HomeMy WebLinkAboutRes 2017-09-359 2017 Inv PolicyCITY OF ANNA, TEXAS
RESOLUTION NO. a0(%•- O9- 359
(2017 Investment Policy Review)
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 honor 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 12th day of
September, 2017.
ATTEST: APPROVED:
OF .�
��'�• /�
Carrie L. Smith, City Secretary - ike Grist, Mayor
401111111 1100NNN5
City of Anna, Texas
Investment Policy
►, MrMHOMEET11M.
INVESTMENT POLICY
A component part of the overall financial management of the City of Anna, Texas is an effective
cash management plan. Many factors determine the amount of funds on hand during any fiscal
year, but these funds are an important revenue source for the City budget. It is imperative that
these funds be managed in such a way as to be responsive to the public need and consistent with
a conservative cash management plan. To provide this framework for effective cash
management, an Investment Policy and a Statement of Investment Strategy have been prepared.
Purpose:
The Investment Policy is authorized by the City Council of the City of Anna in accordance with
Chapter 2256, Texas Government Code, also known as the Public Funds Investment Act (PFIA).
The Policy addresses the methods, procedures and practices that must be exercised to ensure
effective and judicious fiscal management of City funds. All such funds will be managed within
the guidelines of this Policy with the exception of pension and other deferred compensation plans
that are separately managed. Bond funds, in addition to this Policy, shall be managed in
accordance with their issuing documentation and all applicable state and federal law.
This Policy provides a separate written investment strategy for each of the City's funds. Each
investment strategy describes the investment objectives for each particular fund according to the
following priorities:
1) Investment Suitability
2) Preservation and Safety of Principal
3) Liquidity
4) Marketability Prior to Maturity of each Investment
5) Diversification
6) Yield
Annual Review:
The Investment Policy and the Statement of Investment Strategy will be reviewed on an annual
basis by the City Council. Revisions and/or amendments will be approved and documented by
the City Council. A written document shall attest to the annual review and amendment adoption.
Investment Objectives:
The investment of funds will be governed by the following investment objectives, in order of
priority:
1. Preservation and Safety of Principal
September 12. 2017N4ar-el=r22, 204-6
Preservation of capital 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.
2. Liquidity
The City's investment portfolio will remain sufficiently liquid to enable the City to
meet all operating requirements that can be reasonably anticipated. Liquidity will be
achieved by matching investment maturities with forecasted cash flow requirements.
3. Public Trust
All employees involved in the City's investment program shall seek to act responsibly
as custodians of the public trust. All employees involved in the investment process
shall avoid any transaction which might impair public confidence in the City's ability
to govern effectively.
4. 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.
Authorized Investments:
While the PFIA allows a wide range of eligible investments, the City has chosen to allow only
the following, which are more restrictive than the PFIA:
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. Certificates of Deposit, and other forms of deposit, issued in compliance with the PFIA
and insured by the FDIC, or when applicable, collateralized in accordance with this
Policy and the Public Funds Collateral Act.
5. Repurchase agreements placed and secured in compliance with the PFIA and,
collateralized with a minimum market value of 102 percent of the dollar value of the
transaction plus accumulated accrued interest.
6. 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
September 12. 2017N,la+ 22, 204-6 2
market mutual fund. A fund prospectus shall be reviewed for compliance with this Policy
prior to depositing monies.
7. State or local investment pools organized under the Interlocal Cooperation Act, operating
in compliance with the PFIA and authorized by the City Council. The investment pool
must be rated AAAm, or its equivalent, (as rated by Fitch, Moody's or Standard &
Poor's). The investment objective of the pool must be to maintain a stable dollar net asset
value.
Prohibited Investments:
The City is expressly prohibited from entering into options trading or futures contracts, hedging
or purchasing any security that is not authorized by Texas State law, or any direct investment in
asset backed or mortgage-backed securities. The City expressly prohibits the acceptance of
Interest -only (IO) and Principal -only (PO) Collateralized Mortgage Obligations (CMOs) as
collateral for bank deposits or repurchase agreements. No transactions may be entered for
speculation. No transaction may be entered using leverage.
Protection of Principal:
The City shall seek to control the risk of principal loss due to the failure of an issuer or grantor.
Such default risk shall be controlled by investing only in the safest types of issuers as defined in
the Policy and by collateralization as required by law.
The put:ehase ofzlndividual securityies transactions shall be executed by "delivery versus
payment" (DVP) method through the City's safekeeping agent. By so doing, City funds are not
released until the City has received, through the safekeeping agent, the securities purchased.
Diversification by Investment Type:
When appropriate and applicable, diversification by investment type shall be maintained by
ensuring an active and efficient secondary market in portfolio investments, and by controlling the
market and opportunity risks associated with specific investment types. Undue concentrations of
assets in a specific maturity sector shall be avoided. Bond proceeds may be invested to comply
with Federal arbitrage restrictions or to facilitate arbitrage record-keeping and calculation.
Diversification by Investment Maturity:
In order to minimize risk of loss due to interest rate fluctuations, investment maturities will not
exceed the anticipated cash flow requirements of the funds. Maturity guidelines by fund are as
follows:
Operating Funds Strategy:
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 minimized.
September 12.2017N,Iareli 22, 204
Marketability - Securities with active and efficient secondary markets are necessary in the event
of an unanticipated cash flow requirement.
Liquidity - The Operating Fund requires 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.
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 three-month
Treasury Bill portfolio will be the minimum yield objective.
Construction and Capital Improvement Funds Strategy:
Suitability - Any investment eligible in the Investment Policy is suitable for Construction and
Capital Improvement 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 the lesser of
the anticipated cash flow requirements or the IRS defined temporary period, the market risk of
the portfolio will be minimized.
Marketability - The balancing of short-term and long-term cash flow needs requires the
Construction and Capital Improvement Funds portfolio to have securities with active and
efficient secondary markets.
Liquidity - Construction and Capital Improvement Funds used as part of a CIP plan or
scheduled repair and replacement program are reasonably predictable. However, unanticipated
needs or emergencies may arise. Maintaining minimum cash equivalent investment amounts will
reduce the liquidity risk of unanticipated expenditures. A singular repurchase agreement may be
utilized if disbursements are allowed in the amount necessary to satisfy any required
expenditures. This investment structure is commonly referred to as a flexible repurchase
agreement.
Diversification - Investment maturities should blend the short-term and long-term cash flow
needs to provide adequate liquidity, yield enhancement and stability. A "barbell" maturity
ladder may be appropriate.
Yield - Attaining a competitive market yield for comparable investment -types and portfolio
structures is the desired objective. The yield of an equally weighted, rolling six-month Treasury
Bill portfolio will be the minimum yield objective.
September 12. 2017N,Iat-eli 22, 2-04-6 4
Debt Service Funds Strategy:
Suitability - Any investment eligible in the Investment Policy is suitable for the Debt Service
Fund.
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.
Marketability - Securities with active and efficient secondary markets are not necessary as the
event of an unanticipated cash flow requirement is not probable.
Li uidi - 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. A singular repurchase agreement may be utilized if disbursements are allowed in
the amount necessary to satisfy any debt service payment. This investment structure is
commonly referred to as a flexible repurchase agreement.
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 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.
Ensuring Liquidity:
Liquidity shall be achieved by analyzing and anticipating cash flow requirements, by investing in
securities with active secondary markets and by maintaining minimum cash equivalent
investment balances. An investment may be liquidated or redeemed prior to maturity for the
following reasons:
1. To meet unanticipated cash requirements
2. To re -deploy cash into other investments expected to outperform current holdings
3. To otherwise to adjust the portfolio.
Depository Agreements:
The City will select and designate a qualified primary bank depository in compliance with State
law and the City's purchasing policy. Additionally the City may utilize other depository
institutions to expand deposit placement opportunities or provide specialty services.
All depository balances 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
collateralization pledged towards depository deposits. Depositories will be required to sign a
Depository Agreement with the City. The Agreement shall address any concerns in relation to
September 12, 2017N4a+eh 22, 204-6 5
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 has to 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.
Safekeeping and Custody:
The City shall contract with a bank or banks for the safekeeping of securities either owned by the
City as part of its investment portfolio or held as collateral to secure financial institution deposits
and repurchase agreements.
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 will be held by a third party custodian designated by the City and pledged to the City
as evidenced by sa€ekeepinglep dge receipts of the institution with which the collateral is
deposited. Original safe wepiag pledge receipts shall be obtained. Collateral may be held by a
Federal Reserve Bank or branch of a Federal Reserve Bank, a Federal Home Loan Bank, or a
third party bank approved by the City and eligible under State law.
Competitive Environment:
It is the policy of the City to provide a competitive environment for all individual investment
purchases and sales, and financial institution, money market mutual fund, and local government
investment pool selections.
Authority to Invest:
The City Manager and 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 Statement of Investment Strategy, and other operational procedures
established by the City Manager.
In order ensure qualified and capable investment management, within twelve (12) months after
taking office or assuming duties, each Investment Officer shall attend s -training sessieirrelating
to his/her investment responsibilities and }ece+ve-accumulate not less than ten (10) hours of
September 12. 2017NUt-eh 22, 204 6
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 and compliance with
the Public Funds Investment Act.
Prudent Investment Management:
Each Investment Officer shall perform his/her duties in accordance with the adopted Investment
Policy and internal procedures. In determining whether an Investment Officer has exercised
prudence with respect to an investment decision, the investment of all funds over which the
Investment Officer had responsibility, rather than the prudence of a single investment, shall be
considered. Investment Officers acting in good faith and in accordance with these policies and
procedures shall be relieved of personal liability.
Standard of Care:
The standard of care used by the City shall be the "prudent person rule" and shall be applied in
the context of managing the overall portfolio within the applicable legal constraints. The PFIA
states:
"Investments shall be made with judgment and care, under circumstances then
prevailing, that a person of prudence, discretion, and intelligence would exercise in the
management of the person's own affairs, not for speculation, but for investment,
considering the probable safety of capital and the probable income to be derived. "
Standard of Ethics:
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. Additionally, an Investment
Officer shall file with the Texas Ethics Commission and the City Council a statement disclosing
any personal business relationship with an entity seeking to sell investments to the City or any
relationship with the second degree by affinity or third degree of consanguinity to an individual
seeking to sell investments to the City.
Internal Controls:
The City Manager will establish a system of internal controls that shall be designed to prevent
losses of public funds arising from fraud, employee error, and misrepresentation by third parties,
unanticipated changes in financial markets, or imprudent actions by City staff. Controls deemed
most important would include, but not be limited to:
1. Control of collusion
2. Separation of duties
3. Separating transaction authority from accounting and record-keeping
4. Custodial safekeeping
5. Avoidance of bearer -form securities
September 12.2017"N4are � ''''�204-0 7
6. Clear delegation of authority
7. Written confirmation of telephone transactions
8. Documentation of transactions
As part of the annual audit, the Investment Officers shall facilitate an independent review by the
City's external auditor to assure compliance with policies and procedures.
Monitoring Market Value:
Market value of all collateral, mutual funds, pools, and securities will be monitored periodically
and obtained from a reputable and independent source.
Effect of Loss of Rating:
All prudent measures will be taken to liquidate an investment that is downgraded to less than the
required minimum rating. At least quarterly, the City shall monitor the rating of all investments,
as applicable.
Exemption for Existing Investments:
The City is not required to liquidate investments authorized at the time of purchase.
Performance:
The City's investment portfolio shall be designed to obtain a market rate of return on
investments consistent with risk constraints and expected cash flow of the City. Weighted
average yield to maturity shall be the performance measurement standard.
Authorized Broker/Dealers:
The Investment Committee shall, at least annually, review, revise, and adopt a list of qualified
broker/dealers authorized to engage in securities transactions with the City. Authorized firms
include primary dealers or secondary dealers that qualify under Securities & Exchange
Commission Rule 150-1 (Uniform Net Capital Rule).
Investment Policy Certification:
All , money market mutt
funds, 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 in accordance with
the PFIA.
Investment Committee:
An Investment Committee comprised of the City Manager, City Finance Director and the City
Finance and Budget Analyst will meet on a periodic basis. The Committee 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.
September 12.2017"�Fl;-22 264-6
Reporting:
The Investment Officers shall prepare an investment report 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.
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.
September 12, 2017NafC11 222-6-�6 9