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HomeMy WebLinkAboutOrdinances (O-03-1420)-09/16/2003 ORDINANCE 0-03-1420 AN ORDINANCE REVISING THE CITY OF COLLEYVILLE INVESTMENT POLICY BY AMENDING ORDINANCE 0-00-1243 AND PROVIDING AN EFFECTIVE DATE WHEREAS, review of the City of Colleyville's investment policy necessitates an update of the City of Colleyville's investment policy as adopted by Ordinance 0-91- 834 and amended by Ordinance 0-96-1051, Ordinance 0-98-1117 and Ordinance 0-00-1243; NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF COLLEYVILLE, TEXAS: Sec. 1. THAT "Exhibit A" of this ordinance be adopted as the City of Colleyville's Investment Policy and it replaces "Exhibit A" contained in Ordinance 0-00- 1243. Sec. 2. THAT this ordinance shall become effective on the date of passage. AND IT IS SO ORDERED. The first Reading and Public Hearing being conducted on September 2, 2003. The second Reading and Public Hearing being conducted on September 16,2003. ~~~ Cynthia Singleton, TRMC City Secretary APPROVED AS TO FORM AND LEGALITY: EXHJbli A CITY OF COLLEYVILLE INVESTMENT POLICY Policy It is the policy of the City of Colleyville (the City) to invest public funds in a manner which will provide the highest investment return with the maximum security while meeting the daily cash flow demands of the entity and conforming to all State of Texas statutes and City ordinances. Scope This investment policy applies to all financial assets of the City. These funds are accounted for in the City's Comprehensive Annual Financial Report and include: General Fund Utility Fund Debt Service Fund Capital Projects Fund Voluntary Park Fund Sesquicentennial Fund Special Donation Fund Park Land Dedication Fund Crime District Fund Drainage Utility Fund Tree Preservation Fund Library Donation Fund Community Center Building Fund Recycling Fund Police Asset Forfeiture Fund Voluntary Library Fund TIF Fund Kidsville Maintenance Fund and any new fund created by the City Council, unless specifically exempted by the City Council. Objectives The primary objectives, in priority order, of the City's investment activities shall be: Safety: Safety of principal is the foremost objective of the City in managing its portfolio. Investments of the City shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective the City will diversify its investments by investing funds among a variety of securities offering independent returns and financial institutions. Liquidity: The City will also maintain sufficient liquidity to provide adequate and timely working funds. Return on Investments: The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and cash flow needs. The City investment strategy is passive and the portfolio shall be designed with the objective of regularly exceeding the weighted average return on thirteen-week Treasury bills. This is considered a benchmark for riskless investment transactions, and therefore, is a minimum standard for the portfolio's rate of return. For bond funds that fall under the arbitrage provisions of the Tax Reform Act of 1986, the City will attempt to earn allowable bond yield with market conditions permitting. Delegation of Authority The City designates the Investment Officers to be the City Manager with overall responsibilities to see that investment objectives are accomplished and the Finance Director with the specific day-to-day performance of managing the funds of the City. Ethics and Conflict of Interest All investment Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or that could impair their ability to make impartial investment decisions. Employees shall disclose to the City of Colleyville and Texas Ethics Commission a statement under the following conditions: A. If they have a personal business relationship with a business organization offering to engage in an investment transaction with the entity. Under the Public Funds Investment Act, a personal business relationship is defined as: 1 . The investment officer owns 10 percent or more of the voting stock or shares of the business organization or owns $5,000 or more of the fair market value of the business organization: 2. Funds received by the investment officer from the business organization exceed 10 percent of the investment officer's gross income for the previous year; or 3. The investment officer has acquired from the business organization during the previous year, investments with a book value of $2,500 or more for the personal account of the investment officer. B. If they are related within the second degree by affinity or consanguinity, as determined by Chapter 573 V.A.T.C.S. to an individual seeking to sell an investment to the City of Colleyville. Prudence Investments shall be made with judgement and care - under circumstances then prevailing _ which persons of prudence, discretion, and 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. The standard of prudence to be used by investment officials shall be the "prudent person". which means the officer may not be an expert but is obligated to act responsibly and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. Investment officers shall notify the City Council in writing of any conflicts of interest, as defined by the Public Funds Investment Act, no later than the next regularly scheduled Council meeting. It is the policy of the City that the Investment Officers perform their duties in accordance with the policies and procedures set forth in this policy. The Investment Officers of the City (City Manager and Finance Director and the Assistant to the Finance Director (acting in the Finance Director's absence)) shall be personally indemnified in the event of investment loss provided the Investment Policy is followed. Internal Controls The Finance Director shall establish a system of written internal controls which shall be reviewed annually by the independent auditor. The controls shall be designed to prevent the loss of public funds due to fraud, error, misrepresentation, unanticipated market changes or imprudent actions. Permissible Instruments The following is a list of permissible instruments as authorized by the 70th Texas Legislature in the Public Funds Investment Act (TEX. REV. CIV. STAT. ANN. ACT 842A-2) and amended by the 71 st Legislature: 1. Obligations of the United States or its agencies or 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 or i nstrumenta I ities; 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 domiciled in the state that are: a. Guaranteed or insured by the Federal Deposit Insurance City, FSLlC 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 backed securities, and which 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. Invest in a local government investment pool as authorized by the Interlocal Cooperation Act (TEX. REV. CIV. STAT. ANN. ACT. 4413 (32c), as amended, and the Public Funds Investment Act (TEX. REV. CIV. STAT. ACT. 842a-2), as amended. The investment pool must comply with the requirements of the Public Funds Investment Act, as amended, as follows: a. The investment pool maintains a stable asset value as defined in the Public Funds Investment Act; b. The investment pool maintains a AAA rating by one of the nationally recognized rating agencies; c. The investment pool's maximum average dollar weighted maturity does not exceed 90 days; and d. The investment pool's continued compliance with the remaining provisions of the Public Funds Investment Act. e. The eligible investments of the pool are as follows: obligations of the United States or its agencies and instrumentalities, other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the United States, fully collateralized repurchase agreements with a defined termination date secured by obligations of the United States or its agencies and instrumentalities, other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the United States, and SEC registered money market funds authorized by the Public Funds Investment Act and rated in the highest category by at least one nationally recognized rating agency, reverse repurchase agreements with a term of no longer than 90 days. f. Include in its investment policy and/or operating procedures the following information: a description of eligible investment securities and unacceptable investments, a written statement on investment policy and objectives, a description of interest calculations, distribution, and treatment of gains and losses, security safeguarding, valuation collateralization and auditing, and a fee shcedule. 7. Direct repurchase agreements with primary security dealers or financial institutions doing business in the State of Texas having a defined termination date, and secured by U.S. Government or federal agency securities, provided that the ownership of collateral for the repurchase agreement is transferred to the City, and deposited with a safekeeping agent for the duration of the contract and a signed master repurchase agreement has been executed with the counterparty. 8. SEC-registered no-load money market mutual funds with a dollar weighted average portfolio of 90 days or less whose assets consist exclusively of United States Government Securities whose investment objectives include seeking to maintain a stable net asset value of $1.00 per share. Investment in mutual funds shall be limited to a maximum of ten percent (10%) of the City's available funds. Unacceptable Investment Instruments The following securities, although authorized by the Public Funds Investment Act, are not eligible investments for the City: 1. Collateralized mortgage obligations 2. Commercial paper 3. Banker's acceptances 4. Reverse repurchase agreements (Local Government Investment Pools which the City participates in may engage in reverse repurchase agreements if the term is 90 days or less) 5. No-load mutual funds other than SEC-registered no-load money market mutual funds with a dollar weighted average portfolio of 90 days or less whose assets consist exclusively of United States Government Securities whose investment objectives include seeking to maintain a stable net asset value of $1.00 per share. 6. Guaranteed investment contracts 7. Share certificates of qualifying credit unions Investment Strategy The investment strategy by type of fund is as follows: (1) Operating Funds The investment strategy for operating fund(s) is to assure that anticipated cash flows are matched with adequate investment liquidity. A secondary objective is to create a portfolio, which will experience minimum volatility during economic cycles. These funds shall not have an investment with a stated maturity greater than eighteen (18) months. (2) Debt Service Funds The investment strategy for debt service fund(s) is the assurance of investment liquidity to cover the debt service obligations on the required payment date. Investments purchased shall not have a stated final maturity date which exceeds the corresponding debt service payment date. (3) Reserve Funds The investment strategy for reserve fund(s) is the assurance of investment liquidity adequate to cover the debt service obligations not funded by debt service funds on the required payment date. Investment of reserve funds are controlled by their ordinance, resolution or indenture, and Federal and State law. Bond documents must be examined for each issue, for potential differences with this policy concerning investment instruments, maximum maturity or average life restrictions, call dates or sinking fund redemptions, and applicable arbitrage yields and rebate liability. Provisions contained in the bond documents will supersede provisions of this policy. Reserve funds will be invested using a more conservative approach than the current standard investment strategy when arbitrage rebate rules require refunding excess earnings. All excess earnings received will be segregated to allow a proper determination of interest income to be used in the arbitrage calculation. (4) Special Project or Special Purpose Funds The investment strategy for special projects or special purpose fund portfolio(s) will have as their primary objective to assure that anticipated cash flows are matched with adequate investment liquidity. The states final maturity dates of securities held shall not exceed the estimated project completion date. Funds in excess of defined construction payment schedules shall be limited to a maximum final maturity date of three years. Maturity limitations for single issue reserve funds shall not exceed the sooner of five (5) years, the call provisions of the bond ordinance, or the final maturity of the bond issue. A. Diversification The City will attempt to limit the risk of loss through diversification of its portfolio and to achieve the aforementioned investment strategies by diversification of instruments. Maximum Diversification by Instrument Percent of Portfolio U.S. Treasury Obligations (Bills, Notes and Bonds), 100% U.S. Government Agency Securities, and Instrumentalities of Government Sponsored Corporations 75% Certificates of Deposit (CD's) Commercial Bank's 75% Local Government Investment Pool 75% Tri-Party Repurchase Agreement 75% SEC registered, no-load mutual fund 10% Investment Procedures The City shall enter the following agreements (if applicable): safekeeping, PSA repurchase agreements, wire transfer agreements, banking services contracts, and collateral/depository agreements. These contracts shall include the explicit delegation of authority to persons responsible for the transactions involving these agreements. No person except those designated in the contract may engage in any investment transactions. On all funds invested in instruments as listed in "Permissible Investments" numbers one through five, oral bids shall be requested from at least two broker/dealers or national banks. The City will accept the bid that provides the highest rate of return within the maturity required and within the parameters of this policy. Records will be kept of the bids offered, bids accepted, and a brief explanation of the decision that was made regarding the investment. Qualified Institutions Annually, the City Council shall approve five financial institutions for investment purposes as recommended by the Finance Director. All firms shall answer the BrokerlDealer questionnaire (Appendix A) and submit their most recent audited financial statements to the City Councile for evaluation of credit worthiness. All personnel in the firms who will be trading or quoting securities to the City Council must maintain a current NASD license and be registered to deal securities in the State of Texas. An investment certification form (Appendix B) on the firm's letterhead signed by a principal of the firm must be on file with the City. Safekeeping All marketable securities purchased by the City shall be held in third party safekeeping by an institution designated as primary agent. All securities will be delivered to the third party institution by seller. Personnel in the third party institution will verify the correct security was delivered by the seller ("delivery vs payment"). The third party institution shall issue a safekeeping receipt to the City listing the specific instrument, rate/yield, maturity, CUSIP, and other pertinent information. Collateral on deposit type securities which exceed the FDIC coverage shall be held in a third party safekeeping institution. In the event a third party safekeeping institution is used, a collateral agreement shall be executed between the City Council, depository which pledged the collateral, and the third party custodian of the collateral. The City will retain possession of all original safekeeping receipts and the receipts will state the security is pledged to the City. Either the City Manager or the Finance Director must approve release of collateral in writing prior to its removal from the safekeeping account. Collateral Securities for Certificates of Deposit and Demand Accounts The City will accept as collateral for its Certificates of Deposit and demand accounts the following securities: A. FDIC coverage B. U.S. Treasury bills, notes and bonds C. United States Agency and instrumentalities bills or notes D. GNMA mortgage backed fully modified pass through securities E. Texas state, city county or school bonds with a remaining maturity of seven years or less and a rating of "A" or better by Moody's, Fitch ICBA, and Standard and Poor's. F. Surety Bond Collateral shall be "marked to market" monthly by the Finance Director. The following percentages constitute the minimum market value for collateral instruments that are pledged for the City's Certificates of Deposit and demand deposits. Form of Collateral Pledged Collateral Ratio 1. U.S. Treasury bills, notes, and bonds a. maturing within 1 year b. maturing in 1-5 years c. maturing in more than 5 years 102% 105% 110% 2. Actively traded U.S. Government Agency securities a. maturing in less than 1 year b. maturing in 1-5 years c. maturing in more than 5 years 103% 107% 115% 3. GNMA mortgage pass through securities 115% 4. Entities in the State of Texas bonds General Obligation Bonds a. maturing in less than 1 year b. maturing in 1-5 years c. maturing in more than 5 years 102% 105% 107% Revenue Bonds a. maturing in less than 1 year b. maturing in 1-5 years c. maturing in more than 5 years 105% 110% 115% Collateral shall be audited annually be the City's independent auditor and may be audited by the City at anytime during normal business hours of the safekeeping bank. Arbitrage The Tax Reform Act of 1986 places limitations on the City's yield from investing certain tax- exempt bond proceeds, debt service funds and reserve funds. The rebate provisions require that the City compute earnings on investments from certain issues of bonds on a periodic basis to determine if rebate is required. To determine the City's arbitrage position, the City is required to calculate the actual yield earned on the investment of the funds and compare it to the yield that would have been earned if the funds had been invested at a rate equal to the yield on the applicable bonds sold by the City. The rebate provisions state that periodically ( not less than once every five years and not later than sixty days after maturity of the bonds), the City is required to pay the United States Treasury a rebate of any excess earnings. These restrictions require extreme precision in the monitoring and record keeping of investments, particularly in computing yields to ensure compliance. Failure to comply can dictate that the bonds become taxable, retroactively from the date of issuance. The investment strategy for bond funds which fall under the arbitrage provisions of the Tax Reform Act of 1986, is that the City will attempt to earn maximum allowable bond yield with market conditions permitting. Reporting Requirements The Finance Director shall issue a written report quarterly to the City Council concerning the City's investment transactions for the preceding quarter and describing in detail the investment position of the City as of the end of the quarter indicating the market values of all investments held during the quarter. The report shall list for each investment held during the quarter: the purchase price of the investment, the par value of the investment, the market value of the investment at the beginning of the quarter, market value of the investment at the end of the quarter, the market change from the beginning until the end of the quarter, and fully accrued interest for the period. This report shall be in compliance with provisions of the Public Funds Investment Act, as amended. The report shall be signed by the City Manager and Finance Director. Training Requirements Both the Finance Director and Assistant to the Finance Director shall complete ten hours of training every two years as required by the Public Funds Investment Act. This training may be obtained from the following sources: North Central Texas Council of Governments, Government Treasurer's Organization of Texas, Government Finance Officer's of Texas, or Texas Municipal League. The training must include education in investment controls, security risks, strategy risks, market risks, and any other topics as required by the Public Funds Investment Act. GLOSSARY AGENCIES - Federal agency securities and/or Government-sponsored entities. BENCHMARK - A comparative base for measuring the performance or risk tolerance of the investment portfolio. A benchmark should represent a close correlation to the level of risk and the average duration of the portfolio's investments. BROKER - A broker brings buyers and sellers together for a commission. CERTIFICATE OF DEPOSIT - A time deposit with a specific maturity evidenced by a certificate. Large- denomination CD's a typically negotiable. COLLATERAL - Securities, evidence of deposit, or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. DEALER - A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account. DELIVERY VERSUS PAYMENT - Delivery verses payment is the delivery of a security and there is an exchange of money after the delivery of the security. DISCOUNT SECURITIES - Non-interest bearing money market instruments that are being issued at a discount and redeemed at maturity for full face value, e.g Treasury Bills. DIVERSIFICATION independent returns. Dividing instruments among securities offering FEDERAL CREDIT AGENCIES - Agencies of the Federal government set up to supply credit to various classes of institutions and individuals e.g.savings and loans, small business firms, students, farmers, farm cooperatives, and exporters. FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) - A federal agency that insures bank deposits, currently up to $100,000 per deposit. FEDERAL HOME LOAN BANKS (FHLB) - Government sponsored regional wholesale banks which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions and insurance companies. 'The mission of the FHLB is to liquefy the housing related assets of its members who must purchase stock in their district bank. FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - FNMA, like GNMA was chartered under the Federal National Mortgage Association Act in 1938. It a federal corporation and the largest single provider of residential mortgage funds in the United States. FNMA's securities are highly liquid and widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations. Security holder is backed by the full faith and credit of the US Government. LIQUIDITY - A asset that can be converted quickly and easily to cash. LOCAL GOVERNMENT INVESTMENT POOL - An investment by local governments in which their money is pooled as a method for managing local funds. MARKET VALUE - The price at which a security is trading and could presumable be purchased or sold. MASTER REPURCHASE AGREEMENT - A written contract covering all future transactions between the parties to repurchase - reverse repurchase agreements that establishes each party's rights in the transactions. A master agreement will specify, among other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller-borrower. MATURITY - The date upon which the principal or stated value of an investment becomes due and payable. MUTUAL FUND - An investment company that pools money and can invest in a variety of securities, including fixed-income securities and money market instruments. Mutual funds are regulated by the Investment Company Act of 1940 and must abide by Securities and Exchange disclosure guidelines. PORTFOLIO - Collection of securities held by an investor. PRIMARY DEALER - A group of government securities dealers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to informal oversight. PRUDENT PERSON RULE - An investment standard outlining fiduciary responsibilities of public funds investors relating to investment practices. RATE OF RETURN - The yield obtainable on a security based on its purchase price or its current market price. REPURCHASE AGREEMENT - An agreement of one party to sell securities at a specified price to a second party and a simultaneous agreement of the first party to repurchase the securities at a specified price or at a specified later date. REVERSE REPURCHASE AGREEMENT - An agreement of one party to sell securities at a specified price to a second party and a simultaneous agreement by the first party to resell the securities at a specified price to the second party on demand or at a specified date. SAFEKEEPING - Holding of assets (e.g. securities) by a financial institution. TREASURY BILLS - A non-interest bearing discount security issued by the US Treasury to finance the national debt. Most bills are issued to mature in three months, six months, or one year. The yields on these bills are monitored closely for interest rate trends. TREASURY BONDS - Long term US government debt securities with maturities of ten to thirty years. TREASURY NOTES - Intermediate term US government debt securities with maturities of one to ten years. YIELD - The current rate of return on an investment security generally expressed as a percentage of the securities current price.