with regard to
this target funding level, new rates established during the next budget
28Exhibit ‘A’
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cycle will be adjusted with a view toward bringing the balance back to the
target level over a three-year period.
3. Self-Insurance Fund
Background
The Self-insurance fund pays for insurance premiums, benefit and settlement
payments, and administrative and operating expenses. It is supported by
charges to other City funds for the services it provides. These annual charges
for service shall reflect the five-year historical experience and shall be set to
equal the annual expenses of the fund.
Policy & Practice.
Self-insurance reserves (Liability and Workers’ compensation) will be maintained
at a level which, together with purchased insurance policies, adequately
indemnify the City’s property, liability, and health benefit risk from one-time
fluctuations. A qualified actuarial firm shall be retained on an annual basis in
order to recommend appropriate funding levels, which will be approved by
Council. The City shall maintain minimum reserves equal to 60% of the five-year
average of total Self-Insurance Fund costs, with a maximum of 100%.
To lessen the impact of short-term annual rate change fluctuation, City
management may implement one-time fund transfers (rather than department
rate increases) when funding shortfalls appear to be due to unusually sharp and
non-recurring factors. Excess reserves in other areas may be transferred to
the internal service fund in these instances but such transfers should not
exceed the funding necessary to reach the one hundred percent (100%) reserve
level defined above.
4. Compensated Absences
Fund Background.
The primary purpose of flex leave, vacation leave and sick leave is to provide
compensated time off as appropriate and approved. However, under
certain circumstances, typically at separation from service, some employees
have the option of receiving cash-out payments for some accumulated leave
balances. The Compensated Absences Fund is utilized primarily as a budget
smoothing technique for any such leave bank liquidations. The primary
purpose of the Compensated Absences Fund is to maintain a balance sufficient
to facilitate this smoothing.
Policy and Practice.
29Exhibit ‘A’
Page 18 of 30
The contribution rate will be set to cover estimated annual cash flows based on a
three-year trailing average.
The minimum cash reserve should not fall below that three-year average. The
maximum cash reserve should not exceed fifty percent (50%) of the long term
liability. The target cash reserve shall be the median difference between the
minimum and maximum figures.
Each department will make contributions to the Compensated Absences Fund
through its operating budget as a specified percentage of salary. The Chief
Financial Officer will review and recommend adjustments to the percentage
of salary required during the annual budget development process. This
percentage will be set so as to maintain the reserve within the parameters
established above.
5. Post Retirement Funding Policies:
a. Pension Funding:
(i) California Public Employees Retirement System (CalPERS): The City’s
principal Defined Benefit Pension program is provided through contract
with CalPERS. The City’s contributions to the plan include a fixed
employer paid member contribution and an actuarially determined
employer contribution that fluctuates each year based on an annual
actuarial plan valuation. This variable rate employer contribution
includes the normal cost of providing the contracted benefits plus or minus
an amortization of plan changes and net actuarial gains and losses since
the last valuation period.
It is the City’s policy to make contributions to the plan equaling at least
one hundred percent (100%) of the actuarially required contribution
(annual pension cost). Because the City pays the entire actuarially
required contribution each year, by definition, its net pension obligation at
the end of each year is $0. Any unfunded actuarial liability (UAL) is
amortized and paid in accordance with the actuary’s funding
recommendations. The City will strive to maintain its UAL within a range
that is considered acceptable to actuarial standards. The City Council
shall consider increasing the annual CalPERS contribution should the UAL
status fall below acceptable actuarial standards.
b. Other Post Employment Benefits (OPEB Funding):
Background.
The City’s OPEB funding obligations consists of two retiree medical plans.
New Plan. Effective July 1, 2011, the City and its employee associations
30Exhibit ‘A’
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agreed to major changes to the Post Employment Healthcare Plan. New
employees participate in a program that requires certain defined employee
and employer contributions while the employee is in active service.
However, once the contributions have been made to the employee’s
account, the City has transferred a substantial portion of the funding risk to
the employee.
Old Plan. Eligible employees who retired prior to the “New Plan” and active
employees were eligible to continue to receive post-retirement medical
benefits (a defined benefit plan). The cost was divided among the City,
current employees and certain retirees. In the past, this program was largely
funded on a pay-as-you-go basis, so there was a significant unfunded liability.
Recognizing this problem, the City began contributing to this obligation in
2010. In 2012, these assets were placed in a pre-funding trust. The City’s
intention is to amortize the remaining unfunded liability within 25 years.
Policy & Practice.
New Plan. Consistent with agreements between the City and employee
associations, the new defined contribution plan will be one hundred percent
(100%) funded, on an ongoing basis, as part of the annual budget
process. Funds to cover this expenditure will be contained within the salary
section of each department’s annual operating budget.
Old Plan. The City’s policy is to pre fund the explicit (cash subsidy) portion of
the Actuarial Accrued Liability (AAL) of the remnants of the old plan over a 25-
year amortization period, or less. This amount will be based on the Annual
Required Contribution (ARC) determined by a biennial actuarial review; subject
to review and analysis by the City. The City will strive to maintain a funded
status that will be within a range that is considered acceptable to actuarial
standards. The City Council shall consider increasing the annual OPEB
contribution should the funded status fall below acceptable actuarial
standards. The City Council shall also consider increasing the annual OPEB
contribution when possible to reduce the amortization period.
31Exhibit ‘A’
Page 20 of 30
GRANT ADMINISTRATION POLICY
A. Grant Application and Responsibility
Individual departments are encouraged to investigate sources of funding
relevant to their respective departmental activities.
The individual department applying for a grant or receiving a restricted
donation shall generally be considered the Program Administrator of the grant.
The Budget and Accounting Divisions in the Finance Department may assist in
the financial administration and reporting of the grant but the Program
Administrator is ultimately responsible for meeting all terms and conditions of
the grant, insuring that only allowable costs are charged to the grant program
and is responsible for adhering to City budgeting and fiscal procedures.
Individual Departments and Program Administrators are not authorized to
execute grant contracts. Grant contracts should be reviewed by the City
Attorney’s office and executed by the City Manager and/or City Council.
B. Grant Acceptance & Appropriation by City Council
Even though the funding source for an activity may be provided by a
grantor/donor, only City Council can appropriate funds for official City
activities except as authorized by Council Policy 5001 (Budget Adoption and
Administration). Therefore, prior to the acceptance of a grant, the City Manager
and City Council shall:
1. Approve the terms and conditions of the proposed grant including the
specific City obligations that may be created by the grant contract in
terms of required City matching expenditures or staff activities, even if
the expenditures were previously appropriated through the budget
adoption process.
2. Approve budget appropriations for the grant expenditures and City
matching expenditures unless previously appropriated through the
budget adoption process.
3. Approve and execute the Grant Contract(s).
Note: The City Council review and approval of items 1 and 3 are not required if
the grant is under $30,000, pursuant to Council Policy 5001.
Any budget amendments requested by the Program Administrator or operating
department shall be reviewed by the Budget Division of the Finance Department
and submitted as a staff report to the Council for their review and approval.
The Budget Division of the Finance Department along with the Program
Administrator shall determine the proper amount of the appropriation request
32Exhibit ‘A’
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during the current and future fiscal year(s).
C. Timely Reimbursement
The Program Administrator is responsible and should pursue and/or request
grant reimbursements or draw-downs on a timely basis. If requested, the
Accounting Division of the Finance Department will assist with grant
reimbursements or draw- downs. All checks shall be made payable to the
City of Culver City and remitted to the Program Administrator.
Grant checks should be deposited immediately with the Revenue Division of
the Finance Department along with supporting documentation received by the
Program Administrator. Copies should also be forwarded to the Accounting
Division of the Finance Department.
The Program Administrator will keep the Budget and Accounting Divisions of the
Finance Department apprised of the annual estimated grant revenues and
expenditures and a tentative schedule of cash-flows for the grant program.
D. Financial and Grant Reporting
Grant reporting requirements vary widely by grant and sometimes include
monthly, quarterly, and or annual reporting. Subsequent to the approval of a
grant application, and during the project period, any required reports shall be
the responsibility of the Program Administrator, or if requested by the Program
Administrator, in conjunction with the Accounting Division of the
Finance Department. Program Administrators submitting their own reports shall
forward a copy of each report to the Accounting Division of the Finance
Department.
E. Grants Containing Direct Federal Assistance of Federal “Pass-Through” Funds
Program Administrators acknowledge that Federal Funds or Federal Funds that
“pass-through” state and local programs are required to be reported on the
City’s Schedule of Federal Financial Assistance and included in the City’s
annual Single Audit (compliance audit of all Federal Funds). Program
Administrators will identify and keep the Accounting Division apprised of those
grant programs that contain direct Federal Funding or Federal pass-through
funds, identifying the Catalog of Federal Domestic Assistance (CFDA) number
when at all possible.
F. Record Keeping & Retention Requirements
For the purpose of Grantor inquiries and grant specific compliance audits,
Program Administrators are responsible for maintaining adequate records to
evidence that program activities and expenditures met the terms and conditions
33Exhibit ‘A’
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of the grant and that all grant reporting requirements were met timely. Record
retention requirements vary by grant but it is recommended that grant records
should be maintained for a minimum of the life-of-the-grant plus three years,
unless otherwise specified by the grant contract.
G. Documents to be forwarded to Accounting:
Information received from a granting or donor agency that is pertinent to the
terms, conditions, approval, extension, denial, revocation, and administration of
a grant shall be forwarded to the OMB of the Finance Department including but
not limited to:
Grant Award Notification
Expenditure Authorization Date (if applicable)
Grant Contracts
Grant Extension Letters
Grant Termination Letter
Program and or Financial Reports
Notices of Questioned Costs or instances of non-compliance
Any Document setting or modifying terms and conditions of the grant
34Exhibit ‘A’
Page 23 of 30
DEBT MANAGEMENT POLICIES
The City is committed to fiscal sustainability by employing long-term financial
planning efforts, maintaining appropriate reserves levels and employing prudent
practices in governance, management, budget administration and financial reporting.
Debt levels and their related annual costs are important long-term obligations that
must be managed within available resources. A disciplined thoughtful approach
to debt management includes policies that provide guidelines for the City to
manage its debt program in-line with those resources. Therefore, the objective of
this policy is to provide written guidelines and restrictions concerning the amount
and type of debt issued by the City and the ongoing management of the debt
portfolio.
This debt management policy is intended to improve the quality of decisions,
provide justification for the structure of debt issuance, identify policy goals and
demonstrate a commitment to long-term financial planning, including a multi-year
capital plan. Adherence to a debt management policy signals to rating agencies
and the capital markets that a government is well managed and should meet its
obligations in a timely manner.
A. CONDITIONS AND PURPOSES OF DEBT ISSUANCE
1. Acceptable Conditions for the Use of Debt
The City believes that prudent amounts of debt can be an equitable and cost-
effective means of financing major infrastructure and capital project needs of
the City. Debt will be considered to finance such projects if:
a) It meets the City’s goal of distributing the payments for the asset over
its useful life so that benefits more closely match costs for both
current and future residents.
b) It is the most cost-effective funding means available to the City, taking
into account cash flow needs and other funding alternatives.
c) It is fiscally prudent and meets the guidelines of this Policy. Any
consideration of debt financing shall consider financial alternatives,
including pay-as-you-go funding, proceeds derived from development
or redevelopment of existing land and capital assets owned by the City,
and use of existing or future cash reserves, or combinations thereof.
2. Acceptable Uses of Debt
The City will consider financing for the acquisition, substantial refurbishment,
replacement or expansion of physical assets, including land improvements. The
primary purpose of debt is to finance one of the following:
a) Acquisition and or improvement of land, right-of-way or long-term
35Exhibit ‘A’
Page 24 of 30
easements.
b) Acquisition of a capital asset with a useful life of 3 or more years.
c) Construction or reconstruction of a facility.
d) Refunding, refinancing, or restructuring debt, subject to refunding objectives
and parameters discussed in Section E.
e) Although not the primary purpose of the financing effort, project reimbursables
that include project planning design, engineering and other preconstruction
efforts; project-associated furniture fixtures and equipment; capitalized
interest, original issuer’s discount, underwriter’s discount and other costs of
issuance.
f) Interim or cash flow financing, such as anticipation notes.
3. Prohibited Uses of Debt
Prohibited uses of debt include the following:
a) Financing of operating costs except for anticipation notes with a term of less
than one year.
b) Debt issuance used to address budgetary deficits.
c) Debt issued for periods exceeding the useful life of the asset or projects to be
financed.
B. USE OF ALTERNATIVE DEBT INSTRUMENTS
The City recognizes that there are numerous types of financing structures and
funding sources available, each with specific benefits, risks, and costs. All
potential funding sources are reviewed by management within the context of the
Debt Policy and the overall portfolio to ensure that any financial product or
structure is consistent with the City’s objectives. Regardless of what financing
structure(s) is utilized, due-diligence review must be performed for each
transaction, including the quantification of potential risks and benefits, and analysis
of the impact on City creditworthiness and debt affordability and capacity.
1. Variable Rate Debt
Variable rate debt affords the City the potential to achieve a lower cost debt
depending on market conditions. However, the City will seek to limit the use
of variable-rate debt due to the potential risks of such instruments.
a) Purpose
The City shall consider the use of variable rate debt for the purposes of:
i. Reducing the costs of debt issues.
ii. Increasing flexibility for accelerating principal repayment and
amortization.
iii. Enhancing the management of assets and liabilities (matching
short-term “priced debt” with the City’s short-term investments).
iv. Diversifying interest rate exposure.
36Exhibit ‘A’
Page 25 of 30
b) Considerations and Limitations on Variable-Rate Debt
The City may consider the use of all alternative structures and modes of variable
rate debt to the extent permissible under State law and will make determinations
among different types of modes of variable-rate debt based on cost, benefit,
and risk factors. The Chief Financial Officer shall consider the following factors
in considering whether to utilize variable rate debt:
i. Any variable rate debt should not exceed 20% of total City
General Fund supported debt.
ii. Any variable rate debt should be fully hedged by expected future
Facility Financing Plan reserves or unrestricted General Fund
reserve levels.
iii. Whether interest cost and market conditions (including the shape
of the yield curves and relative value considerations) are
unfavorable for issuing fixed rate debt.
iv. The likelihood of projected debt service savings when comparing
the cost of fixed rate bonds.
v. Costs, implementation and administration are quantified and
considered.
vi. Cost and availability of liquidity facilities (lines of credit necessary
for variable rate debt obligations and commercial paper in the
event that the bonds are not successfully remarketed) are quantified
and considered.
vii. Ability to convert debt to another mode (daily, monthly, fixed) or
redeem at par at any time is permitted.
viii. The findings of a thorough risk management assessment.
c) Risk Management
Any issuance of variable rate debt shall require a rigorous risk assessment,
including, but not limited to factors discussed in this section. Variable rate debt
subjects the City to additional financial risks (relative to fixed rate bonds),
including interest rate risk, tax risk, and certain risks related to providing liquidity
for certain types of variable rate debt.
The City will properly manage the risks as follows:
i. Interest Rate Risk and Tax Risk – The risk that market interest
rates increase on variable-rate debt because of market conditions,
changes in taxation of municipal bond interest, or reductions in
tax rates. Mitigation – Limit total variable rate exposure per the
defined limits and match the variable rate liabilities with short term
assets.
ii. Liquidity/Remarketing Risk – The risk that holders of variable
rate bonds exercise their “put” option, tender their bonds, and the
37Exhibit ‘A’
Page 26 of 30
bonds cannot be remarketed requiring the bond liquidity facility
provider to repurchase the bonds. This will result in the City paying a
higher rate of interest to the facility provider and the potential rapid
amortization of the repurchased bonds. Mitigation – Limit total
direct variable-rate exposure. Seek liquidity facilities which allow for
longer (5-10 years) amortization of any draws on the facility.
Secure credit support facilities that result in bond ratings of the
highest short-term ratings and long-term ratings not less than AA.
If the City’s bonds are downgraded below these levels as a result
of the facility provider’s ratings, a replacement provider shall be
sought.
iii. Liquidity/Rollover Risk – The risk that arises due to the shorter
term of most liquidity provider agreements (1-5 years) relative to the
longer-term amortization schedule of the City’s variable-rate bonds.
In particular, (1) the City may incur higher renewal fees when
renewal agreements are negotiated and (2) the liquidity bank market
constricts such that it is difficult to secure third party liquidity at any
interest rate. Mitigation – Negotiate longer terms on provider
contracts to minimize the number of rollovers.
2. Derivatives
The use of certain derivative products to hedge variable rate debt, such as
interest rate swaps, may be considered to the extent the City has such debt
outstanding or under consideration. The City will exercise extreme caution in the
use of derivative instruments for hedging purposes, and will consider their
utilization only when sufficient understanding of the products and sufficient
expertise for their appropriate use has been developed. A comprehensive
derivative policy will be adopted by the City prior to any utilization of such
instruments.
C. REFUNDING GUIDELINES
The Chief Financial Officer shall monitor at least annually all outstanding City
debt obligations for potential refinancing opportunities. The City will consider
refinancing of outstanding debt to achieve annual savings. Absent a compelling
economic reason or financial benefit to the City, any refinancing should not result
in any increase to the weighted average life of the refinanced debt.
The City will generally seek to achieve debt service savings which, on a net
present value basis, are at least 3% of the debt being refinanced. The net present
value assessment shall factor in all costs, including issuance, escrow, and
foregone interest earnings of any contributed funds on hand. Any potential
refinancing shall additionally consider whether an alternative refinancing
opportunity with higher savings is reasonably expected in the future.
Any potential refinancing executed more than 90 days in advance of the
38Exhibit ‘A’
Page 27 of 30
outstanding debt optional call date shall require a higher savings threshold.
Consideration of this method of refinancing shall place greater emphasis on
determining whether an alternative refinancing opportunity with higher savings is
reasonably expected in the future.
D. MARKET COMMUNICATION, ADMINISTRATION, AND REPORTING
1. Rating Agency Relations and Annual or Ongoing Surveillance – The
Chief Financial Officer shall be responsible for maintaining the City's
relationships with Standard & Poor's Ratings Services, Fitch Ratings and
Moody’s Investor’s Service. The City is committed to maintaining its existing
rating levels. In addition to general communication, the Chief Financial Officer
shall:
a) Ensure the rating agencies are provided updated financial information
of the City as it becomes publically available.
b) Communicate with credit analysts at each agency at least once each
year, or as may be requested by the agencies.
c) Prior to each proposed new debt issuance, schedule meetings or
conference calls with agency analysts and provide a thorough update
on the City’s financial position, including the impacts of the proposed
debt issuance.
2. Council and Financial Planning and Budget Subcommittee
Communication – The Chief Financial Officer should report feedback from
rating agencies, when and if available, regarding the City's financial strengths
and weaknesses and recommendations for addressing any weaknesses as
they pertain to maintaining the City’s existing credit ratings.
3. Continuing Disclosure Compliance – The City shall remain in compliance
with Security and Exchange Commission Rule 15c2-12 by filing its annual
financial statements and other financial and operating data for the
benefit of its bondholders within 270 days of the close of the fiscal year, or
as required in any such agreement for any debt issue. The City shall
maintain a log or file evidencing that all continuing disclosure filings have
been made promptly.
4. Debt Issue Record-Keeping – A copy of all debt-related records shall be
retained at the City’s offices. At minimum, these records shall include all
official statements, bond legal documents/transcripts, resolutions, trustee
statements, leases, and title reports for each City financing (to the extent
available).
5. Arbitrage Rebate – The use of bond proceeds and their investments must
be monitored to ensure compliance with all Internal Revenue Code Arbitrage
Rebate Requirements. The Chief Financial Officer shall ensure that all bond
proceeds and investments are tracked in a manner which facilitates accurate
39Exhibit ‘A’
Page 28 of 30
calculation; and, if a rebate payment is due, such payment is made in a
timely manner.
E. CREDIT RATINGS
The City will consider published ratings agency guidelines regarding best
financial practices and guidelines for structuring its capital funding and debt
strategies to maintain the highest possible credit ratings consistent with its current
operating and capital needs.
F. LEGAL DEBT LIMIT
Culver City Charter section 1603 indicates that the City shall not incur bonded
indebtedness which shall in the aggregate exceed the sum of fifteen percent (15%)
of the total assessed valuation, for purposes of City taxation, of all the real and
personal property within the City. While this limit defines the absolute maximum
legal debt limit for the City, it is not an effective indicator of the City’s affordable debt
capacity.
G. AFFORDABILITY
Prior to the issuance of debt to finance a project, the City will carefully consider
the overall long-term affordability of the proposed debt issuance. The City shall not
assume more debt without conducting an objective analysis of the City’s ability
to assume and support additional debt service payments. The City will consider its
long- term revenue and expenditure trends, the impact on operational flexibility
and the overall debt burden on the tax payers. The evaluation process shall include
a review of generally accepted measures of affordability and will strive to achieve
and or maintain debt levels consistent with its current operating and capital needs.
The Chief Financial Officer shall review benchmarking results of other California
cities of comparable size with the City’s Financial Planning and Budget
Subcommittee prior to any significant project financing.
1. General Fund-Supported Debt – General Fund Supported Debt generally
includes Certificates of Participation (COPs) and Lease Revenue Bonds
(LRBs) which are lease obligations that are secured by an installment sale
or by a lease- back arrangement between the City and another public entity.
The general operating revenues of the City are pledged to pay the lease
payments, which are, in turn, used to pay debt service on the bonds or
Certificates of Participation.
These obligations do not constitute indebtedness under the state
constitutional debt limitation and, therefore, are not subject to voter approval.
Payments to be made under valid leases are payable only in the year in
which use and occupancy of the leased property is available, and lease
payments may not be accelerated. Lease financing requires the fair market
40Exhibit ‘A’
Page 29 of 30
rental value of the leased property to be equal to or greater than the
required debt service or lease payment schedule. The lessee (City) is
obligated to place in its Annual Budget the rental payments that are due
and payable during each fiscal year the lessee has use of the leased
property.
The City should strive to maintain its net General Fund-backed debt service at
or less than 8% of available annually budgeted revenue. This ratio is defined
as the City’s annual debt service requirements on Certificates of Participation
and Lease Revenue Bonds compared to total General Fund Revenues net of
interfund transfers. This ratio, which pertains to only general fund backed
debt, is often referred to as “lease burden.”
2. Revenue Bonds – Long-term obligations payable solely from specific
pledged sources, in general, are not subject to a debt limitation. Examples
of such long- term obligations include those which achieve the financing
or refinancing of projects provided by the issuance of debt instruments
that are payable from restricted revenues or user fees (Enterprise
Revenues) and revenues generated from a project.
In determining the affordability of proposed revenue bonds, the City will
perform an analysis comparing projected annual net revenues (exclusive of
depreciation which is a non-cash related expense) to estimated annual debt
service. The City should strive to maintain a coverage ratio of 125%
using historical and/or projected net revenues to cover annual debt service
for bonds. The City may require a rate increase to cover both operations
and debt service costs, and create debt service reserve funds to maintain
the required coverage ratios.
3. Special Districts Financing – The City’s Special Districts primarily
consist of 1913/1915 Act Assessment Districts (Assessment Districts). The
City will consider requests for Special District formation and debt issuance
when such requests address a public need or provide a public benefit.
Each application will be considered on a case by case basis, and the
Finance Department may not recommend a financing if it is determined that
the financing could be detrimental to the debt position or the best interests
of the City.
4. Conduit Debt – Conduit financing provides for the issuance of securities
by a government agency to finance a project of a third party, such as a
non-profit organization or other private entity. The City may sponsor
conduit financings for those activities that have a general public purpose and
are consistent with the City’s overall service and policy objectives. Unless a
compelling public policy rationale exists, such conduit financings will not in
any way pledge the City’s faith and credit.
H. STRUCTURE OF DEBT
41Exhibit ‘A’
Page 30 of 30
1. Term of Debt – Debt will be structured with the goal of distributing the
payments for the asset over its useful life so that benefits more closely
match costs for both current and future residents. Borrowings by the City
should be of a duration that does not exceed the useful life of the
improvement that it finances. The standard term of long-term borrowing is
typically 15-30 years.
2. Rapidity of Debt Payment – Accelerated repayment schedules reduce
debt burden faster and reduce total borrowing costs. The Finance
Department will amortize debt through the most financially advantageous
debt structure and to the extent possible, match the City’s projected cash
flow to the anticipated debt service payments. “Backloading” of debt
service will be considered only when one or more of the following occur:
a) Natural disasters or extraordinary or unanticipated external factors
make payments on the debt in early years prohibitive.
b) The benefits derived from the debt issuance can clearly be
demonstrated to be greater in the future than in the present.
c) Such structuring is beneficial to the City’s aggregate overall debt
payment schedule or achieves measurable interest savings.
d) Such structuring will allow debt service to more closely match
project revenues during the early years of the project’s operation.
3. Level Payment – To the extent practical, bonds will be amortized on a
level repayment basis, and revenue bonds will be amortized on a level
repayment basis considering the forecasted available pledged revenues to
achieve the lowest rates possible. Bond repayments should not increase
on an annual basis in excess of 2% without a dedicated and supporting
revenue funding stream.
4. Serial Bonds, Term Bonds, and Capital Appreciation Bonds – For
each issuance, the City will select serial bonds or term bonds, or both. On
the occasions where circumstances warrant, Capital Appreciation Bonds
(CABs) may be used. The decision to use term, serial, or CAB bonds is
driven based on market conditions.
5. Reserve Funds – The City shall strive to maintain fund balance in the
Facilities Planning Reserve at a level equal to or greater than the
maximum annual debt service of existing obligations.
424344Exhibit ‘A’
Page 1 of 2
CITY OF CULVER CITY
COUNCIL POLICY STATEMENT Policy Number
General Subject: Finance Date Issued 06/23/2014
Specific Subject: Recreation Facilities Dates Revised
Reserve
Effective Date 06/24/2014
Resolution No. 2014-Rxxx
__________________________________________________________________
PURPOSE:
To set aside a portion of fees to mitigate addional facility or equipment wear and tear
created by fee based programs that are not self-supporting.
STATEMENT OF POLICY:
The instructional recreational programs for children and adults provided by the
Parks, Recreation & Community Services Department will be conducted for a fee to
offset associated cost with managing such programs. Registration fees will be
based on an amount sufficient to acquire independent contractors, class
materials and the administrative overhead and a facility use fee. Occasionally, it
may be necessary to conduct programs in which revenues are not sufficient to be
self-supporting. The Parks, Recreation & Community Services Director or designee
is authorized to enter into agreements for securing independent contractors for
approved instructional recreation activities.
Certain fee based activities create additional wear and tear on equipment and
facilities. In these cases, it is appropriate to set aside a portion of the annual fees to
replace or mitigate the accelerated aging of the equipment or facility being used. A
sum of money equivalent to 10% of the gross annual revenues derived from park and
facility rental fees, program fees, class fees, etc. shall be set aside into a Recreational
Facilities Reserve for equipment replacement or facility refurbishment. Following is a
comprehensive list of revenue codes from the PRCS Department that will be the basis
of this calculation:
Object Title
365160 After School Program
365710 Senior Center Rental
365720 Teen Center Rental
365730 Meeting Room Rental
365740 Auditorium Rental
365210 Day Camp Fees
45Exhibit ‘A’
Page 2 of 2
365220 Youth Camp Fees
365240 Recreation Park & Picnic Permits
365250 Park Programs Revenue
365310 Youth Sports Program Revenue
365350 Adult Sports Program Revenue
365410 Classes – Contracted Fees
365510 City Plunge (Pool) Admissions
365520 Pool Rentals & Passes
365530 Aquatics Programs
365540 Aquatics Contract Classes
4647“Exhibit A”
City of
Culver City
Investment Policy
Fiscal Year 2014-2015
Jeff Muir
Chief Financial Officer / City Treasurer
48City of Culver City
Annual Investment Policy
Fiscal Year 2014 - 2015
TABLE OF CONTENTS
Introduction ............................................................................................................... 1
Delegation of Authority ........................................................................................... 1
Ethics and Conflicts of Interest ............................................................................... 2
Prudence ................................................................................................................... 2
Prudent Investor Rule ............................................................................................... 2
Internal Controls ...................................................................................................... 3
Investment Objectives ............................................................................................. 3
Performance Evaluation ......................................................................................... 4
Diversification .......................................................................................................... 4
Portfolio Segregation ............................................................................................... 4
Bond Issuance Arbitrage Rebate ........................................................................... 5
Maximum Maturities ................................................................................................. 5
Portfolio Reporting .................................................................................................. 6
Qualified Dealers .................................................................................................... 7
Safekeeping of Securities ...................................................................................... 8
Collateralization ...................................................................................................... 8
Authorized Investments ........................................................................................... 9
Ineligible Investments ............................................................................................. 13
Investment Advisory Committee ......................................................................... 13
Investment Policy Adoption ................................................................................ 13
Glossary ................................................................................................................... 14
49
1
1. INTRODUCTION
This statement of Investment Policy is intended to provide specific criteria
for the prudent investment of City funds. The ultimate investment goal is to
enhance the economic status of the City while protecting funds under
management and meeting the daily cash flow demands of the City. The
investment policy conforms to all Federal, State and local laws governing
the investment of monies under the control of the Chief Financial Officer /
City Treasurer.
This investment policy applies to the City's Investment Portfolio and
Redevelopment Agency Portfolio. These portfolios encompass all monies
under the direct oversight of the Chief Financial Officer / City Treasurer and
include the General Fund, Reserve Funds, Special Revenue Funds, Debt
Service Funds, Capital Project Funds, Proprietary Funds, Trust and Agency
Funds, and any other funds that may be created.
2. DELEGATION OF AUTHORITY
The Charter of the City of Culver City and the authority granted by City
Council assign the responsibility of investing unexpended cash to the City
Treasurer. The Chief Financial Officer has been appointed to also serve as
the City Treasurer. The Chief Financial Officer may delegate daily
investment activity, such as carrying out the Treasurer's investment
instructions, confirming treasury transactions, and other routine activities.
The Chief Financial Officer shall establish written investment policy
procedures for the operation of the investment program consistent with this
policy. The procedures should include reference to: safekeeping, PSA
repurchase agreements, wire transfer agreements, banking service
contracts 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 policy and the
procedures established by the Chief Financial Officer.
The Chief Financial Officer is responsible for the investment of bond
proceeds whether held by the City or with a fiscal agent. The Bond
Proceeds portfolio(s) shall be segregated from the Pooled Investment
Portfolio of the City and will be structured with maturities (or maintain an
average maturity) sufficient to meet construction draws, debt service
payments and other short-term liabilities. For purposes of efficiency, the
Chief Financial Officer may instruct each fiscal agent to purchase certain
securities regarding the investment of bond proceeds.
The Chief Financial Officer has delegated day-to-day management of the
50City of Culver City Investment Policy Revised June 23, 2014
2
Culver City Investment Portfolio to Cutwater Investor Services Corporation,
who has full authority to execute investment transactions on behalf of the
City, within parameters provided by the Chief Financial Officer. In the
event Cutwater Investor Services Corporation is not able to execute
investment transactions, the Chief Financial Officer and Revenue Division
Manager have the authority to execute investment transactions.
3. ETHICS AND CONFLICTS OF INTEREST
Officers, employees and consultants involved in the investment process
shall refrain from personal business activity that conflicts with proper
execution of the investment program or that impair their ability to make
impartial investment decisions. Employees and investment officials shall
disclose any material financial interests that could be related to the
performance of the City's investment policy annually or as necessary.
4. PRUDENCE
The Chief Financial Officer operates the City's pooled cash investment
program under the Prudent Investor Rule, Government Code Section
53600.3, and applicable State laws. This affords a broad spectrum of
investment opportunities so long as the investment is deemed prudent and
permissible by the State of California, various bond indentures and this
policy. The Chief Financial Officer strives to invest 100% of idle funds.
5. PRUDENT INVESTOR RULE
When investing, reinvesting, purchasing, acquiring, exchanging, selling, and
managing public funds, the Chief Financial Officer shall act with care, skill,
prudence, and diligence under the circumstances then prevailing that a
prudent person acting in a like capacity and familiarity with those matters
would use in the conduct of funds of a like character and with like aims to
safeguard the principal and maintain the liquidity needs of the agency. All
such investments, reinvestments, purchases, acquisitions, exchanges, and
sales shall be made subject to and in accordance with this policy and the
provisions of Sections 16429.1 and 53600 through 53684 of the Government
Code and other applicable laws and regulations.
51City of Culver City Investment Policy Revised June 23, 2014
3
6. INTERNAL CONTROLS
The Chief Financial Officer shall establish procedures that separate the
internal responsibility for management and accounting of the investment
portfolio. An analysis by an external independent auditor shall be
conducted annually to review internal controls, account activity and
compliance with policies and procedures.
7. INVESTMENT OBJECTIVES
The City's cash management system is designed to accurately monitor and
forecast revenues and expenditures, thus enabling the Chief Financial
Officer to invest funds to the fullest extent possible. The Chief Financial
Officer maintains a diversified portfolio to accomplish the primary
objectives in the order of safety, liquidity, and yield.
Safety: The safety/risk associated with an investment refers to the potential
loss of principal, accrued interest or a combination of these. The Chief
Financial Officer seeks to mitigate credit risk by monitoring financial
institutions with which he/she will do business, and by careful scrutiny of the
credit worthiness of the investment instruments as well as the institutions.
Such resources as Moody's and Standard & Poor's rating services are
utilized for this review. The Treasurer seeks to mitigate interest rate risk
through diversification of instruments as well as maturities.
Liquidity: The portfolio will be structured with sufficient liquidity to allow the
Chief Financial Officer to meet anticipated cash requirements. This will be
accomplished through the purchase of a diversity of instruments to include
those with active secondary markets, those that can match maturities to
expected cash needs, and the State Local Agency Investment Fund with
immediate withdrawal provisions.
Yield: A competitive market rate of return is the third objective of the
investment program after the fundamental requirements of safety and
liquidity have been met. The portfolio shall be managed to consistently
attain a market rate of return throughout budgetary and economic cycles.
Whenever possible, and consistent with risk limitations and prudent
investment management, the City will seek to augment returns above the
market average rate of return through the implementation of active
portfolio management strategies.
52City of Culver City Investment Policy Revised June 23, 2014
4
8. PERFORMANCE EVALUATION
Investment performance is continually monitored and evaluated by the
Chief Financial Officer. Investment portfolio reports are generated on a
quarterly basis and submitted to the City Council, City Manager and
Investment Committee.
The investment portfolio reports are to be submitted within 30 days of the
end of the reporting period. The monthly average yield of the Culver City
Pooled Investment Portfolio will be compared to the monthly average 6-
month CMT (Constant Maturity Treasury) as calculated by the Federal
Reserve Bank of New York. As an added reference, the monthly average
yield of the Culver City Pooled Investment Portfolio will be compared to the
monthly average 2-year CMT as calculated by the Federal Reserve Bank of
New York.
9. DIVERSIFICATION
The City will diversify use of investment instruments to avoid unreasonable
risks inherent in over-investing in specific instruments, individual financial
institutions, or maturities.
Market price volatility shall be controlled through maturity diversification, as
well as ensuring adequate liquidity is available to meet cash flow
requirements, thereby precluding the need to sell instruments at a market
loss.
Risk of default will be controlled by acquiring instruments such as
Government Securities, or by diversifying the portfolio within the constraints
and parameters of Section 17 of this Policy, Authorized Investments.
10. PORTFOLIO SEGREGATION
Within the overall funds managed by the Chief Financial Officer, bond
funds shall be invested in conformance with the permitted investment
criteria documented in each bond indenture or guiding resolution.
Furthermore, bond proceeds held by fiscal agents shall also be segregated
and invested in accordance with each indenture.
The primary purpose in managing bond proceeds is to structure investment
maturities to meet current and future liabilities. The preservation of
principal and the maintenance of liquidity are the most important factors
regarding the investment of bond proceeds. Portfolio yield is not a primary
53City of Culver City Investment Policy Revised June 23, 2014
5
factor since the portfolio structure, eligible investment assets and maturity
restrictions are governed by draws and expenditure schedules of the issues.
Performance will be based upon maximizing permitted positive arbitrage
within the context of principal preservation as a first priority (pre-1986 Tax
Reform Act issuances) or minimizing or eliminating negative arbitrage
(yield-restricted issues).
11. BOND ISSUANCE ARBITRAGE REBATE
The U.S. Tax Reform Act of 1986 requires the City to perform annual
arbitrage calculations and rebate excess earnings to the U.S. Treasury for
investment returns that exceed the allowable interest earnings limit of each
bond issue. The arbitrage calculation process must be conducted for the
investment of proceeds of bond issues sold after the effective date of this
law. This arbitrage calculation will be contracted out to provide the
necessary technical expertise to comply with this regulation. The City's
investment position relative to the interest rate arbitrage restrictions is to
have safety and the highest permitted return the law allows as the highest
priority while ensuring the preservation of principal and liquidity.
12. MAXIMUM MATURITIES
(1) Operating Portfolio
In accordance to California Government Code Section 53601, the
City will not invest in any securities maturing more than five (5) years
from the settlement date of purchase. If the Chief Financial Officer
desires to make investments longer than five years, express authority
to make those investments, either specifically or as part of an
investment program, must be approved by the City Council no less
than three months prior to the investment. In no event will securities
with maximum maturities beyond four years exceed 40% of the
portfolio’s total carrying cost at the time of purchase.
(2) Bond Proceeds
The Bond Proceeds portfolio held by the City and/or fiscal agents will
be structured with maturities sufficient to meet current and future
disbursements and other liabilities consistent with the purpose of
each bond issue. The Chief Financial Officer may match maturities
to defined future liabilities or may structure the portfolio in such a
manner as to maintain an average maturity and a defined liquidity
percentage necessary to meet estimated liabilities. In no event will
54City of Culver City Investment Policy Revised June 23, 2014
6
securities be purchased with final maturities that exceed a
specifically defined future liquidity requirement (such as bond
reserve fund availability requirement) or liability.
13. PORTFOLIO REPORTING
On a quarterly basis, or as otherwise requested by the City Manager, the
Chief Financial Officer shall provide to the City Council an investment
portfolio report indicating each of the City's investments (a description that
adequately describes the security), the purchase date, maturity date, cost
basis, current cost value (book value), interest rate, weighted average
maturity, and current unrealized loss or gain. Various investment types will
be categorized and grouped in the same structure as the qualified
investment categories identified in this policy. The portfolio report shall
include a statement certifying the ability of the City to meet its expenditure
requirements for the next six months, or provide an explanation as to why
sufficient money shall, or may, not be available. The report will also include
comments on the fixed income markets and economic conditions, and the
effect, if any, on the portfolio structure and investment strategy. The report
shall also detail all repurchase and reverse repurchase positions and
associated liabilities.
The investment portfolio report shall include mark-to-market information for
all investments. A monthly market value will be obtained for each security
owned by the City. For purposes of reporting, the market value of each
security may be obtained from the City’s custodian bank or other pricing
source(s) utilized by the City’s designated investment management firm
(registered investment advisor).
The City shall record interest revenue on a modified accrual basis of
accounting that is typical for reporting and recording of interest earnings,
accretions and premium amortizations. Securities held by a fiscal agent
shall also be recorded on a modified accrual basis of accounting. The
Chief Financial Officer will report year-end investments in conformance
with GASB 31 and GASB 40.
The Chief Financial Officer will perform a monthly reconciliation of all funds
included in the investment portfolios. The reconciliation shall utilize all
available information including the City's books, the Demand Deposit Bank
account, the custodian's statement and the fiscal agent's statement.
55City of Culver City Investment Policy Revised June 23, 2014
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14. QUALIFIED DEALERS
The Chief Financial Officer shall transact business only with Registered
Investment Advisors, banks, savings and loans, and broker dealers. The
dealers should be primary dealers regularly reporting to the New York
Federal Reserve Bank, or approved regional or secondary market dealers
that qualify under the Securities and Exchange Commission Rule 15C3-1
(uniform net capital rule).
A list of security broker/dealers approved to conduct business with the City
shall be maintained by Cutwater Investor Services Corporation.
The Chief Financial Officer may direct a fiscal agent to execute investment
transactions on behalf of the City for funds held by that fiscal agent.
The City may purchase A|1010|, P|1010| rated commercial paper from its direct issuer
if it presents a higher return than in the secondary market.
Cutwater Investor Services Corporation shall send annually a copy of the
current investment policy by electronic mail to all broker/dealers approved
to do business with the City.
15. SAFEKEEPING OF SECURITIES
To protect against losses caused by the collapse of individual securities
dealers, all securities owned by the City shall be held in safekeeping by a
third party bank trust department acting as agent for the City under the
terms of a custody agreement or Master Repurchase Agreement
(repurchase agreement collateral) or, in the case of funds held by the fiscal
agent, the fiscal agent shall segregate and report securities held on the
City's behalf. Any trade executed by a dealer is required to settle on a
delivery versus payment basis with the City's safekeeping agent.
Fiscal agents in receipt of City of Culver City bond proceeds will settle
security transactions on a delivery versus payment method based upon
instructions provided by the Chief Financial Officer or the City's investment
advisor. The fiscal agents will issue monthly custodian statements
evidencing securities held in safekeeping, including the receipt of interest
and maturity proceeds, the disbursement of funds for the purchase of
securities, and the receipt of any sale proceeds.
16. COLLATERALIZATION
All demand deposits, time deposits and repurchase agreements are to be
56City of Culver City Investment Policy Revised June 23, 2014
8
fully collateralized with securities authorized by the California Government
Code and the City.
(1) The eligible collateral for repurchase agreements must be those
investments authorized by Section 53651 of the California
Government Code. The Chief Financial Officer may specify the type
of eligible collateral for use in repurchase agreements. Eligible
collateral must be in book entry form. Collateral is valued at current
market plus accrued interest through the date of valuation.
(a) The cost value (book value) of collateral pledged for demand
deposits must at all time be equal to or greater than the
amount on deposit, plus accrued interest, in accordance with
the following ratio:
U.S. Treasury Securities 110%
(b) The cost value (book value) of collateral pledged for
repurchase agreements must at all time be equal to or greater
than the par amount, plus accrued interest, with the following
ratios:
U.S. Treasury Securities 102%
U.S. Government Agencies 102%
Cash (in immediately available funds) 100%
(2) It is the policy of the City to require reports at least on a quarterly
basis from institutions with which the Chief Financial Officer has
pledged security interest. The Chief Financial Officer shall monitor
the adequacy of collateralization to ensure that balances are
collateralized in accordance with the ratios approved herein.
(3) With regard to repurchase agreements, it is the policy of the City to
initiate a margin call in the event pledged collateral falls below the
appropriate ratio.
(4) Collateralized investments and deposits often require substitution of
collateral. Any broker or financial institution requesting substitution
must contact the City for approval in the event the counterparty to
the transaction is not authorized under agreement with the City to
make substitutions.
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9
17. AUTHORIZED INVESTMENTS
The City’s investments and deposits are governed by the California
Government Code, Sections 16429.1, 53600-53609 and 53630-53686 et. seq.
Within the context of these limitations and based on the cost at the time of
purchase, the following investments are authorized as further limited herein:
Authorized Investment Summary Matrix
Category Percent
A. US Treasuries no limit
B. US Agencies no limit
C. Bankers’ Acceptances 25%
D. Commercial Paper 25%
E. Repurchase Agreements 25%
F. Reverse Repurchase Agreements 15%
G. Local Agency Investment Fund (LAIF) Per State limit
H. Municipal Bonds 30%
I. Corporate Medium Term Notes 30%
J. Money Market Mutual Funds 20%
K. CalTrust MMF and Short-Term Funds no limit
L. CalTrust Medium-Term Fund 15%
A. United States Treasury Bills, Bonds, and Notes, or those for which the
full faith and credit of the United States are pledged for payment of
principal and interest. There is no limitation as to the percentage of
the portfolio that can be invested in this category.
B. United States Agency (government sponsored enterprise)
debentures, discount notes, callable and step-up securities. There is
no limitation as to the percentage of the portfolio that can be
invested in this category Although there is no percentage limitation
on these issues, no more than 30% of the cost (book) value of the
portfolio will be invested in any one agency.
C. Bills of exchange or time drafts drawn on and accepted by a
commercial bank, otherwise known as Bankers’ Acceptances.
Bankers’ Acceptances purchased may not exceed 180 days to
maturity or 25% of the cost (book) value of the portfolio. No more
than 5% of the cost (book) value of the portfolio may be invested in
Bankers’ Acceptances issued by any one bank. Prior to the
purchase of any Banker’s Acceptance, the portfolio manager shall
review the rating of the issuing bank. Bankers’ Acceptances of
issuing financial institutions shall have both a short and long term
58City of Culver City Investment Policy Revised June 23, 2014
10
rating of at least A -1 or the equivalent by at least one nationally
recognized statistical rating organization (NRSRO) at the time of
purchase.
D. Prime Commercial Paper with a maturity not exceeding 270 days
from the date of trade settlement with the highest letter and number
rating as provided for by a NRSRO. The entity that issues the
commercial paper shall meet all of the following conditions in either
sub-paragraph A. or sub-paragraph B. below:
A. The entity shall (1) be organized and operating in the United
States as a general corporation, (2) have total assets in excess of
$500,000,000 and (3) have debt other than commercial paper, if any,
that is rated at least A or the equivalent by a NRSRO.
B. The entity shall (1) be organized within the United States as a
special purpose corporation, trust, or limited liability company, (2)
have program wide credit enhancements, including, but not limited
to, over collateralization, letters of credit or surety bond and (3) have
commercial paper that is rated at least A-1 or the equivalent by a
NRSRO.
The aggregate investment in commercial paper may not exceed
25% of the cost value of the portfolio, and no more than 5% of the of
the cost value of the portfolio may be invested in the commercial
paper of any one issuer.
E. Repurchase agreements. The City may invest in repurchase
agreements with banks and primary dealers with whom the City has
entered into a master repurchase agreement that specifies terms
and conditions of repurchase agreements. No more than 25% of the
cost value of the portfolio may be invested in repurchase
agreements at any time. The maturity of repurchase agreements
shall not exceed 75 days.
The cost value of securities used as collateral for repurchase
agreements shall be monitored daily by the Chief Financial Officer
and will not be allowed to fall below the margin ratios specified in
Section 16 (1)(b) of this policy. In order to conform with provisions of
the Federal Bankruptcy Code which provides for the liquidation of
securities held as collateral for repurchase agreements, the only
securities acceptable as collateral shall be securities that are direct
obligations of, or that are fully guaranteed as to principal and
interest by, the United States Government such as Treasury bills,
Treasury notes or Treasury bonds with less than a five-year maturity.
59City of Culver City Investment Policy Revised June 23, 2014
11
F. Reverse repurchase agreements. The City may invest in reverse
repurchase agreements only with those banks and primary dealers
with whom the City has entered into a master repurchase
agreement outlining terms and conditions of repurchase and reverse
repurchase agreements. The City may only invest in reverse
repurchase agreements for the following purpose:
1. The City may enter into reverse repurchase agreements
when funds obtained through the reverse can be
reinvested in a higher yielding security to obtain
additional interest income for the City at a spread
deemed to be acceptable by the Chief Financial
Officer under then prevailing market conditions. Reverse
repurchase agreements entered into in accordance
with this paragraph may not exceed 75 days to maturity
and must be matched as to maturity and dollars
invested with its corresponding reinvestment. No more
than 15% of the cost value (book value) of the portfolio
may be invested in reverse repurchase agreements.
2. Reverse repurchase agreements may be used for
liquidity purposes when it is determined that the portfolio
has sufficient additional collateral coming due within the
term of the reverse repurchase agreement equal to or
exceeding the amount of the reverse repurchase
agreement.
G. Local Agency Investment Fund (LAIF). The City may invest in the LAIF
established by the State Treasurer for the benefit of local agencies
up to the maximum permitted by State law.
H. Municipal bonds including registered treasury notes or bonds of any
of the 50 states, including bonds payable solely out of the revenues
from a revenue-producing property owned, controlled, or operated
by a state or by a department, board, agency, or authority of any of
the 50 states.
In addition, bonds, notes, warrants, or other evidences of
indebtedness of any local agency in California, including bonds
payable solely out of the revenues from a revenue-producing
property owned, controlled, or operated by the local agency, or by
a department, board, agency, or authority of the local agency.
Obligations rated “A” or the equivalent by a NRSRO at the time of
60City of Culver City Investment Policy Revised June 23, 2014
12
purchase shall be limited to 36 month maturities, and obligations
rated “AA” or the equivalent by a NRSRO at the time of purchase
shall be limited to five-year maturities. The aggregate investment in
municipal bonds may not exceed 30% of the cost value of the
portfolio, and no more than 5% of the cost value of the portfolio may
be invested in any single issuer.
I. Corporate medium term notes issued by a domestic corporation
having assets in excess of $500 million and having a rating of at least
“A” or the equivalent by a NRSRO at the time of purchase on its long-
term debentures. Purchase of corporate medium term notes from
corporations on negative credit watch by a major rating agency
shall be prohibited. Obligations rated “A” or the equivalent by a
NRSRO at the time of purchase shall be limited to 36 month
maturities, and obligations rated “AA” or the equivalent by a NRSRO
at the time of purchase shall be limited to five-year maturities. The
aggregate total of all purchased medium term notes may not
exceed 30% of the cost value of the portfolio. No more than 5% of
the cost value of the portfolio may be invested in corporate medium
term notes issued by any one corporation. Commercial Paper and
bankers’ acceptance holdings shall be considered when calculating
the maximum percentage in any issuer name.
J. Money Market Mutual funds having a rating of AAA/Aaa or an
equivalent by one or more NRSROs with no load and maintained at
$1 par value. No more than 20% of portfolio value should be
invested in this category; investment in a single mutual fund will not
to exceed 10% of the cost value (book value) of the total portfolio
exclusive of the fiscal agent cash portfolio, and the City's investment
in any specific mutual fund will not exceed 2% of that mutual fund's
total assets.
K. Investment Trust of California (CalTrust). The City may invest in the
Money Market Fund and Short-Term fund established by this Joint
Powers Authority. There is no limit on the percentage of the portfolio
that can be invested in these funds.
L. Investment Trust of California (CalTrust). The City may invest in the
Medium-Term fund established by this Joint Powers Authority. No
more than 15% of portfolio value should be invested in this category.
Upon any announcement of negative credit watch or downgrade
by a major rating agency of any issue within the portfolio, the
investment manager should contact the Chief Financial Officer and
recommend a course of action.
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13
Securities that have been downgraded to a level that is below the
minimum ratings described herein may be sold or held at the City's
discretion. The portfolio will be brought back into compliance with
Investment Policy guidelines as soon as is practical.
18. INELIGIBLE INVESTMENTS
Investments not described herein including, but not limited to, equity
securities such as common stocks, preferred stocks, convertibles, inverse
floaters, range notes and interest-only strips that are derived from a pool of
mortgages are prohibited from use in this portfolio. The City is prohibited
from entering into a margin agreement and/or borrowing on margin.
19. INVESTMENT COMMITTEE
An Investment Committee shall be established consisting of but not limited
to the Chief Financial Officer, members of the Chief Financial Officer’s staff,
two City Council members, and the City Manager.
20. INVESTMENT POLICY ADOPTION
The City Council shall review and adopt this Investment Policy annually.
62City of Culver City Investment Policy Revised June 23, 2014
14
GLOSSARY
AGENCIES - Agencies of the Federal government set up to supply credit to
various classes of institutions (e.g., S&L's, small business firms, students,
farmers, housing agencies, etc.) Examples include Federal Home Loan
Mortgage Corporation (FHLMC), Federal National Mortgage Association
(FNMA), Federal Home Loan Bank (FHLB) and Federal Farm Credit Bank
(FFCB).
ASK/OFFER - The price at which securities are offered. (The price at which a
firm will sell a security to an investor)
BANKERS’ ACCEPTANCE (BA) - A draft or bill of exchange accepted by a
bank or trust company. The accepting institution guarantees payment of
the bill as well as the issuer.
BASIS POINT - One one-hundredth of a percent (i.e., 0.01%)
BEAR MARKET - A period of generally pessimistic attitudes and declining
market prices.
BID PRICE - The price at which a broker/dealer will buy securities from an
investor.
BOND EQUIVALENT YIELD - The basis on which yields on notes and bonds are
quoted.
BOOK VALUE (COST VALUE) - The purchase price of the security as recorded
on the City’s books.
BROKER/DEALER – An individual or firm acting as principal in a securities
transaction.
BULL MARKET - A period of generally optimistic attitudes and increasing
market prices.
CALLABLES - Securities that the issuer has the right to redeem prior to
maturity.
CERTIFICATE OF DEPOSIT (CD) - A time deposit with a specific maturity
evidenced by a certificate. Large denomination CD's are typically
negotiable.
CMT - Constant Maturity Treasury – An index of the average yield on United
States Treasury securities adjusted to a constant maturity.
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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 - Commercial Paper is issued by leading industrial and
financial firms to raise working capital. The maturities are from 3 to 180 days,
usually sold on a discount basis. The City and Redevelopment Agency only
buys Commercial Paper issued by corporations with the highest possible
credit rating. Investments in Commercial Paper may not exceed 25% of the
City or Redevelopment Agency’s surplus funds.
CORPORATE MEDIUM TERM NOTE - A security issued by a corporation doing
business in the U.S. with a maturity not to exceed five years.
COST VALUE (BOOK VALUE) - The purchase price of the security as recorded
on the City’s books.
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 VS PAYMENT - Delivery of securities with a simultaneous exchange
of money.
DEMAND ACCOUNT – An account with a commercial bank from which
check withdrawals may be made at any time.
DERIVATIVES - Financial products that are dependent for their value on (or
derived from) an underlying financial instrument, a commodity, or an index
representing values of groups of such instruments or assets.
DISCOUNT - The difference between the cost 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.
DIVERSIFICATION - Dividing investment funds among a variety of securities
offering independent returns.
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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 business firms, students, farmers, farm cooperatives, and exporters.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) - A federal agency that
insures bank deposits, currently up to $250,000 100,000 per deposit. Note
that this is set to revert back to $100,000 per deposit on December 31, 2009
unless extended by Congress.
FEDERAL FUNDS RATE – Interest rate charged by one institution lending
federal funds to another.
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 companies. The mission of the FHLBs
is to liquefy the housing related assets of its members who must purchase
stock in their district Bank.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - FNMA, like GNMA
was charted under the Federal National Mortgage Association Act in 1938.
FNMA is a federal corporation working under the auspices of the
Department of Housing and Urban Development (HUD). It is the largest
single provider of residential mortgage funds in the United States. Fannie
Mae, as the corporation is called, is a private stockholder-owned
corporation. The corporation's purchases include a variety of adjustable
mortgages and second loans, in addition to fixed-rate mortgages. FNMA's
securities are also highly liquid and are widely accepted. FNMA assumes
and guarantees that all security holders will receive timely payment of
principal and interest.
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 Federal 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.
FINANCIAL ADVISOR - A firm or bank that acts in a financial advisory
capacity with respect to a new issue of municipal securities pursuant to a
written contract.
FISCAL AGENT - A financial institution with trust powers which acts in a
fiduciary capacity for the benefit of the bondholders in enforcing the terms
65City of Culver City Investment Policy Revised June 23, 2014
17
of the bond contract.
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 FmHA mortgages. The term "pass-throughs" is often used to
describe Ginnie Maes.
INTERNAL RATE OF RETURN - Rate of return over the life of a security on
variables.
INVESTMENT TRUST OF CALIFORNIA (dba CalTRUST) – A Joint Powers
Authority investment pool administered by the California State Association
of Counties, and sponsored by the League of California Cities.
LIQUIDITY - A liquid asset is one that can be converted easily and rapidly
into cash without a 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 AGENCY INVESTMENT FUND (LAIF) - The aggregate of all funds 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, usually the
liquidation value.
MONEY MARKET MUTUAL FUNDS – Open-ended mutual fund that invests in
commercial paper, banker’s acceptances, repurchase agreements,
government securities, certificates of deposit and other highly liquid and
safe securities, and pays money market rates of interest. The fund’s net
asset value remains a constant $1 a share, with the interest rate increasing
or decreasing.
OFFER PRICE - The price at which a broker/dealer will offer securities to an
investor.
OPEN MARKET OPERATIONS - Federal Reserve activity. Under the Federal
Reserve Act, the Fed uses purchases and sales of Government and Federal
Agency securities to add to or subtract from commercial bank reserves.
Goals are to sustain economic growth, high employment and reasonable
price stability.
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PAPER GAIN OR LOSS - Term used for unrealized gain or loss on securities
being held in a portfolio based on comparison of current market quotes
and their original cost. This situation exists as long as the security is held
while there is a difference between cost value (book value) and the
market value.
PRIMARY DEALER - A group of government securities dealers that submits
daily reports of market activity, positions and monthly financial statements
to the Federal Reserve Bank of New York, and are subject to its informal
oversight. Primary dealers include Securities and Exchange Commission
(SEC) registered securities broker/dealers, banks and a few unregulated
firms.
PSA - The Public Securities Association is the international organization of
banks, dealers and brokers that underwrite, trade and sell municipal
securities, mortgage-backed securities, money market securities and U.S.
government and federal agency securities.
RATE OF RETURN - The yield obtainable on a security based on its purchase
price or its current market price. This may be the amortized yield to
maturity; on a bond, the current income return.
SAFEKEEPING - The service provided by banks and trust companies for
clients when the bank or trust company stores the securities, takes in
coupon payments, and redeems issues at maturity.
SPREAD - a) The yield or price difference between the bid and offer on an
issue; b) the yield or price difference between different issues.
SWAP - The sale of one issue and the simultaneous purchase of another for
some perceived advantage.
TREASURY BILLS - A non-interest bearing discount security issued by the U.S.
Treasury to finance the national debt. Most bills are issued to mature in
three months, six months or one year.
TREASURY BONDS – U.S. Treasury securities that have initial maturities of
more than ten years.
TREASURY NOTES - Intermediate-term coupon bearing U.S. Treasury
securities having initial maturities of from one year to ten years.
TRUSTEE - A financial institution with trust powers that acts in a fiduciary
capacity for the benefit of the bondholders in enforcing the terms of the
bond contract.
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WHEN ISSUED BASIS (WI) - A term applied to securities that are traded
before they are actually issued with the stipulation that transactions are null
and void if securities are not issued.
YIELD CURVE - Yield calculations of various maturities at a given time to
observe spread difference.
YIELD TO MATURITY - The current coupon yield minus any premium above
par, or plus any discount from par in the purchase price with the
adjustment spread over the period from date of purchase to maturity.
68