Title
Recommendation to Approve the City of Alameda Investment Policy and Provide Direction to Staff on Future Potential Changes, including Restrictions on Investment in Certain Industries, such as Oil, Gas and Defense. (Finance 10024051)
Body
To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
Annually, the City Treasurer and the Finance Director review the City of Alameda’s (City) Investment Policy (Policy) for changes and revisions that may be needed to comply with applicable sections of the California Government Code or any other changes to keep the Policy updated to current business practices. Tonight, the City Treasurer and City staff recommend updating the Policy to reflect some required legal changes outlined in greater detail below.
Additionally, consistent with direction provided by the City Council at its April 16, 2024 meeting in response to a Council Referral, the City Treasurer and City staff reviewed the Policy for potential amendments to Section III.E (Other Objectives) of the Policy, including the potential to restrict investments in additional categories in alignment with City values and the City Council’s policies and strategic priorities. The current Policy adopted on September 5, 2023, already restricts investments in the coal, tobacco, gambling, and alcoholic beverage industries.
BACKGROUND
Section 5-2 of the Alameda City Charter requires the elected City Treasurer to annually recommend to the City Council, at a public meeting, an Investment Policy for the City Council’s approval. The Policy was last reviewed and adopted by City Council on September 5, 2023. The elected City Treasurer and Finance Director reviewed and recommend proposed changes to the Policy.
The Policy provides for staff to submit quarterly Investment Transaction Reports to the City Council. Investment Transaction Reports include summaries of all transactions within the investment portfolio and a statement confirming that current liquidity is adequate to meet expenditures for the next six months, as required by the California Government Code.
At the April 16, 2024 City Council meeting, City Council considered a Council Referral item from Councilmember Tracy Jensen and provided direction to City staff, in conjunction with the City Treasurer, to review the Policy and propose potential amendments to Section III.E (Other Objectives) of the Policy to potentially restrict investments in additional categories in alignment with City values and City Council policies and strategic priorities. The current Policy adopted on September 5, 2023, already restricts investments in the coal, tobacco, gambling, and alcoholic beverage industries.
DISCUSSION
The following section summarizes: (1) recommended changes to the Policy, and (2) proposes future potential amendments to the Policy for City Council consideration and direction. Based on Council feedback this evening, staff will consult closely with the City Treasurer and update the Policy accordingly.
I. Recommended Changes to the Policy
The City’s Investment Policy affirms the fiduciary responsibility to safeguard public assets and identify the opportunities for a systematic investment process. Priority is placed first on securing the safety of the principal funds and the liquidity needed for payroll and other City obligations, then on yield of the investment.
The City’s Investment Policy is reviewed annually by the City Treasurer and Finance Director and is attached to this report (Exhibit 1). The Policy has been developed in accordance with standards and policies established by the California Debt and Investment Advisory Commission (CDIAC) and the Association of Public Treasurers of the United States and Canada (APTUSC).
The City Treasurer and Finance Director are proposing certain changes, as listed below and in the attached redline version, to the Policy to reflect actual practice, compliance with the statues of the California Government Code governing the investment of public funds, and to provide further overall clarity on the categories used to restrict investments:
Miscellaneous Legal and Compliance Changes
Under Policy Section IX, Authorized Investment, Maximum Maturities and Investment Amounts, the following changes are recommended:
o Mortgage Backed Securities Clarification: Clarifying how mortgage-backed securities issued by government sponsored enterprise issuers are categorized (Senate Bill 882) due to changes to California Government Code for 2024. Please see below for a brief summary of the changes:
o U.S. Government Treasury Bills and Notes: Augmented description to better match the language utilized in Code.
o CalTRUST and California Asset Management Program (CAMP): Recommend changing the language currently allowing CalTRUST and CAMP to mirror Code, allowing other Local Government Investment Pools (LGIP) the City wishes to explore.
o Asset-Backed Securities (ABS) and Prohibited Investments: Augmented the language allowing passthrough securities. The new language allows for mortgage-backed securities that are issued by governmental issuers to be classified as either issued by the United States government or by its federal agencies and government sponsored enterprises (GSE).
Addition of Clear Classification Codes
Currently, the Policy, when restricting City funds from being invested in the coal industry, relies on Bloomberg Industry Classification Systems (BICS). Equally, when restricting investments in cigarettes, alcohol, or gambling the existing policy uses only a description of the undesirable industries, but does not use BICS code. The proposed Policy update adds BICS codes to these industries as well.
II. Potential Amendments to Policy
As described above, City Council provided direction to review the Policy and propose potential amendments to Section III.E (Other Objectives) of the Policy to potentially restrict investments in additional categories in alignment with the City’s values and City Council’s policies and strategic priorities. Based on this evaluation, the City Treasurer and City staff propose options for potential modification and seek additional direction from the Council on future amendments, including the following:
• Remove the restriction on the production or manufacture of alcoholic beverages. This restriction has been in the Policy for multiple decades. In 2014, with much fanfare, the City branded a half-mile stretch of Monarch Street at Alameda Point “Spirits Alley”, welcoming wineries, distilleries and breweries to the City’s business community and is a priority sector in the City’s economic development plans. Eliminating the investment restriction on the production or manufacturing of alcoholic beverages brings the Policy in alignment with the City’s other plans and priorities.
• Restrict further investments in carbon emitting industries, in addition to coal, such as oil and gas. In March 2019, City Council adopted Resolution No. 15510, endorsing a declaration of a climate emergency due to the impact of fossil fuels (carbon emitting industries) on global warming, and the City also adopted a Climate Action and Resiliency Plan, which strives to become a carbon neutral City. Lastly, the City’s recently adopted Strategic Plan includes “Build Resilience to Climate Chang & Water Level Rise” as a strategic priority. Restricting investment of City funds in oil and gas industries directly supports these goals.
• Restrict investments in military defense companies. Restricting investment in military defense companies reinforces a commitment to promoting peace and non-violence; aligns with broader social efforts to promote human rights; and strengthens the City’s reputation as a leader in ethical governance.
If the City Council provides direction to restrict investment in additional industries, City staff and the City Treasurer will update the Policy using the BICS codes that appropriately capture the level of granularity desired by the Council to ensure that the City does not inadvertently disinvest in desired industries, or staff will employ an appropriate methodology to ensure adherence to City Council direction.
ALTERNATIVES
• Approve recommended changes to the Policy and provide direction regarding future changes.
• Approve recommended changes to the Policy, but do not provide direction regarding future changes.
• Do not approve recommended change to the Policy.
FINANCIAL IMPACT
There is no identifiable financial impact as a result of the approval of the Policy.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This activity complies with Section 5-2 of the Alameda City Charter, which provides that the Treasurer shall annually recommend to City Council an investment policy.
This report is in alignment with the City’s Fiscal Year 2023-26 Strategic Plan under the priority to Practice Fiscally Responsible, Equitable and Inclusive Governance.
CLIMATE IMPACTS
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report other than the potential of disinvesting in industries that negatively impact the environment, such as oil and gas.
ENVIRONMENTAL REVIEW
This activity is not a project and is exempt from the California Environmental Quality Act (CEQA) pursuant to section 15378 (b)(4) of the CEQA Guidelines, because it involves governmental fiscal activities (approval of the investment policy), which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
RECOMMENDATION
Approve the Policy and provide direction to staff on future potential changes that place limitations or restrictions on investment in certain Industries, such as oil, gas, and defense.
Respectfully submitted,
Kevin Kennedy, City Treasurer
Margaret L. O’Brien, Finance Director
Financial Impact section reviewed,
Margaret L. O’Brien, Finance Director
Exhibit:
1. Investment Policy