HomeMy WebLinkAboutOCSD 18-23 (REPEALED)RESOLUTION NO. OCSD 18-23
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE ORANGE
COUNTY SANITATION DISTRICT, AUTHORIZING THE DISTRICT'S
TREASURER TO INVEST AND/OR REINVEST DISTRICT'S FUNDS,
ADOPTING DISTRICT'S INVESTMENT POLICY STATEMENT AND
PERFORMANCE BENCHMARKS, AND REPEALING RESOLUTION
NO. OCSD 17-17
WHEREAS, on December 20, 2017, the Board of Directors adopted Resolution
No. 17-17, readopting the District's Investment Policy Statement, and establishing
specific performance benchmarks and objectives, together with a schedule of frequency
of investment performance reports; and
WHEREAS, pursuant to California Government Code Section 53607, the Board of
Directors may delegate authority to invest and/or reinvest District's funds to the Treasurer
for a one-year period; and
WHEREAS, pursuant to California Government Code Section 53646, the District
is required to review its Investment Policy annually and readopt its Policy at a public
meeting, which Policy will establish specific performance benchmarks and objectives, and
specific monitoring and reports.
NOW, THEREFORE, the Board of Directors of the Orange County Sanitation
District, DOES HEREBY RESOLVE, DETERMINE AND ORDER:
Section 1: That the authority of the Board of Directors to invest or reinvest
District's surplus funds, or to sell or exchange securities so purchased, or to deposit for
safekeeping the funds and investments of the Districts with depositories, as provided for
in California Government Code Sections 53608 and 53630, is hereby delegated to the
District's Treasurer for a one-year period, January 1, 2019 through December 31, 2019,
as authorized by California Government Code Section 53607.
OCSD 18-23-1
REPEALED BY
OCSD 19-21
Section 2: That the Board of Directors hereby adopts the Investment Policy
Statement of the Orange County Sanitation District, as set forth in Exhibit "A", attached
hereto and incorporated herein by reference.
Section 3: That the Board of Directors hereby adopts the following specific
performance benchmarks for their two investment funds in accordance with Section 14.0
of the District's Investment Policy:
LIQUID OPERATING MONIES: The Short-Term Operating Fund will be compared
to the three-month T-Bill rate, and the Callan Active Cash Flow Income Style
Group. The Callan Active Cash Flow Income Style Group represents a peer group
of managers who operate with a maximum maturity of one year.
LONG-TERM OPERATING MONIES: The Long-Term Operating Fund will be
compared to the Merrill Lynch Government and Corporate One-to-Five Year
Maturity Index and to the Callan Defensive Fixed Income Style Group.
Section 4: That the Board of Directors hereby adopts a performance monitoring
and reporting schedule, as required by Section 15.0 of the District's Investment Policy,
which schedule is attached hereto as Exhibit "B", and incorporated herein by reference.
Section 5: That Resolution No. OCSD 17-17 is hereby repealed.
OCSD 18-23-2
PASSED AND ADOPTED at regular meeting of the Board of Directors, Orange
County Sanitation District held December 19, 2018.
ATTEST:
OCSD 18-23-3
STATE OF CALIFORNIA )
) SS
COUNTY OF ORANGE )
I, Kelly A. Lore, Clerk of the Board of Directors of the Orange County Sanitation
District, do hereby certify that the foregoing Resolution No . OCSD 18-23 was passed and
adopted at a regular meeting of said Board on the 19th day of December 2018 , by the
following vote, to wit:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
Avery (Alternate); Bernstein; Collacott; Deaton; Ferryman;
Hawkins ; Kim; Kring; R. Murphy; Nagel; Nguyen; Parker;
Peterson ; Shaw; Shawver; Silva; F. Smith ; Wagner; Wanke;
Withers and Yarc
None
None
Jones; M. Murphy (Alternate); Steel; and VACANT (Santa Ana)
IN WITNESS WHEREOF , I have hereunto set my hand and affixed the official
seal of Orange County Sanitation District this 19th day of December 2018.
re , MM
e Board of Directors
Orange County Sanitation District
OCSD 18-23-4
1.0 Policy:
ORANGE COUNTY SANITATION DISTRICT
INVESTMENT POLICY STATEMENT
It is the policy of the Orange County Sanitation District (OCSD) to invest public funds in
a manner which ensures the safety and preservation of capital while meeting
reasonably anticipated operating expenditure needs, achieving a reasonable rate of
return and conforming to all state and local statutes governing the investment of public
funds.
1.1. This Investment Policy is set forth by OCSD for the following purposes:
1.1.1. To establish a clear understanding for the Board of Directors,
OCSD management, responsible employees and third parties of the
objectives, policies and guidelines for the investment of the OCSD's idle
and surplus funds.
1.1.2. To offer guidance to investment staff and any external
investment advisors on the investment of OCSD funds (see Appendix "A").
1.1.3. To establish a basis for evaluating investment results.
1.2. OCSD establishes investment policies which meet its current investment
goals. OCSD shall review this policy annually, and may change its
policies as its investment objectives change.
2.0 Scope:
This Investment Policy applies to all financial assets of OCSD; except for the proceeds
of OCSD's capital projects financing program, which are invested in accordance with
provisions of their specific bond indentures; and such other funds excluded by law or
other Board-approved covenant or agreement.
These funds are accounted for by OCSD as Enterprise Funds as represented in
OCSD's Comprehensive Annual Financial Report.
3.0 Standard of Prudence:
The standard of prudence to be used by OCSD internal staff, and any authorized
investment advisor(s), shall be as described in Section 53600.3 of the California
Government Code as follows: Except as provided in subdivision (a) of Section 27000.3,
all governing bodies of local agencies or persons authorized to make investment
decisions on behalf of those local agencies investing public funds pursuant to this
chapter are trustees and therefore fiduciaries subject to the prudent investor standard.
When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing
public funds, a trustee shall act with care, skill, prudence, and diligence under the
circumstances then prevailing, including, but not limited to, the general economic
conditions and the anticipated needs of the agency, 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. Within the limitations of this section and considering individual
investments as part of an overall strategy, investments may be acquired as authorized
by law.
4.0 Investment Objectives:
The primary objectives of OCSD's investment activities, in priority order, and as
described in Section 53600.5 of the California Government Code, shall be:
4.1 Safety: The safety and preservation of principal is the foremost objective
of the investment program of OCSD. Investments shall be selected in a
manner that seeks to ensure the preservation of capital in OCSD's overall
portfolio. This will be accomplished through a program of diversification,
more fully described in Section 13.0, and maturity limitations, more fully
described in Section 14.0, in order that potential losses on individual
securities do not exceed the income generated from the remainder of the
portfolio.
4.2 Liquidity: The investment program will be administered in a manner that
will ensure that sufficient funds are available for OCSD to meet its
reasonably anticipated operating expenditure needs.
4.3 Return on Investments: The OCSD investment portfolio will be
structured and managed with the objective of achieving a rate of return
throughout budgetary and economic cycles, commensurate with legal,
safety, and liquidity considerations.
5.0 Delegation of Authority:
5.1 Authority to manage OCSD's investment program is derived from the
California Government Code Sections 53600 et seq. and Sections 53635
et seq. The Board of Directors hereby delegates management
responsibility for the OCSD investment program to its Assistant General
Manager & Director of Finance and Administrative Servicesff reasurer,
who shall establish written procedures for the operation of the investment
program, consistent with this Policy. The Controller/Assistant Treasurer
shall be responsible for day-to-day administration, monitoring, and the
development of written administrative procedures for the operation of the
investment program, consistent with this Policy. The current treasury
management procedures are presented in Appendix "B." No person may
engage in an investment transaction except as provided under the terms
of this Policy and the procedures established by the Treasurer. The
Treasurer shall be responsible for all transactions undertaken by OCSD
internal staff, and shall establish a system of controls to regulate the
activities of internal staff and external investment advisors engaged in
accordance with Section 5.3.
Page 1
5.2 The administrative procedures for the operation of OCSD's investment
program will provide for, but not be limited to, the following:
5.2.1 Formats for monthly and quarterly reports to the Administration
Committee, and the Board of Directors.
5.2.2 Compliance with generally accepted accounting principles of
the Government Accounting Standards Board.
5.2.3 Establishment of benchmarks for performance measurement.
5.2.4 Establishment of a system of written internal controls.
5.2.5 Establishment of written procedures for competitive bids and
offerings of securities that may be purchased or sold by internal OCSD
staff.
5.2.6 Establishment of a Desk Procedures Manual for treasury
operations and management.
5.3 The Board of Directors of OCSD may, in its discretion, engage the
services of one or more registered investment advisors to assist in the
management of OCSD's investment portfolio in a manner consistent with
OCSD's objectives. Such external investment advisors, which shall be
selected through a competitive process, shall be granted discretion to
purchase and sell investment securities in accordance with this
Investment Policy. Such advisors must be registered under the
Investment Advisers Act of 1940, or be exempt from such registration.
6.0 Ethics and Conflicts of Interest:
Officers and employees of OCSD involved in the investment process shall refrain from
personal business activities that could conflict with proper execution of OCSD's
investment program, or which could impair their ability to make impartial investment
decisions. Employees and investment officials shall disclose to the General Manager
any material financial interests in financial institutions that conduct business within
OCSD's boundaries, and they shall further disclose any large personal
financial/investment positions, the performance of which could be related to the
performance of positions in OCSD's portfolio.
7.0 Authorized Financial Dealers and Institutions:
7.1 For investment transactions conducted by OCSD internal staff, the
Treasurer will maintain a list of financial institutions authorized to provide
investment services to OCSD, including "primary" or regional dealers that
qualify under Securities and Exchange Commission Rule 15C3-1 (Uniform
Net Capital rule), and Federal or State of California chartered banks. No
public deposit shall be made except in a qualified public depository as
established by State law.
Page2
All financial institutions which desire to become qualified bidders for
investment transactions with OCSD must supply the following for
evaluation by the Treasurer:
7.1.1. Audited financial statements for the institution's three (3) most
recent fiscal years.
7.1.2. A statement, in the format prescribed by the Government
Finance Officers Association (GFOA), certifying that the institution has
reviewed OCSD's Investment Policy and that all securities offered to the
Districts shall comply fully and in every instance with all provisions of the
California Government Code and with this Investment Policy. The current
statement is presented in Appendix "C."
7.1.3. A statement describing the regulatory status of the dealer, and
the background and expertise of the dealer's representatives.
Selection of financial institutions, broker/dealers, and banks authorized to
engage in transactions with OCSD shall be made through a competitive
process. An annual review of the financial condition of qualified
institutions will be conducted by the Treasurer.
7 .2 Selection of broker/dealers used by external investment advisors retained
by OCSD, shall be in compliance with contract provisions between OCSD
and any external investment advisors, and shall be in substantially the
following form:
Use of Securities Brokers: Neither the Investment Advisor nor any parent,
subsidiary or related firm shall act as a securities broker with respect to
any purchases or sales of securities which may be made on behalf of
OCSD, provided that this limitation shall not prevent the Investment
Advisor from utilizing the services of a securities broker which is a parent,
subsidiary or related firm, provided such broker effects transactions on a
"cost only" or "nonprofit" basis to itself and provides competitive execution.
The Investment Advisor shall provide the Districts with a list of suitable
independent brokerage firms (including names and addresses) meeting
the requirements of Government Code Section 53601.5, and, unless
otherwise directed by OCSD, the Investment Advisor may utilize the
service of any of such independent securities brokerage firms it deems
appropriate to the extent that such firms are competitive with respect to
price of services and execution
8.0 Authorized and Suitable Investments:
All investments shall be made in accordance with the California Government Code
including Sections 16429.1 et seq., 53600 et seq., and 53684, and as described within
this Investment Policy. Permitted investments under this Policy shall include:
Page 3
8.1 Securities, obligations, participations, or other instruments of, or
issued by, or fully guaranteed as to principal and interest by the US
Government, a federal agency, or a US Government-sponsored
enterprise pursuant to Section 53601 (f) of the California Government
Code. US Treasury securities must make up at least 10% of the portfolio.
8.2 Supranational Obligations issued or unconditionally guaranteed by the
International Bank for Reconstruction and Development, International
Finance Corporation, or Inter-American Development Bank. Securities
must be eligible for purchase in the United States and be US dollar
denominated senior unsecured unsubordinated obligations, with a
maximum maturity of five years. Securities eligible for purchase under this
section must be rated "AA" or better by a Nationally Recognized Statistical
Rating Organization (NRSRO) and shall not exceed 30% of the total
portfolio.
8.3 Mortgage pass-through security, collateralized mortgage obligation,
mortgage-backed or other pay-through bond, equipment lease-
backed certificate, consumer receivable pass-through certificate, or
consumer receivable-backed bond. Securities eligible for investment
under this subdivision shall be rated in a rating category of "AA" or its
equivalent or better by an NRSRO and have a maximum remaining
maturity of five years or less. Purchase of securities authorized by this
subdivision may not exceed 20 percent of the agency's surplus moneys
that may be invested pursuant to this section. Purchase of mortgage
derivatives, which include interest-only payments (IOs) and principal-only
payments (POs); inverse floaters, and RE-REMICs (Real Estate Mortgage
Investment Conduits), is hereby prohibited.
8.4 Commercial paper of "prime" quality of the highest ranking or of the
highest letter and number rating as provided by an NRSRO, and issued by
a domestic corporation organized and operating in the United States with
assets in excess of $500 million and having a rating of "A" or better on its
long-term debt as provided by an NRSRO. Purchases of eligible
commercial paper may not exceed 270 days to maturity from the date of
purchase. Purchases of commercial paper shall not exceed 25% of the
market value of the portfolio. No more than 5% of the market value of the
portfolio, or 10% of the issuer's outstanding paper, may be invested in
commercial paper issued by any one (1) eligible corporation.
8.5 Banker's acceptances issued by institutions, the short-term obligations of
which are rated of the highest ranking or the highest letter and number
rating as provided by an NRSRO provided that: (a) the acceptance is
eligible for purchase by the Federal Reserve System; (b) the maturity does
not exceed 180 days; ( c) no more than 40% of the total portfolio may be
invested in banker's acceptances; and (d) no more than 5% of the total
portfolio may be invested in the banker's acceptances of any one (1)
commercial bank.
Page4
8.6 Medium term (or corporate) notes of a maximum of five (5) years
maturity issued by corporations organized and operating within the United
States, or issued by depository institutions licensed by the United States,
or any state, and operating within the United States with assets in excess
of $500 million, and which is rated in a rating category of "A" or better on
its long-term debt as provided by an NRSRO. If, after purchase, the rating
of an eligible note falls below the minimum rating category stipulated
above, the external investment advisor shall notify the District of the
downgrade, and shall present an analysis and recommendations as to the
disposition of the note consistent with the investment objectives of this
Investment Policy. No more than 30% of the portfolio may be invested in
medium term notes.
8. 7 Notes, bonds, or other obligations that are at all times secured by a
valid first priority security interest in securities of the types listed by
California Government Code Section 53651 as eligible securities for the
purpose of securing local agency deposits having a market value at least
equal to that required by California Government Code Section 53652 for
the purpose of securing local agency deposits. The securities serving as
collateral shall be placed by delivery or book entry into the custody of a
trust company or the trust department of a bank that is not affiliated with
the issuer of the secured obligation, and the security interest shall be
perfected in accordance with the requirements of the Uniform Commercial
Code or federal regulations applicable to the types of securities in which
the security interest is granted.
8.8 Shares of mutual funds investing in securities permitted under this policy
and under Section 53601 (I) of the California Government Code. Such
funds must either: (1) attain the highest ranking, or the highest letter and
numerical rating, provided by not less than two of the three largest
nationally recognized rating services; or (2) have an Investment Advisor
registered with the Securities and Exchange Commission with not less
than five (5) years of experience investing in the securities and obligations
authorized under this Policy and under California Government Code
Section 53601, and with assets under management in excess of $500
million. The purchase price of shares of beneficial interest purchased
pursuant to this policy, and the California Government Code may not
include any commission that the companies may charge, and shall not
exceed 20% of the District's surplus money that may be invested pursuant
to this section. No more than 10% of the District's surplus funds may be
invested in shares of beneficial interest of any one ( 1) mutual fund
pursuant to this section. Money market mutual funds are limited to 20%
per issuer and are not subject to the 10% stipulation.
8.9 Certificates of deposit:
8.9.1 Secured (collateralized) time deposits issued by a nationally or
state-chartered bank or state or federal savings and loan association, as
defined by Section 5102 of the California Financial Code, and having a net
Page 5
operating profit in the two (2) most recently completed fiscal years.
Collateral must comply with Chapter 4, Bank Deposit Law, Section 16500
et seq., and Chapter 4.5, Savings and Loan Association and Credit Union
Deposit Law, Section 16600 et seq., of the California Government Code.
8.9.2 Negotiable certificates of deposit (NCDs) issued by a nationally
or state-chartered bank or state of federal savings and loan association,
as defined by Section 5102 of the California Financial Code; and which
shall have a rating of "A" or better on its long-term debt as provided by a
NRSRO; or which shall have the highest letter and number rating for
deposits as provided by a NRSRO; or as otherwise approved by the
District's Board of Directors. No more than 30% of the portfolio may be
invested in securities pursuant to this section.
8.9.3 To be eligible to receive local agency money, a bank, savings
association, federal association, or federally insured individual loan
company shall have received an overall rating of not less than
"satisfactory" in its most recent evaluation by the appropriate federal
financial supervisorial agency of its record of meeting the credit needs of
California's communities, including low and moderate income
neighborhoods, pursuant to Section 2906 of Title 12 of the United States
Code.
8.10 Taxable or tax-exempt municipal bonds issued by any of the 50 United
States. Such securities must be rated "A" or higher by a NRSRO; or as
otherwise approved by the Districts' Board of Directors.
8.11 The State of California Local Agency Investment Fund (LAIF). The
LAIF is an investment alternative for California's local governments and
special districts managed by the State Treasurer's Office. LAIF is more
fully described in the Glossary (See Appendix "H.") The District shall use
LAIF as a short-term cash management facility. Investment of District
funds in LAIF shall be subject to investigation and due diligence prior to
investing, and on a continual basis to a level of review pursuant to Section
3.0, Standard of Prudence, of this Policy. See Appendix "D" for
investment pool questionnaire.
8.12 The Orange County Treasurer's Money Market Commingled
Investment Pool (OCCIP). The OCCIP is a money market investment
pool managed by the Orange County Treasurer's Office. OCCIP is more
fully described in the Glossary. (See Appendix "H.") The District has no
funds invested in OCCIP at this time. Investment of District funds in
OCCIP would be subject to investigation and due diligence prior to
investing, and on a continual basis to a level of review pursuant to Section
3.0, Standard of Prudence, of this Policy.
Page6
8.13 Repurchase agreements provided that:
8.13.1 All repurchase agreements shall be collateralized with
securities eligible for purchase under this Policy. In order to anticipate
market changes and to provide a level of security for all repurchase
agreement transactions, collateralization shall be maintained at a level of
at least 102% of the market value of the repurchase agreements, and
shall be adjusted no less than weekly.
8.13.2 All repurchase agreements must be the subject of a Master
Repurchase Agreement between OCSD and the provider of the
repurchase agreement. The Master Repurchase Agreement shall be
substantially in the form developed by The Bond Market Association.
8.14 Reverse repurchase agreements provided that:
8.14.1 No more than five percent (5%) of OCSD's portfolio shall be
invested in reverse repurchase agreements, and there shall be no long-
term reverse repurchase agreements unless otherwise authorized by the
Districts' Board of Directors.
8.14.2 The maximum maturity of reverse repurchase agreements shall
be ninety (90) days.
8.14.3 Reverse repurchase agreements shall mature on the exact
date of a known cash flow which will be unconditionally available to repay
the maturing reverse repurchase agreement.
8.14.4 Proceeds of reverse repurchase agreements shall be used
solely to supplement portfolio income or to provide portfolio liquidity, and
shall not be used to speculate on market movements.
8.14.5 All reverse repurchase agreements must be the subject of a
Master Repurchase Agreement between OCSD and the provider of the
reverse repurchase agreement. The Master Repurchase Agreement shall
be substantially in the form developed by The Bond Market Association.
8.15 Sales of OCSD-owned securities in the secondary market may incur
losses in order to improve the risk or return characteristics of the portfolio,
to prevent anticipated further erosion of principal, or when trading for
securities that result in an expected net economic gain to OCSD.
8.16 If securities owned by the OCSD are downgraded below the quality
required by this Investment Policy, it shall be OCSD's policy to review the
credit situation and make a determination as to whether to sell or retain
such securities in the portfolio. If a decision is made to retain the
downgraded securities in the portfolio, their presence in the portfolio will
be monitored and reported monthly to the OCSD General Manager, the
Administration Committee and Board of Directors.
Page 7
9.0 Review of Investment Portfolio:
The securities held by OCSD must be in compliance with Section 8.0 "Authorized and
Suitable Investments" at time of purchase. If at a later date, a security is no longer in
compliance with Section 8.0, the Treasurer shall report the non-compliant security to the
Administration Committee and Board of Directors and shall include a disclosure in the
quarterly Treasurer's Report if the security is held at the date the date the report is
prepared.
10.0 Investment Pools/Mutual Funds:
A thorough investigation of the pool/fund is required prior to investing, and on a
continual basis. A questionnaire shall be developed that will provide the following
information:
10.1 A description of eligible investment securities, and a written statement of
investment policy and objectives.
10.2 A description of interest calculations and how they are distributed, and
how gains and losses are treated.
10.3 A description of how the securities are safeguarded (including the
settlement processes) and how often the securities are priced and the
program audited.
10.4 A description of who may invest in the program, how often, and what size
deposits and withdrawals are allowed.
10.5 A schedule for receiving statements and portfolio listings.
10.6 A description of the utilization and level of reserves, retained earnings or
other collateral and how they are used by the fund.
10.7 A fee schedule, and when and how is it assessed.
10.8 Whether the pool/fund is eligible for bond proceeds and/or whether it will
accept such proceeds.
11.0 Collateralization:
Generally, the value to secure deposits under this Policy shall comply with Section
53652 of the California Government Code. Collateralization will be required for secured
time deposits, as more fully described in Section 8.9.1; and repurchase agreements, as
more fully described in Section 8.13.1. Collateral will always be held by an independent
third-party, as more fully described in Section 12.0. The right of collateral substitution is
granted.
Page 8
12.0 Safekeeping and Custody:
All securities transactions, including collateral for repurchase agreements, entered into
by, or on behalf of OCSD, shall be conducted on a delivery-versus-payment (DVP)
basis. Securities will be held by OCSD's third-party custodian bank, which shall be
selected through a competitive process, or that agent's representative, or in the agent's
account at the Federal Reserve Bank, or within clearing corporations in the U.S.,
and evidenced by book entry statements.
13.0 Diversification:
OCSD will diversify its investments by security type, issuer, and financial institution in
accordance with the following:
13.1 There is no limit on investment in securities issued by or guaranteed by
the full faith and credit of the U.S. government.
13.2 No more than 20% of the portfolio may be invested in securities of a single
agency of the U.S. government, which does not provide the full faith and
credit of the U.S. government.
13.3 No more than 5% of the portfolio may be invested in securities of any one
issuer, other than Supranationals, the U.S. government or its agencies.
Investment in mutual funds is not governed by this Section 13.3. See
Section 13.8 for conditions of purchase of mutual funds.
13.4 No individual holding shall constitute more than 5% of the total debt
outstanding of any issuer.
13.5 No more than 40% of the portfolio may be invested in banker's
acceptances.
13.6 No more than 25% of the portfolio may be invested in commercial paper.
13. 7 No more than 30% of the portfolio may be invested in medium-term
(corporate) notes.
13.8 No more than 20% of the portfolio may be invested in mutual funds. No
more than 10% of the District's portfolio may be invested in shares of
beneficial interest of any one (1) mutual fund. Money market mutual funds
are limited to 20% per issuer and are not subject to the 10% stipulation.
13. 9 No more than 30% of the portfolio may be invested in negotiable
certificates of deposit.
13.10 No more than 10% of the portfolio may be invested in eligible municipal
bonds.
Page 9
13.11 No more than 20% of the Long Term Operating Monies portfolio may be
invested in a combination of mortgage-backed securities, CMOs and
asset-backed securities.
13.12 No more than the lesser of 15% of the portfolio or the statutory maximum
may be invested in LAIF.
13.13 No more than 15% of the portfolio may be invested in the Orange County
Investment Pool.
13.14 No more than 20% of the portfolio may be invested in repurchase
agreements.
13.15 No more than 5% of the portfolio may be invested in reverse repurchase
agreements.
14.0 Maximum Maturities:
To the extent possible, OCSD will attempt to match its investments with reasonably
anticipated cash flow requirements. The Treasurer shall develop a five-year cash flow
forecast, which shall be updated quarterly. Based on this forecast, the Treasurer shall
designate, from time-to-time, the amounts to be allocated to the investment portfolio.
OCSD monies invested in accordance with this Policy are divided into two (2)
categories:
14.1 Liquid Operating Monies. Funds needed for current operating and
capital expenditures are known as Liquid Operating Monies.
14.1.1 The maximum final stated maturity of individual securities in the
Liquid Operating Monies account portfolio shall be one (1) year from the
date of settlement.
14.1.2 The average duration of the Liquid Operating Monies account
portfolio shall be recommended by the Treasurer based on the Districts'
cash flow requirements, but may never exceed 180 days.
14.2 Long Term Operating Monies. Funds needed for longer term purposes
are known as the Long Term Operating Monies.
14.2.1 The maximum final stated maturity of individual securities in the
Long Term Operating Monies account portfolio shall be five (5) years from
the date of settlement.
14.2.2 The duration of the Long Term Operating Monies account
portfolio shall be recommended by the Treasurer based on the District's
five-year cash flow forecast, but may never exceed 60 months.
Page 10
14.2.3 The duration of the Long Term Operating Monies account
portfolio shall never exceed 120% of the duration as established in
accordance with Section 14.2.2.
14.2.4 The duration of the Long Term Operating Monies account
portfolio shall never be less than 80% of the duration as established in
accordance with Section 14.2.2.
15.0 Internal Control:
The Treasurer shall establish an annual process of independent review by an
external auditor. This review will provide internal control by assuring compliance
with policies and procedures. The current treasury management procedures are
presented in Appendix "B."
16.0 Performance Objectives and Benchmarks:
16.1 Overall objective. The investment portfolio of OCSD shall be designed
with the overall objective of obtaining a rate of return throughout budgetary
and economic cycles, commensurate with investment risk constraints and
reasonably anticipated cash flow needs.
16.2 The Liquid Operating Monies. The investment performance objective
for the Liquid Operating Monies shall be to earn a total rate of return over
a market cycle which exceeds the return on a market index approved by
the Administration Committee, and by the District's Board of Directors,
when the duration of the portfolio is established. This market index is
more fully described in Board Resolution No. OCSD18-23 (see Appendix
"E").
16.3 The Long Term Operating Monies. The investment performance
objective for the Long Term Operating Monies shall be to earn a total rate
of return over a market cycle which exceeds the return on a market index
selected by the Administration Committee and approved by the District's
Board of Directors, when the duration of the portfolio is established. This
market index is more fully described in Board Resolution No. OCSD 18-23
(See Appendix "E").
17.0 Reporting:
17 .1 Monthly transaction reports in accordance with California Government
Code Section 53607 shall be submitted by the Treasurer to the District's
Board of Directors.
17 .2 Quarterly investment reports will be submitted by the Treasurer to the
Administration Committee which shall forward the reports to the District's
Board of Directors. The quarterly reports shall provide clear and concise
status information on the District's portfolios at the end of each reporting
period, including performance measures using the benchmarks described
Page 11
in Section 14.0 of this Investment Policy. Sample quarterly reports are
presented in Appendix "F." These reports shall contain listings of
individual securities held at the end of each reporting period, and shall
disclose, at a minimum, the following information about the risk
characteristics of OCSD's portfolio:
17.2.1 Cost and accurate and complete market value of the portfolio.
17.2.2 Modified duration of the portfolio compared to Benchmark.
17.2.3 Dollar change in value of the portfolio for a one-percent (1 %)
change in interest rates.
17.2.4 Percent of portfolio invested in reverse repurchase
agreements, and a schedule which matches the maturity of such reverse
repurchase agreements with the cash flows which are available to repay
them at maturity.
17.2.5 For the Liquid Operating Monies account only, the percent of
portfolio maturing within 90 days.
17.2.6 Average portfolio credit quality.
17 .2. 7 Percent of portfolio with credit ratings below "A" by any rating
agency, and a description of such securities.
17.2.8 State that all investments are in compliance with this policy and
the California Government Code, or provide a listing of any transactions or
holdings which do not comply with this policy or with the California
Government Code.
17.2.9 Time-weighted total rate of return for the portfolio for the prior
three months, twelve months, year to date, and since inception compared
to the Benchmark returns for the same periods.
17.2.10 State that sufficient funds are available for OCSD to meet its
operating expenditure requirements for the next six months, or if not, state
the reasons for the shortfall.
17.3 OCSD's Treasurer shall meet quarterly with the Administration Committee
to review investment performance, proposed strategies and compliance
with this Investment Policy. External investment advisors may be
required to attend said meetings at the discretion of the Chairman of the
Administration Committee.
18.0 Investment Policy Adoption and Revision:
18.1 The Investment Policy of OCSD shall be reviewed by the Administration
Committee and shall be adopted by resolution of the Board of Directors of
Page 12
OCSD. The Policy shall be reviewed on an annual basis in accordance
with California Government Code Section 53646, and this Investment
Policy, by the Administration Committee, which shall recommend
revisions, as appropriate, to the Board of Directors. Any modifications
made thereto shall be approved by the Board of Directors.
18.2 The Administration Committee shall serve as the oversight committee for
the District's Investment program and shall adopt guidelines for the
ongoing review of duration, quality and liquidity of the District's portfolio.
Page 13
Revised: November 26, 2018
1.0 Purpose
Orange County Sanitation District
Treasury Management Procedures
Appendix "B"
1.1 The purpose of this policy is to establish uniform guidelines and procedures
for use in the administration of the District's Treasury functions consistent
with the California Government Code and the District's adopted Investment
Policy Statement.
2.0 Authority to Investment and/or Reinvestment of District Funds:
2.1 Is delegated annually to the Director of Finance/Treasurer in accordance
with California Government Code Section 53607.
3.0 Formal Investment Policy Statement:
3.1 Is prepared by the Treasurer.
3.2 Is reviewed by the District's Administration Committee (ADM), in its role as
the finance oversight committee.
3.3 Is submitted to and adopted by the District's Board of Directors annually at
a public meeting in accordance with California Government Code Section
53646.
4.0 Delegation of some or all of the investment portfolio management to one or more
registered investment advisors (external money managers):
4.1 Is authorized by the District's Investment Policy;
4.2 Applies to the District's entire investment portfolio except for:
4.2.1 A maximum of $65 million that is maintained within the State Local
Agency Investment Fund (LAIF) for managing cash flows (i.e.,
deposits of large revenues, such as property tax and user fee
proceeds, and the bi-weekly disbursements of payroll and accounts
payable);
4.2.2 A peg amount of approximately $50,000 is maintained within the
District's checking account at Banc of California to serve as
compensating balances to offset banking charges (note: the District's
Board of Directors has selected Banc of California to serve as the
District's commercial bank (the "Bank"); and
4.2.3 Based on a determination by the District's Treasurer on what is most
Orange County Sanitation District Treasury Management Procedures
Revised: November 26, 2018
Page 2 of 7
advantageous to the District, the checking account residual amounts
may be invested as follows:
4.2.3.1 Bank balances exceeding the peg balance (as a result of
outstanding accounts payable and payroll warrants) may
be invested overnight under a repurchase agreement with
the Bank; or
4.2.3.2 The District may elect to receive earnings credit against
bank charges on all bank balances including the peg
amount equal to the 91 Day T-Bill Average.
5.0 Investment transactions involving the LAIF are approved by the Treasurer prior to
their execution by the Controller. The approval function indicates that the
transactions are in accordance with the District's Investment Policy. The
Accounting Supervisor will serve as backup for the approval function upon the
absence of any either of these two employees.
5.1 Specific Procedures involving LAIF include (note: all deposits and
withdrawals of funds to/from LAIF may only be processed through the
District's checking account with the Bank):
5.1.1 A "State Treasurer's Local Agency Investment Fund Authorization
Form" (see Attachment "A") must be completed prior to the execution
of the transaction indicating:
5.1.1.1 The effective date of the transaction;
5.1.1.2 The dollar amount to be withdrawn from or deposited into
LAIF;
5.1.1.3 The date and signature approval by the Controller
authorizing the transaction; and
5.1.1.4 The date and signature approval of the Treasurer
approving the transaction.
5.1.2 The execution of the transaction will be done in accordance with the
"State Treasurer's Local Agency Investment Fund Wire Transfer
Instructions" (see Attachment "B"). Key internal control features
include:
5.1.2.1 The requirement of the District's Personnel Identification
Number (PIN) for either deposits or withdrawals, known
only by the Treasurer and Controller.
5.1.2.2 Secondary confirmation requirement by the Bank for the
withdrawals/deposits from/to the Bank or LAIF. The
Orange County Sanitation District Treasury Management Procedures
Revised: November 26, 2018
Page 3 of 7
confirmation can be made by the Controller or Treasurer
(the person that didn't make the original request}, the
Accounting Supervisor, or the Principal Accountant.
5.1.3 Each transaction is confirmed the next day by the Bank's Previous
Day Reporting modem service by the Senior Accountant and
Controller.
6.0 Investment transactions involving the District's external investment program and
performed by the independent investment firms are as follows:
6.1 The District's Board of Directors has selected Chandler Asset Management
(Chandler) to manage two portfolios: the Districts' Liquid Operating Monies
Fund and the Long-term Operating Monies Fund.
6.1.1 Chandler has authorization to purchase and sell investment
securities in accordance with the strict investment guidelines set
forth in the District's Investment Policy (Section 8.0).
6.1.2 Hard copy confirmation reporting to the District is required on all
transactions.
6.2 The District's Board of Directors has selected U.S. Bank (the "Custodian")
to serve as the District's master custodian and safekeeping bank. In their
capacity as Custodian, U.S. Bank shall perform the following duties to settle
purchases and sales and engage in other transactions in the administration
of the District's accounts:
6.2.1 Upon execution of any transaction by Chandler, all investment
securities are recorded in book entry by the Custodian through either
the Depository Trust Company or the Federal Reserve Bank;
6.2.2 Hold the property in safekeeping facilities of the Custodian or of other
custodian banks or clearing corporations in the U.S.;
6.2.3 Collect all income payable to and all distributions due to the District's
account and sign on the District's behalf all declarations, affidavits,
and certificates of ownership required to collect income and principal
payments;
6.2.4 Collect all proceeds from securities, certificates of deposit or other
investments which may mature or be called;
6.2.5 Submit or cause to be submitted to the District or the external money
manager, as designated by the District, on a best effort basis all
information received by the Custodian regarding the ownership rights
pertaining to property held in the account;
Orange County Sanitation District Treasury Management Procedures
Revised: November 26, 2018
Page 4 of 7
6.2.6 Attend to involuntary corporation actions;
6.2. 7 Determine the fair market value of the District's account on a monthly
basis as of such dates as the Districts and the Custodian may agree
upon, in accordance with methods consistently followed and
uniformly applied;
6.2.8 Render to District, with copies to the external money manager,
monthly statements for securities held hereunder; and
6.2.9 Provide the District with copies of the Custodian's financial
statements filed with the State of California, or any agency thereof,
within thirty (30) days after such filing.
6.3 The District's Board of Directors has selected Callan Associates as the
District's Independent Investment Advisor (the "Advisor"). In their capacity
as Advisor, Callan shall perform the following duties on behalf of the District:
6.3.1 Monitor and report on Chandler's compliance with the investment
requirements of the Districts' Investment Policy, using data from
transaction reports prepared by U.S. Bank, on a quarterly basis;
6.3.2 Review Chandler's investment strategy quarterly;
6.3.3 Monitor and report on the performance of Chandler against the
performance benchmark standards established in the District's
Investment Policy for both the Liquid Operating Monies Fund and the
Long-term Operating Monies Fund on a quarterly basis; and
6.3.4 Review both Liquid and Long-term Operating Funds by asset
allocation, asset flow, quarterly factors and cumulative results on a
quarterly basis.
6.4 Specific procedures in depositing to or withdrawing funds from the
investment portfolio managed by the District's external money manager
include: (note: all deposits and withdrawals of funds from the District's
investment portfolio managed by Chandler and U.S. Bank may only be
processed through the District's checking account at the Bank):
6.4.1 A 'Wire Transfer Form" (see Attachment" C") must be completed by
the Controller prior to the execution of the transaction indicating:
6.4.1.1 The dollar amount to be withdrawn/deposited from/to the
Bank checking account to/from the Chandler Liquid
Operating or Chandler Long-term Operating Monies
Funds;
6.4.1.2 The effective date of the transaction;
Orange County Sanitation District Treasury Management Procedures
Revised: November 26, 2018
Page 5 of 7
6.4.1.3 The date and signature or electronic review by the
Controller; and
6.4.1.4 The date and signature or electronic approval of the
Treasurer approving the transaction.
6.4.2 The execution of the transaction requires a verbal confirmation call
from the Custodian to the Controller at the time of the transaction,
and a written confirmation the following day.
6.4.3 Each transaction is confirmed the next day by the Bank's Previous
Day Reporting modem service by the Senior Accountant and
Controller.
7.0 Recording of investment transactions:
7 .1 For investment transactions conducted by District staff with the LAIF, and
with the transfer/withdrawal of funds with the Custodian:
7. 1.1 Is done by the Controller who maintains a file of all investment
transactions.
7.1.2 Is done within the accounting records by the Senior Accountant, who
receives a signed copy of all investment transactions from the
Controller.
7 .2 For investment transactions conducted by the external money manager:
7.2.1 Is done by the Custodian who posts all investment transactions daily
within their record keeping system and provides the District with a
monthly report that provides both a summary and detail listing of all
investment transactions.
7.2.2 Is done on a monthly basis by the Senior Accountant within the
accounting records at a summary level using Monthly Transaction
Reports prepared by the Custodian.
8.0 Verification of external money manager transactions is performed by:
8.1 The Custodian within their record keeping system (i.e., matching broker
confirmations to custodian records), and is reported to the District and
Chandler on a monthly basis.
8.2 Chandler through their internal compliance office and reported monthly to
the District as required by the District's Investment Policy.
Orange County Sanitation District Treasury Management Procedures
Revised: November 26, 2018
Page 6 of 7
8.3 The Senior Accountant through reconciliation of Chandler's monthly
investment transaction report against the monthly transaction report
provided by the Custodian.
9.0 Safeguarding of Assets and Records:
9.1 Reconciliation of investment records to the accounting records is done by
the Senior Accountant (or in their absence, the Principal Accountant) on a
monthly basis.
9.2 Reconciliation of investment records to bank statements is performed by
the Senior Accountant (or in their absence, the Principal Accountant) within
one week following the receipt of the bank statement.
9.3 Review of financial condition, safety, liquidity, and potential yields of
investment instruments and reputation and financial condition of investment
brokers is done by the District's external money manager, who is authorized
to utilize the services of independent securities brokerage firms as deemed
appropriate, and which meets the requirements of Government Code
Section 53601.5.
10.0 The periodic review of the investment portfolio, including investment types,
purchase price, market values, maturity dates, and investment yields as well as
conformance to the stated Investment Policy will be performed monthly by the
Controller, quarterly by the Advisor, and annually by the District's external
independent auditors.
11.0 The District's Administration Committee will serve as the Oversight Investment
Advisory Committee to assist the Board of Directors in monitoring treasury
management activities.
11.1 The District's Treasurer submits a Quarterly Investment Program
Performance Report which includes, but is not limited to, the following
information:
11.1.1 Quarterly interest earnings and rates of return;
11 . 1.2 The market value of the portfolios;
11.1.3 The annualized earnings of the portfolios;
11.1.4 Market recap;
11.1.5 Comparisons with pre-determined benchmarks;
11.1.6 Market forecast; and
11.1. 7 Proposed investment strategy for the upcoming quarter.
Orange County Sanitation District Treasury Management Procedures
Revised: November 26, 2018
Page 7 of 7
Internal Control Strengths
1. The specific responsibility for the performance of duties is assigned and lines of
authority and reporting are clearly identified.
2. Responsibilities are commensurate with the capabilities of the personnel assigned.
3. Incompatible functions have been properly segregated to prevent errors or fraud.
4. All transactions are authorized by an appropriate responsible individual.
5. Safeguards over assets and records are in place to ensure that recorded assets
exist and are properly recorded.
6. Management controls are in place to ensure that significant transactions are
properly performed and recorded.
H:IDEPnASD\220\COMMONllNVESTMENT POUCY\2018 DECEMBER