HomeMy WebLinkAboutAudit Committee - Agenda Packet - 11/15/2016City of Colleyville Page 1
City of Colleyville
Audit Committee
Agenda
City Hall
100 Main Street
Colleyville, Texas 76034
817.503.1000
www.colleyville.com
Tuesday, November 15, 2016
4:00 p.m.
City Manager’s Conference Room
Third Floor – City Hall
1.CALL TO ORDER
2. APPROVAL OF MINUTES
August 10, 2016
3.REGULAR AGENDA ITEMS
3a Meet with representatives from the City's audit firm Pattillo, Brown
and Hill, L.L.P. to discuss the interim progress of the Fiscal Year
ended September 30, 2016 audit
3b Presentation of the Quarterly Investment Report for the quarter
ended September 30, 2016
3c Discussion of Commercial Paper in the local government investment
pool
4.ADJOURNMENT
I hereby certify this agenda was posted on City Hall bulletin boards November 10,
2016, by 5:00 p.m.
Amy Shelley, TRMC
City Secretary
A quorum of the Colleyville City Council and/or any other Colleyville Board,
Commission, or Committee may be in attendance at this meeting.
Any matter on this agenda may, at the discretion of the governing body, be
opened for public comment and discussion.
If you plan to attend this public meeting and have a disability that requires special
accommodations, please advise Executive Secretary at least 48 hours in advance
at 817.503.1111, and reasonable accommodations will be made to assist you.
Audit Committee Agenda November 15, 2016
City of Colleyville Page 2
City of Colleyville Page 1
City of Colleyville
Audit Committee
DRAFT - MINUTES
City Hall
100 Main Street
Colleyville, Texas 76034
817.503.1000
www.colleyville.com
Wednesday, August 10, 2016
4:30 p.m.
City Manager’s Conference Room
Third Floor – City Hall
Chief Financial Officer Brian Hogan called the Audit Committee meeting to order on
August 10, 2016, at 4:34 p.m.
ROLL CALL: Committee members Nancy Coplen, Tammy Nakamura, and Chris
Putnam were present.
City Manager Jennifer Fadden, Deputy City Manager Chris Fuller, Chief Financial
Officer Brian Hogan, Accounting Manager Karen Hines, Fire Chief Brian Riley, and
City Secretary Amy Shelley were also present.
2. APPROVAL OF MINUTES
May 3, 2016
Committee member Coplen made a motion to approve the May 3, 2016, meeting
minutes. Committee member Putnam seconded. All approved by acclamation.
3. REGULAR AGENDA ITEMS
3a Meet with representatives(s) from the City's audit firm, Pattillo, Brown
& Hill, L.L.P. to discuss the Fiscal Year September 30, 2016 audit
Nicole Bradshaw, Pattillo, Brown and Hill, L.L.P., Manager for the Government
Audit Division, the City’s audit firm, discussed the upcoming September 30, 2016
audit and answered questions of the committee.
Committee member Putnam asked Ms. Bradshaw if there were any new GASB
pronouncements for 2016. Ms. Bradshaw replied there would be nothing major,
only small disclosure changes.
Committee member Coplen asked about the Utility Fund transfer to the General
Fund; why we did not charge the expenses, everything from the General Fund to
the Utility Fund; and, would it help with audit testing. Chief Financial Officer Brian
Hogan explained that the transfer is discretionary for every city. For Colleyville,
the Franchise Fee and General and Administrative Charge was set by ordinance at
four percent. It is not a requirement. Money spent from any fund must be for a
legitimate expense and pertain to that fund. The auditors will test and verify that.
For the CEDC, the 10 percent limit for advertising expenditures, relative to total
fund expenditures, would also be tested so we did not violate the rules.
City of Colleyville Page 2
Audit Committee DRAFT - Minutes August 10, 2016
Committee member Coplen asked the Committee members if they are okay with
the General Fund absorbing the Utility Fund’s share of the overhead costs.
Committee member Putnam replied he believed it would be a little cleaner since all
the money remained in the fund and we would not be tracking the transfer. Chief
Financial Officer Brian Hogan explained it is not a requirement that you do the
transfer, but rather how you look at expenditures that are contained within each
fund.
Committee member Coplen asked staff if they will be using ad valorem to cover
the cost rather than the cost coming from water revenues, etc. Chief Financial
Officer Brian Hogan replied yes. The transfer is used to cover the overhead
allocation. By eliminating it, there would be a much cleaner cut off between fund
expenditures. He explained there would be no crossing over of funds. Ms.
Bradshaw concurred.
3b Discussion of update to City's Investment Policy
Chief Financial Officer Brian Hogan reviewed the City’s Investment Policy and
answered questions of the committee.
Committee member Putnam asked staff if the two changes included in the
investment policy were to report training and a title change. Chief Financial Officer
Brian Hogan replied yes. HB 870 changed the training requirement from 10 hours
to 8 hours. All investment officers must complete 10 hours of training within the
first 12 months of assuming duties. The 10 hour course was more an introduction
whereas the eight hour course assumed you knew the basics of the Public Funds
Investment Act.
Committee member Putnam asked staff if this includes some strikeouts or changes
in policy. Chief Financial Officer Brian Hogan replied a change in policy, with a
change in title for Karen Hines. She was the Finance Manager now she is the
Accounting Manager.
4. PRESENTATIONS
Presentation of the quarterly investment report for the quarter ended June
30, 2016
Chief Financial Officer Brian Hogan presented the quarterly investment report for
the quarter ended June 30, 2016.
Committee member Nakamura asked staff if anytime the money is needed, it can
be converted. Chief Financial Officer Brian Hogan replied that we have money
invested long term and in an overnight pool – Logic. With low rates, there is very
little opportunity, with a very small gap in rates between the overnight investment
City of Colleyville Page 3
Audit Committee DRAFT - Minutes August 10, 2016
pool rates and government securities, to earn a higher return. We review all
opportunities as we work through the projects and determine our cash needs.
Committee member Coplen asked staff if it looks like we will not have enough
cash. Chief Financial Officer Brian Hogan replied there is enough liquid cash to
make all payments. In the event we needed cash, we can sell investments
between our funds. Committee member Coplen stated she has never seen this
with the City. Committee member Putnam stated it is a timing thing with the
investment maturities.
Chief Financial Officer Brian Hogan stated the next meeting will be Tuesday,
November 15, 2016, at 6:00 p.m.
5.ADJOURNMENT
The Audit Committee meeting adjourned at 5:00 p.m.
APPROVED BY A VOTE OF AYES, NAYS, AND ABSTENTIONS ON THIS THE 15TH
DAY OF NOVEMBER 2016.
Minutes taken and prepared by:
Amy Shelley, TRMC
City Secretary
City of Colleyville Page 1
City of Colleyville
Audit Committee
Agenda Briefing
City Hall
100 Main Street
Colleyville, Texas 76034
www.colleyville.com
Agenda Number 3a Agenda Date 11/15/2016 Number
Type Regular Agenda Items
Department Finance
Title
Meet with representatives from the City's audit firm Pattillo, Brown and Hill, L.L.P.
to discuss the interim progress of the Fiscal Year ended September 30, 2016 audit
Strategy Map Connection
F1- Protect and preserve the City’s top financial ratings
F4- Adhere to the City’s financial and budgetary policies
Explanation
John Manning, partner with Pattillo, Brown & Hill, L.L.P., will meet with the Audit
Committee to discuss the interim progress of the Fiscal Year September 30, 2016
audit.
Attachments
City of Colleyville Page 1
City of Colleyville
Audit Committee
Agenda Briefing
City Hall
100 Main Street
Colleyville, Texas 76034
www.colleyville.com
Agenda Number 3b Agenda Date 11/15/2016 Number
Type Presentation
Department City Manager
Title
Presentation of the Quarterly Investment Report for the quarter ended September
30, 2016
Strategy Map Connection
Explanation
During the period of July 1, 2016 through September 30, 2016, the City of
Colleyville had an average of $54,093,019 invested on a daily basis, which earned
$88,779, with an average yield of 0.65%. The average yield on investments for
this quarter is 0.04% higher than the prior quarter's average of 0.61%. As
of September 30, 2016, the City had $55,788,299 invested in the LOGIC
Investment Pool, CDARS Certificates of Deposit and various debt instruments in
the following percentages:
Logic 44.05%FFCB Notes 16.39%
FHLB Notes 19.53%FHLMC Notes 5.53%
Treasury Note 2.40%CDARS CD's 8.42%
FNMA Notes 3.68%
These percentages are within the guidelines for portfolio diversification in the
City's investment policy. The market value of the City's investments
on September 30, 2016 was $25,818,223 as compared to a purchase price of
$25,830,501 (this excludes LOGIC Investment Pool and CDARS Certificates of
Deposit). The Colleyville Economic Development Corporation currently holds a
Treasury Note ($500,000) with a market value of $499,981 and a purchase price
of $499,750. Additionally, $1,003,741 was invested in the Corporation's name in
the LOGIC Investment Pool. These funds earned interest of $2,403 for the quarter.
Financial Impact
Recommendation
Attachments
1.September 2016 Investment Report Cover Letter
Audit Committee Agenda Briefing 3b
City of Colleyville Page 2
2.September 2016 Investment Report
3.Fund Classifications
4.Investment Terminology (for report)
5.LOGIC quarterly news letter
6.DFW Economic Indicators
City of Colleyville, Texas
Quarterly Investment Report
September 30, 2016
Report Highlights
I have made some changes to the Quarterly Investment Report to give the committee
members, City Council, and all other readers of the report, a different view of the
financial holdings and liquidity position of the City of Colleyville.
As with previously presented reports, this investment report is in compliance with the
Public Funds Investment Act and the City’s adopted Investment Policy.
The list of Outstanding Investments, Interest Earnings on Investments, Investments by
Fund, the CDARS Certificate of Deposit Allocation, and Logic Investment Pool
Allocation by Fund is included in the same format as previous reports. It is included in
the report after the new additions listed below..
These reports give a better overall snapshot of the City’s portfolio. I believe readers will
find this information useful.
CASH & INVESTMENT SUMMARY BY FUND
This report is an overview of the positions held within each fund.
The LOGIC, INVESTMENT, and CDARS holdings are detailed in the
supplemental reports which are included.
The funds are grouped by type of fund. There are two attachments – (1)
describes the different types of funds used and (2) a more detailed description of
each fund listed on the report.
CONSOLIDATED INVESTMENT HOLDINGS MEASUREMENT DATA
This report shows the City’s current holdings with measurement data (yield and
maturity) for each investment type. It includes the 13 week Treasury coupon rate
equivalent which is our benchmark. This benchmark is provided by the
Treasury.gov website.
TREASURY & AGENCY INVESTMENTS BY MATURITY
This report shows our treasury and agency holdings by maturity. The graphical
presentation shows the maturity dates with investment yield for each holding.
TREASURY & AGENCY INVESTMENTS BY TYPE
This report shows our treasury and agency holdings by investment type. The
graphical presentation shows the distribution by instrument for investments held.
COLLEYVILLE ECONOMIC DEVELOPMENT COPORATION SUMMARY
This is the same as the consolidated report but only for the CEDC holdings.
In addition, I have included the LOGIC (Local Government Investment Corporation)
quarterly newsletter and the Dallas Federal Reserve’s DFW Economic Indicators report.
These reports give the readers additional background information that is important in
understanding the report.
News in the Markets
Dallas-Fort Worth economic growth was solid in September.
EMPLOYMENT
DFW employment expanded at a rapid 5.3 percent annualized for September. Job
growth was strong in Dallas and Fort Worth at annualized rates of 4.6 and 7.1 percent
respectively. DFW outperformed Texas and the U.S. for the third straight month.
In September, the unemployment rate edged up to 4.7% in Dallas and 4.8% in Texas.
However, the rate dropped in Fort Worth to 3.4%. All three of these figures remain
lower than the U.S. rate which ticked up to 5.0%.
HOUSING
Home inventories remain tight. In September, supplies were 2.2 months in Dallas/Fort
Worth and were 3.7 months in Texas. These figures are below the U.S. level of 4.3
months and well below the 6.0 month threshold that signals a balanced housing market.
Inventories of homes priced $200,000 and above are even tighter at around 1 month for
the DFW area.
RATES
At their September 2016 meeting, the Federal Open Markets Committee (FOMC) again
decided not to raise interest rates. However, almost 90% of its members indicated a
rate hike will likely be coming in December after the elections are over.
The current Fed Funds rate is targeted between 25-50 basis points. The expectation is
this rate could end up at 60 basis points by the end of December.
The current rate has held steady at this level since the rate was last raised at the
December 17th, 2015 meeting.
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The Governmental Accounting Standards Board (GASB) was created in 1984 to
establish generally accepting accounting principles (GAAP) for state and local
governments. There are three types of funds that are used and this document will give
an overview of each.
GOVERNMENTAL FUNDS
Used to account for tax supported activities. This includes general government
activities such as police, fire, parks, libraries, and administration.
General Fund – Primary operating fund of the government. The largest source
of income is ad valorem (property) taxes. It is used for all the resources except
those required to be accounted for in another fund.
Special Revenue Fund – Used to report for specific revenue sources that are
limited to a specific purpose other than debt service or capital projects. These
restrictions are placed by outside agencies or the governing body depending on
the source of the revenue such as special assessments, ad valorem taxes, sales
tax components, or donations.
Debt Service Fund – Used to account for the accumulation of resources for
repayment of debt. The funding source for this account is ad valorem (property)
taxes.
Capital Projects Fund – Used to track the accumulation of resources for
constructing, acquiring, and rehabilitating capital assets such as buildings and
roads. This fund has no source of income other than transfers from other
governmental funds or bond issues.
ENTERPRISE FUNDS
Used to report any activity for which a fee is charged to users for goods or services.
Enterprise funds report financial activities financed and operated similar to those of a
private business. User fees are established and revised to ensure that revenues are
adequate to meet all necessary expenditures. Revenues in the enterprise fund are
restricted to pay for expenses for the fund they reside in. In other words Utility Fund
revenues can only be spent on water and wastewater activities.
FIDUCIARY FUNDS
Used to report assets held in a trustee or agency capacity for others and can’t be used
to support the government’s own programs. The key distinction is that trust funds are
normally subject to an agreement that affects the degree of management involvement
and the length of time the resources are held.
CITY OF COLLEYVILLE
INVESTMENT REPORT TERMINOLOGY
RATES/MEASUREMENT DATA
BANK EARNED INCOME CREDIT
This is the interest rate our depository bank (Wells Fargo) will pay us on
our deposits to offset bank service charges. We will never “earn” more
than the bank fees in a given month.
AVERAGE QUARTERLY YIELD
This is the average interest rate earned for each of the three months on our
LOGIC (overnight investment pool).
AVERAGE WEIGHTED YIELD
The weighted average yield is the return on each investment that is
“weighted” based on the value of the investment in relation to total value of
investments held.
AVERAGE WEIGHTED MATURITY
The weighted average maturity is the number of days to maturity for each
investment that is “weighted” based on the value of the investment in
relation to total value of investments held.
13 WEEK TREASURY BENCHMARK
Treasury and Agency notes are backed 100% by the U.S Government.
These are the most secure investment types and there is virtually no risk
involved with loss of principal.
The securities have a 1 or 2 year maturity term. The Treasury.gov website
gives a coupon equivalent for these securities for 13 weeks (1/4 or quarter
of a fiscal year).
INVESTMENT PRICES
PURCHASE PRICE (BASIS)
This is what the City paid for the investment.
PAR VALUE
This represents what the investment will be worth at maturity date.
INVESTMENT TYPES
CDARS
Certificate of Deposit Account Registry Service
This is the most convenient way to access FDIC insurance on multi-million
dollar CD deposits and to earn CD level rates. For Colleyville, the money is
invested locally with Worthington Bank and Northstar Bank.
AGENCY SECURITIES
“Agency” is a term used to describe two types of bonds: (1) issued or
guaranteed by the U.S. Federal Government or (2) issued by government
sponsored enterprises. They are the highest quality debt instruments after
Treasury securities.
The market believes these securities have an implicit backing of the U.S.
Government.
FEDERAL HOME LOAN BANK
FEDERAL FARM CREDIT BANK
FEDERAL HOME LOAN MORTGAGE CORPORATION
FEDERAL NATIONAL MORTGAGE ASSOCIATION
The City does NOT invest in any non-agency mortgage backed securities.
Non-agency mortgage backed securities were the instruments involved in
the housing crisis that occurred in 2001-2007.
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Holiday Reminder
In observance of Columbus Day, LOGIC will be closed
on Monday, October 10, 2016. All ACH transactions
initiated on Friday, October 7th will settle on Tuesday
October 11th.
In observance of Veterans Day, LOGIC will be closed
Friday, November 11, 2016. All ACH transactions
initiated on Thursday, November 10th will settle on
Monday, November 14th.
Conferences
LOGIC Representatives will be attending the following
upcoming conferences. We look forward to visiting with
those of you attending these events.
Texas Municipal League Annual Conference -
October 6-8, Austin
Texas Association of County Auditors Annual
Conference - October 18-21, Fort Worth
Government Finance Offi cers Association of Texas
Fall Conference - October 27-28, Arlington
LOGIC Newsletter
September 2016
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Market participants entered the quarter with many
uncertainties but global markets rebounded as
the UK Brexit referendum showed little evidence
of contagion throughout the European Union, US
payroll numbers bounced back averaging over
200,000 per month for the third quarter, and central
banks continued to be accommodative. Negative
rates in global bond markets, along with demand
for high-quality credits, continued to put downward
pressure on U.S. bond yields. Although they did
not hike at the September Fed meeting the bias
changed to that of a “Hawkish Hold” with the
heightened expectation of a December hike.
Growth in much of the world is stabilizing, but at
below historical levels. Businesses are investing like
they’re in a recession: the bulk of investment has
not been in physical assets, but into the deadweight
costs of security and control functions. These don’t
drive productivity and growth (one could argue that
they actually sap growth), although they may have
contributed to an environment of lower volatility.
Globally, disinfl ationary forces are in control and
a sub-trend recovery remains the base case.
As central bank policy loses its effectiveness,
what’s needed is fi scal spending. However, fi scal
policy, at best, will be incremental and not enough
to replace other efforts. It is hard to see fi scal
spending happening in a meaningful way over the
coming quarters, particularly in the U.S., where
the presidential election makes compromise in
Washington unlikely. It’s possible that we won’t
see meaningful fi scal policies implemented until
the next recession. With global growth stabilizing
at sub-trend levels and without any meaningful
signs of infl ation, the Fed is expected to remain
extremely slow and cautious. Its members don’t
want to create an imbalance that would destroy
the modest growth that exists. It was anticipated
the Fed would to lower its future expectations,
as it did on September 21 with one rate hike in
December still expected. The ongoing failure by
central banks to refl ate the global economy and
raise infl ation expectations is frustrating to them as
well as to most investors. As they begin to publicly
second-guess the unconventional tools they have
deployed, investors are left wondering what will
happen to the economy and especially, to asset
prices. In the absence of meaningful fi scal stimulus,
ideally in combination with structural reform, the
post-crisis deleveraging will have years to run and
ultimately, have to be underwritten by the central
banks reminding us that these unconventional tools
have one unambiguous benefi t: they make the debt
burden sustainable.
This information is an excerpt from an economic report dated September
2016 provided to LOGIC by JPMorgan Asset Management, Inc., the investment
manager of the LOGIC pool.
*Definition of Weighted Average Maturity (1) & (2)
(1) This weighted average maturity calculation uses the SEC Rule 2a-7 defi nition
for stated maturity for any fl oating rate instrument held in the portfolio to
determine the weighted average maturity for the pool. This Rule specifi es
that a variable rate instrument to be paid in 397 calendar days or less shall
be deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
(2) This weighted average maturity calculation uses the fi nal maturity of any
fl oating rate instruments held in the portfolio to calculate the weighted
average maturity for the pool.
Rates refl ect historical information and are not an indication of future performance.
As of September 30, 2016
Current Invested Balance $4,409,871,179.36
Weighted Average Maturity (1)* 39 Days
Weighted Average Maturity (2)* 56 Days
Net Asset Value 1.000194
Total Number of Participants 500
Management Fee on Invested Balance 0.0875%
Interest Distributed $2,816,635.08
Management Fee Collected $302,672.94
% of Portfolio Invested Beyond 1 Year 0.00%
Standard & Poor’s Current Rating AAAm
September Averages:
Average Invested Balance $4,220,143,125.39
Average Monthly Yield, on a simple basis 0.7248%
Average Weighted Average Maturity (1)* 45 Days
Average Weighted Average Maturity (2)* 62 Days
Distribution of
Participants by Type
As of September 30, 2011
Portfolio by
Maturity
As of September 30, 2011
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Historical Program Information
Average Book Market Net Number of
Month Rate Value Value Asset Value WAM (1)* WAM (2)* Participants
Sep 16 0.7248% $4,409,871,179.36 $4,410,883,048.03 1.000194 45 62 500
Aug 16 0.6218% 4,173,346,305.76 4,174,143,206.62 1.000190 39 57 500
Jul 16 0.5740% 4,222,463,139.86 4,222,665,438.59 1.000047 38 51 497
Jun 16 0.5640% 4,098,495,182.80 4,099,137,783.02 1.000156 38 54 493
May 16 0.5496% 4,112,196,457.64 4,112,970,867.25 1.000188 41 61 490
Apr 16 0.5439% 4,225,726,061.33 4,226,329,499.91 1.000129 35 57 489
Mar 16 0.5206% 4,641,892,583.12 4,642,690,932.90 1.000171 38 59 488
Feb 16 0.4823% 4,916,962,940.50 4,917,463,027.96 1.000101 43 64 486
Jan 16 0.3922% 4,658,046,995.69 4,658,236,771.04 1.000040 41 59 486
Dec 15 0.2331% 3,937,397,581.06 3,937,328,740.05 0.999960 37 48 486
Nov 15 0.1637% 3,408,876,009.37 3,408,877,369.21 1.000000 41 55 485
Oct 15 0.1635% 3,299,010,020.32 3,299,149,338.22 1.000037 45 60 483
As
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Book Value Market Value
Uninvested Balance $ 397.61 $ 397.61
Accrual of Interest Income 280,132.84 280,132.84
Interest and Management Fees Payable (2,941,941.94) (2,941,941.94)
Payable for Investment Purchased 0.00 0.00
Receivable for Investment Sold 0.00 0.00
Repurchase Agreements 345,163,999.93 345,163,999.93
Commercial Paper 4,007,373,964.37 4,008,359,899.59
Government Securities 59,994,626.55 60,020,560.00
Total $ 4,409,871,179.36 $ 4,410,883,048.03
Market value of collateral supporting the Repurchase Agreements is at least 102% of the Book Value. The portfolio is managed by J.P. Morgan Chase & Co. and the assets are safekept in a separate
custodial account at the Federal Reserve Bank in the name of LOGIC. The only source of payment to the Participants are the assets of LOGIC. There is no secondary source of payment for the
pool such as insurance or guarantee. Should you require a copy of the portfolio, please contact LOGIC Participant Services.
Portfolio Asset Summary as of September 30, 2016
Commercial Paper
90.82%
Repurchase
Agreements
7.82%
8 to 30 days
28.33%
1 to 7 days
23.87%
181+ days
1.13%
31 to 90 days
37.11%Utility District
11.00%
Other
7.20%
School District
38.40%Health Care
1.60%
County
10.40%
Higher
Education
2.80%
City
28.60%
Distribution of
Participants by Type
As of September 30, 2016
Portfolio by
Type of Investment
As of September 30, 2016
Portfolio by
Maturity
As of September 30, 2016
91 to 180 days
9.56%
Agencies
1.36%
Mny Mkt Fund Daily Allocation LOGIC Invested Market Value WAM WAM
Date Equiv. [SEC Std.] Factor Balance Per Share Days (1)* Days (2)*
9/1/2016 0.6947% 0.000019033 $4,159,100,210.99 1.000195 48 67
9/2/2016 0.7122% 0.000019512 $4,205,352,899.11 1.000150 48 66
9/3/2016 0.7122% 0.000019512 $4,205,352,899.11 1.000150 48 66
9/4/2016 0.7122% 0.000019512 $4,205,352,899.11 1.000150 48 66
9/5/2016 0.7122% 0.000019512 $4,205,352,899.11 1.000150 48 66
9/6/2016 0.7205% 0.000019739 $4,189,502,460.32 1.000221 49 67
9/7/2016 0.7182% 0.000019677 $4,213,892,093.19 1.000210 49 67
9/8/2016 0.7243% 0.000019845 $4,223,627,406.94 1.000195 49 67
9/9/2016 0.7301% 0.000020004 $4,214,441,758.82 1.000163 49 65
9/10/2016 0.7301% 0.000020004 $4,214,441,758.82 1.000163 49 65
9/11/2016 0.7301% 0.000020004 $4,214,441,758.82 1.000163 49 65
9/12/2016 0.7200% 0.000019725 $4,253,663,088.34 1.000207 48 64
9/13/2016 0.7232% 0.000019813 $4,242,146,465.51 1.000211 48 64
9/14/2016 0.7239% 0.000019834 $4,226,027,495.20 1.000213 47 63
9/15/2016 0.7354% 0.000020149 $4,149,948,201.63 1.000214 48 64
9/16/2016 0.7355% 0.000020150 $4,147,906,913.06 1.000184 46 63
9/17/2016 0.7355% 0.000020150 $4,147,906,913.06 1.000184 46 63
9/18/2016 0.7355% 0.000020150 $4,147,906,913.06 1.000184 46 63
9/19/2016 0.7314% 0.000020039 $4,129,095,113.48 1.000232 45 62
9/20/2016 0.7339% 0.000020106 $4,076,292,731.99 1.000278 45 62
9/21/2016 0.7367% 0.000020183 $4,077,766,261.38 1.000218 45 62
9/22/2016 0.7395% 0.000020261 $4,054,626,592.82 1.000214 44 61
9/23/2016 0.7149% 0.000019585 $4,263,224,619.37 1.000178 40 56
9/24/2016 0.7149% 0.000019585 $4,263,224,619.37 1.000178 40 56
9/25/2016 0.7149% 0.000019585 $4,263,224,619.37 1.000178 40 56
9/26/2016 0.7122% 0.000019511 $4,323,432,935.94 1.000218 39 55
9/27/2016 0.7203% 0.000019735 $4,327,891,027.21 1.000218 38 56
9/28/2016 0.7294% 0.000019984 $4,428,399,337.77 1.000218 40 57
9/29/2016 0.7389% 0.000020245 $4,420,879,689.51 1.000227 41 58
9/30/2016 0.7507% 0.000020567 $4,409,871,179.36 1.000194 39 56
Average 0.7248% 0.000019857 $4,220,143,125.39 45 62
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Daily Summary for September 2016
LOGIC versus 90-Day Treasury Bill
This material is for information purposes only. This information does not represent an offer to buy or sell a security. The above rate information is obtained from sources that are believed to be reliable; however,
its accuracy or completeness may be subject to change. The LOGIC management fee may be waived in full or in part at the discretion of the LOGIC co-administrators and the LOGIC rate for the period shown
refl ects waiver of fees. This table represents historical investment performance/return to the customer, net of fees, and is not an indication of future performance. An investment in the security is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the issuer seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by
investing in the security. Information about these and other program details are in the fund’s Information Statement which should be read carefully before investing. The yield on the 90-Day Treasury Bill (“T-Bill
Yield”) is shown for comparative purposes only. When comparing the investment returns of the LOGIC pool to the T-Bill Yield, you should know that the LOGIC pool consist of allocations of specifi c diversifi ed
securities as detailed in the respective Information Statements. The T-Bill Yield is taken from Bloomberg Finance L.P. and represents the daily closing yield on the then current 90-day T-Bill.
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0.02
0.08
0.14
0.20
0.26
0.32
0.38
0.44
0.50
0.56
0.62
0.68
0.74
0.80
90 Day T-BILL Rate LOGIC Rate
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For more information contact LOGIC Participant Services 1-800-895-6442 www.logic.org
LO
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LOGIC Board Members
Philip G. Roberson Arlington ISD Board President
Fred L. Werner Municipal Finance Director Board Vice President
Judd R. Sanderson North Texas Municipal Water District Board Treasurer / Investment Offi cer
Sandra Newby Tarrant Regional Water District Board Member
Greg Jordan City of Grapevine Board Member
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Dallas–Fort Worth economic growth was solid in August. Employment expanded during the month and contin-
ued to outperform the state as a whole, and unemployment remained below state and national rates. The DFW
housing market saw higher prices and reduced affordability in the second quarter, partly as a result of continued solid demand and tight
inventories. The Dallas Fed business-cycle indexes point toward continued growth for the metroplex.
Summary
� Dallas–Fort Worth employment expanded at a fast
clip in August as payrolls grew at an annual rate of
4.1 percent. August job growth was strong in Dallas
at an annualized 5.3 percent but modest in Fort
Worth at 1.1 percent. DFW outperformed Texas and
the U.S. during the month.
� Job growth over the past three months has been
mostly broad based across sectors, with payrolls in
both the goods-producing and service-providing
industries expanding. Employment gains have been
particularly strong in the construction and mining
sector, likely due to elevated building activity in the
metroplex.
� Year to date, job growth in Dallas has outdone all
other Texas major metros, including Fort Worth,
which is witnessing slower gains likely due to its
higher dependence on the energy and manufactur-
ing sectors. The government sector has seen the
fastest gains in employment year to date, followed by
education and health services, and financial activi-
ties. Together, these three sectors account for 64
percent of the jobs added through August.
� In August, the unemployment rate rose to 4.6
percent in Dallas, 3.7 percent in Fort Worth and 4.7
percent in Texas. All three figures remain lower than
the U.S. rate, which was unchanged at 4.9 percent.
The unemployment rate in Fort Worth remains near
multiyear lows but has increased in Dallas to its
highest level in nearly two years.
FEDERAL RESERVE BANK OF DALLAS • SEPTEMBER 20, 2016
Month/month percent change, annualized
Employment
SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by the Dallas Fed.
Employment Growth
DFW Economic Indicators DALLASFED
Index, January 2009 = 100*
*Monthly, seasonally adjusted.
SOURCE: Dallas Fed.
-6
-4
-2
0
2
4
6
8
10
2010 2011 2012 2013 2014 2015 2016
Dallas–Fort Worth
Texas
� Overall economic growth was strong in Dallas but
slowed in Fort Worth, according to the Dallas Fed’s
metro business-cycle indexes. The Dallas index rose
an annualized 6.2 percent in August, similar to last
month’s pace. The Fort Worth index climbed 2.4 per-
cent in August after posting a 5.5 percent increase
in July. Year over year, the Dallas index was up 4.6
percent, while the Fort Worth index was 1.9 percent
higher as a result of continued job creation.
Business-Cycle Indexes
90
100
110
120
130
140
150
2009 2010 2011 2012 2013 2014 2015 2016
Dallas
Fort Worth
1.7
1.3
5.2
-1.8
4.6
4.9
2.0
3.5
2.4
3.8
3.2
3.0
Information (2.3%)
Other services (3.4%)
Construction & mining (5.8%)
Manufacturing (7.5%)
Financial activities (8.2%)
Leisure & hospitality (10.4%)
Government (12.1%)
Education & health services (12.4%)
Professional & business services (16.4%)
Trade, transportation & utilities (21.4%)
Private (87.9%)
Total
Employment Growth by Sector
NOTES: Data show seasonally adjusted and annualized percentage employment growth by industry supersector for June–August
2016. Numbers in parentheses represent shares of total Dallas–Fort Worth nonfarm employment and may not sum to 100 due to
rounding.
SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by the Dallas Fed.
NOTE: Data may not match previously published numbers due to revisions.
Questions can be addressed to Laila Assanie at laila.assanie@dal.frb.org.
More Dallas Fed economic updates: www.dallasfed.org/research/update/
Percent
�DFW real median household income rose to $61,644
in 2015—a 3.4 percent increase from 2014, according to
data recently released by the Census Bureau. Growth in
median household income was slower in the metroplex
compared with the state and nation, where incomes
grew by 4.8 percent and 3.8 percent, respectively.
The median household income in DFW is above the
comparable figures for San Antonio, Texas and the U.S.
With rising incomes, the DFW poverty rate fell from 14.8
percent in 2014 to 13.4 percent in 2015.
SOURCE: National Association of Home Builders/Wells Fargo Housing Opportunity Indexes.
Index, first quarter 1991 = 100*
*Quarterly, seasonally adjusted.
SOURCE: Federal Housing Finance Agency.
100
120
140
160
180
200
220
240
260
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Dallas U.S.Fort Worth
20
30
40
50
60
70
80
90
100
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Fort Worth U.S.Dallas
Median Household Income
Home Prices
Home Affordability
2014 median
household income
2015 median
household income Percent change
U.S.$53,713 $55,775 3.8
Texas $53,105 $55,653 4.8
DFW $59,593 $61,644 3.4
Houston $60,124 $61,465 2.2
San Antonio $52,779 $55,083 4.4
SOURCE: Census Bureau, 2014 and 2015 American Community Surveys.
Housing �The DFW housing market remains tight, and home
prices are rising faster than the state and national aver-
ages. Home prices rose 2.2 percent in Dallas and 2.8
percent in Fort Worth in the second quarter, accord-
ing to the Federal Housing Finance Agency (FHFA)
purchase-only house price index. This is in contrast to
Houston, where prices held steady during the quarter.
On a year-over-year basis, prices were up 10.3 percent
in Dallas and 9.4 percent in Fort Worth—both higher
than in Texas (7.0 percent) and the nation (5.6 percent).
While prices in Dallas and Fort Worth are up signifi-
cantly from their prehousing-bust peaks, U.S. home
prices surpassed their housing-boom highs toward the
end of last year.
�The Multiple Listing Service (MLS) data, however,
suggest July prices edged down 0.5 percent from June
levels in Dallas while they rose 1.2 percent in Fort
Worth. The MLS data are not as dependable as the
FHFA purchase-only price index because MLS prices
are influenced by the composition of homes sold. The
Dallas Beige Book noted that demand is slowing at
higher price points.
�Continued rapid price appreciation has reduced
housing affordability in the state, particularly the
metroplex. The National Association of Home Build-
ers/Wells Fargo Housing Opportunity Index (HOI) for
Dallas fell from 55.9 in the first quarter to 50.9 in the
second, suggesting just over half of the homes sold dur-
ing the quarter were affordable to median-income fami-
lies. The HOI for Fort Worth dropped from 70.8 to 66.0
during the same period. Affordability in Dallas is lower
than the U.S., where 62 percent of homes sold during
the quarter were affordable to median-income families.
City of Colleyville Page 1
City of Colleyville
Audit Committee
Agenda Briefing
City Hall
100 Main Street
Colleyville, Texas 76034
www.colleyville.com
Agenda Number 3c Agenda Date 11/15/2016 Number
Type Regular Agenda Items
Department Finance
Title
Discussion of Commercial Paper in the local government investment pool
Strategy Map Connection
F4- Adhere to the City’s financial and budgetary policies
Explanation
This item will discuss Commercial Paper and it's inclusion in the overnight
investment pool. The City does not invest in Commercial Paper, but the Logic
investment pool does. Staff will discuss potential alternatives (other local
government pools) and the opportunity costs presented by each.
Attachments
1.Colleyville Investment Policy (2016)
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 laws and statutes including the Public Funds
Investment Act, Chapter 2256 of the Government Code 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
• Special Revenue Funds
• Capital Projects Funds
• Enterprise Funds
• Debt Service Funds, including reserves and sinking funds
• Trust and Agency Funds, to the extent not required by law or
existing contract to be kept segregated and managed separately
and any new fund created by the City Council, unless specifically exempted by
the City Council or by law. All funds may be combined as pooled funds unless
specifically prohibited by State law or statute or City ordinance.
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.
The City will also take into account the marketability of the investment if the
need arises to liquidate the investment before maturity.
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 Chief Financial Officer and Accounting Manager 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, Chief Financial Officer and
Accounting Manager) shall be personally indemnified in the event of
investment loss provided the Investment Policy is followed.
Internal Controls
The Chief Financial Officer and Accounting Manager 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 71st 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 equivalent;
5. Certificates of deposit issued by state and national depository
institutions that have its main office or branch office in this 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
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 of one
dollar as defined in the Public Funds Investment Act;
b. The investment pool maintains a AAA, or AAAm 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 schedule.
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.
9. Certificate of Deposit Account Registry Service (CDARS) deposited with
a certificate of deposit issued by a depository institution that has its
main office or branch office in this state that is selected by the investing
entity pursuant to the requirements of Section 2256.010 of the
Government Code.
The City is not required to liquidate an investment that was authorized at the
time of its purchase.
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 and/or obligations of the
following structure
a) obligations whose payment represents the coupon payments
on the outstanding principal balance of the underlying mortgage-
backed security collateral and pays no principal;
b) obligations whose payment represents the principal stream of
cash flow from the underlying mortgage-backed security collateral
and bears no interest;
c) collateralized mortgage obligations that have a stated final
maturity date of greater than 10 years; and
d) collateralized mortgage obligations the interest rate of which
is determined by an index that adjusts opposite to the changes in
a market index.
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
Effect of Loss of Required Rating
An investment that requires a minimum rating does not qualify as an
authorized investment during the period the investment does not have a
minimum rating. The Investment Officer shall take all prudent measures that
are consistent with the City’s investment policy to liquidate the investment(s)
that does not have the minimum rating (2256.021). In accordance with
Section (2256.005(b)), the Investment Officer shall monitor rating changes in
current investments by keeping a monthly record of ratings issued by three
nationally recognized rating agencies.
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 two years and the weighted average maturity
shall not exceed eighteen 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. The
weighted average maturity shall not exceed one year.
(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. Weighted average
maturity shall be incompliance with bond requirements, as stated.
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 city’s 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.
Annually, the City Council shall formally review the Investment Policy and
investment strategy contained with the Policy and record in writing that it has
reviewed the Policy and record any changes to either the policy or strategy.
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.
Diversification by Instrument of Portfolio Maximum Percent
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%
Certificate of Deposit Account Registry Service (CDARS) 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 four financial institutions for
investment purposes as recommended by the Chief Financial Officer. All firms
shall answer the Broker/Dealer questionnaire (Appendix A) and submit their
most recent audited financial statements to the City Council 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, Chief Financial Officer or
Accounting Manager must approve release of collateral in writing prior to its
removal from the safekeeping account.
Selection of Financial Institutions
Depositories shall be selected through the City's banking services procurement
process, which shall include a formal request for application. In selecting
depositories, the services available, service costs, and credit-worthiness of
institutions shall be considered, and the Investment Officers, shall conduct a
comprehensive review of prospective depositories' credit characteristics and
financial history.
The City shall select financial institutions from which the City may purchase
certificates of deposit in accordance with the Act and this Policy. The City will
have a written depository agreement with any financial institution with whom
the City has time or demand deposits. The Investment Officer shall monitor
the financial condition of financial institutions where certificates of deposit are
held. A qualified representative of the financial institution must sign the
investment certification form (Appendix B) on the financial institutions
letterhead and it must be kept on file with the City.
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
Ratings, and Standard and Poor's.
F. Surety Bond
G. Federal Home Loan Bank Letter of Credit issued to the City
Collateral shall be "marked to market" monthly by the Finance Manager. 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 102%
b. maturing in 1-5 years 105%
c. maturing in more than 5 years 110%
2. Actively traded U.S. Government Agency securities
a. maturing in less than 1 year 103%
b. maturing in 1-5 years 107%
c. maturing in more than 5 years 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 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 Chief Financial Officer and Accounting Manager shall issue a written report
quarterly to the Audit Committee and 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, and fully accrued interest for the period. The portfolio
shall be marked to market monthly and market pricing information is to be
obtained through the use of appropriate external third party software, third
party safekeeping service, or a third party independent pricing service. This
report shall be in compliance with provisions of the Public Funds Investment
Act, as amended. The report shall be signed by the Chief Financial Officer and
Accounting Manager, as the investment officers for the City, and state its
compliance with the Public Funds Investment Act and adopted investment
policy strategy. The quarterly investment reports must be reviewed annually
by the City’s external audit firm as a part of the City’s annual audit and
reported to the City Council.
Training Requirements
In accordance with the Act (2256.005 and 2256.008), the Chief Financial
Officer and Accounting Manager shall attend 10 hours of investment training
within 12 months of assuming duties and 8 hours not less than once in a two-
year period that begins on the first day of the City’s fiscal year and consists
of the two consecutive fiscal years after that date. Both the Chief Financial
Officer and Accounting Manager 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, Texas Municipal League or the University of North
Texas Center for Professional Development. 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 are 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 – Dividing instruments among securities offering independent
returns.
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 is 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 – An 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 presumably be
purchased or sold.
MASTER REPURCHASE AGREEMENT – A written contract 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.