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HomeMy WebLinkAboutOrdinances (O-96-1051)-12/03/1996 ORDINANCE 0-96-1051 AN ORDINANCE REVISING THE CITY OF COLLEVVILLE INVESTMENT POLICY BY AMENDING ORDINANCE 0-91-834 AND PROVIDING AN EFFECTIVE DATE. WHEREAS, recent changes to the Public Funds Investment Act, which governs the investment of funds by public entities in the State of Texas, necessitates the update of the City of Colleyville's investment policy as adopted by Ordinance 0-91-834; and, the City wishes to add the following investments to its list of perm issible investments: (A) direct repurchase agreements with a primary security dealer having a defined termination date and secured by U.S. Government securities and (B) a maximum of 10% of the City's available funds may be invested in 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 and whose investment objectives include seeking to maintain a stable net asset value of $1.00 per share. I WHEREAS, NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF COLLEVVI LLE, 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 0-91- 834. 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 November 19, 1996. The second Reading and Public Hearing being conducted on December 3, 1996. ArrEST: ;J~ ~a Ed Baker Mayor +i-D AS TO FORM AND LEGALITY: Ross I FOSr City Attorney Exh;o;~ A CITY OF COLLEYVILLE INVESTMENT POLICY Scope This investment policy applies to all financial assets of the City of Colleyville (lithe 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 Drainage Utility Fund Tree Preservation Fund Community Center Development Fund Comm unity Center Building Fund Recycling Fund Police Asset Forfeiture Fund Voluntary Library Fund and any new fund created by the City Council, unless specifically exempted by the City Council. Objectives Safety of principal is the foremost objective of the City in managing its portfolio. The City will also maintain sufficient liquidity to provide adequate and timely working funds. The City investment portfolio shall be designed with the objective of regularly exceeding the weighted average return on thirteen week Treasu ry bills. This is considered a benchmark for risk less investment transactions, and therefore, is a minimum standard for the portfolio's rate of return. For bond funds which 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. Prudence . - - _.- - - -.. -- . -.- ~ ...,'.-. 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 71th 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 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 ~C1uivalent; ..- --- 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. 7. Direct repurchase agreements with primary security dealers having a defined termination date, and secured by U.S. Government or federal agency securities, provided that the ownersh ip 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 counte rparty. 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 maxim um 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 5. No-load mutual funds other than no-load money market mutual funds 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 obligation s 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 earnjng~. All excess earnings received will be segregated to allow a proper determination .. .....-6fiilte-resfTncome 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% Competitive Selection of Investments 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 which 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 which was made .. .....-regarahlg.tlie investment. Qualified Institutions Each year in September the City Council shall approve five financial institutions for investment purposes as recommended by the Finance Director. All firms shall answer the Broker/Dealer questionnaire (Appendix A) and submit their most recent audited financial statements to the City Council before 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 safekeepin g 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 -,___~~-~r~ prle.~s and a rating of "A" or better by Moody's and Standard and Poor's. Collateral shall be "marked to market" monthly by the Finance Director. The following percentages constitute the minimum market value for collateral instruments which are pledged for the City's Certificates of Deposit and demand deposits. Form of Collateral Pledaed 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 102% b. maturing in 1-5 years 105% c. maturing in more than 5 years 107% Revenue Bonds a. maturing in less than 1 year 105% b. maturing in 1-5 years 110% c. maturing in more than 5 years 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 earn~d if the funds had been invested at a rate equal to the yield on the applicable bonds .. "---soold ~6ytne-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. 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. 4;o;CJe?7d;,t 4 CITY OF COLLEYVILLE .. '-_uSROF(fR1DEALER CERTIFICATION QUESTIONNAIRE 1. Name of Firm 2. Address 3. Telephone - National Telephone - Local 4. Primary Representative / Branch Manager 5. Is your firm a primary dealer in U.S. Government securities? If so, how long? 6. Identify all personnel who will be trading or quoting securities to our City's employees. 7. Identify which personnel have read the City of Colleyville's investment policy. 8. Please indicate the current licenses of your representative and attach a copy of their registration. Agent Licensed or Registered by 9. Have any of your public sector clients ever reported to your firm, its officers or employees, orally or in writing, that they sustained a loss (in a single year) exceeding 10 percent of original purchase price on any individual security purchased through the firm? 1 o. J:>le~se explain your normal custody and delivery process. Who audits these fiduciary " "d_ _ _.. ?_ U d. systems ,'. 11. Has your firm consistently complied with Federal Reserve Bank's capital adequacy guidelines? As ofthis date, does your firm comply with the guidelines? 12. By what factor does your firm presently exceed the capital adequacy guidelines. 13. Please attach a sample of any confirmations or transactions reports that the City will receive after a transaction has occurred. 14. Does your firm participate in the S.I.P.C. insurance program? If not, why? 15. What percentage of your transactions failed last month? Last year? 16. Describe the precautions taken by your firm to protect the interests of the public when dealing with governmental agencies as investors. 17. Please attach a copy of your firm's most recent audited financial statements. Appt.-ndit fJ INVESTMENT POLICY CERTIFICATION (To be completed on your firm's letterhead) I hereby certify that I have personally read and understand the investment policy of the City of Colleyville and have implemented reasonable procedures and controls designed to fulfill those objectives and conditions. Transactions between this firm and the City of Colleyville will be directed towards precluding imprudent investment activities and protecting the City from credit or market risk. All of the sales personnel of this firm dealing with the City of Colleyville account have read the City's investment policy and are informed of the City's investment limitations, strategy, and risk constraints. This firm pledges due diligence in informing the City of foreseeable risks associated with financial transactions connected to this firm. (To be signed by a registered principal of your firm)