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08 - City Investment PolicyItem No. 8 TO: City Council John Godwin. City Manager FROM: Gene Anderson., Finance Director SUBJECT: CITY INVESTMENT Pot,icy DATE: December 27, 2017 BACKGROUND: As required Under the local government code, the City has a written investment policy. The policy serves as a guide regarding investment objectives and strategies. The policy addresses issues Such as policy scope. prudence, training, conflicts of interest, suitable investments, collateralization, diversification, and reporting. STATUS OF ISSUE "l -he invests-ient policy states that annually the City Council will review and re -adopt the investment policy approving any changes. The only proposed changes to the ,current policy is the routine addition or deletion of funds needed for operating purposes. 11, he policy complies with Chapter 2256 of the Local Government Code also known as the Public Funds Investment Act, BUDGET: Not affected by this policy. lZECOMNIFNE)ATION: Motion to adopt the City investment policy as Submitted. IN vEs,rM ENT POLICY January 2 018 1.0 POLICY AND M/ESTMENTSTRATEGY It is the policy of the, City off"aris to invest public funds in a manner which will provide first: safety of principal, second: liquidity, and third: return on investmentconsistent with the need forsafety and liquidity, fourth: meet the daily cash flow demands of the entity, and fifth: confort-n to all state and local statues governing the investment of` public funds, including but not limited to, the Public Funds Investment Act, Chapter 2256, Local Government Code. Investment strategies for operating funds have as their primary objective to assure that anticipated flows are niatched,A,itliadequate itiN�estiiiciitliqui(lit3,. The secondary objective is to create a portfolio structure which will experience minimal volatility during economic cycles. 'This may be accomplished by purchasing high quality, short tar medium securities which will complement each other in a laddered maturity structure. Tile dollar weighted average maturity target will be two years or less. Investment strategies fair debt service funds shall have as the primary objective the assurance of investment liquidity adequate to cover the debt service obligation on the required payment date. Securities purchased shall not have a stated final maturity which exceeds the debt service payment date. investment strategies, for debt service reserve funds shall have as the primary objective the ability to, generate a dependable revenue strearn to the appropriate debt service fund from securities with a low degree of volatility. Securities should be of high quality and consistentwith bond ordinance requirements. Short to medium maturities generally meet these requirements, investment strategies for special projects or special purpose funds will have as their primary objective to assure that anticipated cash flows are matched with adequate investment liquidity. The stated final maturity dates of securities field should not exceed the estimated project or purpose completion (late, 2.0 SCOPE' This investment policy applies to the funds listed below. These funds are accounted for in the City's Comprehensive Annual Financial Report. 2.1 Consolidated Cash Funds 11.01 General Fund 2.1.10 Water and Sewer Fund 2.1.11 Capital Projects Fund 2.1.13 Equipment Replacement Fund 2.1.14 CO 2010 Construction Fund 2.1.16 T'V' DB Loan Fund 2.1.21 Child Safety Fund 2.1.23 PEG Channel Fund 2.1.24 Lake Crook Park Restoration Fund 2.1.25 Grant Fund 2.1.27 Water Contract Fund 2.1.28 Parks Donations 2.1.30 Community Development Fund 2.1.31 Home Buyer's Assistance Fund 2.1.32 Owner Occupied Housing Fund 2.1.33 Municipal Court Technology Fund 2.1.34 Municipal Court Security Fund 2-1.35 Municipal Court Child Safety Fund 2.1.36 Municipal Court Time Payment Fund 2.1.37 Police Confiscated Funds -Gambling 2.1.38 Police Judicial Forfeitures Fund 2.1-39 Equitable ;Sharing Forfeilures 2.1.43 GO Bonds 2013 Construction Fund 2.1.44 GO Bonds 20�16 Construction Fund 2.1-45 Sanitation Fund 2.1.46 GO Bonds 2017 Construction Fun() 2.1.50 W&S Revenue Bond Reserve Fund 2.1.51 TWDB I & S Fun(] 2.1.53, 2010 Tax ,& Revenue I&S Fund 2.1.59 2010 GO/W&S, Refunding Bonds I&S Fund 2.1.60 2012 (1;0 Refunding Bonds I&S Fund 2.1.61 Interlocal Cooperative Agreement I&S Fund 2,1,62 GO Bonds 2013 I&S Fund 2.1.63 GO Bonds 2016 I&S.Fund 2.1.64 GO Bonds 2017 I&S Fund 2.1.72 Library Memorial Fund 2.1.79 Library Expendable Fund 2.1.80 L i b ra r - y Permanent Fund 2,1.85 Consolidated Payroll 2,.2 Non -Consolidated Cash Funds 2.1.00 All Other l,uuds 2.1.02 Economic Development Fund 2.1.03 Texrooi 2.1.04 LOGIC Investment Pool 3. 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 cif their capital as well as the probable income to be derived. 3.1 The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and the investment policy and exercising clue 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 as timely fashion an(] appropriate action is taken to control adverse developments. The governing body ofthe investing entity retains the ultimate responsibility as fiduciaries of the assets of the entity, 4.0 011JECTIVE The primary objectives, in priority order, or the City's investment activities shall be 4.1 SAFETY: Safety of principal is the foremost objective of the investment program. Investments of the City shall be undertaken in a manner that seeks to insure the preservation ofeapital in theoverall portfolio. To attain this objective, diversification is required in orderthat potential losses on individual securities do not exceed the income generated from the remainder of the portfolio, 4.2 LIQ(JIDITY: The City's investment portfolio will remain sufficiently liquid to enable the City of meet all operating requirements which might be reasonably anticipated. 4.3 RETURN ON INVESTMENTS, The City's investment portfolio will be designed with the objective of attaining a rate of return throughout budgetary and economic cycles, commensurate with the City's investment risk constraints and the cash flow characteristics of the portfolio. 5.0 DELEGATION OF AUTHORITY AND TRAINING Authority to manage the City's investment prograrn is derived from tile City's charterand reconfirmed by adoptionofthis policy by the City Council. Maiiagemetiti-esl)otisibilityfor ttic,inN7estiiientl)rogi-ai-n is hereby delegated to tile Director of inance who shall be responsible for all transactions undertaken. The Finance Director may utilize appropriate staff personnel to assist in this area when necessary. Procedures anti controls to regulate the details of the investment program may be developed by the Finance Director ais needed. Tile investment officer shall attend at least one training session relating to the officer's responsibility under the Act within 12 months of assuming; duties and complete at least 10 hours of training every, two years thereafter. Such training shall be provided by any independent source outside the City such as the Texas Municipal League or the Government Finance Officers Association. 6,0 CONFLICTS Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment prograrn, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to tile City Manager any material financial interests in financial institutions that conduct business within this Jurisdiction, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the City, particularly with regard to the time of purchases and sales. 'file investment officer must file as disclosure statement with the Texas Ethics Commission and the governing body if the officer has a personal business relationship (as defined in 2256.005 (i) (1-3) with a business organization offering to engage in all investment transaction with the City. A disclosure statement must also be filed by the investment officer if the investment officer is related -within the second degree by affinity or consanguinity as determined under Chapter 573 of the Texas Government Code, to all individual seeking to transact investment business with the entity, 7.,0 AUTHORIZED FINANCIAL Db,ALERS AND INSTITUTIONS The Finance Director will maintain a list of financial institutions authorized to provide investment services. No public deposit shall be made except in a qualified public depository as established by state law. All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the Finance Director with the following: audited financial statement, proof of National Association ol'Security Dealers certification, trading resolution, proof of state registration, completed bi-okei-/de,atei-qtiestioiinaire if requested, and certification ofhaving read entity's investment policy.. An annual review of the financial condition and registrations of qualified bidders will be conducted by the Finance Director. A current audited financial statement is required to be on rile for each financial institution and broker/dealer in which the City of Paris invests. 8.0 Aurm'.)RIZED/SUITABLE INVESTMENTS Tile City of Paris is empowered by statue to invest in the Types of securities authorized by Chapter 2256 of the. Government Code. Even if allowed by the Public Funds Investment Act, the City of Paris will not invest in securities known as "'collateralized debt obligations" which are pools of debt that include sub-, prime mortgages. 9.0 COLLA"VERALIZATION Collateralization will be required on two types of invest in e tits: certificates of deposit and repurchase (and reverse) agreements. In order to anticipate market changes and provide a level of security for all funds,, the collateralization level will be 100%, of market value of principal and accrued interest. '['he City of Paris, chooses to limit collateral to the extent it is limited by Article 105 Revised Civil Statues ofTexas. Collateral will always be held by all independent third party with whom lite entity has a current custodial agreement. A clearly marked evidence of ownership (safekeeping receipt) must be supplied to the entity and retained. The right of collateral substitution is granted. 10.0 SAFEKEEPING AND CUSTODY All security transactions, including collateral for repurchase agreements, entered inter by the City of Paris shall be conducted on a delivery -versus -payment (DVP) basis. Securities will be held by a third party custodian designated by the Finance Director and evidenced by safekeeping receipts. 11.0 DIVERSIFICATION The ity of Paris will diversify its investments by security type and institution. With the c, cc tion o N 1) obligations of the United States or its agencies all(] authorized pools, no more than 50% of the City of Paris total investment portfolio will be invested in a single financial institution with the exception of' its local depository. 12.0 MAXIMUM MATURITIES To the extent possible, the City of Paris will attempt to match its invest uents with anticipated cash flow requirements. Unless matched to a specific cash flow, the City of Paris will not directly invest in securities maturing more than 10 ),cars frown the date of purchase. Hovvever, the City ofParis may collateralise its repurchase agreements using longer -dated investments not to exceed 15 years to maturity. Reserve funds may be invested in securities exceeding 10 years if the maturity of such investments is made to coincide as nearly as practicable with the expected use of the funds, 13.0 INTERNAL CONTROL The Finance Director shall establish all annual process of independent review by an external auditor, This review will provide internal control by assuring compliance with policies and procedures. 14.0 PERFORMANCE STANDARDS 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 the cash flow needs. 14.1 MARKETYIELD (ITT NC City of Paris investniclitstrategy` is active. (:liven this strategy, the basis used by the Finance Director to determine whether market yields are being; achieved shall be the six-month U.S. Treasury Bill and the Average Fed Funds rate. 15.0 REPORTING The Finance Director is charged with the responsibility of including a market report on investment activity and returns in the City of Paris' Financial Report. Reports must include all information required by Section 2256.023 of the statute. 16.0 The market price of acquired investments shall be monitored by using information found in the Wall Strect Journal and/or through Bloomberg Information Services, and/or through a securities dealer's trading desk, 17.0 INVESTMENTPOIJCY ADOPTION The City ol'Paris investment policy shall be adopted by resolution ofthe City Council. The policy shall be reviewed and re -adopted annually, by the City Council and any modill cations made thereto must be approved by the City Council.