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HomeMy WebLinkAboutColleyville Economic Development Corporation (CEDC) Resolutions (R-12-120)-08/28/2012RESOLUTION R-12-120 A RESOLUTION REPLACING RESOWTION R-03-59 TO UPDATE THE COLLEYVILLE ECONOMIC DEVELOPMENT CORPORATION'S ~ INVESTMENT WHEREAS, a review of the Colleyville Economic Development Corporation's ; investment policy necessitates an update of the Colleyville Economic Development Corporation's investment policy as adopted by Resolution R-96-04 and amended by Resolution R- 98-26, Resolution R-00-41, and Resolution R-03-59. NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE COLLEYVILLE ECONOMIC DEVELOPMENT CORPORATION: Sec. 1. THAT "Exhibit A" of this resolution is adopted as the Colleyville Economic Development Corporation's Investment Policy. Sec. 2. THAT this resolution shall become effective on the date of passage. AND IT IS SO RESOLVED. PASSED AND ADOPTED, THIS August 28, 2012. COLLEYVILLE ECONOMIC DEVELOPMENT CORPORATION David Kelly President /~ / ./ /~C• ~ ~J ~Cynthia Singleton, TRMC, CM City Secretary Exhibit A COLLEYVILLE ECONOMIC DEVELOPMENT CORPORATION INVESTMENT POLICY Policy It is the policy of the Colleyville Economic Development Corporation (the Corporation) to invest public funds in a manner which will provide the highest investment return with the maximum security while meeting the daily cash flow demands of the entity and conforming to all State of Texas statutes and City ordinances. Scope This investment policy applies to all financial assets of the Corporation including: General Fund Debt Service Fund Capital Projects Fund and any new fund created by the governing body, unless specifically exempted by the governing body. Objectives The primary objectives, in priority order, of the Corporation's investment activities shall be: Safety: Safety of principal is the foremost objective of the Corporation in managing its portfolio. Investments of the Corporation shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective the Corporation will diversify its investments by investing funds among a variety of securities offering independent returns and financial institutions. The Corporation will also take into account the marketability of the investment if the need arises to liquidate the investment before maturity. Liquidity: The Corporation 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 Corporation 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 Corporation will attempt to earn allowable bond yield with market conditions permitting. Delegation of Authority The Corporation designates the Investment Officers to be the Corporation Manager with overall responsibilities to see that investment objectives are accomplished and the Finance Manager of the Corporation and Finance Manager of the City of Colleyville with the specific day-to-day performance of managing the funds of the Corporation. 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 Colleyville Economic Development Corporation 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 Corporation. Prudence Investments shall be made with judgment 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 Corporation in writing of any conflicts of interest, as defined by the Public Funds Investment Act, no later than the next regularly scheduled Board meeting. It is the policy of the Corporation that the Investment Officers perform their duties in accordance with the policies and procedures set forth in this policy. The Investment Officers of the Corporation (General Manager and Finance Manager and the Finance Manager of the City of Colleyville) shall be personally indemnified in the event of investment loss provided the Investment Policy is followed. Internal Controls The Finance 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 instrumenta~ities; 4. Obligations of states, agencies, counties, cities, and other political subdivisions of any state having been rated as to investment quality by nationally recognized investment rating firm and having received a rating of not less than "A" or its equivalent; 5. Certificates of deposit issued by state and national banks and domiciled in the state that are: a.Guaranteed or insured by the Federal Deposit Insurance 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 as defined in the Public Funds Investment Act; b. The investment pool maintains a AAA rating by one of the nationally recognized rating agencies; c. The investment pool's maximum average dollar weighted maturity does not exceed 90 days; and d. The investment pool's continued compliance with the remaining provisions of the Public Funds Investment Act. e. The eligible investments of the pool are as follows: obligations of the United States or its agencies and instrumentalities, other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the United States, fully collateralized repurchase agreements with a defined termination date secured by obligations of the United States or its agencies and instrumentalities, other obligations, the principal of and interest on which are unconditionally guaranteed or insured by the United States, and SEC registered money market funds authorized by the Public Funds Investment Act and rated in the highest category by at least one nationally recognized rating agency, reverse repurchase agreements with a term of no longer than 90 days. f. Include in its investment policy and/or operating procedures the following information: a description of eligible investment securities and unacceptable investments, a written statement on investment policy and objectives, a description of interest calculations, distribution, and treatment of gains and losses, security safeguarding, valuation collateralization and auditing, and a fee 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 Corporation, 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 Corporation's available funds. The Corporation 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 Corporation: 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 Corporation 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 Corporation'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. 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 Board of the Corporation shall formally review the Investment Policy and investment strategy contained with the Policy and record in writing that is has reviewed the Policy and record any changes to either the policy or strategy. A. Diversification The Corporation will attempt to limit the risk of loss through diversification of its portfolio and to achieve the aforementioned investment strategies by diversification of instruments. Maximum Diversification by Instrument U.S. Treasury Obligations (Bills, Notes and Bonds), U.S. Government Agency Securities, and Instrumentalities of Government Sponsored Corporations Certificates of Deposit (CD's) Commercial Bank's Local Government Investment Pool Tri-Party Repurchase Agreement SEC registered, no-load mutual fund Investment Procedures Percent of Portfolio 100% 75% 75% 75% 75% 10% The Corporation 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, orai bids shail be requested from at least two broker/dealers or national banks. The Corporation 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 As the Corporations investments are managed by the investment officers of the City of Colleyville, the Corporation shall utilize the broker/dealers selected by the City of Colleyville. All firms shall answer the Broker/Dealer questionnaire (Appendix A) and submit their most recent audited financial statements to the City for evaluation of credit worthiness. All personnel in the firms who will be trading or quoting securities to the Corporation 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 Corporation. Safekeeping All marketable securities purchased by the Corporation 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 Corporation 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 Corporation, depository which pledged the collateral, and the third party custodian of the collateral. The Corporation will retain possession of all original safekeeping receipts and the receipts will state the security is pledged to the Corporation. Either the Corporation Manager or the Finance Manager must approve release of collateral in writing prior to its removal from the safekeeping account. Collateral Securities for Certificates of Deposit and Demand Accounts The Corporation 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, and Standard and Poor's. F. Surety Bond G. Federal Home Loan Bank Letter of Credit issued to the Corporation 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 Corporation's Certificates of Deposit and demand deposits. Form of Collateral Pledged Collateral 1. U.S. Treasury bills, notes, and bonds a. maturing within 1 year b. maturing in 1-5 years c. maturing in more than 5 years 2. Actively traded U.S. Government Agency securities a. maturing in less than 1 year b. maturing in 1-5 years c. maturing in more than 5 years Ratio 102% 105% 110% 103% 107% 115% 3. GNMA mortgage pass through securities 115% 4. Entities in the State of Texas bonds General Obligation Bonds a. maturing in less than 1 year 102% b. maturing in 1-5 years 105% c. maturing in more than 5 years 107% Revenue Bonds a. maturing in less than 1 year 105% b. maturing in 1-5 years 110% c. maturing in more than 5 years 115% Collateral shall be audited annually be the Corporation's independent auditor and may be audited by the Corporation at anytime during normal business hours of the safekeeping bank. Arbitrage The Tax Reform Act of 1986 places limitations on the Corporation's yield from investing certain tax-exempt bond proceeds, debt service funds and reserve funds. The rebate provisions require that the Corporation compute earnings on investments from certain issues of bonds on a periodic basis to determine if rebate is required. To determine the Corporation's arbitrage position, the Corporation 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 Corporation. 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 Corporation 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 Corporation will attempt to earn maximum allowable bond yield with market conditions permitting. Reporting Requirements Included as a part of the City of Colleyville's quarterly investment report, Finance Manager shall issue a written report concerning the Corporation's investment transactions for the preceding quarter and describing in detail the investment position of the Corporation 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 state its compliance with provisions of the Public Funds Investment Act, as amended, and adopted investment policy strategy. The report shall be signed by the General Manager and Finance Manager and be reviewed annually by the City of Colleyville's external audit firm as a part of the City of Colleyville's and Colleyville Economic Development Corporation's annual audit and reported to the City Council. Training Requirements In accordance with the Act (2256.005 and 2256.008), the Finance Manager and Finance Manager of the City of Colleyville shall attend 10 hours of investment training within 12 months of assuming duties and 10 hours not less than once in a two-year period that begins on the first day of the Corporation'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 Treasurer's Organization of Texas, Government Finance Officer's of Texas, Texas Municipal League or the University of North Texas Center for Public Management. 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.