CC 05-14-2024 Item No. 3 Investment Policy_Written CommunicationsWritten Communications
CC 05-14-2024
Item No. 3
Investment Policy
From:Rhoda Fry
To:City Clerk; City Council
Subject:Cupertino City Council 5/14/2024 Agneda Item #3
Date:Tuesday, May 14, 2024 11:01:01 AM
Attachments:Staff Report - 2024-05-14T102607.046.pdf
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Dear City Council,
On April 24, the Investment Policy was on the Audit Committee’s Agenda. Why didn’t it come
to City Council on May 7 when there were fewer agenda items?
Why is the staff report different from what the Audit Committee received? Please see the
attached.
Most importantly, both staff reports fail to state the one significant change:
“By adopting this Policy, the City Council delegates to the City Treasurer the authority to invest
or to reinvest City funds, or to sell or exchange securities so purchased pursuant to Government
Code Section 53607.”
Furthermore, prior to this policy being adopted, $45M was moved. Who had the authority to do
so? The policy was not in place and we did not have an appointed Treasurer at the time. And
the City has allowed cash and cash-equivalents to be uninvested which has significantly
impacted our public funds. It seems that money started piling up after Carol Atwood and
Jennifer Chang left the employ of the Ctiy. The cost to the City of not investing our cash has
been far greater than the cost of the embezzlement.
Regarding the referenced Government Code, 53607. The authority of the legislative body to
invest or to reinvest funds of a local agency, or to sell or exchange securities so purchased, may
be delegated for a one-year period by the legislative body to the treasurer of the local agency,
who shall thereafter assume full responsibility for those transactions until the delegation of
authority is revoked or expires, and shall make a monthly report of those transactions to the
legislative body. Subject to review, the legislative body may renew the delegation of authority
pursuant to this section each year.
The City Council has not appointed a treasurer in years. It needs to happen annually. What
happened? Why didn’t the finance department make sure that the annual appointment had been
made?
Finally, I have read through some of the court documents regarding the embezzlement, City of
Cupertino v. Jennifer Chang, Santa Clara County Superior Court Case No. 21CV380291. The
Defendant has made statements that the City lacked internal controls and was aware that there
was a lack of internal controls. We have also seen this in annual reports from the City’s
auditors. The Defendant even mentions our current Mayor, who at the time had the defendant as
a direct report. Our Mayor has held a number of finance jobs and has served on the Audit
Committee since last year. Please, we need your expertise and help to right our financial ship.
Please also read what I sent for the last City Council below.
Regards,
Rhoda Fry
----
From: Rhoda Fry <fryhouse@earthlink.net>
Sent: Thursday, May 2, 2024 11:30 AM
To: 'City Clerk' <CityClerk@cupertino.org>; 'citycouncil@cupertino.org' <citycouncil@cupertino.org>
Subject: City Council May 7 2024 Oral Communications Investment Policy and more
City Council May 7 Oral Communications
(Note to City Clerk – please LINK to attachments, no need to have them inline)
Dear City Council,
I am writing you because I am concerned regarding the City’s proposed revised investment
policy recently discussed at the Audit Committee and more.
The title of the audit committee’s agenda item should have disclosed that the investment policy
is being REVISED, not reviewed.
A significant change to the policy was not redlined as described in the agenda – rather it
was in blue.
The staff report should have listed the changes to the policy, but it did not.
Attached is the “redlined” version in the agenda and the current version, which I found
elsewhere. You’ll notice that the newer version also corrects a typographical error [changes “(“
to “(FPPC)”]/
Here is the new section that is in blue
“By adopting this Policy, the City Council delegates to the City Treasurer the authority to
invest or to reinvest City funds, or to sell or exchange securities so purchased pursuant to
Government Code Section 53607.”
No action is requested by the audit committee on this item. Should the audit committee or
city council have a say in this change? When will the change take effect?
AND, on March 11,2024, did anyone have investment authority to execute a $45M
transaction? (see screenshot below). Given the above statement in blue, it seems to me that
the treasurer did not have investment authority.
$50M in zero-interest checking account – some was moved on March 11, but when asked,
staff did not respond:
Councilmember Moore had learned that our City’s checking account did not pay interest and
our zero-interest checking account had a balance of nearly $50M. We have lost a significant
amount of money by not earning interest (and significantly more than the well-publicized
embezzlement). The balances of the checking account can be found in the Treasurer’s report. I
am troubled that there was no response from staff regarding subsequent concerns raised from
the dais and from the public, regarding no interest being earned in the City’s $50M checking
account and what could be done about it. As it turns out, $45M was moved on March 11 to an
interest-bearing account called LAIF. LAIF is like a money-market account and it is run by the
State. The interest rate isn’t as good as commercial money market accounts but it is certainly
better than nothing. Here are historical interest rates for LAIF:
https://www.treasurer.ca.gov/pmia-laif/historical/quarterly.asp The money can be made
available on the same day or the next day, depending on when the request is made. The
balance in our checking account has been steadily rising over the past decade and has cost
us millions of dollars in lost interest. I am glad that staff listened Councilmember Moore’s
concern and moved some money. It is a start. But I am flummoxed as to why when we
asked staff again what was going on well after March 11, there was no response.
Regarding the Appointment of the Treasurer: In the past, the city treasurer was
appointed annually. However this has not happened in years. Why? According to
California Government Code 53607, The authority of the legislative body to invest or to
reinvest funds of a local agency, or to sell or exchange securities so purchased, may
be delegated for a one-year period by the legislative body to the treasurer of the local
agency, who shall thereafter assume full responsibility for those transactions until the
delegation of authority is revoked or expires, and shall make a monthly report of
those transactions to the legislative body. Subject to review, the legislative body may
renew the delegation of authority pursuant to this section each
year.” https://casetext.com/statute/california-codes/california-government-code/title-5-local-
agencies/division-2-cities-counties-and-other-agencies/part-1-powers-and-duties-common-to-
cities-counties-and-other-agencies/chapter-4-financial-affairs/article-1-investment-of-
surplus/section-53607-delegation-of-authority-by-legislative-body-to-treasurer
Please consider our State’s Guidance on Public Investing You can find the materials of a
State seminar held in January 2017 here: https://www.treasurer.ca.gov/cdiac/seminars/2017/
and you can find an updated document on local investment guidelines here:
https://www.treasurer.ca.gov/cdiac/LAIG/guideline.pdf
Regards, Rhoda Fry
---- FYI – the maximum balance in a LAIF account is $75M
https://www.treasurer.ca.gov/pmia-laif/laif/laif-deposit-limit.asp and the account now has
$67M.
Virus-free.www.avg.com
AUDIT COMMITTEE STAFF REPORT
Meeting: April 24, 2023
Subject
Consider the City's Investment Policy
Recommended Action
Review and accept the City's Investment Policy
Reasons for Recommendation
Background
To ensure the City's investment policy is up-to-date and aligned with its investment
objectives, the Audit Committee conducts an annual review before presenting it to the
City Council. The most recent review and acceptance of the investment policy by the
Audit Committee occurred on April 25, 2022, followed by approval from the City
Council on May 19, 2022.
The investment policy is the foundation of the City's investment goals and priorities. It
can help protect the City's assets if it is carefully researched, effectively drafted, and
regularly reviewed to assure that it continues to meet the City's investment objectives.
The existence of an approved investment policy demonstrates that the City is
performing its fiduciary responsibilities, thereby inspiring trust and confidence among
the public that it serves.
The policy also provides guidance on the proper management of the City's temporary
idle cash, outlining protocols to maximize cash efficiency.
California Government Code (Code) section 53646(a)(2) states:
[T]he treasurer or chief fiscal officer of the local agency may annually render to
the legislative body of that local agency and any oversight committee of that
local agency a statement of investment policy, which the legislative body of the
local agency shall consider at a public meeting. Any change in the policy shall
also be considered by the legislative body of the local agency at a public
meeting.
Assembly Bill 2853 (Chapter 889, Statutes of 2004) amended section 53646(a)(2) to make
presentation of the investment policy to the City Council optional. While no longer
required by Code, the City annually presents the investment policy to the Audit
Committee before submitting it to City Council for approval.
Chandler Asset Management
In FY 2018-19, the City conducted a Request for Proposal (RFP) for investment
management services and selected Chandler Asset Management. Under the City's
Treasurer's direction, Chandler Asset Management manages the City's investment
portfolio in accordance with the City's investment objectives. The City's investment
objectives, in order of priority, are to provide:
• Safety to ensure the preservation of capital in the overall portfolio
• Sufficient liquidity for cash needs
• A market rate of return consistent with the investment program
The performance objective is to earn a total rate of return through a market cycle equal
to or above the return on the benchmark index. To achieve the objective, Chandler Asset
Management invests in high-quality fixed-income securities consistent with the City's
investment policy and Code.
Investment Policy Review
Chandler Asset Management reviewed the City's investment policy. The review of the
policy focused on compliance with the statutes of Code that govern the investment of
public funds, as well as on the inclusion of current best practices.
There was a change to Code Section 53601 for 2023 that Chandler Asset Management
recommends the City adopt. Pursuant to Senate Bill 1489, effective January 1, 2023, the
Code specified that an investment’s term or remaining maturity shall be measured from
the settlement date to final maturity rather than from the trade date. Chandler Asset
Management has added the change in the Maximum Maturities and Mitigating Market
Risk in the Portfolio sections. The City’s policy continues to be effective as written.
Sustainability Impact
No sustainability impact.
Fiscal Impact
No fiscal impact.
_____________________________________
Prepared by: Thomas Leung, Budget Manager
Reviewed by: Kristina Alfaro, Director of Administrative Services and City Treasurer
Approved for Submission by: Matt Morley, Assistant City Manager
Attachments:
A – Investment Policy
B – Chandler Investment Policy Statement Review Memo