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04-12-90-5.5 - Resolution - 04/12/1990RESOLUTION NO. 4-12-90-5.5 A RESOLUTION APPROVING AND AUTHORIZING THE IMPLEMENTA- TION OF THE CITY OF COLLEGE STATION INVESTMENT POLICY. WHEREAS, the goal of the City of College Station is to create an investment policy to insure the safety of all funds entrusted to the City, while making available those funds for the payment of all necessary obliga- tions of the City, and providing for the investment of all funds not immediately required in interest bearing securities; and WHEREAS, the safety of the principal invested shall al- ways be the primary concern of the City of College Sta- tion; and WHEREAS, the management of monies in order to insure maximum cash availability and maximum yields on a short term investment is a primary goal of the City of Col- lege Station; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF COLLEGE STATION that the attached document shall be the investment policy of the City of College Station, providing for an active cash management policy to be pursued by the City in order to maximize invest- ment interest as a viable and material revenue source while still providing maximum cash availability. PASSED and APPROVED this the April , 1990. day of APPROVED: ATTEST: ~NVESTHENT POLICY I. INTRODUCTION: GOAL. The goal of the City of College Station Investment Policy shall be to ensure the safety of all funds entrusted to the City (SAFETY), the availability of those funds for the payment of all necessary obligations of the City (LIQUIDITY), and to provide for the investment of all funds, not immediately required, in interest-bearing securities (YIELD). The safety of the principal invested shall always be the primary concern. Cash management is defined as the process of managing monies in order to ensure maximum cash availability and maximum yields on short-term investments. It is concerned with what happens between the point that revenue is earned and an expense payment clears the bank. The City shall maintain a comprehensive cash management program which include collection of accounts receivable on a timely basis, vendor payment in accordance with invoice terms and State law, and prudent investment of its available cash. Effective cash management is recognized as essential to good fiscal management. An active cash management policy will be pursued by the City in order to maximize investment interest as a viable and material revenue source to all operating and capital funds. SCOPE. This Investment Policy of the City of College Station shall include all investment activities of any fund of the City. A,~IEND~ENTS. This policy may be amended from time to time as the City Council may so desire, or as State law may require. II. RESPONSIBILITY: PURPOSE. The purpose of this section is to establish an Investment Officer for the City of College Station and define the authority of the Investment officer. RESPONSIBILITY ~%ND DESIGNATION. The Director of Finance is the City's Investment officer and is responsible for the City's comprehensive cash management program, including the administration of these investment policies. The Director of Finance shall maintain timely, accurate and systematic records of all securities, maturities and earnings. The investment office shall be responsible for establishing written procedures for cash management. The Investment officer shall be responsible for the development and updating on a periodic basis of a cash forecast for the City. This cash forecast will provide information essential to properly structure investment 007800 maturities to meet required disbursement of funds. The Investment officer is also responsible for developing and maintaining expertise in the areas of market evaluation, market timing, and economic forecasting. Professional training and outside experts will be used as appropriate to meet the overall policy goal of maximizing interest earnings within the constraints of portfolio safety and liquidity. Responsibility and authority for investment transactions resides with the Investment officer. The Investment officer is fully authorized to buy and sell investments in accordance with the goals and objectives of the city's investment strategy. Certain signatory responsibilities are shared by bonded officials for the purpose of providing continuity of the City's investment program in the absence of the Investment officer. Positions authorized are: City Manager Executive Director,Fiscal & Human Resources Deputy Director of Finance/Budget officer BONDING REQUIREMENTS. Each of the above-authorized positions designated to serve as the Investment Officer or designee in the absence of the city's Investment Officer shall be bonded employees. All participants in the investment process shall act responsibly as custodians of the public trust. INVESTHENT COI~ITTEE. There shall be formed an investment committee consisting of the Executive Director, Fiscal & Human Resources, the Deputy Director of Finance/Budget Officer and the City Manager. That committee is charged with the responsibility of investment portfolio compliance with State statutes and these policies. That committee shall also have the responsibility of reviewing and approving all broker/dealer relationships on the recommendation of the City's Investment Officer. The committee shall meet at least on a quarterly basis. Any two of the three members shall constitute a quorum. The Executive Director, Fiscal & Human Resources shall serve as chairman of the committee, and written records of investment committee meetings shall be maintained. III. STATUTORY GUIDELINES: PUBLIC FUNDS INVESTMENT ACT OF 1987, AS AMENDED FROM TIME TO TIME. This legislation, adopted by the Texas Legislature in 1987, and amended in 1989, defines the legal investment options of Texas municipalities and has included a provision 007801 requiring a written investment policy. Under terms of this legislation, legal investment options are: 1. Obligations of the United States or its agencies and instrumentalities; 2. Direct obligations of the State of Texas or its agencies; 3. Other obligations, the principal and interest on which are unconditionally guaranteed or insured by the State of Texas or the United States; 4. Investment grade obligations of the State of Texas and political subdivision; 5. Certificates of Deposit issued by state and national banks domiciled in this state which are either insured by the F.D.I.C. or secured by legal collateral; 6. Repurchase agreements which are fully collateralized, with third-party safekeeping of collateral, purchased through a "primary" government securities dealer or state or national bank domiciled in the State of Texas. Collateral of repurchase agreements must meet certain requirements. 7. "Prime Domestic Bankers' Acceptances", subject to certain limitations 8. Commercial paper, subject to certain limitations 9. Money-market mutual funds, subject to certain limitations PUBLIC FUNDS COLLATERAL ACT, AS AMENDED FROM TIME TO TIME. Senate Bill 1341 was amended in the 71st Legislature, regular session, 1989. This act authorized the creation of public funds investment pools and established criteria for allowable investments and collateral. NOTE: The complete text of Art. 842a-2 and S.B. 1341 are attached as Exhibit I and made a part of these investment policies. IV. INVESTMENT OBJECTIVES: The investments purchased under the provisions of this Investment Policy shall be managed to maintain liquidity for meeting the City's needs for cash and to limit potential market risks in periods of rising interest rates which depress the market value of securities. As a guideline, maturity of securities should not exceed more than two years for cash management purposes, with the optimum weighted average maturity of less than one year. Investments in securities of a longer maturity than two years are considered prudent for funds maintained for capital 0078O2 construction, and debt service funds, if necessary to meet projected disbursement schedules. As a general guideline, the City of College Station's cash management portfolio shall be designed with the objective of meeting, over the course of full market cycles, the average return on three-month U.S. Treasury Bills, or the average rate of federal funds, whichever is higher. These indices are considered benchmarks for riskless investment transactions and therefore comprise a standard for the portfolio's rate of return. The investment program shall seek to augment rates of return above this level. In a diversified portfolio, measured losses are inevitable and must be considered within the context of the overall portfolio. The objective in investment of construction funds is at least to match inflation increases in construction costs. Active portfolio management includes the practice of selling securities prior to maturity, using the proceeds to purchase other securities. Such "swaps" are performed for a variety of valid reasons: To lengthen maturities as interest rates rise, to secure market profits and shorten maturities as interest rates fall, and to take advantage of the differences in relative yield between different types of securities and varying maturities. "Swap" analysis is the responsibility of the City Investment officer and the decision to execute the "swap" rests with him. To protect the portfolio from imprudent trading, no security may be sold until such time as the current market value of the security plus interest earned from date of purchase is at least equal to the purchase price of that security. V. AUTHORIZED INVESTMENTS ELIGIBLE DEPOSITORIES. Ail state and national banks located in the State of Texas, which are insured by the Federal Deposit Insurance Corporation (F.D.I.C.). The financial condition of the bank shall be considered prior to establishing any accounts with that bank. The City shall subscribe to a bank rating service to obtain timely information. Banking Services shall be maintained separately from Investment Services. At least every third year, the city shall solicit requests for proposals for banking services from state and national banks located in the City. The Director of Finance shall be responsible for recommending a written banking services agreement for approval by the City Council. That agreement shall include such provisions for transaction unit costs, account and wire transfer fees, and account reporting services. The agreement shall include provision for collateralization of demand account balances in excess of F.D.I.C. insurance and provide for independent, 007805 third-party safekeeping of that collateral. A copy of the current agreement is attached as Exhibit II to this policy. ELIGIBLE SECURITIES DEALERS. Securities dealers and banks which are the approved and designated dealers of the Federal Reserve Bank of New York - "Primary Dealers". A current list of "Primary Dealers" is attached as Appendix A. Be Securities dealers and banks which are not designated as "Primary Dealers", but which are approved individually by the city of College Station Investment Committee. Ce Investment activity in repurchase agreements shall be limited to "Primary" dealers and State and national banks domiciled in the State of Texas, evidenced by a fully-executed Master Repurchase Agreement on file with the City (copy attached as Exhibit III). De Prior to commencing investment activity with any security dealer, a "Broker/Dealer Questionnaire and Certification" must be completed and on file with the City (copy attached as Exhibit IV). All securities dealers must furnish annual financial reports to the City. ELIGIBLE Ih'VESTHENTS. Obligations of the United States Government or its agencies including, but not limited to, the following: 1. U.S. Treasury Bills, Notes and Bonds 2. Federal Home Loan Bank 3. Federal National Mortgage Corporation 4. Government National Mortgage Corporation Ail securities shall be purchased on a delivery-versus- payment basis through a third-party safekeeping account. The City shall authorize the release of its funds only after it has received notification from the safekeeping bank that a purchased security has been received in the City's safekeeping account. This notification may be oral, but shall be followed up in writing with the original safekeeping receipt within twenty-four hours. B. Repurchase agreements made in compliance with Texas State Statutes. Repurchase collateral shall be perfected and delivered to an unaffiliated third-party safekeeping account. Repurchase agreements shall be collateralized at a minimum of 101 percent of the purchase price of the 007804 repurchase agreement and marked-to-market on a weekly basis. Collateral provided must be those securities otherwise authorized by state statutes for outright purchases. Collateral may be substituted only with the oral authorization of the Investment Officer, followed by written confirmations within twenty-four hours. The City considers repurchase agreements to be simultaneous purchases and sales of securities as outlined in the Master Repurchase Agreement and not as collateralized loans. However, the underlying securities may be referred to as "Collateral". C. Time certificates of deposit or savings accounts in state or national banks located within the State of Texas. All deposits must be insured to the level of $100,000 through the F.D.I.C. Investment in eligible pooled Certificate of Deposits programs (PAC's) is authorized under this section. All deposits in excess of $100,000 shall be collateralized by those securities otherwise authorized by state statutes for outright purchases, deposited into an unaffiliated third-party safekeeping institution with collateral held in the City's name. All deposits will be collateralized at a minimum of 101 percent of the purchase price and marked-to-market on a weekly basis. Collateral may be substituted only with the oral authorization of the Investment officer, followed by written confirmations within twenty-four hours. The City shall take all prudent and necessary steps to assure the solvency of the financial institution and the adequacy of collateral for deposits in excess of $100,000, with interest rates sufficient to warrant investment. D. Public Funds Investment Pools. Authorized by the Texas State Legislature in the 71st session, Senate Bill 1340 amended the Interlocal Cooperation Act, TEX. REV. CIT. STAT. ANN. art. 4413 and the Pubic Funds Investment Act. This legislation authorizes local governments to designate an investment officer and to delegate, by contract, the authority to act as custodian of investments purchased with local investment funds. E. Money Market Mutual Funds. Investment in mutual funds is limited to SEC-registered, no-load money market mutual funds with a dollar-weighted average portfolio maturity of 120 days of less whose assets consist exclusively of obligations eligible for direct purchase by Texas local governments and whose investment objectives include seeking to maintain a stable net asset value of $1 per share. NOTE: Commercial Paper and Banker's Acceptances, although permissible under state law, have not been made a part of this policy and are not legal investments of the City of College Station. O078O5 VI. ALLOCATION OF ASSETS: Diversification of investments as to investment type and term to maturity serve to reduce both market risk and interest rate uncertainty. Asset allocation shall be: MAXIMUM MINIMUM 1. U.S. Government Treasury Securities 90% 25% 2. U.S. Government Agency Securities 70(1) 0 3. Repurchase Agreements 70 0 4. Bank Certificates of Deposit 40 0 5. Liquidity Funds: Demand Deposit Accts 10 6. Public Funds Investment Pools 70 0 7. Money Market Mutual Funds 20(2) 0 (1) U.S. Government Agency Securities are authorized investments under Texas State statutes and are a "moral" obligation of the treasury. They are not, however, full faith and credit instruments as are Treasury Bills and Notes. For that reason, they carry higher interest rates than like-maturity Treasury Bills and Notes. Agency securities, with a maturity longer than six months from date of purchase, are further restricted to a maximum of 30% of the total portfolio. In addition, securities of any individual agency with maturities longer than six months are restricted to a maximum of 10% of the total portfolio. (2) Excluding the investment of bond proceeds. VII. HIGHEST YIELD REQUIREMENT: The City's funds shall be invested in instruments or accounts that yield the highest possible rate of return while providing the desired maturity schedule, level of liquidity, and necessary protection of principal as required by these policies and State law. VIII. BIDDING REQUIREMENTS: As prescribed by State Statutes, the City shall solicit bids prior to the purchase of any investment instrument. For each such purchase, a minimum of three phone bids will be received, with bid documentation maintained on file. It is the Investment Officer's responsibility to determine prudent maturity and liquidity, and to assess the potential for market gains or losses caused by fluctuating interest rates during the term of the investment. 007806 IX. POOLING OF ASSETS: To maximize the effective investment of assets, all funds needed for general obligations of the City should be pooled into one account for investment purposes. The income derived from this account will be distributed to the various funds based on their average balances on a periodic basis. X. STANDARD OF ETHICS: Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment programs, or which could impair their ability to make impartial investment decisions. Employees and Investment officials shall disclose to the City Manager any material financial interests in financial institutions that conduct business with the City of College Station, and shall further disclose any large personal financial or investment positions that could be related to the performance of the City's portfolio. Employees and Investment Officers shall subordinate their personal investment transactions to those of this jurisdiction, particularly with regard to the timing of purchases and sales. XI. REPORTING: As required by law, the Director of Finance shall submit annually to the City Council an investment report (Exhibit V) outlining the City's investment transactions for the preceding year and describing the investment position of the City as of the date of the report. Earnings on investments shall be compared to benchmark indicators to indicate relative portfolio performance. Quarterly reports, in addition to the required annual report, will be provided to the City Council, City Manager, and Investment Committee. XII. AUDITING: State and local laws require an annual audit of the financial records of the City. That audit will include a review of all investment activity for the year to review compliance with these investment procedures. Included in the audit review will also be a review of internal controls as pertains to investment of city funds and appropriate investment documentation. Annual audit procedures will also include verification of collateral held by the City for both bank deposits in excess of F.D.I.C. insurance and repurchase agreement transactions. 007807 XIII. INDEMNITY: The Investment officer and Investment Committee shall be personally indemnified in the event of investment loss provided that investments are made in full compliance with these policies. 007808