HomeMy WebLinkAboutR05-150RESOLUTION R05..150
A RESOLUTION OF THE CITY OF PLAINVIEW ADOPTING AN
INVESTMENT POLICY
WHEREAS, the Public Funds Investment Act (Texas Government Code,
Chapter 2256) governs local government investment; and
WHEREAS, the Public Fund Investment Act (Section 2256.005a) requires
the City to adopt an investment policy and investment strategies by rule, order,
ordinance or resolution governing the investment of funds under its control; and
WHEREAS, the Public Fund Investment Act (Section 2256.005e), requires
the governing body to review and adopt that investment policy and investment
strategies by rule, order, ordinance or resolution not less than annually, recording
any changes made thereto; and
WHEREAS, the City Council has chosen to make certain changes to the
Policy as indicated on the attached Exhibit;
NOW, THEREFORE, BE IT RESOLVED that the City has complied with
the requirements of the Public Funds Investment Act and the Investment Policy,
as amended, attached hereto as Exhibit A, is hereby adopted as the Investment
Policy of the City. Approved changes to the Policy are marked on the Exhibit.
PASSED, ADOPTED AND APPROVED by the City Council
Plainview this the ~7'/'~'' day of September, ~2005.
C. Anderson,,~l~y;or
APPROVED AS '1'O FORM:
of the City of
ATTEST:
Belinda Hinojosa, City Secretar~
Leslie ,~'~eaF' eP"'~'~ce""'~,/ Cit~; ~At-to-r-n e-y
Resolution R05-150,
Investment Policy
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CITY of PLAINVIEW, TEXAS
INVESTMENT POLICY
I. POLICY
It is the policy of the City of Plainview, Texas (City) that after allowing for the anticipated
cash flow requirements of the City and giving due consideration to the safety and risk of
investment, all available funds shall be invested in conformance with these legal and
administrative guidelines, seeking to optimize interest earnings to the maximum extent
possible.
Effective cash management is recognized as essential to good fiscal management.
Investment interest is a source of revenue to City funds. The City's investment portfolio
shall be designed and managed in a manner designed to maximize this revenue source, to be
responsive to public trust, and to be in compliance with legal requirements and limitations.
Investments shall be made with the primary objectives off
Safety and preservation of principal
Maintenance of suffident liquidity to meet operating needs
Public trust from prudent investment activities
* Optimization of interest earnings on the portfolio
II. PURPOSE
The purpose of this investment policy is to comply with all local law and Chapter 2256 of
the Government Code ("Public Funds Investment Act"), which requires each Entity to
adopt a written investment policy regarding the investment of its funds and funds under its
control. The Investment Policy addresses the methods, procedures and practices that must
be exercised to ensure effective and judicious fiscal management of the City's funds.
IIII.SCOPE
This Investment Policy shall govern the investment of all finandal assets of the City. These
fimds are accounted for in the City's Comprehensive Annual Financial Report (CAFR) and
include:
· General Fund
· Special Revenue Funds
· Capital Projects Funds
· Enterprise Funds
· Internal Service Funds
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Investment Policy
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Trust and Agency Funds, to the extent not required by law or existing contract to
be kept segregated and managed separately
· Debt Service Funds, including reserves and sinking ftmds, to the extent not
required by law or existing contract to be kept segregated and managed
separately
· Any new fund created by the City, unless specifically exempted from this Policy
by the City Council or by law.
The City will consolidate cash balances from all funds to maximize investment earnings.
Investment income will be a/located to the various funds based on their respective
participation and in accordance with generally accepted accounting principles.
This Investment Policy shall apply to all transactions involving the financial assets and
related activity for all the foregoing funds. However, this policy does not apply to the assets
administered for the benefit of the' City by outside agencies under deferred compensation
programs.
IIV. INVESTMENT OBJECTIVES
The City shall manage and invest its cash with four primary objectives, listed in order of
priority: safety, liquidity, public trust, and yield, expresse, d as optimization of interest
earnings. The safety of the principal invested always remains the primary objective. All
investments shall be designed and managed in a manner responsive to the public trust and
consistent with state and local law.
The City shall maintain a comprehensive cash management program, which includes
collection of account receivables, vendor payments in accordance with invoice terms, and
prudent investment of available cash. Cash management is defined as the process of
managing monies in order to insure maximum cash availability and maximum earnings on
short-term investment of idle cash.
Safety
Safety of principal is the foremost objective of the investment program. Investments shall
be undertaken in a mariner that seeks to ensure the preservation of capital in the overall
portfolio. The objective will be to mitigate credit and i~,terest rate risk.
[] Credit Risk - The City will minimize credit risk, the risk of loss due to the
failure of the issuer or backer of the inw.,stment, by:
· Limiting investments to the safest types of investments
· Pre-qualifying the financial institutions and broker/dealers with which
the City will do business
· Diversifying the investment portfolio so that potential losses on
individual issuers w/ll be minimized.
Interest Rate Risk - the City will minimize the risk that the interest earnings
and the market value of investments in the portfolio will fall due to changes
in general interest rates, by:
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Structuring the investment portfolio so that investments mattrre to meet
cash requirements for ongoing operations, thereby avoiding the need to
liquidate investments prior to mammy.
· Investing operating funds primarily in certificates of deposit, shorter-
term securities, money market mutual funds, or local government
investment pools functioning as money market mutual funds.
Diversifying maturities and staggering purchase dates to minimize the
impact of market movements over dine.
L qlatnty
The investment portfolio shall remain sufficiently liquid to meet all operating requirements
that may be reasonably anticipated. This is accomplished by structuring the portfolio so that
investments mature concurrent with cash needs to meet anticipated demands. Because all
possible cash demands cannot be anticipated, a portion of the portfolio will be invested in
shares of money market mutual funds or local government investment pools that offer
same-day liquidity.
Public Trust
All participants in the City's investment process shall seek to act responsibly as custodians of
the public trust. Investment officers shall avoid any transaction that might impair public
confidence in the City's ability to govern effectively.
Yield
The investment portfolio shah be designed with the objective of attaining a market rate of
remm throughout budgetary and economic cycles, talcing into account the investment risk
constraints and liquidity needs. Return on investment is of secondary importance compared
to the safety and liquidity objectives described above.
V. RESPONSIBILITY AND CONTROL
Delegation of Authority_
In accordance with the Public Funds Investment Act, the City Council designates the City
Manager, or his designated representative, and the Budget Manager, or his designated
representative, as the City's Investment Officers. An Investment Officer is authorized to
execute investment transactions on behalf of the City. No person may engage in an
investment transaction or the management of City funds except as provided under the terms
of this Investment Policy as approved by the City Council.
Quality and Capability_ of Investment Management
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The City shall provide periodic training in investments for the designated investment officers
and other investment personnel through courses and seminars offered by professional
organizations, associations, and other independent sources in order to insure the quality and
capability of investment management in compliance with the Public Funds Investment Act.
Training Requirement
In accordance with the Public Funds Investment Act, designated Investment Officers shall
attend an investment training session no less often than once every two years commencing
September 1, 1997 and shall receive not less than 10 hours of instruction relating to
investment responsibilities. A newly appointed Investment Officer must attend a training
session of at least 10 hours of instruction within twelve months of the date the officer took
office or assumed the officer's duties. The investment training session shall be provided by
an independent source approved by the City Council. For purposes of this policy, an
"independent source" from which investment training shall be obtained shall include a
professional organization, an institution of higher education or any other sponsor other than
a business organization with whom the City may engage', in an investment transaction.
Internal Controls
The designated Chief Financial Officer is responsible for establishing and maintaining an
internal control structure designed to ensure that the financial assets of the City are
protected from loss, theft, or misuse. The internal control structure shall be designed to
provide reasonable assurance that these objectives are met. The concept of reasonable
assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be
derived; and (2) the valuation of costs and benefits requires estimates and judgments by
management.
Accordingly, the designated Chief Financial Officer sha~ establish a process for annual
independent review by an external auditor to assure compliance with policies and
procedures. The internal controls shall address the following points.
Control of collusion.
· Separation of transactions authority from accounting and record keeping.
· Custodial safekeeping.
· Avoidance of physical delivery securities.
· Clear delegation of authority to subordinate staff members.
· Written confirmation for telephone (voice) transactions for investments and wire
transfers.
· Development of a wire transfer agreement with the depository bank or third
party custodian.
Prudence
The standard of prudence to be applied by the Investment Officer shall be the "prudent
investor" rule. This states that "Investments shall be made with judgment and care; under
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Investment Policy
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circumstances then prevailing, which persons of prudence, discretion and intelligence
exercise in the managementJof their own affairs, not for speculation, but for investment,
considering the probable safety of their capital as well as the probable income to be
derived." In determining whether an Investment Officer has exercised prudence with
respect to an investment decision, the determination shall be made taking into consideration:
· The investment of all funds, or funds under the City's control, over which the
officer had responsibility rather than a consideration as to the prudence of a
single investment.
· Whether the investment decision was consistent with the written approved
investment policy of the City.
Indemnification
The Investment Officer, acting in accordance with written procedures and exercising due
diligence, shall not be held personally responsible for a specific investment's credit risk or
market price changes, provided that these deviations are reported immediately and the
appropriate action is taken ro control adverse developments.
Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from personal
business activity that would conflict with the proper execution and management of the
investment program, or that would impair their ability to make impartial decisions.
Employees and Investment Officers shall disclose any material interests in financial
institutions with which they conduct business. They shall further disclose any personal
financial/investment positions that could be related to the performance of the investment
portfolio. Employees and officers shall refrain from undertaking personal investment
transactions with the same individual with which business is conducted on behalf of the City.
An Investment Officer of the City who has a personal business relationship with an
organization seeking to sell an investment to the City shall file a statement disclosing that
personal business interest. An Investment Officer who is related within the second degree
by affinity or consangttinity to an individual seeking to sell an investment to the City shall file
a statement disclosing that relationship. A statement required under this subsection must be
filed with the Texas Ethics Commission and the City Council.
VI. SUITABLE AND AUTHORIZED INVESTMENTS
Portfolio Management
The City currently has a "buy and hold" portfolio strategy. Maturity dates are matched with
cash flow requirements and investments are purchased with the intent to be held until
mamr_itv. However, investments may be liquidated prior to maturity for the following
reasons:
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Investment Policy
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· An investment with declining credit may be liquidated early to minimize loss of
principal
· Cash flow needs of the City require that the investment be liquidated.
Investments
City funds governed by this policy may be invested in the instruments described below, all of
which are authorized by Chapter 2256 of the Government Code (Public Funds Investment
Act). Investment of City funds in any inStaLment or security not authorized for investment
under the Act is prohibited. The City will not be required to liquidate an investment that
becomes unauthorized subsequent to its purchase.
I. Authorized
1. Obligations of the United States of America, its agencies and instrumentalities.
¸2.
Certificates of Deposit issued by a bank organized under Texas law, the laws of
another state, or federal law, that has its main office or a branch office in Texas,
or by a savings and loan association or a savings bank organized under Texas
law, the laws of anther state, or federal law, 'that has its main office or a branch
office in Texas and that is guaranteed or insured by the Federal Deposit
Insurance or its successor or secured by obli~gations in a manner and amount
prov/ded by law for deposits of the City.
Fully collateralized direct repurchase agreements with a defined termination date
secured by obligations of the United States or its agencies and instrumentalities.
These shall be pledged to the City, held in the City's name, and deposited at the
time the investment is made with the City or with a third party selected and
approved by the City. Repurchased agreements must be purchased through a
primary government securities dealer, as defined by the Federal Reserve, or a
financial institution doing business in Texas. A Master Repurchase Agreement
must be signed by the bank/dealer prior to investment in a repurchase
agreement. All repurchase agreement transactions will be on a delivery vs.
payment basis. Securities received for repurchase agreements must have a
market 'value greater than or equal to 102 percent at the time funds are disbursed.
Money Market Mutual funds that are 1) registered and regulated by the Securities
and Exchange Commission, 2) have a dollar weighted average stated maturity of
90 days or less, 3) rated_A_AA by a least one :nationally recognized rating service,
and 4) seek to nmintain a net asset value of $1.00 per share.
Local government investment pools, which 1) meet the requirements of Chapter
2256.016 of the Public Funds Investment Act, 2) are rated no lower that AAA or
an equivalent rating by at least one nationally recognized rating service, 3) seek to
maintain a $1.00 net asset value, and 4) are authorized by resolution or ordinance
by the City Council.
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All prudent measures will be taken to liquidate an investment that is downgraded to less
than the required minimum rating. (PFIA 2256.021)
II. Not Authorized
Investments including interest-only or principal-only strips of obligations with
underlying mortgage-backed security collateral, collateralized mortgage obligations with
an inverse floating interest rate or a maturity date of over 10 years are strictly prohibited.
VII. INVESTMENT .PARAMETERS
Maximum Maturities
The longer the maturity of investments, the greater their price volatility. Therefore, it is the
City's policy to concentrate its investment portfolio in shorter-term securities in order to
limit principal risk caused by changes in interest rates.
The City attempts to match its investments with anticipated cash flow requirements. The
City will not invest more than 20% of the portfolio for a period greater than one year, unless
matched to a specific requirement. The City will not directly invest in securities maturing
more than two years from the date of purchase; however, the above described obligations,
certificates, or agreements may be collateralized using longer dated investments.
Because no secondary market exists for repurchase agreements, the maximum maturity shall
be 120 days except in the case of a flexible repurchase agreement for bond proceeds. The
maximum maturity for such an investment shall be determined in accordance with project
cash flow projections and the requirements of the governing bond ordinance.
Diversification
The City recognizes that investment risks can result from issuer defaults, market price
changes or various technical complications leading to temporary liquidity. Risk is controlled
through portfolio diversification that shall be achieved by the following general guidelines:
Limiting investments to avoid over concentration in investments from a specific
issuer or business sector (excluding U.S. Treasury securiues and certificates of
deposit that are fully insured and collateralized in accordance with state and
federal law),
Limiting investment in investments that have higher credit risks (examples:
commercial paper),
· Investing in investments with varying maturities, and
· Continuously investing a portion of the portfolio in readily available funds such
as local government investment pools, money market funds or overnight
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repurchase agreements to ensure that appropriate liquidity is maintained in order
to meet ongoing obligations.
The following maximum limits, by instrument, are established for the City's total portfolio:
1. U.S. TreasUry Securities ................................... 100%
2. Agencies and Instrumentalities ........................... 85%
3. Certificates of Deposit ..................................... 100%
4. Repurchase Agreements* ................................. 20%
5. Money Market Mutual Funds .............................. 50%
6. Authorized Pools ........................................... .100%
*Excluding flexible repurchase agreements for bond proceeds investments
VIII. SELECTION OF BANKS AND DEALERS
Depository.
At least every five years a Depository shall be selected through the City's banking services
procurement process, which shall include a formal request for proposal (RFP). The
selection of a depository will be determined by competitive bid and evaluation of bids will be
based on the following selection criteria:
The ability to qualify as a depository for public funds in accordance with state
law.
· The ability to provide requested information or firmnci~ statements for the
periods specified.
The ability to meet all requirements in the banldng RFP.
· Complete response to all required items on bid form.
· Lowest net banking service cost, consistent ,with the ability to provide an
appropriate level of service.
· The credit worthiness and financial stability of the bank.
Authorized Broker/Dealers
The City shall, at least annually, review, revise, and adopt a list of qualified broker/dealers
and financial institutions authorized to engage in securities transactions with the City.
Those firms that request to become qualified bidders for securities transactions will be
required to provide a completed broker/dealer questionnaire that provides information
regarding creditworthiness, experience and reputation, and 2) certification stating the firm
has received, read and understood the City's investment policy and agree to comply with the
policy. Authorized firms include primary dealers or re~.onal dealers that qualify under
Securities & Exchange Commission Rule 15C3-1 (Uniform Net Capital Rule), and qualified
depositories. All investment providers, including financial institutions, banks, money market
mutual funds, and local government investment pools, must sign a certification
acknowledging that the organization has received and re. viewed the City's investment policy
and that reasonable procedures and controls have been implemented to preclude investment
transactions that are not authorized by the City's policy.
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Delivery vs. Payment
Securities shall be purchased using the delivery vs. payment method with the exception of
investment pools and mutual funds. Funds will be released after notification that the
purchased security has been received.
IX. SAFEKEEPING OF SECURITIES AND COLLATERAL
Safekeeping and Custodian Agreements
The City shall contract with a bank or banks for the safekeeping of securities either owned
by the City as part of ks investment portfolio or held as collateral to secure demand or time
deposits. Securities owned by the City shall be held in the City's name as evidenced by
safekeeping receipts of the institution holding the securities.
Collateral for deposks will be held by a third party custodian designated by the City and
pledged to the City as evidenced by safekeeping receipts of the institution with which the
collateral is deposited. Original safekeeping receipts shall be obtained. Collateral may be
held by a Federal Reserve bank or branch of a Federal Reserve bank, a Federal Home Loan
Bank, or a third party bank approved by the City.
Collateral Policy
Consistent with the requirements of the Public Funds Collateral Act, it is the policy of the
City to require full collateralization of all City funds on deposit with a depository bank, other
than investments. In order to anticipate market changes and provide a level of security for
all funds, the collateralization level will be 102% of market value of principal and accrued
interest on the deposits or investments less an amount insured by the FDIC. At its
discretion, the City may require a higher level of collateralization for certain investment
securities. Securities pledged as collateral shall be held by an independent third party with
which the City has a current custodial agreement. The designated Financial Officer is
responsible for entering into collateralization agreements with third party custodians in
compliance with this Policy. The agreements are to specify the acceptable investment
securities for collateral, including provisions relating to possession of the collateral, the
substitution or release of investment securities, ownership of securities, and the method of
valuation of securities. A clearly marked evidence of ownership (safekeeping receipt) must
be supplied to the City and retained. Collateral shall be reviewed at least monthly to assure
that the market value of the pledged securities is adequate.
Collateral Defined
The City shall accept only the following types of collateral:
· Obligations of the United States or its agencies and instrumentalities
· Direct obligations of the state of Texas or irs agencies and instrumentalities
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Collateralized mortgage obligations directly issued by a federal agency or instrumentality
of the United States, the underlying security for which is guaranteed by an agency or
insmunentality of the United States
Oblkgations of states, agencies, counties, dries, and ,other political subdivisions of any
state rated as to investment quality by a nationally recognized rating firm not less than A
or its equivalent with a remaining maturity of ten (10) years or less
· A surety bond issued by an insurance company rated as to investment quality by a
nationally recognized rating firm not !ess than A
· A letter of credit issued to the Entity by the Fed¢ral Home Loan bank
Subject to Audit
All collateral shall be subject to inspection and audit by the City's designated Finandal
Officer or the City's independent auditors.
IX. PERFORMANCE
Performance Standards
The city's investment portfolio will be managed in accordance with the parameters specified
within this policy. The portfolio shall be designed with the objective of obtaining a rate of
return through budgetary and economic cycles, commensurate with the investment risk
constraints and the cash flow requirements of the City.
Performance Benchmark
It is the policy of tl:,e City to purchase investments with maturity dates coinciding with cash
flow needs. Through this strategy, the City shall seek to optimize interest earnings utilizing
allowable investments available on the market at that time. Market value will be calculated
on a quarterly basis on all securities owned and compared to current book value. The City's
portfolio shall be designed with the objective of regularly meeting or exceeding the average
rate of return on U.S. Treasury Bills at a maturity level comparable to the City's weighted
average maturity in days.
XI. REPORTING
Methods
The Investment Officer shall prepare an investment report on a quarterly basis that
· summarizes investment strategies employed in the most recent quarter and describes the
portfolio in terms of investment securities, maturities, and shall explain the total investment
return for the quarter.
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The quarterly investment report shall include a summary statement of investment activity
prepared in compliance with generally accepted accounting principals. This summary will be
prepared in a manner that will allow the City to ascertain whether investment activities
during the reporting period have conformed to the Investment Policy. The report will be
provided to the City Council. The report will include the following:
A listing of individual securities held at the end of the reporting period.
Unrealized gains or losses resulting from appreciation or depreciation by listing
the beginning and ending book and market value of securities for the period.
· Additions and changes to the market value during the period.
· Average weighted yield to maturity of portfolio as compared to applicable
benchmark.
· Listing of investments by maturity date.
· Fully accrued interest for the reporting period
· The percentage of the total portfolio that each type of investment represents.
· Statement of compliance of the City's investment portfolio with state law and the
investment strategy and policy approved by the City Council.
An independent auditor will perform a formal annual review of the quarterly reports with
the results reported to the governing body.
Monitoring Market Value
Market value of all securities in the portfolio will be determined on a quarterly basis. These
values will be obtained from a reputable and independent source and disclosed to the
governing body quarterly in a written report.
XII. INVESTMENT POLICY ADOPTION
The City's investment policy shall be adopted by resolution of the City Council. It is the
City's intent to comply with state laws and regulations. The City's investment policy shall be
subject to revisions consistent with changing laws, regulations, and needs of the City. The
City Council shall adopt a resolution stating that it has reviewed the policy and investment
strategies annually, approving any changes or modifications.
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