HomeMy WebLinkAboutAudit Committee-Agenda Packets-11/19/2019City 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 19, 2019
5:00 p.m.
City Manager’s Conference Room
Third Floor – City Hall
1.CALL TO ORDER
2. APPROVAL OF MINUTES
August 20, 2019
3.REGULAR AGENDA ITEMS
3a Quarterly Investment Report for the quarter ended September 30,
2019
3b Investment Policy Update
4.ADJOURNMENT
I hereby certify this agenda was posted on City Hall bulletin boards Friday,
November 15, 2019, by 5:00 p.m.
Christine Loven, 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.
City of Colleyville Page 1
City of Colleyville
Audit Committee
Minutes
City Hall
100 Main Street
Colleyville, Texas 76034
817.503.1000
www.colleyville.com
Tuesday, August 20, 2019
5:00 p.m.
City Manager’s Conference Room
Third Floor – City Hall
1. CALL TO ORDER
Accounting Manager Karen Hines called the Audit Committee to order on August
20, 2019 at 5:03 p.m.
ROLL CALL: Committee members present George Dodson, Kathy Wheat, Bobby
Lindamood arrived at 5:09 p.m.
Absent: Susan Mathisen, Bobby Lindamood
Also Present: Accounting Manager Karen Hines City Manager Jerry Ducay,
Assistant City Manager Mark Wood, and City Secretary Christine Loven
2. APPROVAL OF MINUTES
March 5, 2019
May 14, 2019
As there was not a quorum present, this item was passed over until 5:16 p.m. –
after member Bobby Lindamood’s arrival.
Member Dodson moved to approve the March 5 and May 14, 2019 minutes;
seconded by member Wheat, passed unanimously.
3. REGULAR AGENDA ITEMS
3a Discuss the Fiscal Year September 30, 2019 audit which will be conducted
by the City’s audit firm Weaver and Tidwell
Manager Hines stated the auditors are in City offices this week performing an
interim audit and testing internal controls, and will return in November to begin
the full audit.
Member Bobby Lindamood arrived during discussion of this item at 5:09 p.m.
3b Presentation of the Quarterly Investment Report for the quarter ended
June 30, 2019
Manager Hines provided an overview of the investment report and noted the new
Finance Director Kyle Lester will begin in September and will be looking over the
City of Colleyville Page 2
Audit Committee Agenda August 20, 2019
investments. Manager Hines stated since the changes in investment strategies,
the funds have earned an additional $70,000 in interest.
There was general discussion of agencies, CDARs, CDs, and FDIC mortgages.
Manager Hines stated the next meeting will be November 19, 2019.
3. ADJOURNMENT
The meeting was adjourned at 5:18 p.m.
PASSED BY A VOTE OF _ AYES, _ NAYS, THIS 19TH DAY OF NOVEMBER 2019.
Minutes taken and prepared by:
Christine Loven, 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 11/19/2019 Number
Type Presentation
Department Finance
Title
Quarterly Investment Report for the quarter ended September 30, 2019
Explanation
Cash and Cash Equivalents (local government investment pools) totaled $76.3
million. Colleyville’s complete portfolio was valued at $90.97 million, and was
allocated as follows:
Instrument Current as of
9/30/2019
Last Quarter as of
6/30/2019
Cash $ 4,002,473 $ 5,209,519
Sweep Account $ 15,146,458 $ 15,478,377
LOGIC (CP Permissible)$ 2,464,552 $ 2,434,595
Other Governmental
Pools
$ 54,728,977 $ 54,152,102
CD’s $ 2,469,675 $ 744,000
CDARS $ 1,575,617 $ 2,571,221
Agencies $ 10,582,778 $ 12,582,619
Total Cash & Investments $ 90,970,530 $ 93,172,434
Instrument Current Yield as of
9/30/2019
Sweep Account 2.07 %
LOGIC (CP Permissible)2.34 %
Other Governmental
Pools
2.24 %
CD’s 2.03 %
CDARS 1.80 %
Agencies 1.65 %
Total Consolidated Yield 2.12 %
Benchmark Yield: 1.88%
Interest earnings for the quarter were $459,993 compared to $501,290 in the
previous quarter. This decrease of $41,297 is reflective of a declining interest rate
market as well as several maturities coming due in the last quarter. Staff will
continue to examine cash-flow needs and place our resources in instruments with
an emphasis on keeping these funds safe while earning as strong a yield as
possible.
Audit Committee Agenda Briefing 3a
City of Colleyville Page 2
Attachments
1.Investment Report - September 2019
Local Gov't Pools
CDARs
Tri-Pty Repurchase
Cash/Sweep
9/30/2019
City of Colleyville, TX
Quarterly Investment Report
Quarterly Investment Report City of Colleyville, TX 9/30/2019
Weighted
6/30/2019 9/30/2019 Change Maturity
Cash 5,209,519$ 4,002,473$ (1,207,046)$ Liquid
Sweep Account 15,478,377$ 15,146,458$ (331,919)$ Liquid
LOGIC (CP Permiss.)2,434,595$ 2,464,552$ 29,957$ Liquid
Other Gov't Pools 54,152,102$ 54,728,977$ 576,875$ Liquid
Subtotal 77,274,593$ 76,342,460$ (932,133)$
CD's 744,000$ 2,469,675$ 1,725,675$ 320 days
CDARS 2,571,221$ 1,575,617$ (995,605)$ 353 days
Agencies 12,582,619$ 10,582,778$ (1,999,842)$ 70 days
Subtotal 15,897,841$ 14,628,070$ (1,269,771)$ 143 days
Total Resources 93,172,434$ 90,970,530$ (2,201,904)$
Criteria
Met?
Policy Max 6/30/2019 9/30/2019
U.S. Treasuries 100%0%0%
U.S. Agencies 75%14%12%
CD's 75%1%3%
Local Gov't Pools 75%61%63%
CDARs 75%3%2%
Tri-Pty Repurchase 75%0%0%
Cash/Sweep N/A 22%21%
Where is Colleyville's cash?
Investments on the move…
Diversity Snapshot vs. Policy Requirements
0%0%10%SEC Registered, No-
Load Mutual Funds
Since our last investment report, the City has had $3.55 million in investments come to maturity: two
agency securities and two CDARS deposits. Looking at our cash flow needs, staff determined that $3.2
million of those maturities could be reinvested, most of which for a period of 12 months. These funds
were all invested in brokered certificates of deposit and a CDARS program, as those instruments carries
with them the highest possible yield while meeting the City's diversity and liquidity needs. To see a
summary of maturities and purchases since June 2019, please turn to the back of this report.
Cash/
Equivalents
Bonds/CDs/Ag
encies
2
Quarterly Investment Report City of Colleyville, TX 9/30/2019
Benchmark =13-Week Treasury
As the graph illustrates, Colleyville's investment returns have been climbing steadily since 2016. This is
partially due to favorable fixed-income rates, but the primary action point has been a change to more
active investment practices. Recently, however, rate cuts at the Federal Reserve have brought down
fixed income returns. This has led to a slight decline this quarter, which will most likely continue.
While staff will continue to seek a solid yield on the portfolio, the highest value is placed on
maintaining a low risk in order to ensure the safety and liquidity of the funds entrusted to us.
The City's total consolidated return is 2.12% as of the end of September, 2019. This compares favorably
with the 13-week treasury note benchmark put in place by Colleyville's investment policy. As has been
the case through most of 2019, the highest rates of return are with the City's investment pools, sweep
account, and shorter-term CD's.
How do our returns compare?
1.88%
2.12%2.07%
2.24%
2.03%
1.80%
1.65%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
13-Wk T Consolidated
Return
Sweep Pools CD's CDARS Agencies
9/30/2019
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Historical Return
Return Rate Interest Earned
3
Quarterly Investment Report City of Colleyville, TX 9/30/2019
6/30/2019 10/1/2018
Thru Thru
9/30/2019 9/30/2019
Compared to the average quarterly return for the past 12 months, the most recent quarter is showing a
substantial increase, while the actual rate of return is essentially flat (2.1% compared to 2.2%). As fixed-
income rates come down (particularly CD's, whos rates have been attractive throughout FY18 and
FY19), it is likely that the City's returns will similarly decline. As this happens, it may be that the
portfolio's reliance on pools and the bank sweep account will increase, depending on the rates in those
areas. Regardless, staff will continue to monitor these rates and manage Colleyville's portfolio with
emphasis on diversity and cash-flow needs.
$459,993; 2.1%$431,038; 2.2%
Current Total Quarterly Average
What have we earned the past three months? For the past year?
How has our portfolio changed over time?
As the graph above shows, the City has moved its investments away from agency securities and more
toward local government pools. Money stored in these pools is currently earning the highest consolidated
rate of return while also having the benefit of being considered "liquid", as the City can withdraw its
funds within 24 hours in most cases. However, the past two years has also brought a resurgence of higher
certificate of deposit returns. While not heavily invested in CD's from a percentage standpoint, staff has
begun to seek out these instruments as diversity and liquidity needs have allowed. This is likely to
continue for the forseeable future, although fixed income rates across-the-board will continue to fall.
22%31%32%
21%
34%
36%
45%63%
1%
3%
7%
6%
4%
2%
37%
27%18%12%
2016 2017 2018 2019
PORTFOLIO COMPOSITION
Bank Pools CD's CDARS Agencies
4
Quarterly Investment Report City of Colleyville, TX 9/30/2019
For any questions or comments on this report, please contact Also included:
Kyle Lester, CGFO Maturities/Purchases
City of Colleyville, TX Investment Listing
Finance Director 817-503-1014 Mark-to-Market
klester@colleyville.com
Signed:
What influences our rate of return?
Per State law, Colleyville is only permitted to invest in certain fixed income securities, whos
performance ties closely with the Federal Funds rate. As the chart above shows, the rates of our 13-
week treasury benchmark as well as our pools tend to move in lock-step with the Federal Reserve's
rate actions. With at least three potential rate cuts on the horizon, Colleyville could see returns
continue to decrease.
This investment report is in compliance with the Public Funds Investment Act as well as the City of
Colleyville's investment policy and procedures.
-
0.50
1.00
1.50
2.00
2.50
3.00
Influence of Federal Funds Rate on Fixed Income Market
13-Wk Coupon Fed Funds Rate Avg Pools
5
Quarterly Investment Report City of Colleyville, TX 9/30/2019
What has matured this year?
FFCB NOTE (3133EHHN6)1,000,000$ 5/3/2017 5/2/2019 1.35%26,963$
FHLMC NOTE(3137EAEH8)500,000$ 7/31/2017 8/15/2019 1.48%15,053$
FHLB NOTE(313380FB8)1,000,000$ 8/29/2017 9/13/2019 1.38%28,065$
CDARS (Indep Bank)512,577$ 9/21/2017 9/19/2019 0.58%5,930$
CDARS (Worthington Bank)1,543,297$ 9/19/2018 9/19/2019 2.08%32,075$
Total Matured 4,555,874$ 1.53%108,086$
What have we purchased this year?
Brokered CD: FDIC 16571 247,000$ 9/19/2019 10/20/2020 1.80%4,836$
Brokered CD: FDIC 35141 247,000$ 9/19/2019 10/27/2020 1.85%5,058$
Brokered CD: FDIC 32992 245,000$ 9/19/2019 9/25/2020 1.80%4,495$
Brokered CD: FDIC 34221 245,000$ 9/19/2019 9/25/2020 1.80%4,495$
Brokered CD: FDIC 34775 245,000$ 9/19/2019 9/25/2020 1.85%4,619$
Brokered CD: FDIC 2270 247,000$ 9/19/2019 12/24/2020 1.80%5,628$
Brokered CD: FDIC 16022 249,675$ 9/18/2019 9/11/2020 1.75%4,297$
CDARS (Worthington Bank)1,575,617$ 9/18/2019 9/17/2020 1.80%28,361$
FHLB NOTE (313383HU8)500,000$ 8/16/2019 6/12/2020 1.75%7,216$
Total Purchased 3,801,292$ 1.80%69,004$
Weighted Average Maturity 368 days
Total
ReturnInvestment
Investment Par Amount
Purchase
Date
APPENDIX
Maturity
Date
Yield to
Maturity
Total
Return
Purchase
Date
Maturity
DatePar Amount
Yield to
Maturity
6
Quarterly Investment Report City of Colleyville, TX 9/30/2019
Full Investment Listing
Purchase
Price
FHLMC NOTE(3137EADM8)997,300$ 9/14/2017 10/2/2019 1.25%25,616$
FHLMC NOTE(3137EADM8)897,570$ 10/13/2017 10/2/2019 1.25%22,161$
FHLB NOTE(3130ACLS1)2,200,000$ 10/26/2017 10/11/2019 1.55%66,799$
FFCB NOTE(3133EHP98)1,000,000$ 11/6/2017 11/6/2019 1.60%32,000$
FFCB NOTE(3133EHV75)749,711$ 12/8/2017 11/21/2019 1.73%25,346$
FFCB NOTE(3133EGJ30)1,238,775$ 12/29/2017 11/18/2019 1.11%26,059$
FFCB NOTE(3133EJCN7)1,000,000$ 2/14/2018 2/14/2020 2.07%41,400$
FHLB NOTE(3130ADN32)997,834$ 3/7/2018 2/11/2020 2.13%41,103$
Brokered CD: FDIC 7213 248,000$ 3/29/2018 3/30/2020 2.50%12,434$
FFCB NOTE(3133EJHL6)1,001,430$ 4/9/2018 3/27/2020 2.30%45,244$
Brokered CD: FDIC 33124 248,000$ 4/11/2018 4/13/2020 2.55%12,700$
Brokered CD: FDIC 26610 248,000$ 9/14/2018 3/16/2020 2.55%9,512$
FHLB NOTE (313383HU8)500,159$ 8/16/2019 6/12/2020 1.75%7,216$
Brokered CD: FDIC 16022 249,675$ 9/18/2019 9/11/2020 1.75%4,297$
CDARS (Worthington Bank)1,575,617$ 9/18/2019 9/17/2020 1.80%28,361$
Brokered CD: FDIC 16571 247,000$ 9/19/2019 10/20/2020 1.80%4,836$
Brokered CD: FDIC 35141 247,000$ 9/19/2019 10/27/2020 1.85%5,058$
Brokered CD: FDIC 32992 245,000$ 9/19/2019 9/25/2020 1.80%4,495$
Brokered CD: FDIC 34221 245,000$ 9/19/2019 9/25/2020 1.80%4,495$
Brokered CD: FDIC 34775 245,000$ 9/19/2019 9/25/2020 1.85%4,619$
Brokered CD: FDIC 2270 247,000$ 9/19/2019 12/24/2020 1.80%5,628$
14,628,070$ 1.73%429,378$
Weighted Average Maturity 143 days
APPENDIX
Investment
Purchase
Date
Maturity
Date
Yield to
Maturity Total Return
7
Quarterly Investment Report City of Colleyville, TX 9/30/2019
Mark-to-Market
6/30/2019 9/30/2019
Market Value Market Value
FHLMC NOTE(3137EADM8)997,300$ 997,575$ 999,970$ 2,669$
FHLMC NOTE(3137EADM8)897,570$ 897,817$ 899,973$ 2,402$
FHLB NOTE(3130ACLS1)2,200,000$ 2,195,729$ 2,199,822$ (178)$
FFCB NOTE(3133EHP98)1,000,000$ 998,381$ 999,791$ (209)$
FFCB NOTE(3133EHV75)749,711$ 749,155$ 749,914$ 203$
FFCB NOTE(3133EGJ30)1,238,775$ 1,250,494$ 1,253,715$ 14,940$
FFCB NOTE(3133EJCN7)1,000,000$ 1,000,357$ 1,000,865$ 865$
FHLB NOTE(3130ADN32)997,834$ 1,000,415$ 1,000,724$ 2,890$
Brokered CD: FDIC 7213 248,000$ 248,588$ 248,822$ 822$
FFCB NOTE(3133EJHL6)1,001,430$ 1,002,862$ 1,002,718$ 1,288$
Brokered CD: FDIC 33124 248,000$ 248,716$ 248,944$ 944$
Brokered CD: FDIC 26610 248,000$ 248,661$ 248,801$ 801$
FHLB NOTE (313383HU8)500,159$ N/A 499,642$ (516)$
Brokered CD: FDIC 16022 249,675$ N/A 249,625$ (50)$
CDARS (Worthington Bank)1,575,617$ N/A 1,575,617$ -$
Brokered CD: FDIC 16571 247,000$ N/A 247,000$ -$
Brokered CD: FDIC 35141 247,000$ N/A 247,133$ 133$
Brokered CD: FDIC 32992 245,000$ N/A 245,000$ -$
Brokered CD: FDIC 34221 245,000$ N/A 245,000$ -$
Brokered CD: FDIC 34775 245,000$ N/A 245,120$ 120$
Brokered CD: FDIC 2270 247,000$ N/A 247,002$ 2$
14,628,070$ 10,838,751$ 14,655,197$ 27,127$
Note about mark-to-market: This analysis takes a snapshot look at each of the securities Colleyville
holds and values them based on what the market would pay for them today. An unrealized gain in
market value would indicate the security's value has gone up since the last mark-to-market, and an
unrealized loss would indicate the value has gone down. However, the City of Colleyville's strategy is
to buy securities and hold them to maturity to receive the agreed-upon interest payments (known as
"buy and hold"). Therefore, any change in market value will not be realized by the City. The primary
purpose of this analysis, as required by the Public Funds Investment Act, is to demonstrate the
current market value of the City's portfolio should we need to liquidate it in the case of an emergency.
This scenario is extremely unlikely, given the prudence Colleyville's leaders have shown in their
financial decisions. It is important to remember this when looking at our quarterly mark-to-market
analysis.
APPENDIX
Investment Purchase Price
Unrealized
Gain/(Loss)
since
Purchase
8
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 11/19/2019 Number
Type Presentation
Department Finance
Title
Investment Policy Update
Explanation
The Public Funds Investment Act requires that the governing body of a public
entity review the investment strategy and adopt a written instrument by
resolution stating that it has reviewed the investment policy and investment
strategies.
The attached documents detail the proposed updated policy and strategies as well
as a redlined version showing all changes.
Attachments
1.Investment Policy 2019 Final
2.Investment Policy Redline
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 a reasonable market rate of return commensurate
with the City’s investment risk constraints 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 (PFIA), 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 among a variety of
investment types 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.
Yield: The investment portfolio shall be designed with the objective of
obtaining a reasonable market rate of return throughout budgetary and
economic cycles within the parameters imposed by its safety and liquidity
objectives, investment strategies, and state and local law. The weighted
average return on thirteen-week Treasury bills is considered a benchmark for
riskless investment transactions, and therefore, is a minimum standard for
the portfolio's rate of return.
Delegation of Authority
The City designates the Investment Officers to be the Director of Finance, with
overall responsibilities to see that investment objectives are accomplished,
and the 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. Investment Officers shall disclose to the City
Council 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 PFIA, 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.
Investment Officers shall notify the City Council in writing of any conflicts of
interest, as defined by PFIA, no later than the next regularly scheduled Council
meeting.
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.
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.
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 shall be personally indemnified in the event of
investment loss provided the Investment Policy is followed.
Internal Controls
The Director of Finance and Accounting Manager shall establish a system of
written internal controls which shall be reviewed by an independent auditor in
conjunction with the annual financial audit. The controls shall be designed to
prevent the loss of public funds due to fraud, error, misrepresentation,
unanticipated market changes or imprudent actions.
Authorized Investments
The following is the list of authorized investments permitted for the City:
1. Obligations, including letters of credit, of the United States or its
agencies or instrumentalities, including the Federal Home Loan Banks;
2. Direct obligations of the State of Texas or its agencies;
3. Other obligations, the principal and interest of 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, and other forms of deposit, placed with a financial
institution that has its main office or branch office in Texas that is:
a. Guaranteed or insured by the Federal Deposit Insurance
Corporation, or its successors;
b. Secured by obligations in any manner and amount provided
by law for deposits of the City; or
c. is placed in compliance with the requirements of PFIA.
6.AAA-rated Texas local government investment pools as authorized by
PFIA. Participation in any pool must be authorized by resolution of the
City Council. Pools investing in commercial paper are permissible up to
5% of total pool investments.
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 cash or 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 whose assets
generally consist of United States Government Securities or obligations
backed by that security-type, and whose investment objectives include
seeking to maintain a stable net asset value of $1.0000 per share.
Investment in mutual funds shall be limited as per PFIA.
The City is not required to liquidate an investment that was authorized at the
time of its purchase.
Prohibited Investments
The following securities, although authorized by PFIA, 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 as described above.
6. 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 Officers 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. In accordance with PFIA, the
Investment Officers shall monitor rating changes in current investments on a
periodic basis.
Investment Strategies
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 twelve 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. More restrictive provisions
contained in the bond documents will supersede provisions of this Policy.
Weighted average maturity shall be in compliance with bond requirements, as
stated.
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.
Reserve funds may be subject to arbitrage rebate rules requiring refunding of
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.
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 across various maturities.
Diversification of Portfolio by Instrument 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)75%
Local Government Investment Pools 75%
Repurchase Agreements 75%
SEC registered, no-load money market mutual funds 10%
Investment Procedures
The City shall enter the following agreements (if applicable): safekeeping,
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.
In order to create a competitive pricing environment for each investment
transaction, the City shall solicit quotations from multiple investment
providers, authorized broker/dealers or financial institutions, as applicable.
Records will be kept of the quotes offered, transactions accepted, and a brief
explanation of the decision that was made regarding the investment. Money
market mutual fund, money market account and local government investment
pool risk/returns shall also be periodically compared to ensure competitive
performance.
Qualified Broker/Dealers
Annually, the City Council shall review and approve a list of qualified
broker/dealers authorized to engage in investment transactions with the City.
All firms shall answer and submit a Broker/Dealer questionnaire to the City for
evaluation. All personnel in the firms who will be trading or quoting securities
to the City Council must maintain a current Financial Industry Regulatory
Authority (FINRA) license and be registered to deal securities in the State of
Texas. Broker/dealers eligible to transact investment business with the City
shall be presented a written copy of this Investment Policy.
Certification of Business Organizations
The registered principal of any investment pool or discretionary investment
manager seeking to transact investment business with the City shall execute
a written instrument substantially to the effect that the registered principal
has:
• received and reviewed this Investment Policy, and
• acknowledged that the organization has implemented reasonable
procedures and controls in an effort to preclude imprudent investment
activities with the City except to the extent that the authorization is
dependent on an analysis of the makeup of the City’s entire portfolio or
requires interpretation of subjective investment standards, or relates to
investment transactions of the City that are not made through accounts or
other contractual arrangements over which the business organization has
accepted discretionary investment authority.
The City shall not enter into an investment transaction with a pool or
discretionary investment manager prior to receiving the written instrument
described above.
Safekeeping
All marketable securities purchased by the City shall be held in a third party
safekeeping institution. All securities will be settled on a delivery versus
payment basis whereby the third party safekeeping institution will verify the
correct security was delivered by the seller prior to releasing payment for the
security. The third party safekeeping institution shall issue a safekeeping
receipt to the City listing the specific instrument, rate/yield, maturity, CUSIP,
and other pertinent information. The securities will be held in an account in
the City’s name as evidenced by the safekeeping receipts.
Securities pledged as collateral on deposits which exceed the FDIC coverage
shall be held by a third party custodial institution designated by the City and
held in an account in the City’s name. A collateral agreement shall be
executed between the City and the third party custodian of the collateral.
Collateralization
Financial institutions serving as City depositories will be required to sign a
depository agreement with the City. The collateralized deposit portion of the
agreement shall define the City’s rights to the collateral in case of default,
bankruptcy, or closing and shall establish a perfected security interest in
compliance with Federal and State regulations, including:
The agreement must be in writing;
The agreement must be executed by the depository and the City
contemporaneously with the acquisition of the asset;
The agreement must be approved by the Board of Directors or
designated committee of the depository and a copy of the meeting
minutes must be delivered to the City; and
The agreement must be part of the depository’s “official record”
continuously since its execution.
The written agreement will specify the acceptable collateral, require
independent custodian of the collateral, only allow substitution of collateral of
equal or greater value than the collateral being substituted, and require City
approval before release of collateral.
A clearly marked evidence of pledge must be supplied to the City and retained
by the Investment Officers. A monthly collateral report provided by the
custodian shall be reviewed by the Investment Officers to assure that the
market value of the pledged securities is adequate.
For financial institution deposits, the market value of securities pledged as
collateral for deposits must at all times be equal to or greater than 105% of
the par value of the deposit plus accrued interest less the amount insured by
the Federal Deposit Insurance Corporation (FDIC), or its successors. The
depository shall be liable for monitoring and maintaining the collateral and
collateral margins at all times. The Public Funds Collateral Act defines the
eligible pledge securities - subject to the City’s sole right to accept or reject
any proposed security as collateral.
Letters of credit pledged as collateral shall at all times be equal to the total
value of the deposits plus accrued interest less the applicable level of FDIC
insurance.
If the value of the securities pledged falls below the required collateral level,
the financial institution must pledge additional securities no later than the end
of the next succeeding business day.
Selection of Primary Depository
A Primary Depository shall be selected through the City's banking services
procurement process, which shall include a formal request for application. In
selecting a Primary Depository, 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.
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 interest income earned on the investment of the funds and compare it
to the income 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.
Investment of bond fund proceeds which fall under the arbitrage provisions of
the Tax Reform Act of 1986, will be made with safety of principal and liquidity
in mind, but will attempt to earn a competitive rate of return utilizing
investments permitted by this Investment Policy.
Reporting Requirements
The Investment Officers 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. The report shall list for each investment
held during the quarter: the purchase price, the par value, the maturity date,
the market value at the beginning of the quarter, the market value at the end
of the quarter, and fully accrued interest for the period. The report shall be
signed by all Investment Officers for the City and state its compliance with
PFIA and the adopted Investment Policy strategy.
Monthly market pricing information is to be obtained through the use of
appropriate external third party software, third party safekeeping service
providers, or an independent pricing source.
“Weighted average yield to maturity” shall be the standard on which
investment performance is calculated.
The quarterly investment reports must be reviewed annually by the
independent auditor, as a part of the City’s annual audit, and the result of the
review shall be reported to the City Council by that auditor.
Training Requirements
The City shall provide investment training as required by PFIA to ensure the
quality and capability of investment management.
In accordance with PFIA, the Investment Officers shall accumulate 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.
This training may be obtained from the following sources: North Central Texas
Council of Governments, Government Treasurers’ Organization of Texas,
Government Finance Officers Association 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 PFIA.
Annual Review
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 adopted any changes to either the Policy or strategy.
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.
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 $250,000 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 liquify 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.
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 investmenta reasonable market rate of
return commensurate with the the City’s investment risk constraintsmaximum
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 (PFIA), Chapter 2256 of the Government Code and City
ordinances.
Scope
This iInvestment pPolicy 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 returnsinvestment types 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 InvestmentsYield: The investment portfolio shall be designed with
the objective of obtaining a reasonable market rate of return throughout
budgetary and economic cycles, commensurate with the investment risk
constraints and cash flow needswithin the parameters imposed by its safety
and liquidity objectives, investment strategies, and state and local law. 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 ManagerDirector of
Finance, 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 iInvestment 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 Investment Officers shall disclose
to the City of ColleyvilleCouncil 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 ActPFIA, 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.
Investment oOfficers shall notify the City Council in writing of any conflicts of
interest, as defined by the Public Funds Investment ActPFIA, no later than the
next regularly scheduled Council meeting.
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 oOfficers 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 Director of FinanceChief Financial Officer and Accounting Manager shall
establish a system of written internal controls which shall be reviewed
annually by the an independent auditor in conjunction with the annual financial
audit. 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
Authorized Investments
The following is athe list of permissible instruments as authorized investments
permitted for the City 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, including letters of credit, of the United States or its
agencies or instrumentalities, including the Federal Home Loan Banks;
2. Direct obligations of the State of Texas or its agencies;
3. Other obligations, the principal of and interest on of 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, and other forms of deposit, issued byplaced with
a state and national depositoryfinancial institutions that have has its
main office or branch office in this stateTexas that areis:
a. a. Guaranteed or insured by the Federal Deposit Insurance
Corporation, FSLIC or its successors; or
b. 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 entitiesCity; or
c. is placed in compliance with the requirements of PFIA.
6. AAA-rated Texas Invest in a llocal government investment pools 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 amendedPFIA. Participation in
any pool must be authorized by resolution of the City Council. Pools
investing in commercial paper are permissible up to 5% of total pool
investments.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 cash or 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 generally
consist exclusively of United States Government Securities or
obligations backed by that security-type, and whose investment
objectives include seeking to maintain a stable net asset value of
$1.0000 per share. Investment in mutual funds shall be limited as per
PFIAto 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 Prohibited Investment Instruments
The following securities, although authorized by the Public Funds Investment
ActPFIA, are not eligible investments for the City:
1. Collateralized mortgage obligations and/or obligations of the
following structure
a. 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. b) obligations whose payment represents the principal
stream of cash flow from the underlying mortgage-backed
security collateral and bears no interest;
c. c) collateralized mortgage obligations that have a stated
final maturity date of greater than 10 years; and
d. 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 as described abovewith 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 $1.0000 per share.
6. Guaranteed investment contracts[RL1]
67. 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 Officers shall take all prudent measures that
are consistent with the City’s iInvestment pPolicy to liquidate the
investment(s) that does not have the minimum rating (2256.021). In
accordance with Section (2256.005(b))PFIA, the Investment Officers shall
monitor rating changes in current investments by keepingon a monthly
periodic record of ratings issued by three nationally recognized rating
agenciesbasis.
Investment StrategyStrategies
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 twelve 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. More restrictive
Pprovisions contained in the bond documents will supersede provisions of this
pPolicy. Weighted average maturity shall be in compliance with bond
requirements, as stated.
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.
Reserve funds will be invested using a more conservative approach than the
current standard investment strategy whenmay be subject to arbitrage rebate
rules require requiring refunding of 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 cCity’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 across various maturities.
Diversification of Portfolio 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 s 75%
Certificate of Deposit Account Registry Service (CDARS) 75%
Tri-Party Repurchase Agreements 75%
SEC registered, no-load money market mutual funds
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.
In order to create a competitive pricing environment for each investment
transaction, the City shall solicit quotations from multiple investment
providers, authorized broker/dealers or financial institutions, as applicableOn
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 quotes offered, bids
transactions accepted, and a brief explanation of the decision that was made
regarding the investment. Money market mutual fund, money market account
and, local government investment pool risk/returns shall also be periodically
compared to ensure competitive performance.
Qualified Institutions Broker/Dealers
Annually, the City Council shall review and approve four financial institutions
for investment purposesa list of qualified broker/dealers as recommended by
the Chief Financial Officerauthorized to engage in investment transactions with
the City. All firms shall answer and submit the a 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
NASDFinancial Industry Regulatory Authority (FINRA) 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. Broker/dealers eligible to transact investment
business with the City shall be presented a written copy of this Investment
Policy.
Certification of Business Organizations
The registered principal of any investment pool or discretionary investment
manager seeking to transact investment business with the City shall execute
a written instrument substantially to the effect that the registered principal
has:
• received and reviewed this Investment Policy, and
• acknowledged that the organization has implemented reasonable
procedures and controls in an effort to preclude imprudent investment
activities with the City except to the extent that the authorization is dependent
on an analysis of the makeup of the City’s entire portfolio or requires
interpretation of subjective investment standards, or relates to investment
transactions of the City that are not made through accounts or other
contractual arrangements over which the business organization has accepted
discretionary investment authority.
The City shall not enter into an investment transaction with a pool or
discretionary investment manager prior to receiving the written instrument
described above.
Safekeeping
All marketable securities purchased by the City shall be held in a third party
safekeeping institution approved by the Cityby[KL2] an institution designated
as primary agent. All securities will be settled on a delivery versus payment
basis whereby be delivered to the third party safekeeping institution by seller.
Personnel in the third party institution will verify the correct security was
delivered by the seller prior to releasing payment for the security ("delivery
vs payment"). The third party safekeeping institution shall issue a
safekeeping receipt to the City listing the specific instrument, rate/yield,
maturity, CUSIP, and other pertinent information. The securities will be held
in an account in the City’s name as evidenced by the safekeeping receipts.
Collateral Securities pledged as collateral on deposits type securities which
exceed the FDIC coverage shall be held in by a third party safekeeping
custodial institution designated by the City and held in an account in the City’s
name. In the event a third party safekeeping institution is used, aA 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.
Collateralization
Financial institutions serving as City depositories will be required to sign a
depository agreement with the City. The collateralized deposit portion of the
agreement shall define the City’s rights to the collateral in case of default,
bankruptcy, or closing and shall establish a perfected security interest in
compliance with Federal and State regulations, including:
• The agreement must be in writing;
• The agreement must be executed by the depository and the City
contemporaneously with the acquisition of the asset;
• The agreement must be approved by the Board of Directors or
designated committee of the depository and a copy of the meeting
minutes must be delivered to the City; and
• The agreement must be part of the depository’s “official record”
continuously since its execution.
The written agreement will specify the acceptable collateral, require
independent custodian of the collateral, only allow substitution of collateral of
equal or greater value than the collateral being substituted, and require City
approval before release of collateral.
A clearly marked evidence of pledge must be supplied to the City and retained
by the Investment Officers. A monthly collateral report provided by the
custodian shall be reviewed by the Investment Officers to assure that the
market value of the pledged securities is adequate.
For financial institution deposits, the market value of securities pledged as
collateral for deposits must at all times be equal to or greater than 105% of
the par value of the deposit plus accrued interest less the amount insured by
the Federal Deposit Insurance Corporation (FDIC), or its successors. The
depository shall be liable for monitoring and maintaining the collateral and
collateral margins at all times. The Public Funds Collateral Act defines the
eligible pledge securities - subject to the City’s sole right to accept or reject
any proposed security as collateral.
Letters of credit pledged as collateral shall at all times be equal to the total
value of the deposits plus accrued interest less the applicable level of FDIC
insurance.
If the value of the securities pledged falls below the required collateral level,
the financial institution must pledge additional securities no later than the end
of the next succeeding business day.
Selection of Primary DepositoryFinancial Institutions
A Primary Depositoryies shall be selected through the City's banking services
procurement process, which shall include a formal request for application. In
selecting a Primary Depositorydepositories, 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 interest income earned on the investment of the funds and
compare it to the yield income 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 iInvestment strategy forof bond fund proceeds which fall under the
arbitrage provisions of the Tax Reform Act of 1986, is that the City will be
made with safety of principal and liquidity in mind, but will attempt to earn
maximum allowable bond yield with ma competitive rate of return utilizing
investments permitted by this Investment Policyarket conditions permitting.
Reporting Requirements
The Chief Financial Officer and Accounting ManagerInvestment Officers 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
maturity date, the market value of the investment at the beginning of the
quarter, the market value of the investment at the end of the quarter, and
fully accrued interest for the period. The report shall be signed by all
Investment Officers for the City and state its compliance with PFIA and the
adopted Investment Policy strategy.
The portfolio shall be marked to market mMonthly and market pricing
information is to be obtained through the use of appropriate external third
party software, third party safekeeping service providers, or an third party
independent pricing servicesource. 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.
“Weighted average yield to maturity” shall be the standard on which
investment performance is calculated.
The quarterly investment reports must be reviewed annually by the City’s
externalthe independent auditor, firm as a part of the City’s annual audit, and
the result of the review shall be reported to the City Council by that auditor.
Training Requirements
The City shall provide investment training as required by PFIA to ensure the
quality and capability of investment management.
In accordance with the Act (2256.005 and 2256.008)PFIA, the Chief Financial
Officer and Accounting ManagerInvestment Officers shall attend accumulate
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 Association 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 ActPFIA.
Annual Review
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 recordadopted any changes to either the pPolicy or
strategy.
GLOSSARY[RL3]
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 $100250,000 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 liquify 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.