[HISTORY: Adopted by the Commissioners of the Town of Dewey
Beach 1-17-2009 by Ord. No. 639. Amendments noted where applicable.]
A.
The Mayor, Commissioners and management of the Town of Dewey Beach
have the responsibility to manage the Town's financial resources
in such a manner as to maximize its investment return while preserving
its invested principal. This Investment Policy is intended to provide
the Town's fiduciaries with guidance as to the planning, management,
control and safeguarding of the Town's financial assets. This
Investment Policy shall be operated in conformity with all applicable
federal, state, local and other legal requirements.
B.
This policy applies to the investments of the Town's two major
funds, the General Fund and the Beach Replenishment Fund. Balances
in the Town's smaller (minor) funds will continue to be invested
in collateralized repurchase agreements (sweep accounts) as is the
current practice or other no-risk investments such as U.S. Treasury
obligations, certificates of deposit, etc.
A.
This Investment Policy is designed to take a more aggressive approach
to investing portions of the Town's General Fund surplus amounts
and Beach Replenishment Fund balances that are not needed to meet
short-term operational and capital needs in order to increase the
Town's total return on its investments and to provide additional
resources for the Town's mid- and long-term requirements.
B.
Inasmuch as the General Fund and Beach Replenishment Fund have different
financial objectives, liquidity requirements, and restrictions (Beach
Replenishment Fund), the investment strategy of each is somewhat different
and is directed to each fund's specific requirements.
(1)
The General Fund as the operating fund of the Town of Dewey Beach
is used to account for all financial resources (operating and capital)
of the Town except for revenue sources that are legally restricted
to expenditures for specific purposes. To the extent possible, the
Town shall attempt to match its investments of General Fund surplus
monies with anticipated cash flow requirements. Based on anticipated
short-term (one year or less), mid-term (two years to five years)
and long-term (five years and beyond) financial operating and capital
needs, the General Fund surplus shall be invested as follows:
(a)
Invest all funds required to meet specific short-term operating and capital needs in high-yield collateralized repurchase agreements (sweep account) as is the current practice or other liquid, low-risk investments such as U.S. Treasury obligations, certificates of deposits, etc. as set forth in Exhibit A (Authorized Investments).[1]
(b)
Invest funds needed to meet specific mid-term capital requirements,
up to 0% of surplus funds, in appropriate stock (e.g., dividend-paying
conservative growth funds) and/or bond mutual funds regulated by the
SEC.
(2)
The Beach Replenishment Fund monies are restricted as to use to support
the Town's Atlantic Ocean beach and, if required, to help finance
future beach replenishment projects. It is difficult to predict when,
if ever, and to what extent the funds (which have accumulated from
a tax on property owners) may be needed. Accordingly, preservation
of principal and liquidity of investments are important from a fiduciary
perspective. The Town shall invest the Beach Replenishment Funds as
follows:
C.
The Mayor and Town Council, based on the advice of the Budget and
Finance Committee, may authorize a revision of the percentages above,
as conditions warrant.
The primary objectives, in order of priority, of investment
activities are safety, liquidity and yield.
A.
Safety of principal is the foremost objective of the overall investment
program. Investments shall be made in a manner designed to ensure
the preservation of capital in the overall portfolio. The objective
is to mitigate credit risk and interest rate risk.
(1)
Credit risk. The Town of Dewey Beach will minimize credit risk, which
is the risk of loss due to the failure of the security issuer or backer,
by:
(b)
Prequalifying the financial institutions, broker/dealers, intermediaries,
and advisers with which the Town will do business; and
(c)
Diversifying the investment portfolio so that the impact of
potential losses from any one type of security or from any one individual
issuer will be minimized.
(2)
Interest rate risk. The Town of Dewey Beach 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:
(a)
Structuring the investment portfolio so that securities mature
to meet cash requirements for ongoing operations, thereby avoiding
the need to sell securities on the open market prior to maturity;
and
(b)
Investing operating funds primarily in shorter-term securities,
money market mutual funds, or similar investment pools and limiting
the average maturity of the portfolio in accordance with this policy.
B.
Liquidity. The investment portfolio shall remain sufficiently liquid
to meet all operating requirements that may be reasonably anticipated.
This is accomplished by structuring the portfolio so that securities
mature concurrent with cash needs to meet anticipated demands. Furthermore,
because all possible cash demands cannot be anticipated, the portfolio
should consist largely of securities with active secondary or resale
markets. Alternatively, a portion of the portfolio may be placed in
money market mutual funds or local government investment pools which
offer same-day liquidity for short-term funds.
C.
Yield. The investment portfolio shall be designed with the objective
of attaining a market rate of return throughout budgetary and economic
cycles, taking into account the investment risk constraints and liquidity
needs. Return on investment is of secondary importance compared to
the safety and liquidity objectives described above. The core investments
are limited to relatively low-risk securities in anticipation of earning
a fair return relative to the risk being assumed.
A.
Prudence. 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 this Investment Policy and
exercising due diligence shall be relieved of personal responsibility
for an individual security's credit risk or market price changes,
provided deviations from expectations are reported in a timely fashion
and the liquidity and the sale of securities are carried out in accordance
with the terms of this policy. The "prudent person" standard states
that "investments shall be made with judgment and care, under circumstances
then prevailing, which persons of prudence, discretion and intelligence
exercise in the management of their own affairs, not for speculation,
but for investment, considering the probable safety of their capital
as well as the probable income to be derived."
B.
Ethics and conflicts of interest. Officers and employees involved
in the investment process shall refrain from personal business activity
that could conflict with the proper execution and management of the
investment program, or that could impair their ability to make impartial
decisions. Employees and investment officials shall disclose any material
interests in financial institutions with which they conduct business.
They shall further disclose any personal financial/investment positions
that could be related to the performance of the investment portfolio.
Employees and officers shall refrain from undertaking personal investment
transactions with the same individual with whom business is conducted
on behalf of the Town of Dewey Beach.
C.
Delegation of authority.
(1)
Authority to manage the investment program is granted by the Mayor
and Town Council of Dewey Beach to the Town Manager (or Financial
Manager), hereinafter referred to as "Investment Officer." Responsibility
for the operation of the investment program is hereby delegated to
the Investment Officer, who shall act in accordance with established
written procedures and internal controls for the operation of the
investment program consistent with this Investment Policy. Procedures
should include references to: safekeeping, delivery versus payment,
investment accounting, repurchase agreements, wire transfer agreements,
and collateral/depository agreements. No person or Town employee may
engage in an investment transaction without the approval of the Mayor
and Town Council. With the exception of the Mayor and Town Council,
no person may engage in an investment transaction except as provided
under the terms of the policy and the procedures established by the
Investment Officer. The Investment Officer shall be responsible for
all transactions undertaken and shall establish a system of controls
to regulate the activities of subordinate officials.
(2)
The Investment Officer may not originate or implement a new investment
program or make investments without Budget and Finance Committee,
Mayor and Town Council approval. The Investment Officer, with the
approval of the Chairman of the Budget and Finance Committee, may
renew an existing investment that has matured.
A.
Delivery versus payment. All trades of marketable securities will
be executed by delivery versus payment (DVP) to ensure that securities
are deposited in an eligible financial institution prior to the release
of funds.
B.
Safekeeping. Securities will be held by a (centralized) independent
third-party custodian selected by the Town as evidenced by safekeeping
receipts in the Town of Dewey Beach's name. The safekeeping institution
shall annually provide a copy of its most recent report on internal
controls (Statement of Auditing Standards No. 70, or SAS 70).
C.
Internal controls. The Investment Officer shall establish a system
of internal controls, which shall be documented in writing. The internal
controls shall be reviewed by the Budget and Finance Committee and
with the independent auditor. The controls shall be designed to prevent
the loss of public funds arising from fraud, employee error, misrepresentation
by third parties, unanticipated changes in financial markets, or imprudent
actions by employees and officers of the Town of Dewey Beach.
B.
Collateralization. If the Town of Dewey Beach deposits any funds
in any financial institution, those funds will be subject to the following
collateralization requirements. The financial institution shall:
(2)
If either criterion in Subsection B(1) is not satisfied, collateral must be pledged and shall consist of one or more of the following securities:
(a)
U.S. government securities.
(b)
U.S. government agency securities.
(c)
Federal Home Loan Board letters of credit.
(d)
State of Delaware securities.
(e)
Securities of a political subdivision of the State of Delaware
with a Moody's rating of at least "A" or its equivalent as reported
by another nationally recognized rating agency.
(3)
Ensure that the securities pledged as collateral (except for Federal
Home Loan Board letters of credit) have a market value equal to or
greater than 102% of the ledger balance(s) in the accounts marked
to market each day.
The investments shall be diversified by:
A.
Limiting investments to avoid over-concentration in securities from
a specific issuer or business sector (excluding U.S. Treasury securities);
B.
Limiting investment in securities that have higher credit risks;
C.
Investing in securities with varying maturities; and
D.
Continuously investing a portion of the portfolio in readily available
funds such as local government investment pools (LGIPs), money market
funds or overnight repurchase agreements to ensure that appropriate
liquidity is maintained in order to meet ongoing obligations.
A.
Methods. The Investment Officer shall prepare an investment report
at least quarterly, including a management summary that provides an
analysis of the status of the current investment portfolio and the
individual transactions executed of the last quarter. This management
summary will be prepared in a manner which will allow the Town of
Dewey Beach to ascertain whether investment activities during the
reporting period have conformed to the investment policy. The report
should be provided to the Mayor and Town Council, the Town Manager,
and the Budget and Finance Committee. The report will include the
following:
(1)
Listing of individual securities held at the end of the reporting
period.
(2)
Realized and unrealized gains or losses resuting from appreciation
or depreciation by listing the cost and market value of securities
over one-year duration that are not intended to be held until maturity.
(3)
Average weighted yield to maturity of portfolio on investments as
compared to applicable benchmarks.
(4)
Listing of investment by maturity date.
(5)
Percentage of the total portfolio which each type of investment represents.
B.
Performance standards. The investment portfolio will be managed in
accordance with the parameters specified within this policy. The portfolio
should obtain a market average rate of return during a market/economic
environment of stable interest rates. A series of appropriate benchmarks
shall be established against which portfolio performance shall be
compared on a regular basis. The benchmarks shall be reflective of
the actual securities being purchased and risks undertaken, and the
benchmarks shall have a similar weighted average maturity as the portfolio.
The following indices are considered benchmarks for lower risk investment
transactions and therefore might comprise a minimum standard for the
portfolio's rate of return:
C.
Marking to market. The market value of the portfolio shall be calculated
at least quarterly, and a statement of the market value of the portfolio
shall be issued at least quarterly. This will ensure that review of
the investment portfolio, in terms of value and price volatility,
has been performed consistent with the GFOA recommended practice on
"Mark-to-Market Practices for State and Local Government Investment
Portfolios and Investment Pools." In defining market value, considerations
should be given to the GASB Statement 31 pronouncement.
This policy shall be reviewed on an annual basis. Any changes
must be approved by the Investment Officer and Budget and Finance
Committee and then submitted to the Mayor and Town Council for approval.
