Loading...
HomeMy WebLinkAboutRes 2023-08-1524 Revisions to Investment PolicyCITY OF ANNA, TEXAS RESOLUTION NO. 2Q,23- 08 - 1 52L1 A RESOLUTION REVIEWING AND AMENDING THE INVESTMENT POLICY OF THE CITY OF ANNA. WHEREAS, the City of Anna, Texas ("the City") is committed to principles and practices of open and fair government that honors the public trust; and WHEREAS, the City of Anna, Texas City Council ("City Council") has determined that it is in the interests of the citizens of Anna to adopt an Investment Policy that establishes policies and procedures to govern the management and care of public funds: and WHEREAS, the Public Funds Investment Act ("the Act") requires annual review of the City's Investment Policy; and WHEREAS, the most recent annual review of the City's Investment Policy has prompted an amendment to the existing policy attached hereto as Exhibit 1; NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ANNA, TEXAS, THAT: Section 1. Recitals Incorporated. The above -referenced recitals are incorporated herein as if set forth in full for all purposes. Section 2. Investment Policy Reviewed The City Council has reviewed the City's Investment Policy and investment strategies and approves the amended Investment Policy attached hereto as Exhibit 1. PASSED by the City Council of the City of Anna, Texas, on this the 22"d day of August, 2023. City of Anna, Texas Investment Policy THE CITY OF August 220ewber -, 20232 TABLE OF CONTENTS I. Policy..........................................................................................................................3 ILScope .........................................................................................................................3 III. Investment Objective and Strategy............................................................................4 A. Preservation and Safety of Principal.....................................................................4 B. Liquidity.................................................................................................................4 C. Public Trust...........................................................................................................4 D. Yield......................................................................................................................5 E. Strategy................................................................................................................5 IV. Standards of Care......................................................................................................7 A. Prudence..............................................................................................................7 B. Ethics and Conflict of Interest.. ................................................ 7 C. Delegation of Authority.........................................................................................8 D. Internal Control.....................................................................................................8 V. Authorized Investments and Parameters...................................................................9 A. Authorized Investments........................................................................................9 B. Prohibited Investments.......................................................................................10 C. Investments with Required Ratings....................................................................10 D. Exemption for Existing Investments....................................................................10 VI. Primary Depository and Broker/Dealers...................................................................10 A. Primary Depository.............................................................................................10 B. Authorized Broker/Dealers..................................................................................10 C. Competitive Environment...................................................................................11 D. Delivery versus Payment....................................................................................11 E. Investment Policy Certification............................................................................11 VII. Safekeeping and Custody.......................................................................................11 A. Safekeeping and Custodial Agreements............................................................11 B. Collateral Policy..................................................................................................11 VIII. Reporting.................................................................................................................12 A. Reporting Method...............................................................................................12 B. Compliance Audits..............................................................................................13 IX. Investment Policy and Adoption...............................................................................13 2 1 P a g e INVESTMENT POLICY POLICY The City will conform to all federal, state, and local statutes, rules, and regulations governing the linvestment Ppolicy of the City of Anna (the "City"). It is the City's policy to administer and invest its funds in a manner that will preserve the principal, maintain liquidity, and optimize earnings while meeting the daily cash flow requirements efthe of the City and the guidelines to be followed in achieving its objectives. The City's policy is to hold investments to maturity; however, securities may be sold in order to minimize the potential loss of principal and interest whose credit quality has declined; or to meet unanticipated liquidity needs of the City. The Ppolicy and strategy shall be reviewed by the Investment Committee and City Council at least annually. Any modifications will be formally approved by the City Council. The (investment Ppolicy, as approved, is in compliance with the provisions of the Public Funds Investment Act of the Texas Government Code Chapter 2256 the "PFIA" . The linvestment ?policy addresses the methods, procedures and practices that must be exercised to ensure effective and judicious fiscal management of the City's funds. II. SCOPE This policy applies to all financial assets and investment activities of all current funds of the City end any new funds created in the future, unless specifically exempt or excluded hereafter, will be administered in accordance with the objectives and restrictions set forth in this Investment Policy. These funds are accounted for in the City's Annual Comprehensive Ann, -al Report and includea General Fund, Special Revenue Funds, Grant Funds, Debt Service Funds, Capital Project Funds, Enterprise Funds, Trust Funds, and the City's component units. This policy does not apply to the assets administered for the benefit of the City by outside agencies under deferred compensation programs, retirement programs, or defeased bonds held in trust escrow accounts. Except for cash in certain restricted and special funds, the City-ef-ApAa will combine cash balances from all funds in a pooled fund group to maximize investment earnings. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. In addition, all the bond fund proceeds (to include capital projects, debt service and reserve funds) will be managed by the governing debt ordinance and the provisions of the Internal Revenue Code -ef18666 applicable to the issuance of tax-exempt obligations and the investment of debt proceeds. 3 1 P a g e III. INVESTMENT OBJECTIVE AND STRATEGY The primary objectives of the City ef�rAnnc^is investment activities, listed in priority order, shall be as follows: A. Preservation and Safety of Principal Preservation and safety of principal is the foremost objective of the City. Each investment transaction shall seek first to ensure that capital losses are avoided, whether they are from issuer defaults, erosion of market value, or other risks. The objectives will be to mitigate credit and interest rate risk. i. Credit Risk and Concentration of Credit Risk — The City will minimize credit risk, which is the risk of loss due to the failure of the sesur+ty issuer or backer, and concentration of credit risk, the risk of loss attributed to the magnitude of investment in a single issuer, by: • Limiting investments to the types listed in safest types of investments, • Pre -qualifying the financial institutions, broker/dealers, intermediaries, and advisers with which the City will do business, and • Diversifying the investment portfolio so that potential losses on individual securities will be minimized, as appropriate. ii. Interest Rate Risk — The City will minimize interest rate risk, which is the risk that the market value of securities in the portfolio will fall due to changes in market interest rates, by: • Limiting investments to the safest types of investments, I'''mitiRg maximum weighted average maturity of the ' ecfmono portf8il6-t9 36d days, • Structure the investment portfolio so that investments mature to meet cash requirements for ongoing operations, thereby avoiding the need to liquidate investments prior to maturity, and • Diversify maturities and staggering purchase dates to minimize the impact of market movements over time. B. Liquidity The City's investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements that can be reasonably anticipated. This is accomplished by structuring the portfolio so that securities investments mature concurrent with cash needs to meet anticipated demands. Furthermore, since all possible cash demand cannot be anticipated, a portion of the portfolio will be invested in money market funds that eel, . table $1 nn NAV or local government investment pools that offer same -day liquidity and seek a stable $1.0000 NAV for short-term needs. 4 1 P a g e C. Public Trust All employees involved in the City's investment program shall seek to act responsibly as custodians of the public trust. Investment Officers shall at all times be cognizant of the standard of care and investment objectives and shall avoid any transaction that might impair public confidence in the City's ability to govern effectively. D. Yield The investment portfolio of the City shall be designed to attain a market rate of return throughout budgetary and economic cycles taking into account risk constraints and liquidity needs. Return on investment, while important, is of less importance than safety and liquidity. The investment portfolio shall be designed with the objective of regularly exceeding the average rate of return on a rolling six- month U.S. Treasury Bill average yield. Funds held for future capital projects will be invested in sesaraties investments that can reasonably be expected to produce enough income to offset inflationary costs increases. However, such funds will never be unduly exposed to market price risks that will jeopardize that asset's availability to accomplish their stated goal or be invested in a manner#eF inconsistent with applicable federal and state regulations. Yields on debt proceeds that are Piet exempt from federal arbitrage regulations are limited —subject to the arbitrage rebate regulationsI'meld of the debt ebliqati9R. The City will seek to preserve principal and Fna o to imize the yield of these funds in compliance with those regulations all etheFSity (cads. However, it is understood that if the yield achieved by the City is higher than the arbitrage yield, positive arbitrage ' positive aFbitfage-amounts shall be rebated to the federal government as required by current regulations. E. Strategy The City maintains pooled investments which are an aggregation of the majority of City funds including, but not limited to: tax receipts, enterprise funds, fine and fee revenues, special revenues, grants, and non -bond capital project funds._- This PoFtfe"e is ma nt;;inpd to meet AntiGipated daily Gash needs fer Gity eperatieRs and ensuFe adequate investmAnt liquidity; lifnit Fnarket and n_.M_d_it Fisk through 2Rd- rpstrontann.,; sat for thag PGIOGY. All investments will be of high quality with Re 1. Operating Funds- 51Page • Suitability - Any investment eligible in the Investment Policy is suitable for Operating Funds. managing the weighted average days to maturity for the Operating Fund's portfolio to less than 270 days and restricting the maximum allowable maturity to two years, the price volatility of the overall portfolio will be managed. and may be utilized as a competitive yield alternative to fixed maturity investments. • Marketability - Securities with active and efficient secondary markets are necessary in the event of an unanticipated cash flow requirement. • Diversification - Investment maturities should be staggered throughout the budget cycle to provide cash flow based on the anticipated operating needs of the City. Market cycle risk will be reduced by diversifying the appropriate maturity structure out through two years. • Yield - Attaining a competitive market yield for comparable investment - types and portfolio restrictions is the desired objective. The yield of an equally weighted, rolling six-month Treasury bill portfolio will be the ii. Debt Service Funds — • Suitability - Any investment eligible in the Investment Policy is suitable for the Debt Service Funds. • Safety of Principal - All investments shall be of high quality with no perceived default risk. Market price fluctuations may occur. However, by managing Debt Service Funds to not exceed the debt service payment schedule the market risk of the overall portfolio will be minimized. • Liquidity - Debt Service Funds have predictable payment schedules. Therefore, investment maturities should not exceed the anticipated cash flow requirements. Cash equivalent investments may provide a competitive yield alternative for short-term fixed maturity investments. • Marketability - Securities with active and efficient secondary markets are not necessary as the event of an unanticipated cash flow requirement is not probable. 6 1 P a g e • Diversification - Market conditions influence the attractiveness of fully extendinq maturity to the next "unfunded" payment date. Generally, if investment rates are anticipated to decrease over time, the City is best served by locking in most investments. If the interest rates are potentially rising, then investing in shorter and larger amounts may provide an advantage. At no time shall the debt service schedule be exceeded in an attempt to bolster yield. • Yield - Attaining a competitive market yield for comparable investment - types and portfolio restrictions is the desired objective. The yield of an have as :ram -eras: • . e e srrr MOM GR OR the Fequire SeGUFitiGS PLIFGhased- shall not have A stated final rnatuF' seFViGe dates will be .'RVenStP-d anreFding to the investment guideliRe operatiRg funds. Capital Proiect Funds. Special Purpose maximum maturity to two years and by managing the Capital Project Funds and Special Purpose Funds to balance the short term and long-term anticipated cash flow requirements, the market risk of the portfolio will be managed. • Liquidity - Selecting investment maturities that provide greater cash flow than the anticipated needs and maintaining appropriate cash -equivalent balances will reduce the liquidity risk of unanticipated expenditures. • Marketability - The uncertainly of Capital Project Funds and Special Purpose Funds outflows requires securities with active and efficient secondary markets. • Diversification - Investment maturities should blend the short-term and long- term cash flow needs to provide adequate liquidity, yield enhancement, and stability. • Yield - Attaining a competitive market yield for comparable investment - types and portfolio structures is the desired objective however this portfolio maintains an investment strategy is comply with any applicable arbitrage or yield restriction regulations. The ' ^^+.. ^^t ^h'^^*iVe Of ^ ^ital PFGjeG 4h e'er ^^4m^n4^ in highly liquid c r't'eG. The L^v 4n ^ ^fie^F6... Gtr-,4.,.,.. ^ f.. h.. RWAM Of .. eGt Reeds and .. RtAh .. RWNtieS tO the n r.rl Fu^r!c 7 1 P a g e IV. STANDARDS OF CARE A. Prudence The standard of prudence to be used by the Investment Oefficers shall be the "prudent person" rule. This rule states that "Investments shall be made with judgement and care, under prevailing circumstances then wMiskrthat a persons of prudence, discretion and intelligence exercise in the management of the# person's own affairs, not for speculation, but for investment, considering the probable safety of their capital ands weµas the probable income to be derived". The determination of whether an linvestmenting Oefficer has exercised prudence with respect to an investment decision shall be applied in the context of managing an overall portfolio rather than a consideration as to the prudence of a single transaction. Investment Oefficers acting in accordance with written procedures and this [investment Ppolicy and exercising due diligence shall be relieved of personal responsibility for an individual sesur+ty's-investment's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control unfavorable developments. B. Ethics and Conflict of Interest Each Investment Officer shall act as custodian of the public trust avoiding any transaction which might involve a conflict of interest, the appearance of a conflict of interest, or any activity which might otherwise discourage public confidence. An Investment Officer shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair his/her ability to make impartial investment decisions. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio and shall refrain from undertaking personal investment transactions with any individual with whom business is conducted on behalf of the City-e€,A . Additionally, an Investment Officer shall file with the Texas Ethics Commission and the City Council a statement disclosing any material interest they hold in financial institutions with which they conduct business witk-on behalf of the City or any relationship with an entity seeking to sell investments to the City or any relationship within the second degree by affinity or consanguinity to an individual seeking to sell investments to the City as determined under Chapter 573 of the Texas Government Code. C. Delegation of Authority 8 1 P a g e i. Investment Officers and Training - The Assistant City Manager, Finance Director, and Assistant Finance Director shall be the Investment Officers. The Investment Officers shall oversee and approve any deposit, withdrawal, investment, transfer, documentation, and otherwise manage City funds according to this Policy. No person may engage in an investment transaction or the management of funds except as provided under the terms of the Investment Policy, the StaterneRt 4iinvestment sStrategiesy, and other operational procedures established by the Finance Director. As stipulated in the PFIA Chapter 2256 nnQ in order to ensure qualified and capable investment management, within twelve (12) months after taking office or assuming duties, each Investment Officer shall attend training relating to his/her investment responsibilities and accumulate not less than ten (10) hours of instruction. On an ongoing basis, all Investment Officers shall receive not less than eight (8) hours of instruction in each subsequent 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. Training will be conducted by an independent source approved by the Investment Committee and must include education in investment controls, security risks, strategy risks, market risks, diversification of investment portfolio, and compliance with the Public Funds Investment Act. ii. Investment Committee - The Investment Committee will consist of the designated Investment Officers and -shall monitor the investment activities; assist in the development of investment policies, strategies and procedures; and annually review and approve the City's broker/dealers and independent training sources. D. Internal Control The Finance Director will establish and maintain a system of internal controls to ensure that the assets are protected from loss, theft, or misuse. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived and the valuation of costs and benefits requires estimates and judgement by management. are not .. • Avoidance 6entFGI-of collusion • Separation of duties 91Page • Separating transaction authority from accounting and record -keeping • Custodial safekeeping • Clear delegation of authority • Documentation of transactions • Dual authorization of fed wire transfers • Compliance with investment policies • Accurate and timely investment reports • Documentation of investment bidding V. AUTHORIZED INVESTMENTS AND PARAMETERS A. Authorized Investments Funds of the City may be invested in the following instruments described below consistent with Chapte• 2256 of the State of Texas (]....e.RrnPRt r de knO n as thA "o, hlmA Fm,,...+c 1..YAE;tme..t nG the PFIA) and as authorized by this P Jlicy. Investments not specifically listed below will not be permitted by this Ppolicy. 1. Obligations of the United States government or its agencies and instrumentalities, including the Federal Home Loan Banks. 2. Other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed by the full faith and credit of, this State or the United States or their respective agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States. 3. Direct obligations of this State or its agencies and instrumentalities. 4. Obligations of Texasstates, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by at least one nationally recognized rating firm not less than A or its equivalent. 5. Certificates of Deposit, and other forms of deposit, issued in compliance with the PFIA, and insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Share Insurance Fund (NCUSIF) or their respective successorst p FDIC, or when applicable, collateralized in accordance with this Policy and the Public Funds Collateral Act that are issued by a depository institution that has its main office or a branch office in the state of Texas. 6. Repurchase agreements, with the execution of a Master Repurchase Agreement, placed and secured in compliance with the PFIA and, collateralized with a minimum market value of 102% of the dollar value of the transaction plus accumulated accrued interest. 7. SEC -registered, AAAm, or its equivalent, (as rated by Fitch, Moody's or Standard & Poor's), no-load money market mutual funds. The investment objective of the fund must be to maintain a stable dollar net asset value of $1.0000. The City may not invest funds under its control in an amount that exceeds 10% of total assets of any individual money market mutual fund. A 101Page priorfund prospectus shall be reviewed for compliance with this Policy depositing monies. thp ._ 9.8_Local government investment pools which meet the requirements of the PFIAChapter 2256.016 ..r rhp D hl'n nds In„estm Rt A.+ are rated no lower than AAA or an equivalent rating by at least one nationally recognized rating service, seek to maintain a $1.00 net asset value, and are authorized by resolution or ordinance by the City Council. B. Prohibited Investments The Investment Officers shall not knowingly permit City funds to be invested with any of the following investment instruments that are strictly prohibited: 1. Options trading or futures contracts 2. Hedging or purchasing any security that is not authorized by Texas State law 3. Any investment in asset backed or mortgage -backed securities 4. Any other restricted instruments or limitations that involve outright speculation. C. Investments with Required Ratings If an investment is downgraded below minimum required ratings, the Csity will take all prudent measures to liquidate the investment. 111Page rr_r..rrrnr. ......... rt[enu:ZerrsSrrnnarr. Eltr_ezTr.�-es mx9rsaereLy:emsrarrsf �. Any investment currently held that does not meet the guidelines of this Ppolicy, but was authorized at the time of purchase, shall be exempted from the requirements of this Ppolicy and Investment Oefficers shall not be required to liquidate the investment. At mMaturity or liquidation, such monies shall be reinvested only as provided by this Ppolicy. VI. SELECTION OF -RANKS PRIMARY DEPOSITORY AND BROKER/DEALERS A. Primary Depository In compliance with Chapter 105, aAt least once every five years, a qualified depository shall be selected through the City's banking services procurement process, which shall include a formal request for proposal and be consistent with state law. In evaluating sekwAiag-{Depositories on the basis of the "most advantageous" for the City criteria, the service cost, hours of operation, yield on deposits, credit worthiness, location of depository, ability to meet service requirements and banking relationship of the institutions shall be considered. - - -- ° - -_ ------- - -- — - -- -- - -- - `- - - - - - - - - -- -- -- -- - - - -- ---- -- 0 W- 00 MON B. Authorized Brokers/Dealers Broker/& -a dealers are approved by the Investment Committee. At least once annually, the Investment Committee will review, revise, and adopt a list of authorized gaaGf+ed-banks-broker/s; and -dealers that are a-Ahnr;,nrl to engage in security 'nwnTtransactions with the City. Those firms that become qualified maV be required to provide information regarding creditworthiness, experience and reputation. Authorized firms may include primary dealers or regional dealers that qualify under Securities & Exchange Commission Rule 15C3-1 (Uniform Net Capital Rule). C. Competitive EnvironmentBW ' # + Peals, Whinh .,r hnn., n deemed +n n made at ailing mnrLet rates All r +h E;BGUF't' Will be n +it'hbid with at least three n+i+'v ffnro n mm�nvn. ree n n n bids. The City requires a competitive environment for all individual security purchases and sales, financial institution time deposit and transaction accounts, and money market mutual fund and local government investment pool selections. The Finance Director shall develop and maintain procedures for ensuring a competitive environment in the investment of the City's funds. D. Delivery Versus Payment All nit security transactions, eXGept Innnl government in,,PstmeRt .,nnlo and mutual fufds-, must be settled on a delivery versus payment basis. That is, funds shall not be released or paid until verification has been made that the ^nll� atera;rsecurity was received by the Citv's safekeeping agentTr��or sustadian. E. Investment Policy Certification All local government investment pools and discretionary investment management firms must sign a certification acknowledging that the organization has received 131Page and reviewed the City's Investment Policy, and that reasonable procedures and controls have been implemented to preclude investment transactions that are not authorized by the City's Policy. VII. CUSTODIAL CREDIT RISK MANAGEMENT SAFEKEEPING AND CUSTODY A. Safekeeping and Custodial Agreementsy state-Iaw—.The City shall contract with a e hank er hanks for the safekeeping agent for the safekeepinq of securities either owned by the City as part of its investment portfoli Securities owned by the City shall be held in the City's account as evidenced by safekeeping receipts of the institution holding the securities. Safekeeping institutions shall be independent from the parties involved in the investment transaction. Collateral to secure financial institution deposits will be held by a third -party custodian designated by the City, the Federal Reserve Bank, branch of the Federal Reserve Bank, or a Federal Home Loan Bank and pledged to the City as evidenced by pledge receipts of the institution with which the collateral is deposited. The original GOPY of the safekeeping F8GeiPt shall be deliveredto the G B. Collateralizatien Policy The City has established a collateral policy in compliance with Public Funds Collateral Act. Deposits secured with irrevocable letters of credit shall have 100% of principal plus anticipated interest of the deposit, less any amount insured by the FDIC or NCUSIF. Deposits aweeMeRtG shall he secured by pledged marketable securities shall have sellateral with_a market value equal to greater than Ar net 'Arc; than 102% of the deposits plus accrued interest less an amount insured by the FDIC or NCUSIF-and Evidence of the pledged collateral shall be maintained by the Finance Director or designee and held by an independent party with whom the City has a current custodial agreement with. financial institution deposits shall be insured or collateralized in compliance with applicable State law. The City reserves the right, in its sole discretion, to accept or reiect any form of insurance or co]lateralization pledged towards financial institution deeesAQBLv deposits. Acceptable forms of collateral are limited to those authorized in the Public Funds Collateral Act. Any substitution of collateral must meet the requirements of the Public Funds Collateral Act, Public Funds Investment Act and this Investment Policy. 141Pege Substitution of collateral must be approved by at least one Investment Officer of the City. Written notice must be provided to the bank or safekeeping agent prior to any security release. Collateral shall be reviewed on a regular basis to ensure the market value of the securities pledged equals or exceeds financial institution deposits. -Financial institutions serving as City dDepositories will be required to sign a d epository aAgreement with the City. The— aAgreement shall address any concerns in relation to acceptable collateral. levels of collateral. substitution and addition of collateral. and reporting and monitoring of collateral. The collateralized deposit portion of the- aAgreement 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- aAgreement must be in writing, • The— aAgreement must be executed by the dDepository and the City contemporaneously with the acquisition of the asset. • The aAgreement must be approved by the Board of Directors or Designated Committee of the d9epository and a copy of the meeting minutes must be delivered to the City, and The aAgreement must be part of the dDepositorv's "official record" continuously since its execution. Ana s. hst? t'o of collateral Must meet the rPq6lmFeFRBRtS of the Rihlie Funds Gellateral Ant hl'c C nrls Investment Ant and this iRvestmeRt nelica Substitution of collateral must he a ierl by at Iea64 n e Investment QfFiner of the City. Written not'r must he ny;dp- l 4o the hank n safekeen'n agent n r to aRy cen rr'ta rv- ele ocom�c�ov&e-. Gn"a-taral s,hall be reviewed en a monthly basis to ensure the market value Gf the cen irities pledger) equals OF ee.Js the relater) time and deposit a ants o The fai4v of Anna shall a ent enly the felleviino a cella4nml F_DIG Inc ,r Y r g r'n al and intemst ofyihich a n.t iiien-,IL. nteed O ORSUFed by, haGked by the full faith and credit of the I Initpd States Doroot dph4 obligations of an agenGy nsb� �menMl't.� of the United States any state rate aG tg in eStment quaky by a atiG au., r ed in er.+ment rat'n 151Page 0nUTIC A. Reporting Method The Investment Officers shall prepare and sign an investment report each at least quarterly in compliance with the PFIA. This report will be prepared in a manner that will allow the City to ascertain whether investment activities during the reporting period have conformed to this Policy. The report will be provided to the City Council Oeuflsilwill include the followin • A listing of individual investments held at the end of the reporting period, • Unrealized gains or losses resulting from appreciation or depreciation, by listing the beginning and ending book and market value of investments for the period, • Additions and changes to the market value during the period, • Average weighted yield to maturity of the portfolio, • Listing of investment by maturity date, • Fully accrued interest for the reporting period, • The percentage of the total portfolio that each type of investment represents, and • Statement of compliance of the City's investment portfolio with State law and the Investment Policy (and incorporated Strategy) approved by the City Council. In coniunction with the auarterly investment report, the Investment Officers will B. Compliance Audits 161Page In conjunction with the annual audit, the external auditor will perform a formal review of the quarterly reports with the results reported to the City Council. Also, in conjunction with the annual audit, the City will require the audit firm to conduct a compliance audit of the management controls on investments and adherence to investment policies. IX. INVESTMENT POLICY AND ADOPTION The linvestment Ppolicy and investment strategies shall be adopted by Resolution of the City Council. The Resolution so adopted shall record any changes made to either the Ppolicy or the strategies. The City Council shall review the Investment Ppolicy not less than annually. The I'n es+men+ Fnnl'r straten'e shall he rP,,iP1A1Pd at least annually by the lnvA-F-#.FRRRt G-0-FnFAMP-P— . l�SSt. }�.[�.. .T.T.fT.T.f7.L�tC7rT.fIT.ZT:P.i{tfT.E7 171Page ---- • -•-• ---•- - - - -- ---- - - - - - - -.....-- -- - - - - - . - - - - -• - - - - - -- • -• - - -- -- - - - . - -• - - -- . ...- . �.. �.. 181Page 191Po6c 201Page 21 1 P rl �, rl 22 1 P i g .. @11.111MI! WIN, IN Wo ME WIN 231Page City of Anna, Texas Investment Policy THE CITY OF August 22, 2023 TABLE OF CONTENTS I. Policy........................................................................................................................3 II. Scope....................................................................................................................... 3 III. Investment Objective and Strategy........................................................................... 4 A. Preservation and Safety of Principal................................................................... 4 B. Liquidity...............................................................................................................4 C. Public Trust......................................................................................................... 4 D. Yield.................................................................................................................... 5 E. Strategy...............................................................................................................5 IV. Standards of Care.................................................................................................... 7 A. Prudence.............................................................................................................7 B. Ethics and Conflict of Interest.............................................................................. 7 C. Delegation of Authority........................................................................................ 8 D. Internal Control.................................................................................:.................. 8 V. Authorized Investments and Parameters.................................................................. 9 A. Authorized Investments.......................................................................................9 B. Prohibited Investments......................................................................................10 C. Investments with Required Ratings...................................................................10 D. Exemption for Existing Investments..................................................................10 VI. Primary Depository and Broker/Dealers.................................................................10 A. Primary Depository ............................................................................................10 B. Authorized Broker/Dealers................................................................................ 10 C. Competitive Environment.................................................................................11 D. Delivery versus Payment...................................................................................11 E. Investment Policy Certification..........................................................................11 VII. Safekeeping and Custody.....................................................................................11 A. Safekeeping and Custodial Agreements...........................................................11 B. Collateral Policy................................................................................................11 VIII. Reporting...............................................................................................................12 A. Reporting Method..............................................................................................12 B. Compliance Audits............................................................................................13 IX. Investment Policy and Adoption.............................................................................13 2 1 P a g e INVESTMENT POLICY The City will conform to all federal, state, and local statutes, rules, and regulations governing the Investment Policy of the City of Anna (the "City"). It is the City's policy to administer and invest its funds in a manner that will preserve the principal, maintain liquidity, and optimize earnings while meeting the daily cash flow requirements of the City and the guidelines to be followed in achieving its objectives. The City's policy is to hold investments to maturity; however, securities may be sold in order to minimize the potential loss of principal and interest whose credit quality has declined; or to meet unanticipated liquidity needs of the City. The Policy and strategy shall be reviewed by the Investment Committee and City Council at least annually. Any modifications will be formally approved by the City Council. The Investment Policy, as approved, is in compliance with the provisions of the Public Funds Investment Act of the Texas Government Code Chapter 2256 (the "PFIA" ). The Investment Policy addresses the methods, procedures and practices that must be exercised to ensure effective and judicious fiscal management of the City's funds. This policy applies to all financial assets and investment activities of all current funds of the City and any new funds created in the future, unless specifically exempt or excluded hereafter, will be administered in accordance with the objectives and restrictions set forth in this Investment Policy. These funds are accounted for in the City's Annual Comprehensive Financial Report and include General Fund, Special Revenue Funds, Grant Funds, Debt Service Funds, Capital Project Funds, Enterprise Funds, Trust Funds, and the City's component units. This policy does not apply to the assets administered for the benefit of the City by outside agencies under deferred compensation programs, retirement programs, or defeased bonds held in trust escrow accounts. Except for cash in certain restricted and special funds, the City will combine cash balances from all funds in a pooled fund group to maximize investment earnings. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. In addition, all the bond fund proceeds (to include capital projects, debt service and reserve funds) will be managed by the governing debt ordinance and the provisions of the Internal Revenue Code applicable to the issuance of tax-exempt obligations and the investment of debt proceeds. 3 1 P a g e III. INVESTMENT OBJECTIVE AND STRATEGY The primary objectives of the City's investment activities, listed in priority order, shall be as follows: A. Preservation and Safety of Principal Preservation and safety of principal is the foremost objective of the City. Each investment transaction shall seek first to ensure that capital losses are avoided, whether they are from issuer defaults, erosion of market value, or other risks. The objectives will be to mitigate credit and interest rate risk. i. Credit Risk and Concentration of Credit Risk — The City will minimize credit risk, which is the risk of loss due to the failure of the issuer or backer, and concentration of credit risk, the risk of loss attributed to the magnitude of investment in a single issuer, by: • Limiting investments to the types listed in safest types of investments, • Pre -qualifying the financial institutions, broker/dealers, intermediaries, and advisers with which the City will do business, and • Diversifying the investment portfolio so that potential losses on individual securities will be minimized, as appropriate. ii. Interest Rate Risk — The City will minimize interest rate risk, which is the risk that the market value of securities in the portfolio will fall due to changes in market interest rates, by: • Limiting investments to the safest types of investments, • Structure the investment portfolio so that investments mature to meet cash requirements for ongoing operations, thereby avoiding the need to liquidate investments prior to maturity, and • Diversify maturities and staggering purchase dates to minimize the impact of market movements over time. B. Liquidity The City's investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements that can be reasonably anticipated. This is accomplished by structuring the portfolio so that investments mature concurrent with cash needs to meet anticipated demands. Furthermore, since all possible cash demand cannot be anticipated, a portion of the portfolio will be invested in money market funds or local government investment pools that offer same -day liquidity and seek a stable $1.0000 NAV for short-term needs. C. Public Trust All employees involved in the City's investment program shall seek to act responsibly as custodians of the public trust. Investment Officers shall at all times be cognizant of the standard of care and investment objectives and shall avoid any 4 1 P a g e transaction that might impair public confidence in the City's ability to govern effectively. D. Yield The investment portfolio of the City shall be designed to attain a market rate of return throughout budgetary and economic cycles taking into account risk constraints and liquidity needs. Return on investment, while important, is of less importance than safety and liquidity. The investment portfolio shall be designed with the objective of regularly exceeding the average rate of return on a rolling six- month U.S. Treasury Bill average yield. Funds held for future capital projects will be invested in investments that can reasonably be expected to produce enough income to offset inflationary costs increases. However, such funds will never be unduly exposed to market price risks that will jeopardize that asset's availability to accomplish their stated goal or be invested in a manner inconsistent with applicable federal and state regulations. Yields on debt proceeds that are exempt from federal arbitrage regulations are subject to the arbitrage rebate regulations. The City will seek to preserve principal and optimize the yield of these funds in compliance with those regulations. However, it is understood that if the yield achieved by the City is higher than the arbitrage yield, positive arbitrage amounts shall be rebated to the federal government as required by current regulations. E. Strategy The City maintains pooled investments which are an aggregation of the majority of City funds including, but not limited to: tax receipts, enterprise funds, fine and fee revenues, special revenues, grants, and non -bond capital project funds. i. Operating Funds • Suitability - Any investment eligible in the Investment Policy is suitable for Operating Funds. • Safety of Principal - All investments shall be of high quality with no perceived default risk. Market price fluctuations may occur. However, by managing the weighted average days to maturity for the Operating Fund's portfolio to less than 270 days and restricting the maximum allowable maturity to two years, the price volatility of the overall portfolio will be managed. • Liquidity - Operating Funds require the greatest short-term liquidity of any of the Fund types. Cash equivalent investments will provide daily liquidity and may be utilized as a competitive yield alternative to fixed maturity investments. • Marketability - Securities with active and efficient secondary markets are necessary in the event of an unanticipated cash flow requirement. • Diversification - Investment maturities should be staggered throughout the budget cycle to provide cash flow based on the anticipated operating needs 5 1 P a g e of the City. Market cycle risk will be reduced by diversifying the appropriate maturity structure out through two years. • Yield - Attaining a competitive market yield for comparable investment - types and portfolio restrictions is the desired objective. The yield of an equally weighted, rolling six-month Treasury bill portfolio will be the minimum yield objective. ii. Debt Service Funds — • Suitability - Any investment eligible in the Investment Policy is suitable for the Debt Service Funds. • Safety of Principal - All investments shall be of high quality with no perceived default risk. Market price fluctuations may occur. However, by managing Debt Service Funds to not exceed the debt service payment schedule the market risk of the overall portfolio will be minimized. • Liquidity - Debt Service Funds have predictable payment schedules. Therefore, investment maturities should not exceed the anticipated cash flow requirements. Cash equivalent investments may provide a competitive yield alternative for short-term fixed maturity investments. • Marketability - Securities with active and efficient secondary markets are not necessary as the event of an unanticipated cash flow requirement is not probable. • Diversification - Market conditions influence the attractiveness of fully extending maturity to the next "unfunded" payment date. Generally, if investment rates are anticipated to decrease over time, the City is best served by locking in most investments. If the interest rates are potentially rising, then investing in shorter and larger amounts may provide an advantage. At no time shall the debt service schedule be exceeded in an attempt to bolster yield. • Yield - Attaining a competitive market yield for comparable investment - types and portfolio restrictions is the desired objective. The yield of an equally weighted, rolling three-month Treasury bill portfolio shall be the minimum yield objective. Capital Project Funds and Special Purpose Funds • Suitability - Any investment eligible in the Investment Policy is suitable for the Capital Project Funds and Special Purpose Funds. • Safety of Principal - All investments will be of high quality with no perceived default risk. Market fluctuations may occur. However, by restricting the maximum maturity to two years and by managing the Capital Project Funds and Special Purpose Funds to balance the short term and long-term anticipated cash flow requirements, the market risk of the portfolio will be managed. • Liquidity - Selecting investment maturities that provide greater cash flow than the anticipated needs and maintaining appropriate cash -equivalent balances will reduce the liquidity risk of unanticipated expenditures. • Marketability - The uncertainly of Capital Project Funds and Special Purpose Funds outflows requires securities with active and efficient secondary markets. 6 1 P a g e • Diversification - Investment maturities should blend the short-term and long- term cash flow needs to provide adequate liquidity, yield enhancement, and stability. • Yield - Attaining a competitive market yield for comparable investment - types and portfolio structures is the desired objective, however this portfolio maintains an investment strategy is comply with any applicable arbitrage or yield restriction regulations. IV. STANDARDS OF CARE A. Prudence The standard of prudence to be used by the Investment Officers shall be the "prudent person" rule. This rule states that "Investments shall be made with judgement and care, under prevailing circumstances, that a person of prudence, discretion and intelligence exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of their capital and the probable income to be derived". The determination of whether an Investment Officer has exercised prudence with respect to an investment decision shall be applied in the context of managing an overall portfolio rather than a consideration as to the prudence of a single transaction. Investment Officers acting in accordance with written procedures and this Investment Policy and exercising due diligence shall be relieved of personal responsibility for an individual investment's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control unfavorable developments. B. Ethics and Conflict of Interest Each Investment Officer shall act as custodian of the public trust avoiding any transaction which might involve a conflict of interest, the appearance of a conflict of interest, or any activity which might otherwise discourage public confidence. An Investment Officer shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair his/her ability to make impartial investment decisions. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio and shall refrain from undertaking personal investment transactions with any individual with whom business is conducted on behalf of the City. Additionally, an Investment Officer shall file with the Texas Ethics Commission and the City Council a statement disclosing any material interest they hold in financial institutions with which they conduct business on behalf of the City or any relationship with an entity seeking to sell investments to the City or any relationship within the second degree by affinity 7 1 P a g e or consanguinity to an individual seeking to sell investments to the City as determined under Chapter 573 of the Texas Government Code. C. Delegation of Authority i. Investment Officers and Traininq - The Assistant City Manager, Finance Director, and Assistant Finance Director shall be the Investment Officers. The Investment Officers shall oversee and approve any deposit, withdrawal, investment, transfer, documentation, and otherwise manage City funds according to this Policy. No person may engage in an investment transaction or the management of funds except as provided under the terms of the Investment Policy, the investment strategies, and other operational procedures established by the Finance Director. As stipulated in the PFIA, in order to ensure qualified and capable investment management, within twelve (12) months after taking office or assuming duties, each Investment Officer shall attend training relating to his/her investment responsibilities and accumulate not less than ten (10) hours of instruction. On an ongoing basis, all Investment Officers shall receive not less than eight (8) hours of instruction in each subsequent 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. Training will be conducted by an independent source approved by the Investment Committee and must include education in investment controls, security risks, strategy risks, market risks, diversification of investment portfolio, and compliance with the Public Funds Investment Act. ii. Investment Committee - The Investment Committee will consist of the designated Investment Officers and shall monitor the investment activities; assist in the development of investment policies, strategies and procedures; and annually review and approve the City's broker/dealers and independent training sources. D. Internal Control The Finance Director will establish and maintain a system of internal controls to ensure that the assets are protected from loss, theft, or misuse. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived and the valuation of costs and benefits requires estimates and judgement by management. The internal controls deemed most important include, but are not limited to: • Avoidance of collusion • Separation of duties • Separating transaction authority from accounting and record -keeping • Custodial safekeeping 8 1 P a g e • Clear delegation of authority • Documentation of transactions • Dual authorization of fed wire transfers • Compliance with investment policies • Accurate and timely investment reports • Documentation of investment bidding V. AUTHORIZED INVESTMENTS AND PARAMETERS A. Authorized Investments Funds of the City may be invested in the following instruments described below consistent with the PFIA and as authorized by this Policy. Investments not specifically listed below will not be permitted by this Policy. 1. Obligations of the United States government or its agencies and instrumentalities, including the Federal Home Loan Banks. 2. Other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed by the full faith and credit of, this State or the United States or their respective agencies and instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation or by the explicit full faith and credit of the United States. 3. Direct obligations of this State or its agencies and instrumentalities. 4. Obligations of Texas, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by at least one nationally recognized rating firm not less than A or its equivalent. 5. Certificates of Deposit, and other forms of deposit, issued in compliance with the PFIA, and insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Share Insurance Fund (NCUSIF) or their respective successors, or when applicable, collateralized in accordance with this Policy and the Public Funds Collateral Act that are issued by a depository institution that has its main office or a branch office in the state of Texas. 6. Repurchase agreements, with the execution of a Repurchase Agreement, placed and secured in compliance with the PFIA and, collateralized with a minimum market value of 102% of the dollar value of the transaction plus accumulated accrued interest. 7. SEC -registered, AAAm, or its equivalent, (as rated by Fitch, Moody's or Standard & Poor's), no-load money market mutual funds. The investment objective of the fund must be to maintain a stable dollar net asset value of $1.0000. The City may not invest funds under its control in an amount that exceeds 10% of total assets of any individual money market mutual fund. A fund prospectus shall be reviewed for compliance with this Policy prior to depositing monies. 8. Local government investment pools which meet the requirements of the PFIA, are rated no lower than AAA or an equivalent rating by at least one nationally 9 1 P a g e recognized rating service, seek to maintain a $1.00 net asset value, and are authorized by resolution or ordinance by the City Council. B. Prohibited Investments The Investment Officers shall not knowingly permit City funds to be invested with any of the following investment instruments that are strictly prohibited: 1. Options trading or futures contracts 2. Hedging or purchasing any security that is not authorized by Texas State law 3. Any investment in asset backed or mortgage -backed securities 4. Any other restricted instruments or limitations that involve outright speculation. C. Investments with Required Ratings If an investment is downgraded below minimum required ratings, the City will take all prudent measures to liquidate the investment. D. Exemption for Existing Investments Any investment currently held that does not meet the guidelines of this Policy, but was authorized at the time of purchase, shall be exempted from the requirements of this Policy and Investment Officers shall not be required to liquidate the investment. At maturity or liquidation, such monies shall be reinvested only as provided by this Policy. VI. PRIMARY DEPOSITORY AND BROKER/DEALERS A. Primary Depository In compliance with Chapter 105, at least once every five years, a qualified depository shall be selected through the City's banking services procurement process, which shall include a formal request for proposal and be consistent with state law. In evaluating depositories on the basis of the "most advantageous" for the City criteria, the service cost, hours of operation, yield on deposits, credit worthiness, location of depository, ability to meet service requirements and banking relationship of the institutions shall be considered. B. Authorized Broker/Dealers Broker/dealers are approved by the Investment Committee. At least once annually, the Investment Committee will review, revise, and adopt a list of authorized broker/dealers to engage in security transactions with the City. Those firms that become qualified may be required to provide information regarding creditworthiness, experience and reputation. Authorized firms may include primary dealers or regional dealers that qualify under Securities & Exchange Commission Rule 15C3-1 (Uniform Net Capital Rule). 101Page C. Competitive Environment The City requires a competitive environment for all individual security purchases and sales, financial institution time deposit and transaction accounts, and money market mutual fund, and local government investment pool selections. The Finance Director shall develop and maintain procedures for ensuring a competitive environment in the investment of the City's funds. D. Delivery Versus Payment All security transactions must be settled on a delivery versus payment basis. That is, funds shall not be released or paid until verification has been made that the security was received by the City's safekeeping agent. E. Investment Policy Certification All local government investment pools and discretionary investment management firms must sign a certification acknowledging that the organization has received and reviewed the City's Investment Policy, and that reasonable procedures and controls have been implemented to preclude investment transactions that are not authorized by the City's Policy. VII. SAFEKEEPING AND CUSTODY A. Safekeeping and Custodial Agreements The City shall contract with a safekeeping agent for the safekeeping of securities owned by the City as part of its investment portfolio. Securities owned by the City shall be held in the City's account as evidenced by safekeeping receipts of the institution holding the securities. Safekeeping institutions shall be independent from the parties involved in the investment transaction. Collateral to secure financial institution deposits will be held by a third -party custodian designated by the City, the Federal Reserve Bank, branch of the Federal Reserve Bank, or a Federal Home Loan Bank and pledged to the City as evidenced by pledge receipts of the institution with which the collateral is deposited. B. Collateral Policy The City has established a collateral policy in compliance with Public Funds Collateral Act. Deposits secured with irrevocable letters of credit shall have 100% of principal plus anticipated interest of the deposit, less any amount insured by the FDIC or NCUSIF. Deposits secured by pledged marketable securities shall have a market value equal to greater than 102% of the deposits plus accrued interest less an amount insured by the FDIC or NCUSIF. Evidence of the pledged collateral III Page shall be maintained by the Finance Director or designee and held by an independent party with whom the City has a current custodial agreement with. All financial institution deposits shall be insured or collateralized in compliance with applicable State law. The City reserves the right, in its sole discretion, to accept or reject any form of insurance or collateral ization pledged towards financial institution deposits. Acceptable forms of collateral are limited to those authorized in the Public Funds Collateral Act. Any substitution of collateral must meet the requirements of the Public Funds Collateral Act, Public Funds Investment Act and this Investment Policy. Substitution of collateral must be approved by at least one Investment Officer of the City. Written notice must be provided to the bank or safekeeping agent prior to any security release. Collateral shall be reviewed on a regular basis to ensure the market value of the securities pledged equals or exceeds financial institution deposits. Financial institutions serving as City depositories will be required to sign a depository agreement with the City. The agreement shall address any concerns in relation to acceptable collateral, levels of collateral, substitution and addition of collateral, and reporting and. monitoring of collateral. 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. VIII. REPORTING A. Reporting Method The Investment Officers shall prepare and sign an investment report each quarter in compliance with the PFIA. This report will be prepared in a manner that will allow the City to ascertain whether investment activities during the reporting period have conformed to this Policy. The report will be provided to the City Council and will include the following: • A listing of individual investments held at the end of the reporting period, 12 1 Page • Unrealized gains or losses resulting from appreciation or depreciation, by listing the beginning and ending book and market value of investments for the period, • Additions and changes to the market value during the period, • Average weighted yield to maturity of the portfolio, • Listing of investment by maturity date, • Fully accrued interest for the reporting period, • The percentage of the total portfolio that each type of investment represents, and • Statement of compliance of the City's investment portfolio with State law and the Investment Policy (and incorporated Strategy) approved by the City Council. In conjunction with the quarterly investment report, the Investment Officers will verify from reliable sources market value of all securities and the current credit rating for each investment that has a PFIA-required minimum rating. B. Compliance Audits In conjunction with the annual audit, the external auditor will perform a formal review of the quarterly reports with the results reported to the City Council. Also, in conjunction with the annual audit, the City will require the audit firm to conduct a compliance audit of the management controls on investments and adherence to investment policies. IX. INVESTMENT POLICY AND ADOPTION The Investment Policy and investment strategies shall be adopted by Resolution of the City Council. The Resolution so adopted shall record any changes made to either the Policy or the strategies. The City Council shall review the Investment Policy not less than annually. 13 1 Page