REPORT/RECOMMENDATION TO THE BOARD OF SUPERVISORS
OF SAN BERNARDINO COUNTY
AND RECORD OF ACTION
June 27, 2023
FROM
ENSEN MASON, Auditor-Controller/Treasurer/Tax Collector
SUBJECT
Title
Treasurer’s Statement of Investment Policy
End
RECOMMENDATION(S)
Recommendation
Approve the Treasurer’s Statement of Investment Policy pursuant to California Government Code section 53646(a)(1).
(Presenter: John Johnson, Assistant Auditor-Controller/Treasurer/Tax Collector, 382-7004)
Body
COUNTY AND CHIEF EXECUTIVE OFFICER GOALS & OBJECTIVES
Operate in a Fiscally-Responsible and Business-Like Manner.
FINANCIAL IMPACT
Approval of this item will not impact Discretionary General Funding (Net County Cost) as it is non-financial in nature.
BACKGROUND INFORMATION
On June 28, 2022 (Item No. 30), the Board of Supervisors (Board) renewed the Treasurer’s investment authority and approved the Treasurer’s Statement of Investment Policy. Historically, these two actions have been recommended on the same item; however, this year they are being presented as two separate items at the current Board meeting. The Treasury Oversight Committee (TOC) decided on this change at its quarterly meeting on March 21, 2023, so that the annual renewal of the Treasurer’s investment authority is no longer tied to the approval of the investment policy, which requires additional levels of review. This change ensures compliance with the statutory annual requirement to renew the delegation of investment authority within 365 days.
Pursuant to California Government Code section 53646(a)(1), the County Treasurer may annually render to the Board, and any oversight committee, a statement of investment policy, which the Board shall review and approve at a public meeting. Any change in the policy shall also be reviewed and approved by the Board at a public meeting. The purpose of the investment policy is to establish cash management and investment guidelines for the Treasurer, who is responsible for the management and investment of the County Treasury Pool.
On June 6, 2023, the TOC reviewed revisions to the County Investment Policy as recommended by the Treasurer and noted no exceptions to the Treasurer’s recommendations. Prior to the review by the TOC, the requested policy revisions were reviewed by the Treasurer’s Investment Advisor, PFM Asset Management. The requested revisions were also reviewed by Fitch Ratings, the rating agency that rates the Treasury Pool, for consistency with Fitch’s AAAf/S1 ratings guidelines. The major changes recommended by the Treasurer include the following:
Section 10.0 Maturity Parameters
1. Duration-to-Maturity measurement changed to Effective Duration to accurately reflect portfolio interest rate risk by accounting for principal amortization and embedded call options.
2. Set “Effective Duration” maximum limit at 3 years.
3. State that maturities will be selected to provide sufficient liquidity for 12 months (vs. six months as per California Government Code section 53646(b)(3)).
Section 21.0 Liquidity
4. Duration-to-Maturity changed to Effective Duration (see 1 above).
Section 31.0. Authorized Investments (Schedule I)
5. Limit maximum exposure to new issue par callable agency securities to maximum 10% of the portfolio in order to limit duration extension risk.
6. Increase maximum maturity limit on federal agency mortgage-backed securities from five years and six months to seven years and three months in order to allow participation in the new issue market.
The recommended action will approve the attached Treasurer’s Statement of Investment Policy.
PROCUREMENT
N/A
REVIEW BY OTHERS
This item has been reviewed by County Counsel (Kristina Robb, Deputy County Counsel, 387-5455) on May 12, 2023; Finance (Penelope Chang, Administrative Analyst, 387-4886) on May 19, 2023; and County Finance and Administration (Paloma Hernandez-Barker, Deputy Executive Officer, 387-5423) on June 9, 2023.