HomeMy WebLinkAboutFY 1989-1990 -- Comprehensive Annual Financial Report City
of
College Station, Texas
FINANCE DEPARTMENT
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Investment
Report
For the Fiscal Year Ended
September 30,1990
CITY OF COLLEGE STATION
\ / P.O.BOX 9960 1101 TEXAS AVENUE
COLLEGE STATION,TEXAS 77842-0690
(409)764-3500
December 5, 1990
Honorable Mayor
Members of the City Council
City of College Station, Texas
FISCAL YEAR 1990
The City of College Station invests the great majority of its funds in government securities with
maturities under three years. Interest rates for those types of securities were generally lower
during fiscal year 1990 than in the prior year. We started the year with a flat yield curve, meaning
that interest rates for short investments were at the same level as interest rates for long
investments, just slightly above 8%. By the end of the fiscal year, the yield curve was sharply
positive, with a one-year treasury note paying around 7.6% and a 30-year treasury note paying
slightly above 9%. The following graph shows this major change in the yield curve:
U.S. TREASURY
YIELD CURVE
Rio
10/10/90
—9.0
—8.8
—8.6
10/10/89
—8.4
—8.2
—8.0
—7.8
—7.6
• YEARS
i t i I i 7.4
1 2 3 4 5 7 10 20 30
Barron's i Knight-Ridder Tradecenter
Home of Texas A&M University
Fiscal year 1990 was the second year of operation under the new investment policy approved by
the City Council. This policy has allowed the city the flexibility to invest funds in government
treasury and agency obligations, the recently created TexPool pooled investment agency, as well
as bank liquidity accounts and certificates of deposit. This flexibility in investment options has
allowed the city to earn market rates of interest. Total investment earnings for Fiscal 1990 were
$2,647,418, compared to $2,622,212 in Fiscal 1989. This increase in earnings was a result of
slightly higher average invested balances this year. The following graph compares investment
rates of return for each of the last three fiscal years:
INVESTMENT RETURN
9.00% -- 8.77% 8.54%
8.43%
7.91%
8.00% -
7.00% — 6.58%
6.00% —
5.00% - •
-
4.00% — ......... .
3.00% —
2.00% —
1.00% — — —
0.00% - I .I I
1988 Actual 1989 Actual 1989 Treasury Bill 1990 Actual 1990 Treasury Bill
91-Day Yield 91-Day Yield
Investment results on our portfolio are compared to the treasury bill 91-day yield. This
hypothetical portfolio consists of a series of treasury bills with re-investment at maturity in the
new 91-day treasury bill. This index provides a benchmark for evaluating risk-free cash
management portfolios with short-term liquidity needs for payroll and Accounts Payables.
In accordance with normal investment reporting, rates of return do not include unrealized capital
gains; that is, year-end market values higher than the original cost of a security held at the end of
a fiscal year. If these unrealized capital gains of $90,972 were added to investment income,
fiscal 1990 earnings were 8.83%.
LOOKING AHEAD - FISCAL YEAR 1991:
Our current fiscal year begins on a note of considerable uncertainty. The crisis in the Persian
Gulf brings the possibility of war at a time when the "Iron Curtain" has just crumbled, reducing
tensions in that part of the world. Our domestic economy has weakened, and is either into or
just on the brink of recession. The course of both short-term and long-term interest rates is
uncertain, balanced between higher rates due to an outbreak of hostilities and concern over the
twin deficits of budget and international trade, and the sharply lower interest rates we would
expect as the country enters a recession.
At the start of fiscal year 1990, concensus opinion called for stable or higher interest rates, with
the economy continuing to grow and the Federal Reserve Board continuing its tight monetary
policy to combat inflation. As of September 30, 1989, maturities in our portfolio were kept very
short to both provide necessary liquidity and to protect against market losses (as interest rates
rise, the value of securities held falls). To protect the portfolio against losses in value, 96% of
investments had maturities under one year. One year later, on September 30, 1990, the
concensus was for lower interest rates as we enter a recession and the Federal Reserve Board
loosens monetary policy to allow rates to fall and stimulate the economy. As of that date, the
city's portfolio was 64% in the one-year and under maturity range and 36% with maturities of one
to three,years. These longer maturities, purchased at a time of higher interest rates, will protect
the interest yields of the portfolio if interest rates drop.
COMPLIANCE WITH STATE LAW:
This investment report has been prepared in accordance with the law of the State of Texas,
specifically the Tex. Rev. Civ. Stat Ann. Art. 4413(34c) Section 4, which states: "At least once
each year, the investment officer of a state agency or political subdivision shall prepare a written
report concerning the agency's or subdivision's local funds investment transactions for the
preceding year and describing in detail the investment position of the agency or subdivision as of
the date of the report."
ACKNOWLEDGEMENTS:
As part of the fiscal year 1989 budget, City Council authorized the position of Staff Assistant in
the Finance Department. Toni Johnson's able assistance and growing expertise in the
investment function have earned her a recent promotion to the position of Investment Analyst, a
new position approved in the 1991 budget. This new position will allow us to aggressively
manage the city's portfolio, maximizing yields on available balances.
Technical assistance and market insights have been provided by Mr. Ned Connolly of Prudential-
Bache Securities and Mr. Robert Jones of Shearson-Lehman-Hutton. Contractual agreements
with NCNB-A&M Branch and First City National Bank - Houston provide both safety and
convenience in the city's investment practices. TexPool, created in the past year through the
State Treasurer's Office, provides professional funds management and access to full market
rates of interest without brokerage commissions.
Respectfully submitted,
Ron Ragland Wi iam P. Harrison
City Manager Executive Director,
Fiscal & Human Resources
"I'M NOT SO CONCERNED WITH THE RETURN ON THE
INVESTMENT AS I AM WITH THE RETURN OF THE
INVESTMENT."
WILL ROGERS
INVESTMENT AUTHORITY
The funds of the City of College Station are invested in compliance with Art. 842(a-1), as
amended, entitled the "Public Funds Investment Act of 1987". Section 2, regarding Authorized
Investments, provides that a city may purchase, sell, and invest its funds and funds under its
control in"obligations of the United States or its agencies and instrumentalities; direct obligations
of the State of Texas or its agencies; other obligations, the principal of and interest on which are
unconditionally guaranteed or insured by the State of Texas or the United States; obligations of
states, agencies, counties, cities, and other political subdivisions of any state having been rated
as to investment quality by a nationally recognized investment rating firm and having received a
rating of not less than "A" or its equivalent; certificates of deposit issued by state or national
banks domiciled in this State that are insured by FDIC or secured by obligations listed above;
and fully collateralized direct repurchase agreements having a defined termination date, secured
by obligations described above, pledged with a third party, and placed through a primary
government securities dealer, or bank domiciled in this state." The City Council of the City of
College Station has adopted Resolution number 04-12-90-5.5 as the local investment policy in
compliance with the above requirements. Current legislation and the City's investment policy
have been made a part of this report.
INVESTMENT PORTFOLIO
As of September 30, 1990, the end of the Fiscal Year, the City's investment portfolio consisted of
the following:
Bank Demand Accounts $ 1,601,900 5.7%
Repurchase Agreements 806,400 2.9
State Investment Pool 418,400 1.5
Insured Cert. of Deposit 50,000 0.2
U.S. Gov't Obligations 17,990,300 63.7
Government Agency Notes 7,352,500 26.0
TOTAL $28,219,500 100,0%
Expressed graphically:
2.90%
BANK DEMAND 1990 FISCAL YEAR-END
ACCOUNTS
PORTFOLIO BY INVESTMENT TYPE
$28,219,500
by kAf
26.00°/u
GOVERNMENT
AGENCY
NOTES
63.70%
U.S.GOVERNMENT
OBLIGATIONS
(BILLS&NOTES)
1.50%
REPURCHASE
AGREEMENTS
5.70%
STATE INVESTMENT
POOL(TEXPOOL)
0.20%
CERTIFICATES
OF DEPOSIT
BANK DEMAND ACCOUNTS: With the exception of a small liquidity account maintained at First
City National Bank - Houston, all demand accounts are with NCNB - A&M Branch. To protect
deposits above the $100,000 FDIC insurance level, NCNB has pledged to the City $2,000,000 in
Treasury Notes. These notes are held in an account at the Federal Reserve Bank of Dallas in the
City's name.
Through use of repurchase agreements and the recently created State of Texas Investment Pool,
"TexPool", the City has been able to reduce the average investment in bank demand accounts.
From an average balance of $4,000,000 in Fiscal Year 1988, we have maintained an average
balance of approximately $1,000,000 in Fiscal Years 1989 and 1990. With investments
outperforming interest rates on demand accounts, we have been able to increase overall yields
by maintaining low demand balances.
REPURCHASE AGREEMENTS: Repurchase agreements are defined as simultaneous buy-sell
agreements between the City as the customer and either a "primary" government securities
dealer or a state or national bank domiciled in the State of Texas. All transactions are delivery-
vs-payment through a custodian bank acting as a representative of the City. During the time that
the repurchase agreement is in effect, the City holds collateral securities with a value at least
equal to 101% of the funds invested in the agreement. The ability to liquidate these collateral
securities protects the City in the case of a default by the dealer or bank.
A tri-party repurchase agreement was established in 1988 between the City, Merrill-Lynch
Securities, and the Bank of New York. This agreement allow the City to periodically deposit
funds from the bank demand account into the higher-yielding repurchase agreement and to
disburse those funds monthly to meet obligations for power purchased from Gulf States Utilities.
Collateral is safekept by the Bank of New York and all transactions and documentation of the
account are handled by modem.
U.S. GOVERNMENT OBLIGATIONS: As of September 30, 1990, almost two-thirds of the
investment funds of the City were invested in direct obligations of the U.S. Government. With the
guarantee of the full faith and credit of the government, these are considered to be the safest
investments possible. All government securities are purchased on a competitive bid basis and
held in safekeeping at First City National Bank - Houston. All purchases are delivery-vs.-payment
to assure the safety of City funds.
GOVERNMENT AGENCY NOTES: A series of government agencies have been created to make
loans for specific purposes and authorized to issue debt to finance these loans. Generally, the
Federal Treasury has authorized "backstop" funding to protect the principal and interest
repayment on the debt issued if needed over and above loan repayments. These are also
considered to be "moral obligations" of the Federal Treasury and are considered one step below
direct U.S. Government obligations in terms of safety. Government agencies active in the
national debt market and eligible investments under Texas State Law are the Federal Home Loan
Bank, the Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Federal National
Mortgage Corporation ("Fannie Mae"), the Student Loan Marketing Association ("Sallie Mae"), the
Federal Farm Credit Bank, and the Government National Mortgage Association ("Ginnie Mae").
The last is the only actively-traded agency offering full faith and credit protection.
CERTIFICATES OF DEPOSIT: Certificates of Deposit are legal investments for Cities as long as
they carry FDIC insurance or collateral from the issuing bank. As of September 30, 1990, the
only certificate of deposit in the portfolio is a small C.D. used for the purpose of investing
permanent funds for the cemetery perpetual care.
PORTFOLIO BY MATURITY
To provide for liquidity needs and the protect the portfolio from market risk (as interest rates rise,
the value of securities falls), the portfolio should be reasonably structured by maturity and re-
balanced as conditions require. The portfolio should have a shorter average maturity in times of
rising interest rates and a longer average maturity in times of declining rates.
The current market cycle peaked in May, 1990 on concerns of recession and lower interest
rates. Maturities as of September 30, 1990 have been extended to protect rates of return in the
portfolio:
FISCAL YEAR-END 9/30/90
PORTFOLIO BY INVESTMENT MATURITY
$28,219,500 15.91%
UNDER 30 DAYS
36.28% 7,94%
ONE TO THREE ONE TO THREE
YEARS MONTHS
21.82%
THREE TO SIX
MONTHS
18.05%
SIX MONTHS
TO ONE YEAR
• ONE TO TWO FISCAL YEAR-END 9/30/89
YEARS PORTFOLIO BY INVESTMENT MATURITY
20.60% $28,898,000
SIX MONTHS 1';i `:? iii:" .'•;isi
TO ONE YEAR
l�iti'•?:flit Ili�li!i'iilii��ljii!i!iiiiij!i!!ii
•
ii 22.90%
jil!iiiiiiiii
11
i 11!i!1i:!;!"'r•"!':!!:ia!�i!ii:'11111:!:!:1:::IU UNDER 30 DAYS
:!i'il'.i'•.i:iiiji;i�i?!(?Illiiil iliMI !i?i.:!!:,; ii:!!!!I
i �3y,:,ii3�liiiiiiii
26.10%
ONE TO THREE
MONTHS
26.70%
THREE TO SIX
MONTHS
DEPOSITORY BANKING AGREEMENT
Prior to October 1, 1988, the City's depository banking contract with NCNB Texas National Bank
- A&M Branch linked depository services with investment services. On October 1, 1988, a new
three-year agreement was signed with the bank, providing for cancellation of the contract or
renegotiation on an annual basis at the request of either of the parties. the new contract
separated depository services from investment services, allowing the City to invest in all
securities allowable under Texas state law. The new agreement also mandated that collateral for
deposit balances be held in an unaffiliated third-party bank, a significant safety enhancement not
provided for in the previous contract.
In February 1989, the City installed a new computer system for ail finance and personnel
functions, utilizing an IBM AS/400 computer and enhanced municipal software. With the
installation of that system, the City began accounting for a majority of funds on a pooled
investment basis. Cost savings have been realized both through the ability to invest City funds in
larger round-lot blocks of securities ($1 million) at higher yields and in eliminating many of the
single-purpose bank accounts formerly used, reducing bank charges, bookkeeping expenses,
and audit fees.
Under the prior computer system, the City operated a total of twenty-five active bank accounts,
one for each fund in the City's accounting system and several specific purpose accounts. The
new software system has allowed for most of these accounts to be collapsed into one
centralized "Clearing Account". The City currently operates nine bank accounts, as follows:
1. CLEARING ACCOUNT - Centralized account to handle all accounts payable
disbursements and construction payments.
2. PAYROLL ACCOUNT - Handles payroll disbursement for all employees. Funds
are transferred into this account from the Clearing Account at the time checks are released.
3. MUNICIPAL COURT CASH BOND ACCOUNT - Holds and releases cash bonds
on the instruction of the Municipal Court Judge.
4. COMMUNITY DEVELOPMENT ACCOUNT - Specific account required by
Community Development regulations to receive and disburse funds.
5. FIREMEN'S RETIREMENT ACCOUNT - A small number of retired volunteer
firemen receive minor pension amounts from the City. By law, retirement funds must be
segregated.
6. MEDICAL BENEFIT ACCOUNT - Account used for the disbursement of
payments to employees from the City's medical and dental benefit plans.
7. FLEX BENEFIT ACCOUNT - Account used for disbursement of flex benefit
checks to employees under the plan adopted under Section 125 of the Internal Revenue Code.
8. COMMUNITY DEVELOPMENT LOAN ACCOUNT - Account used to segregate
activity under the loan program administered through the Community Development Office.
9. COMMUNITY DEVELOPMENT RENTAL REHABILITATION ACCOUNT - Account
used to segregate activity under the loan program administered through the Community
Development Office.
1989 LEGISLATION
PUBLIC FUNDS INVESTMENT ACT (Art. 842a-2):
The Public Funds Investment Act of 1987 was amended in the 1989 legislative session to expand
legal investment options. To be included as legal investments at the local level, the College
Station Investment Policy, adopted by City Council resolution, would need to be amended to
include these options:
1. "Prime" domestic bankers' acceptances with a stated maturity of 270 days or less from
the date of its issuance, issued by a domestic bank which has been rated at least A-1/P-1 by at
least one nationally recognized rating agency.
2. Commercial paper with a stated maturity or 270 days or less from the date of its
issuance and is rated not less than A-1/P-1 or the equivalent by at least two nationally
recognized rating agencies or is rated at least A-1/P-1 by one nationally recognized rating
agency and is fully secured by an irrevocable letter of credit from a domestic bank.
3. Investment in an SEC-registered, no-load money market mutual fund with a dollar-
weighted average portfolio maturity of 120 days or less whose assets consist of investments
eligible for direct ownership and maintaining a stable net asset value of$1 per share.
INTERLOCAL COOPERATION ACT (Art. 4413 et seq.)
Act was amended by the •1989 legislature to authorize the creation of local government
investment pools in Texas. Implementation at the local level will require amendment of the
Investment Policy.
PUBLIC FUNDS COLLATERAL ACT (SB 1341)
This legislation, adopted by the 1989 legislature, strengthened collateral requirements. The City
of College Station is in compliance with these upgraded requirements.
Copies of these new pieces of legislation, as well as other legislative investment summaries, are
at Attachment B to this report.
ATTACHMENT A
PORTFOLIO TRANSACTIONS
PORTFOLIO TRANSACTIONS
For purposes of full disclosure of investment activity, all investment transactions for the fiscal year
are reported:
EXHIBIT I Year-end Portfolio Balance
Operating and Debt Service Funds
EXHIBIT II Year-end Portfolio Balance
Bond Funds
EXHIBIT III Sale and Maturity Transactions
Operating and Debt Service Funds
EXHIBIT IV Sale and Maturity Transactions
Bond Funds
EXHIBIT I
CITY OF COLLEGE STATION, TEXAS
YEAR-END PORTFOLIO BALANCE
AS OF SEPTEMBER 30, 1990
OPERATING AND DEBT SERVICE FUNDS
Alitni€> ii > >< » i` , , :; ;A::.,.,.., '<:: >€i37.0,.. ..::: VA ., imiii ":A:.::..tet.:;
....:.......................: ..........::....... R.if.F GN,.SI»._MA. 4J.... T........:..T.t?' AL.:::............. .
AARIE SB :>:>:::>:: .
TREASURY NOTES:
Treasury Notes 1,100,000.00 8.000% 02/28/90 11/15/90 1,099,054.69 1,100,687.50 8.11%
Treasury Notes 1,000,000.00 9.000% 04/27/90 01/31/91 1,002,500.00 1,004,375.00 8.62%
Treasury Notes 1,100,000.00 9.000% 05/11/90 01/31/91 1,104,812.50 1,104,812.50 8.34%
Treasury Notes 1,000,000.00 7.750% 01/26/90 07/31/91 992,500.00 999,688.00 8.29%
Treasury Notes 1,000,000.00 8.750% 02/01/90 08/15/91 1,006,562.50 1,007,813.00 8.28%
Treasury Notes 1,000,000.00 8.125% 02/08/90 01/31/92 996,015.83 1,002,188.00 8.34%
Treasury Notes 1,600,000.00 8.250% 08/31/90 02/15/93 1,601,500.00 1,805,000.00 &21%
Treasury Notes 1,000,000.00 8.500% 09/25/90 05/31/92 1,005,781.25 1,007,500.00 &11%
AGENCY SECURITIES:
Fed National Mtg Assn 1,000,000.00 N/A 07/20/90 01/18/91 961,830.56 961,830.56 7.96%
Fed National Mtg Assoc 1,000,000.00 9.05096 08/01/90 10/12/93 781,539.06 780,565.00 8.7096
Student Loan Mktg Ass 500,000.00 8.65096 09/13/90 09/13/93 500,000.00 501,875.00 8.65%
Fed.Home Loan Bank 875,000.00 N/A 04/03/90 10/01/90 648,189.68 648,189.68 8.34%
Fed.Farm Credit Bank 1,000,000.00 8.400% 04/04/90 10/01/90 1,000,000.00 1,000,000.00 8.40%
CERTIFICATES OF DEPOSIT
First City-Houston 50,000.00 8.300% 11/02/88 11/02/90 50,000.00 50,000.00 8.30%
TOTALS ;12,750,285.87 ;12,774,524.24
*SOURCE: Wall Street Journal
EXHIBIT II
CITY OF COLLEGE STATION, TEXAS
YEAR-END PORTFOLIO BALANCE
AS OF SEPTEMBER 30, 1990
BOND FUNDS
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TREASURY NOTES:
TREASURY NOTES 1,000,000.00 9.000% 04/27/90 01/31/91 1,002,500.00 1,004,375.00 8.62%
TREASURY NOTES 1,050,000.00 8.125% 05/17/90 05/15/91 1,048,031.25 1,052,625.00 8.32%
TREASURY NOTES 3,085,000,00 8.375% 10/02/89 09/30/91 3,078,733.59 3,102,353.12 8.49%
TREASURY NOTES 2,000,000.00 7.875% 02/05/90 08/15/92 1,976,718.75 1,995,626.00 8.39%
TREASURY NOTES 1,000,000.00 8.75096 02/05/90 01/15/93 1,009,218.75 1,015,000.00 8.39%
TREASURY NOTES 1,000,000.00 8.500% 09/25/90 05/31/92 1,005,781.25 1,007,500.00 8.11%
AGENCY SECURITIES:
FED.NATIONAL MTG.ASSN. 1,125,000.00 N/A 05/11/90 11/15/90 1,078,440.63 1,078,440.63 8.37%
FED.NATIONAL MTG.ASSN. 1,035,000.00 6.900% 12/29/89 02/11/91 1,022,062.50 1,022,062.50 8.08%
RESOLUTION FUNDING CORP, 1,500,000.00 N/A 08/17/90 01/15/92 1,338,824,61 1,349,063.05 8.22%
TOTALS $12,560,311.33 $12,627,045.30
*SOURCE: Wall Street Journal
�I
EXHIBIT III
CITY OF COLLEGE STATION,TEXAS
SALE OR MATURITY TRANSACTIONS
FISCAL YEAR 1990- 10/1/89 TO 9/30/90
OPERATING AND DEBT SERVICE FUNDS
UROH
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:................:::::::.:...............�J!......... ................�t'1'f....... ........ ....1lA�"Ira,.............. ::::;::;.,:.;<>:..A.; �
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TREASURY BILLS AND STRIPS:
Treasury Bill 02/06/90 05/11/90 08/02/00 8.17% $1,058,139.50
Treasury Strips 05/23/89 08/15/90 08/15/90 8.86% $1,033,505.00
TREASURY NOTES:
Treasury Note 02/01/89 10/13/89 01/31/90 9.08% $984,062.50
Treasury Note 03/09/89 10/13/89 01/31/90 9.55% $981,562.50
Treasury Note 05/3t/89 10/13/89 01/31/90 9.02% $989,375.00
Treasury Note 08/11/89 10/13/89 01/31/90 8.38% $1,990,937.50
Treasury Note 06/08/88 10/31/89 10/31/89 7.87% $400,250.00
Treasury Note 06/30/89 02/28/90 05/31/90 8.42% $1,097,078.13
Treasury Note 05/16/89 04/07/90 12/31/90 8.92% $801,937.50
Treasury Note 08/17/89 06/20/90 08/15/90 8.44% $994,687.50
Treasury Note 09/01/89 08/31/90 08/31/90 8.44% $1,502,343.75
AGENCY SECURITIES:
Fed.Home Loan Bank 01/19/90 07/20/90 07/20/90 8.12% $480,538.12
Fed.Home Loan Bank 12/06/89 09/25/90 09/25/90 7.93% $1,007,031.25
Fed.Home Loan Mtg.Corp. 05/15/90 07/31/90 07/31/90 8.07% $998,001.29
Fed.National Mtg.Assoc. 09/20/89 02/06/90 02/06/90 8.64% $998,437.50
Fed.National Mtg.Assoc. 09/20/89 03/28/90 03/28/90 8.62% $670,048.75
Fed.National Mtg.Assoc. 11/01/89 04/03/90 04/03/90 8.19% $504,320.83
•
Student Loan Mktg.Assoc. 02/15/89 10/10/89 10/10/89 9.37% $94,206.67
Student Loan Mktg.Assoc. 07/12/89 06/28/90 06/28/90 8.15% $217,432.24
REPURCHASE AGREEMENTS:
Prudential-Bache 10/31/89 11/01/89 11/01/89 8.75% $1,500,000.00
Prudential-Bache 10/13/89 02/01/90 02/01/90 8.50% $5,059,697.70
.......................................................................... ......................................
.......................................................................................................................................
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tANINP.N414e0Y,
$1,080,319.78 $21,790.14 $390.14 8.29%
$1,150,000.00 $83,881.55 8.86%
$1,011,939.54 $13,195.81 $2,573.94 9.47%
$1,011,939.54 $14,918.36 $3,351.39 10.13%
$1,011,939.54 $8,603.30 $1,853.95 9.53%
$2,023,879.08 $4,139.91 $1,487.22 8.80%
$415,750.00 $2,462.50 7.87%
61,166,60.77 $37,116.14 $2,835.93 8.81%
$824,401.59 $34,066.67 $2,997.42 9.32%
$1,066,098.93 $60,442.22 $416.67 8.48%
$1,618,595.87 $116,252.12 8.44%
$500,000.00 $19,463.88 8.12%
$1,088,750.00 $64,215.28 7.93%
$1,015,000.00 $16,608.71 8.07%
$1,041,038.89 $30,554.64 8.64%
$700,000.00 $28,368.83 8.62%
$521,750.00 $17,429.17 8.19%
$100,000.00 $1,440.21 9.37%
$237,744.31 S13,162.58 8.15%
$1,500,364.58 $364.58 8.75%
$5,192,303.94 $132,606.24 8.50%
EXHIBIT IV
CITY OF COLLEGE STATION
SALE AND MATURITY TRANSACTIONS
FISCAL YEAR 90-10/1/89 TO 9/30/90
BOND FUNDS
. .........................................
:::::::::::>:::::»: :>::>:::::>::::>:::::::>:<;:>:::...... .......:.:.:..:.,,.ASE......SALE.... MATURITY.:.I.:.. :..... ........
......HAYAMinii ..�wTe......::.;.DATV;:::«.:.;:.;.;;AAT�...::.;:., ��1�1�<:::: : MOCE)wOS
TREASURY BILLS/STRIPS:
Treasury Strips 05/23/89 08/15/90 08/15/90 8,86% $1,033,505.00 $1,150,000.00
TREASURY NOTES:
Treasury Notes 10/11/88 10/02/89 11/30/89 8.13% $2,987,343.75 $3,075,254.87
Treasury Notes 05/16/89 04/07/90 12/31/90 8.92% $200,484.38 $206,100.40
AGENCY SECURITIES
Fed Home Loan Mtg Corp 11/17/89 04/27/90 04/27/90 8.14% $1,448,010.42 $1,500,000.00
Fed National Mtg Assoc 05/16/89 10/31/89 10/31/89 9.39% $1,001,406.00 $1,048,479.17
Fed National Mtg Assoc 05/31/89 12/01/89 12/01/89 9.34% $955,022.22 $1,000,000.00
Fed National Mtg Assoc 08/18/89 02/23/90 02/23/90 8.59% $1,024,357.81 $1,070,000.00
Fed National Mtg Assoc 11/01/89 04/04/90 04/04/90 8.25% $966,355.28 $1,000,000.00
Fed National Mtg Assoc 12/01/89 05/11/90 06/08/90 8.10% $1,055,676.88 $1,093,172.30
Fed National Mtg Assoc 02/23/90 07/09/90 08/31/90 8.29% $1,069,048.06 $1,101,917.02
Fed National Mtg Assoc 03/27/90 09/25/90 09/25/90 8.37% $998,332.11 $1,040,000.00
• Fed Home Loan Bank 06/26/89 12/29/89 12/29/89 9.00% $1,003,941.75 $1,050,000.00
Fed Home Loan Bank 04/09/00 05/17/90 03/25/91 8.40% $1,027,242.19 $1,040,283.18
Fed Farm Credit Bank 08/01/89 11/01/89 11/01/89 8.60% $1,000,000.00 $1,021,500.00
Fed Farm Credit Bank 11/01/89 03/27/90 03/27/90 8.31% $967,839.44 $1,000,000.00
REPURCHASE AGREEMENTS
Prudential-Bache 10/01/89 12/20/89 Daily 8.47% $5,061,370.60 $5,148,108.03
Prudential-Bache 11/28/89 12/20/89 Daily 8.43% $3,200,000.00 $3,216,504.44
Prudential-Bache 12/20/89 04/05/90 Daily 8.20% $6,916,602.05 $7,034,642.70
•
RFRAP. l`RA R L #
itANNUALIZECIP
» > IELD >>
$83,881.55 8.86%
$11,485.20 ($428.26) 8.11%
$8,516.67 $749.35 9.32%
$51,989.58 8.14%
$6,585.07 9.39%
$15,163.29 9.34%
$35,275.97 8.59%
$33,644.72 8.25%
$37,249.49 $245.93 8.14%
$32,868.96 8.29%
$41,667.89 8.37%
$22,046.16 9.00%
$5,809.74 $4,029.55 .9.58%
$5,127.40 8.60%
$32,160.56 8.31%
$88,737.33 8.47%
$16,504.44 8.43%
$118,040.65 8.20%
ATTACHMENT B
1989 LEGISLATION
Art. 842a-2. Public Funds Investment Act
Short Title
Sec. 1. This Act may be cited as the Public Funds Investment Act of
1987.
Authorized Investments
Sec. 2. (a) An incorporated city or town, a county, a public school
district, a district or authority created under Article III , Section
52(b)(1) or (2), or Article XVI, Section 59, Texas Constitution, an
institution of higher education as defined by Section 61.003 of the
Education Code, a hospital district, a fresh water supply district, or any
nonprofit corporation or public funds investment pool created under The
Interlocal Cooperation Act (Article 4413(32c) , Vernon's Texas Civil
Statutes) acting on behalf of any of those entities may, in accordance
with this Act, purchase, sell , and invest its funds and funds under its
control in the following:
(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 of and interest on which
are unconditionally guaranteed or insured by the State of Texas or the
United States or its agencies and instrumentalities;
(4) obligations of states, agencies, counties, cities, and other
political subdivisions of any state having been rated as to investment
quality by a nationally recognized investment rating firm and having
received a rating of not less than A or its equivalent;
(5) certificates of deposit issued by state and national banks
domiciled in this state that are:
(A) guaranteed or insured by the Federal Deposit Insurance
Corporation, or its successor; or
(B) secured by obligations that are described by
Subdivisions (1)-(4) of this subsection, which are intended to include all
direct federal agency or instrumentality issued mortgage backed securities
that have a market value of not less than the principal amount of the
certificates or in any other manner and amount provided by law for
deposits of the investing entities;
(6)certificates of deposit issued by savings and loan
associations domiciled in this state that are:
(A) guaranteed or insured by the Federal Savings and Loan
Insurance Corporation, or its successor; or
(B) secured by obligations that are described by
Subdivisions (1)-(4) of this subsection, which are intended to include all
direct federal agency or instrumentality issued mortgage backed securities
that have a market value of not less than the principal amount of the
certificates or in any other manner and amount provided by law for
deposits of the investing entities;
(7) prime domestic bankers' acceptances;
8) commercial paper with a stated maturity of 270 days or less
from the date of its issuance that either:
(A) is rated not less than A-1, P-1, or the equivalent by
-1-
at least two nationally recognized credit rating agencies; or
(B) is rated at least A-1, P-1, or the equivalent by at
least one nationally recognized credit rating agency and is fully secured
by an irrevocable letter of credit issued by a bank organized and existing
under the laws of the United States or any state thereof; and
(9) fully collateralized repurchase agreements having a defined
termination date, secured by obligations described by Subdivision (1) of
this subsection, pledged with a third party selected or approved by the
political entity, and placed through a primary government securities
dealer, as defined by the Federal Reserve, or a bank domiciled in this
state.
(b) In addition to investment in obligations, certificates, or
agreements described in Subsection (a) of this section, bond proceeds of
an incorporated city or town, a county, or a public school district, or
local revenue of an institution of higher education, may be invested in
common trust funds or comparable investment devices owned or administered
by banks domiciled in this state and whose assets consist exclusively of
all or a combination of the obligations described by Subsection (a) of
this section. Common trust funds of banks domiciled in this state may be
used if they:
(1) are available;
(2) comply with the provisions of the Internal Revenue Code of
1986 and applicable federal regulations governing the investment of bond
proceeds; and
(3) meet the cash flow requirements and the investment needs of
the political subdivision or institution.
(c) In this section:
(1) "Bond proceeds" includes but is not limited to proceeds from
the sale of bonds and reserves and funds maintained for debt service
purposes.
(2) "Prime domestic bankers' acceptances" means a bankers'
acceptance with a stated maturity of 270 days or less from the date of its
issuance that will be, in accordance with its terms, liquidated in full at
maturity, that is eligible for collateral for borrowing from a Federal
Reserve Bank, and that is accepted by a bank organized and existing under
the laws of the United States or any state, the short-term obligations of
which (or of a bank holding company of which the bank is the largest
subsidiary) are rated at least A-1, P-1, or the equivalent by at least one
nationally recognized credit rating agency.
(3) "Repurchase agreement" means a simultaneous agreement to
buy, hold for a specified time, and then sell back at a future date,
obligations described by Subsection (a)(1) of this section, the principal
and interest of which are guaranteed by the United States or any of its
agencies, in market value of not less than the principal amount of the
funds disbursed. The term includes direct security repurchase agreements
and reverse security repurchase agreements.
(d) In addition to the investments described by Subsection (a) of
• this section, an entity listed in that subsection may, in accordance with
this Act, purchase, sell , and invest its funds and funds under its control
in an SEC-registered, no-load money market mutual fund with a
dollar-weighted average portfolio maturity of 120 days or less whose
assets consist exclusively of the obligations that are described by
Subsection (a) of this section and whose investment objectives include
-2-
seeking to maintain a stable net asset value of $1 per share. No entity
listed in Subsection (a) of this section is authorized by this Act to
invest in the aggregate more than 20 percent of its monthly average fund
balance, excluding bond proceeds, in money market mutual funds described
in this subsection or to invest its funds or funds under its control ,
excluding bond proceeds, in any one money market mutual fund in an amount
that exceeds 10 percent of the total assets of the money market mutual
fund.
Bids
Sec. 3. (a) Investments under Section 2(b) of this Act may be made
only after competitive bids are solicited from at least three banks as
provided by this section. The bids may be solicited orally.
(b) An incorporated city or town or a public school district must
attempt to solicit bids initially from banks located within its
boundaries. If there are not three banks available for the investments
within the city' s, town's, or public school district's boundaries, the
city, town, or public school district may solicit bids from banks located
within the county or counties in which the city, town, or public school
district is located in addition to those banks, if any, that are located
within the boundaries of the city, town, or public school district. If
there are not three banks available for the investments within the
boundaries of the city, town, or public school district, or of the county
or counties in which it is located, the city, town, or public school
district may solicit bids from any bank within the state in addition to
those banks, if any, that are located within the boundaries of the city,
town, public school district, county, or counties.
(c) A county must attempt to solicit bids initially from banks
located within its boundaries. If there are not three banks available for
the investments within the county, the county may solicit bids from any
bank within the state in addition to those banks, if any, that are located
within the boundaries of the county.
(d) An institution of higher education as defined by Section 61.003
of the Education Code must solicit bids from at least three banks located
within the state.
(e) A nonprofit corporation acting on behalf of an incorporated city
or town, a county, a public school' district, or an institution of higher
education as defined by Section 61.003 of the Education Code shall follow
the procedures identified in Subsection (b), (c) , or (d) of this section,
as applicable to the entity on behalf of which the nonprofit corporation
is acting.
(f) If a bank has notified a governmental entity or nonprofit
corporation that it is unable or unwilling to bid for investments under
Section 2(b) of this Act, the governmental entity or nonprofit corporation
that receives the notification may presume that the bank is unable or
unwilling to bid for the investments until the bank notifies the
governmental entity or nonprofit corporation otherwise in writing.
Standard of Care
Sec. 4. Investments shall be made with judgement and care, under
circumstances then prevailing, that persons of prudence, discretion, and
-3-
intelligence exercise in the management of 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.
Written Policies
Sec. 5. (a) Investments shall be made in accordance with written
policies approved by the governing body. The investment policies must
address liquidity, diversification, safety of principal , yield, maturity,
and quality and capability of investment management, with primary emphasis
on safety and liquidity.
(b) A governing body may provide in its written policies that bids
for certificates of deposit be solicited orally, in writing,
electronically, or in any combination of those methods.
Nonapplication to Retirement Funds
Sec. 6. This Act does not apply to the investment of funds under the
control of a public retirement system, as defined by Section 12.001(2) ,
Title 1106, Revised Statutes.
Authority is Additional
Sec. 7. The authority granted by this Act is in addition to that
granted by other law.
-4-
Public Funds Collateral Act
(SB 1341 , 71st Legislature, Regular Session, 1989)
Short Title
Sec. 1. This Act may be cited as the Public Funds Collateral Act.
Definitions
Sec. 2. In this Act:
(1) "Board" means the State Depository Board.
(2) "Control" and "bank holding company" have the same meanings
assigned by Article 2, Chapter I , The Texas Banking Code (Article 342-102,
Vernon' s Texas Civil Statutes).
(3) "Deposits of public funds" means public funds of a public
entity that:
(A) are not managed by the state treasurer under Chapter
404, Government Code; and
(B) are held as a demand or time deposit at a bank or other
depository institution expressly authorized by law to accept demand or
time deposits of the public entity.
(4) "Eligible security" means:
(A) surety bonds;
(B) investment securities; and
(C) ownership or beneficial interests in investment
securities but not any option contract to purchase or sell investment
securities.
(5) "Exempt institution" means:
(A) a public retirement system, as defined by Section
802.001 , Government Code; and
(B) the permanent school fund, as defined by Section 15.01,
Education Code.
(6) "Investment security" means:
(A) a direct obligation of the United States;
(B) an obligation that in the opinion of the Attorney
General of the United States is a general obligation of the United States
and backed by its full faith and credit;
(C) an obligation, the principal of and interest on which
are unconditionally guaranteed by the United States;
(D) an obligation of an agency or instrumentality of the
United States, including a mortgage-backed security of the agency or
instrumentality;
(E) a general or specific obligation issued by a public
agency, payable from taxes, revenues, or a combination of taxes and
revenues that has been rated as to investment quality by a nationally
recognized rating agency and that has a current rating of not less than A
or its equivalent; and
(F) any security in which a public entity may invest under
the Public Funds Investment Act of 1987 (Article 842a-2, Vernon's Texas
Civil Statutes).
(7) "Permitted institution" means:
-1-
(A) a Federal Reserve Bank;
(B) a "clearing corporation" as defined in Subsection (c) ,
Section 8.102, Business & Commerce Code;
(C) any bank eligible to be a custodian under Subsection
(c) of Section 6 of this Act; and
(D) any state or nationally chartered bank, which bank is
controlled by a bank holding company that controls a bank eligible to be a
custodian under Subsection (c) of Section 6 of this Act.
(8) "Public agency" means any state or any political or
governmental entity, agency, instrumentality, or subdivision of a state,
including without limitation municipalities, state-supported educational
institutions, junior colleges, districts established pursuant to Article
XVI , Section 59, of the Texas Constitution, and public hospitals.
(9) "Public entity" means any public agency in this state that
is not an institution of higher education as defined by Section 61.003,
Education Code.
(10) "State agency" means a public entity that:
(A) has authority that is not limited to a geographic
portion of the state; and
(B) was created by constitution or a statute of this state.
(11) "Trust receipt" means evidence of receipt, identification,
and recording, including but not limited to physical controlled trust
receipt or written or electronically transmitted advice of transaction.
Authorized Collateral
Sec. 3. Deposits of public funds shall be secured by eligible
security to the extent and in the manner required by this Act.
Level of Collateral
Sec. 4. The total of the face value of the surety bonds and the
market value of the investment securities securing the deposits of public
funds shall be in an amount at least equal to the amount of the deposits
of public funds increased by the amount of any accrued interest and
reduced to the extent that the deposits are insured by an agency or
instrumentality of the United States government.
Collateral Policy; Public Entity Contracts
Sec. 5. (a) Investment securities eligible to secure deposits of
public funds shall be determined in accordance with written policies
approved by the governing body of the public entity. The written policies
may address matters including security of the institution obtaining or
holding investment securities, substitution or release of investment
securities, and the method of valuation of investment securities used to
secure deposits of public funds.
(b) A public entity may contract with a bank domiciled in this state
to determine the terms and conditions for securing deposits of public
funds. The contract may contain terms and conditions relating to the
investment securities used as security for deposits of public funds that
are acceptable to the public entity, including provisions relating to the
possession of the collateral , the substitution or release of investment
securities, the ownership of the investment securities of the bank used to
-2-
secure deposits of public funds, and the method of valuation of investment
securities used to secure deposits of public funds.
(c) The public entity shall inform the depository for its deposits of
public funds of significant changes in the amount or activity of deposits
of public funds resonably in advance of such changes.
Possession of Collateral
Sec. 6. (a) In addition to all other authority granted by law, a
depository for any public entity may deposit the securities pledged to
secure deposits of public funds with a custodian as provided in this Act.
At the request of the public entity, the depository shall place the
pledged securities with a custodian as provided in Subsection (c) of this
section. The public entity may require that the depository not be the
custodian or permitted institution or a branch of either with respect to
the particular securities pledged by the depository to secure deposits of
public funds.
(b) Notwithstanding Subsection (a) of this section, the depository of
deposits of public funds for any state agency shall place the pledged
securities with a custodian as provided in Subsection (c) of this
section. The custodian and the state agency shall execute a written
agreement to determine the terms and conditions for securing deposits of
public funds. The depository for a state agency shall not be the
custodian or permitted institution or a branch of either with respect to
the particular securities pledged by the depository to secure deposits of
public funds.
(c) (1) A depository for a public entity may deposit investment
securities pledged to secure deposits of public funds with a custodian
that the public entity has approved as a custodian that is either:
(A) a state or national bank which is domiciled within this
state, which has been designated a state depository by the board, and
which has a capital stock and permanent surplus of not less than $5
million;
(B) the Texas Treasury Safekeeping Trust Company; or
(C) a Federal Reserve Bank or its branches.
(2) The securities shall be held in trust by the custodian to
secure the deposits of public funds of the public entity in the depository
pledging the securities.
(d) On receipt of the investment securities, the custodian shall
immediately, by book entry or otherwise, identify on its books and records
the pledge of the securities to the public entity and shall promptly issue
and deliver to the appropriate official of the public entity trust
receipts for the securities pledged. The security evidenced by the trust
receipts is subject to inspection by the public agency or its agents at
any time.
(e) A custodian holding in trust investment securities of a
depository under Subsection (c) of this section may deposit the pledged
securities with a permitted institution. The securities shall be held by
the permitted institution to secure funds deposited by the public entity
in the depository pledging the securities. On receipt of the securities,
the permitted. institution shall immediately issue to the custodian an
advice of transaction or other document evidencing the deposit of the
securities. When the pledged securities held by a custodian are
deposited, the permitted institution may apply book entry procedures to
-3-
the securities. The records of the permitted institution shall at all
times reflect the name of the custodian depositing the pledged
securities. The trust receipts the custodian issues to the public entity
shall indicate that the custodian has deposited with the permitted
institution the pledged securities held in trust for the depository
pledging the securities.
Venue
Sec. 7. Any legal action or proceeding by or against the public
entity, arising out of or in connection with the duties of the depository,
the custodian, or a permitted institution under this Act, shall be brought
and maintained as provided in the contract with the public entity.
Priority
Sec. 8. Any custodian under this Act and any custodian of securities
pledged to an institution of higher education as defined by Section
61.003, Education Code, acting alone or through a permitted institution,
shall for all purposes under state law, notwithstanding anything in
Chapters 8 and 9 of the Business & Commerce Code to the contrary, be the
bailee or agent of the public entity or institution depositing such public
funds with the depository, and the security interest arising out of a
pledge of securities to secure deposits of the public entity or
institution shall be created, shall attach, and shall be perfected for all
purposes under state law from the time that the custodian identifies the
pledge of the securities on its books and records and issues the trust
receipts and remains as of that time perfected in the hands of all
subsequent custodians and permitted institutions.
Records; Reports
Sec. 9. (a) The depository for a public entity shall maintain
separate, accurate, and complete records relating to all deposits of
public funds, the pledged investment securities, and all transactions
relating to the pledged investment securities.
(b) The custodian for a public entity shall maintain separate,
accurate, and complete records relating to the pledged investment
securities and all transactions relating to the pledged investment
securities.
(c) The board or the public entity may examine and verify at any
reasonable time all pledged investment securities and all records
maintained pursuant to Subsections (a) and (b) of this section.
(d) As a part of each internal or external audit or regulatory
examination of the depository for a public entity and of the custodian for
a public entity, the auditor or examiner shall examine and verify the
pledged investment securities and the records maintained pursuant to
Subsections (a) and (b) of this section and shall report any significant
or material noncompliance with the provisions of this Act to the board.
(e) The custodian for the public entity shall file a collateral
report with the board in the manner and on the dates prescribed by the
board.
-4-
Penalties
Sec. 10. (a) The board may revoke a designation as a state
depository if, after notice and a hearing, the board makes a written
finding that the depository, acting in its capacity either as a depository
or a custodian, as the case may be, does not maintain reasonable
compliance with° this Act and has failed to remedy any violation of this
Act within a reasonable period of time after written notice of such
violation. Such revocation shall be effective for a period of one year.
(b) If the board makes a written finding that the depository has not
maintained reasonable compliance with this Act and has acted in bad faith
in not remedying any violations of this Act, the board may permanently
revoke the designation as a state depository.
(c) If the board determines that the depository has remedied all
violations of this Act and has given assurances satisfactory to the board
that the depository will maintain reasonable compliance with this Act, the
board may reinstate its designation as a state depository.
(d) When making the findings required by Subsection (a) or (b) of
this section, the board shall consider the totality of the circumstances
regarding the performance of the depository or the custodian, including
but not limited to the extent to which the noncompliance with this Act is
minor, isolated, temporary, or nonrecurrent. The board shall not find
that either the depository or the custodian does not maintain reasonable
compliance with this Act if such noncompliance is a result of the failure
of the public entity to comply with Subsection (c) of Section 5 of this
Act.
(e) Subsection (d) of this section shall not relieve the depository
or the custodian of the obligation to secure deposits of public funds with
eligible security in the amount and manner required by this Act within a
reasonable time after the public entity deposits the deposits of public
funds with the depository.
Act Controlling
Sec. 11. (a) To the extent of any conflict between this Act and
another law relating to security for deposits of public funds, this Act
prevails.
(b) An exempt institution is not required to have its funds at all
times fully insured or collateralized if such funds are held by a
custodian of its assest pursuant to a trust agreement or held by an entity
in connection with investment-related transactions and if, in the exercise
of its fiduciary responsibilities, the governing body of the exempt
institution determines that the exempt institution is adequately protected
through the use of trust agreements, special deposits, surety bonds,
substantial deposit insurance, or any other method commonly used by such
institutions. This Act does not prohibit prudent investment by the exempt
institution in certificates of deposit or restrict the selection of
depositories by the governing body of the exempt institution in accordance
with its fiduciary duties.
(c) This Act does not apply to funds maintained and administered by a
public entity pursuant to a deferred compensation plan the federal income
tax treatment of which is governed by Section 401 or 457 of the Internal
Revenue Code of 1986.
-5-
Effective Date
Sec. 12. This Act takes effect September 1, 1989.
-6-
CASH MANAGEMENT CONFERENCE
AUTHORIZED INVESTMENTS FOR CITIES AND COUNTIES
I . Source of Investment Authority:
A. General Law Cities . Under the new provisions of the Texas
Local Government Code there are now three types A, B and C of
general law municipalities . The source of investment
authority for any general law city is found in the Texas
Constitution, state statutes and local law enacted by the
general law city.
B. Home Rule Cities . Texas Constitution Art. 11, sec . 5
provides that certain cities may adopt home rule charters but
"no charter or any ordinances passed under such charter shall
contain any provision inconsistent with the Constitution or
general laws of the state. " TEX. LOCAL GOV'T CODE, Title 2 ,
Chapter 9, Sections 9 .001 et sea sets out the statutory
powers for the home rule cities . Investment authority for
home rule cities therefore, is found in the Texas
Constitution, state statutes and, to the extent not in
conflict with the statutes, the home rule charter itself.
C. Counties . The investment authority for counties is found in
the Texas Constitution and the state statutes .
II . Investments Authorized by Statutes :
A. The Public Funds Investment Act of 1987 . The 70th Texas
Legislature first enacted the Public Funds Investment Act
TEX. REV. CIV. STAT. ANN. Art. 842a-2, ( "the Act" ) . It
specifies that the authorized investments contained therein
are in addition to that granted by other law. Thus, all
other statutory law governing authorized investments for
counties and cities, scattered throughout the statutes, also
apply. The Act, as amended by the 71st Texas Legislature in
S.B. 1342, provides that any incorporated city or town, a
county, a public school district, a district or authority
created under Article III, Section 52(b) ( 1) or (2 ) or Article
XVI, Section 59, Texas Constitution (these are various types
of reclaimation and conservation districts, MUDS, road
districts, navigation districts, and port authorities) an
institution of higher education, a hospital district, a fresh
water supply district, or any non-profit corporation acting
on behalf of any of those entities may purchase, sell, and
invest its funds in the following:
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 of and interest on which
are unconditionally guaranteed or insured by the State of
Texas or the United States or its agencies and
instrumentalities;
4 . obligations of states, agencies, counties , cities, and
other political subdivisions of any state having been
rated as to investment quality by nationally recognized
investment rating firm and having received a rating of
not less than A or its equivalent;
5 . certificates of deposit issued by state and national
banks and savings and loan associations domiciled in the
state that are;
a. guaranteed or insured by the Federal Deposit
Insurance Corporation, FSLIC or its successors; or
b. secured by obligations that are described by
subdivisions ( 1) through (4 ) of this subsection
which are intended to include all direct federal
agency or instrumentality issued mortgage back
securities, and that have a market value of not less
than the principal amount of the certificates or in
any other manner and amount provided by law for
deposits of the investing entities;
6 . prime domestic bankers ' acceptances with a stated
maturity of 270 days or less, that will be liquidated in
full at maturity, are eligible for collateral for
borrowing from a Federal Reserve Bank, and arc accepted
by a bank (or a bank holding company for which the bank
is the largest subsidiary) the short-term obligations of
which are rated at least A-1, P-1 or the equivalent.
7 . commercial paper with a stated maturity of 270 days or
less that is either rated not less than A-1 or P-1 by
two nationally recognized rating agencies or is rated at
least A-i or P-i by one nationally recognized rating
agency and is fully secured by a letter of credit issued
by a bank.
8 . fully collateralized repurchase agreements and reverse
security repurchase agreements having a defined
termination date, secured by obligations described by
Subdivision ( 1) of this subsection, pledged with a third
party selected or approved by the political entity, and
placed through a primary government securities dealer.
9 . The Act as amended further provides that these entities
may invest bond proceeds in common trust funds or
comparable investment devices owned or administered by
banks domiciled in this state and whose assets consist
exclusively of all or a combination of the obligations
described by subdivisions ( 1)-(4) and (8) and who comply
with the IRS Code of 1986 .
2
10 . invest up to 20% of its monthly average fund balance
(excluding bond proceeds) in Security Exchange
Commission registered no-load money market mutual fund
with a dollar weighted average portfolio of 120 days or
less whose assets consist exclusively of obligations
described above and whose investment objectives include
seeking to maintain a stable net asset value of $1 per
share. No entity may invest funds in any one money
market mutual fund in an amount that exceeds 10% of the
total assets of the money market mutual fund.
Written Investment Policies. The Act requires that all
investments be made in accordance with "written policies
approved by the governing body. " Therefore, in order to
invest under the authority provided by the Act each entity
must have a written investment policy addressing liquidity,
diversification, safety of principal, yield, maturity, and
the quality and capability of investment management, with
primary emphasis on safety and liquidity.
B. Public Funds Investment Pool . This 71st Legislative session
also saw the enactment of S.B. 1340. This law amended the
Interlocal Cooperation Act, TEX. REV. CIV. STAT. ANN. art.
4413 and the Public Funds Investment Act to authorize "local
governments" (which is defined to include all cities,
counties, school districts and any other legally constituted
political subdivision of the State of Texas) to designate an
investment officer and to delegate, by contract, the
authority to act as custodian of investments purchased with
local investment funds . A public funds investment pool may
purchase, sell or invest its funds in the following:
1 . obligations of the U.S. or its agencies and
instrumentalities,
2 . direct obligations of the State of Texas or its
agencies,
3 . other obligations, the principal of and interest on
which are unconditionally guaranteed or insured by Texas
or the U.S. ,
4 . obligations of states, agencies, counties, cities and
other political subdivisions that have received a rating
of not less than A,
5. certificates of deposit issued by state and national
banks and savings and loan associations, domiciled in
Texas that are:
A. guaranteed or insured by FDIC or FSLIC, or
3
B. secured by obligations described in 1-4 above, which
are intended to include all direct agency or
instrumentality mortgage backed securities rated AAA
and have a market value of not less than the
principal amount of the certificates.
6 . fully collateralized direct repurchase agreements having
a defined termination date, secured by obligations
described in 1-4 above, pledged with a third party and
placed through a primary government securities dealer or
a bank domiciled in Texas .
C. New statutory authority for counties:
H.B. 1431 enacted by the 70th Texas Legislature was
partly codified in sec . 116 . 112 TEX. LOC. GOV'T CODE
ANN. which provides as follows:
"Unless expressly prohibited by law or
unless it is in contravention of any
depository contract between a county and
any depository bank, the commissioner ' s
court may direct the county treasurer to
withdraw any amount of funds of the county
that are deposited in a county depository
and that are not required immediately to
pay obligations of the county or required
to be kept on deposit under the terms of,
the depository contract and to invest those
funds in: [emphasis added]
( 1) direct debt securities of the
United States;
(2) certificates of deposit issued by
state or national bank domiciled in this
state or state or federal savings and loan
associations domiciled in the state, the
payment of which is insured in full by the
federal deposit insurance corporation or
the federal savings and loan insurance
corporation; or
(3) fully collateralized repurchase
agreements purchased pursuant to a master
contractual agreement which specifies the
rights and obligations of both parties and
which requires that securities involved in
the transaction be held in a safekeeping
account subject to the control and custody
of the county. "
4
It is important to understand that this new
investment authority is dependent upon the terms
contained in the depository contract. This contract
may expressly prohibit such investments, or require
these funds to be kept on deposit in that depository
bank. Often, too the depository contract will
provide for investment of county funds y the
depository bank. Therefore the terms of each
county' s depository contract should also be examined
for any restrictions on the county treasurer ' s
and/or state auditor' s investment powers .
D. Other Statutory Authorization. Scattered throughout
the statutes are various laws authorizing
investments for counties and cities . Some of these
statutory provisions which authorize counties and
cities to invest are:
(i) Certificates of indebtedness issued by
counties ( for sinking funds only) , Article
717n(b) ;
(ii) Certificates of indebtedness for certain
purposes issued by counties over 1, 000,000
( for sinking funds only) , Article 717n-1; ,
( iii) Causeway revenue bonds ( for sinking funds) ,
Article 795a;
(iv) Bonds issued to finance toll bridges over
the Rio Grande River, Article 1015g-4;
(v) Refunding bonds for a city' s electric light,
power and gas system (for sinking funds
only) , Article 1118n-12;
(vi) Bonds issued to finance cultural and related
parking facilities in cities of 1,200, 000 or
more ( for sinking funds only) , Article
1182j ;
(vii) Bonds issued to finance parking facilities
for gulf coast cities of 60,000-75, 000 or
110, 000-120, 000 ( for sinking funds only) ,
Article 1269j-4 . 3;
(viii) Certificates of indebtedness issued to
finance a sea life park and oceanarium,
Article 1269j-4 .4 . ;
5
(ix) Bond or other obligations issued by a
housing authority which are secured by a
pledge of annual contributions to be paid by
the United States government or any agency
thereof, or secured or guaranteed by a
pledge of the full faith and credit of the
United States government or any agency
thereof, Article 12691-2, 1269k-4;
(x) Urban renewal. project funds may be invested
in property or securities in which banks may
legally invest funds subject to their
control, Article 12691-3;
(xi) Bonds issued pursuant to the Housing Agency
Act, Article 12691-6;
(xii) Bonds issued pursuant to the Housing Finance
Corporations Act (for sinking funds only) ,
Article 12691-7 ;
(xiii) Certificates of obligations ( for sinking
funds only) , Section 271 . 051 TEX. LOC. GOV'T
CODE ANN. ;
(xiv) Contracts entered into pursuant to the
Public Property Finance Act (for sinking
funds only) , Section 271.001 et sec , TEX.
LOC. GOV'T CODE ANN.
(xv) Certificates of indebtedness issued by
counties over 900,000 to finance crime
detection facilities, Article 2370c-1;
(xvi) Bonds issued by counties greater than
2,000, 000 or certain counties that border
Mexico that are greater than 90, 000 to
finance improvements to attract visitors and
tourists ( for sinking funds only) , Article
2372d-6;
(xvii) Bonds issued by Hospital Laundry Cooperative
Associations (for sinking funds only) ,
Article 4437f-1;
(xviii) Bonds issued pursuant to the Solid Waste
Resource Recovery Financing Act ( for sinking
funds only) , Article 4477-7a;
6
(xix) Bonds issued by a public agency pursuant
to the Comprehensive Municipal Solid Waste
Management, Resource Recovery, and
Conservation Act ( for sinking funds only) ,
Article 4477-7b;
(xx) Bonds issued to finance tideland parks by
cities of 60,000 or more bordering the
Gulf of Mexico (for sinking funds only) ,
Article 6081g;
(xxi) Revenue bonds issued by a Park Board of
Trustees for island parks for home rule
cities or more than 60,000 bordering the
Gulf of Mexico (for sinking funds only) ,
Article 6081g-1;
(xxii) Counties may invest sinking funds
accumulated for the payment of bonds
issued by the county, political
subdivision, road district, or defined
district of the county in bonds of the
United States, of Texas, or any county in
this State, or any school district or road
district of this State, or any
incorporated city of town of this State,
in bonds of the Federal Farm Loan Bank
System, or in war-savings certificates or
certificates of indebtedness issued by the
Secretary of the Treasury of the United
States, Article 6702-1 Section 4 .401;
(xxiii) A political subdivision that has a balance
remaining in any of its accounts at the
end of the fiscal year may invest the
balance in defense bonds or other
obligations of the United States . Sec .
140 . 002 TEX. LOC. GOV'T CODE ANN. ;
(xxiv) Bonds issued to finance causeways, bridges
or tunnels by gulf coast counties of
50, 000 or more (for sinking funds only) ,
Article 6795b-1;
(xxv) Bonds issued by a county bordering Mexico
to acquire a toll bridge across the Rio
Grande River (for sinking funds only) ,
Article 6795c;
(xxvi) School district tax bonds, Education Code,
Section 20 . 07; and
7
(xxvii) Bonds issued by the Veterans Land Board
( for sinking funds only) , Natural
Resources Code, Section 161 . 128 .
(xxviii) Bonds issued by counties greater than
2, 000, 000 or certain counties that border
Mexico that are greater than 90, 000 to
finance improvements to attract visitors
and tourists (for sinking funds only)
Article 2372d-6 .
This list of authorized investments is not complete.
Additional questions regarding whether a particular
investment is authorized should be researched
individually.
III . Authorized Collateral for Depositories .
It is important to distinguish the law relating to
authorized investments for cities and counties from what are
authorized investments for the collateral pledged by
depositories . It is strongly recommended that this pledged
collateral, if in the form of investment securities, be held
by a third party custodian bank. Therefore it is advisable
to also enter into a Custodian Bank Agreement.
A. The Public Funds Collateral Act. The 71st Texas
Legislature passed S.B. 1341 to be cited as the Public
Funds Collateral Act (the "Collateral Act" ) . It applies
to every public agency and all public funds except:
1 . funds managed by the State Treasurer
2 . repurchase agreements and reverse security
repurchase agreements (by omission in the definition
of "deposits of public funds" )
3 . option contract to purchase or sell investment
securities
4 . a public retirement system
5 . the permanent school fund and
6 . a public entity' s deferred compensation plan funds .
Other than these exceptions, the Collateral Act applies
and will control over any other law which may conflict
with it. The Collateral Act provides that deposits of
8
public funds shall be secured by "Eligible Security" .
The Collateral Act requires that the amount of "Eligible
Securities" shall be at least equal to the amount of the
deposits of public funds, plus the amount of any accrued
interest, reduced to the extent of any insurance by an
agency of the U.S. "Eligible Security" is defined as:
1 . surety bonds
2 . investment securities and
3 . ownership or beneficial interests in investment
securities .
"Investment Security" is defined as:
1. a direct obligation of the U.S.
2 . an obligation that in the opinion of U.S. Attorney
General is a general obligation of, and backed by
the full faith and credit of the U.S.
3 . an obligation, the principal of and interest on
which are unconditionally guaranteed by the U.S.
4 . an obligation of an agency or instrumentality of the
U.S. including mortgage backed securities .
5 . a general or special obligation issued by a public
agency whether payable from taxes, revenue, or a
combination, which has a rating of not less than A.
6 . a security authorized under the Public Funds
Investment Act.
•
The Collateral Act provides that a depository for public
entities may deposit public funds with a custodian; however at
the request of a public entity, the depository must do so.
Further a public entity may now require that the depository not
be the custodian. This is mandatory for state agencies . The
Collateral Act not only requires a depository for state agencies
to place collateral with a third party custodian -- the state
agency must also execute a written agreement with the custodian.
The custodian must be either:
1 . a state or national bank domiciled in Texas which
has been designated a state depository and has capital stock
and permanent surplus of not less than $5 million,
2 . the Texas Treasury Safekeeping Trust Company or
3 . a Federal Reserve Bank or its branches .
9
Finally, the Collateral Act sets out requirements for a
custodian' s duties of collateral maintenance, audit and bookkeeping.
It provides that a custodian may deposit the collateral with a
"permitted institution" ; defined as either:
1) a Federal Reserve Bank or
2) a "Clearing Corporation" as defined in subsection (c)
Section 8 . 102 Business and Commerce Code.
B. Cities . Under Sec . 105 . 031 of the TEX. LOC. GOV'T CODE ANN.
qualification as a depository, within five (5) days after the
day a bank(s) is selected as a municipal depository, "the
bank must qualify by providing security for the municipal
funds to be deposited with the bank. " The bank may secure
the municipal funds at the option of the governing body of
the municipality, by:
" ( 1) Personal bond; surety bond; bonds, notes, or other
securities; or a combination of these methods, as
provided by this subchapter; or
(2 ) Investment securities or interest in them as
provided by ch. 726 , Acts of the 67th Leg. , Reg.
Sess . 1981 (TEX. REV. CIV. STAT. ANN. art.
2529b-1) . "
The requirements for a personal bond that qualifies security
are set out in the Sec . 105. 032 of the TEX. LOC. GOV'T CODE
ANN. The provisions for the requirements of a surety bond
are contained in Sec . 105 . 033 of the TEX. LOC. GOV'T CODE
ANN. The investment securities are contained in Sec . 105 .034
of the TEX. LOC. GOV'T CODE ANN. This section provides that
"if approved by the aoverninq body as to the kind and value, "
a municipal depository may pledge with the governing body of
the municipality as security under this subchapter:
1 . A bond, certificate of indebtedness, or treasury
note of the United States, or other evidence of
indebtedness of the United States that is guaranteed
as to the principal and interest by the United
States;
2 . A bond of this state or a county, municipality,
independent school district, common school district,
or other school district in the state;
3 . A bond issued under the Federal Farm Loan Acts;
4 . A road district bond;
10
5 . A bond pledged or other evidence of indebtedness
issued by the Board of Regents of the University of
Texas System;
6 . A note or bond secured by mortgages insured and
debentures issued by the Federal Housing
Administration;
7 . Shares or share accounts of a savings and loan
association organized under the laws of the state or
of a federal savings and loan association domiciled
in the state if the payment of the share or share
account is insured by the federal savings and loan
insurance corporation;
8. Bank acceptances of banks that have a capital stock
of at least $500, 000; or
9 . A bond issued by a municipal corporation in the
state.
Securities pledged to secure municipal funds on deposit in a
depository must be in an amount equal to an amount of those
funds . The value of the securities is determined by the
governing body of the municipality and that determination is
final and binding on the depository.
C. Counties . Under Sec. 113 . 001 et sea TEX. LOC. GOV'T CODE
ANN. the county treasurer is the chief custodian of county
funds which are to be kept in a designated depository. Other
than certain funds held by the county tax assessor-collector,
a county officer who receives funds is to deposit the funds
with the county treasurer on or before the next regular
business day after the date on which the funds are received.
If this deadline is not met, the officer must deposit the
funds without exception on or before the seventh (7 ) business
day after the day on which the funds were received (the
commissioner' s courts in counties with fewer than 50,000
inhabitants may extend this period to 30 days from the day
after the funds are received) . The commissioner' s court of a
county at its February regular term immediately following the
general election shall contract with one or more banks in the
county for the deposit of the county' s public funds . Under
Sec . 116 .051 TEX. LOC. GOV'T CODE ANN. within 15 days after
the day a bank is selected as a county depository, "the bank
must qualify by providing security for the funds to be
deposited by the county with the bank. " The depository may
secure these funds at the option of the commissioner' s court
by:
11
( 1) personal bond; surety bond; bonds, notes and other
securities, first mortgages on real property; or a
combination of these methods as provided by this
subchapter; or
(2 ) investment securities or interest in them is
provided by chapter 726 , Acts of 67th Leg. Reg.
Sess . , 1981 (TEX. REV. CIV. STAT. ANN. art.
2529b-1) . (See the list for municipal depositories)
(3) in addition to or in lieu of other securities that
a depository bank may pledge, the depository bank
may pledge certificates of derosit that are:
(a) held in custody of a federal reserve bank for
safekeeping and that are the subject of a valid
pledge agreement designating the county as the
beneficiary of the pledged agreement;
(b) insured in full by the federal savings and loan
insurance corporation or the federal deposit
insurance corporation;
(c) described in detail by a safekeeping receipt
issued to the county by the federal reserve
bank having custody of the certificate; and
(d) registered with the county as a registered
owner.
A party to whom presentment of a certificate of deposit
pledged to secure county funds is made may not pay or
otherwise accept a certificate of deposit unless the
certificate of deposit or the safekeeping receipt has
been endorsed by the county and the depository bank.
In addition to certificates of deposits a county
depository under Sec. 116 . 054 Tex. local Gov't Code, a
county depository may also pledge:
( 1) a bond, note, security of indebtedness, or other
evidence of indebtedness of the United States if the
evidence of indebtedness is supported by the full
faith and credit of the United States or is
guaranteed as to principal and interest by the
United States;
(2) a bond of the state or of a county, municipality,
independent school district, or common school
district;
12
(3) a bond issued under the Federal Farm Loan Acts;
(4) a road district bond;
(5) a bond, pledge, or other security issued by the
Board of Regents of the University of Texas System;
(6 ) bank acceptances of banks having a capital stock of
at least $500, 000;
(7) a note or bond secured by mortgages insured and
debentures issued by the Federal Housing
Administration;
( 8) shares or share accounts of a savings and loan
association organized under the laws of the state or
of a federal savings and loan association domiciled
in the state if the payment of the share or share
accounts is insured by Federal Savings and Loan
Insurance Corporation; or
(9 ) a bond issued by a municipal corporation in the
state.
Thus individual depository contracts must be carefully
negotiated. Who is to have investment authority, the type
and terms for the collateral which is pledged, and who is is
to hold the collateral are all governed by the terms of this
Agreement.
13
CshMgmt-Prst
ATTACHMENT C
CITY OF COLLEGE STATION
INVESTMENT POLICY
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v Le•f,)yftit•iNy,/". y
0 '4;j 'i, _AUIE14' 1_ ! 1 latlea!"1.1 _3 ?0,.....tiM i VA), Mtn AN ''' elf,'0,.. '
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PRESOLUTION NO. 4-12-90-5.5 � a1C '
,r,_„
,rm
R. 4A RESOLUTION APPROVING AND AUTHORIZING THE IMPLEMENTA-
TION OF THE CITY OF COLLEGE STATION INVESTMENT POLICY. ! .4C -
l'-&-..--1::
WHEREAS, the goal of the City of College Station is to �
gOs'
create an investment policy to insure the safety of all
)54
funds entrusted to the City, while making available
§:4
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
gWHEREAS, the safety of the principal invested shall al- !!!
,,; ' ways be the primary concern of the City of College Sta-
le
tion; and
WHEREAS, the management of monies in order to insuremaximum cash availability and maximum yields on a shortOw ( term investment is a primary goal of the City of Col-�'"'-- lege Station;
10. 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 §li
Station, providing for an active cash management policy ),.
OA*( to be pursued by the City in order to maximize invest44
-
. ment interest as a viable and material revenue source - '
while still providing maximum cash availability. flg) ; '
PASSED and APPROVED this the 12th day of
Apri 1 , 1990.
r
APPROVED: . '., ',
(5
!'` 1 MA
•
ATTEST: W
00 ' AC ,
IE
Ar)AA „.. .-.JgC1151—iL) 9)
,s, .
0► ity Secretary ' .0
- I ,A.�y!)�. * +'.A�c )At! T'! iA\ f, , ,tiV/ �```` ��- i.,
INVESTMENT 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.
AMENDMENTS. 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 AND 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
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.
INVESTMENT COMMITTEE. 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
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
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. All 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.
Bankina 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,
third-party safekeeping of that collateral. A copy of the
current agreement is attached as Exhibit II to this policy.
ELIGIBLE SECURITIES DEALERS.
A. 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.
B. Securities dealers and banks which are not
designated as "Primary Dealers" , but which are
approved individually by the City of College
Station Investment Committee.
C. 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) .
D. 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 INVESTMENTS.
A. 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
All securities shall be purchased on a delivery-versus-
payment basis throuah 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
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.
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 0
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. FtIGHEST 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.
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.
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.