[HISTORY: Adopted by the City Council of the City of Lexington 9-11-2006 by Ord. No.
2006-3 (Ch. 2, Art. 4, of the 1998 Code). Amendments
noted where applicable.]
It is the policy of the City of Lexington to invest public funds
in a manner which will provide the highest investment return with
the maximum security while meeting the daily cash flow demands of
the City and conforming to all state statutes governing the investment
of public funds.
This investment policy applies to all funds of the City. These
funds include all current operating funds and any other funds which
may be created from time to time; provided, however, that any other
more restrictive provisions of state or federal law applicable to
specified funds shall apply in lieu of the provisions of this chapter.
The funds of the City shall be invested in accordance with the
"prudent person" standard. This standard shall be applied in the context
of managing an overall portfolio. Investments shall be made with judgment
and care, under circumstances then prevailing, which persons of prudence,
discretion, and intelligence exercise in the management of their own
affairs, not for speculation, but for investment, considering the
probable safety of their capital, as well as the probable income to
be derived.
The primary objectives, in order of priority, of investment
activity shall be:
A.
Safety of
principal. Safety of principal is the foremost objective of the investment
program. Investment of City assets shall be undertaken in a manner
that seeks to ensure the preservation of capital in the portfolio.
Credit risk is the risk of loss due to the failure of the security
issuer or backer and shall be mitigated by:
B.
Interest
rate risk. Interest rate risk is the risk that the market value of
securities in the portfolio will fall due to changes in general interest
rates, and shall be mitigated by:
(1)
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 majority;
(2)
Investing
operating funds primarily in short-term securities; and
(3)
Limiting
all investments to a defined and stated maturity of not more than
five years.
C.
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, or investment instruments which offer same-day liquidity.
D.
Return on
investments. 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 least importance compared to the
safety and liquidity objectives described above. The core of investments
are limited to relatively low-risk securities in anticipation of earning
a fair return relative to the risk being assumed. Securities shall
not be sold prior to maturity unless liquidity needs of the City require
that the security be sold.
The establishment of an investment policy is the responsibility
of the City Council of the City. Management and administrative responsibility
for the investment program is hereby delegated to the Treasurer, who
is under the direction of the Mayor and City Council. The Treasurer
shall be responsible for all transactions undertaken and may, subject
to approval of the City Council, establish a system of controls to
regulate investment and financial activities and subordinate officials,
provided that any such system of controls shall be consistent with
this investment policy. Any system of controls shall be written and
may include procedures which explicitly set forth the delegation of
authority to responsible persons for specific financial transactions
and which are designed to prevent losses of funds that might arise
from fraud, employee error, misrepresentation by third parties, or
imprudent actions by employees or officials. Subject to approval of
the City Council, the Treasurer may from time to time amend the written
procedures in a manner not inconsistent with this policy or state
statutes. No person may engage in any investment transaction except
as provided for under the terms of this policy.
Investments shall be made that reflect the cash flow needs of
the specific fund type being invested. The investment of City funds
may only be made in the following instruments:
A.
Bonds, notes,
certificates of indebtedness, treasury bills or other securities now
or hereafter issued by the United States of America, its agencies
and allowable instrumentalities;
B.
Interest-bearing
savings accounts, interest-bearing certificates of deposit or interest-bearing
time deposits, or any other investments constituting direct obligations
of any bank as defined by the Illinois Banking Act[1] (Investments may be made only in those savings banks or
savings and loan associations, the shares or investment certificates
of which are insured by the Federal Deposit Insurance Corporation.);
[1]
Editor's Note: See 205 ILCS 5/1 et seq.
C.
Certificates
of deposit with federally insured institutions that are collateralized
or insured at levels acceptable to the City in excess of the $100,000
provided by the Federal Deposit Insurance Corporation coverage limit;
D.
The Illinois
Public Treasurer's Investment Pool; and
City funds on deposit in excess of FDIC insurable limits must
be secured by collateral or private insurance to protect public deposits
in a single financial institution if the institution were to default.
Collateral must be placed in safekeeping at or before the time when
the City buys an investment in a manner clearly demonstrating that
the purchase of the investment is predicated on the securing of the
collateral. Third-party safekeeping is required for all collateral
and shall be documented by an approved written agreement between the
City and a financial institution which complies with all state and
federal (including FDIC) regulations.
The Treasurer shall maintain a list of financial institutions
authorized to provide investment services for the City and to handle
City funds. Additionally, the Treasurer shall maintain a list of financial
advisors and money managers. In order to be placed on these lists,
the financial institution, financial advisor, or money manager must
be approved based upon credit worthiness, meeting state and federal
laws and regulations, and ability to provide necessary services or
investment types for the City.
The City's investments shall be diversified within the practical
considerations which reflect the types of funds being invested, the
amount of funds, the purpose of the funds, and the cash flow needs
of the funds. Diversification shall include the type of investment,
length of maturity, and number of institutions holding the City's
investments.
Third-party safekeeping is required for all securities and financial
instruments. Safekeeping shall be documented by an approved written
agreement between the City and a financial institution which complies
with all state and federal (including FDIC) regulations. The written
agreement may be in the form of a safekeeping agreement, trust agreement,
escrow agreement, or custody agreement. Original certificates of deposit
may be held by the originating bank or financial institution with
a safekeeping receipt providing the necessary and acceptable documentation.
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 City's investment program,
or that could impair their ability to make impartial decisions. No
elected official, Council member, or employee of the City or a member
of the immediate family of such a person shall act as banker, broker
or investment advisor for the City, or receive any compensation either
directly or indirectly as a result of any investment made by the City,
or have any interest in any investment made by the City.
The Treasurer is responsible for establishing and maintaining
an internal control structure, which includes written policies, designed
to ensure that the assets of the City are protected from loss, theft
or misuse. The internal control structure shall be designed to provide
reasonable assurance that these objectives are met. Accordingly, the
Treasurer shall establish a process which includes an annual independent
review by an external auditor to assure compliance with the established
policies and procedures. Additionally, the internal control structure
shall consider control of collusion, separation of transaction authority
from accounting and bookkeeping, custodial safekeeping, clear delegation
of authority to subordinate staff members, and written confirmation
of transactions for investments and wire transfers. Furthermore, when
practicable, monies received will be invested within five business
days in an interest-bearing account.
Investment officers and employees of the City acting in accordance
with this policy and such written operational policies as may be established
by the City or its Treasurer, and who otherwise exercise due diligence
and act with reasonable prudence in accordance with this Investment
Policy shall be relieved of personal liability for an individual security's
credit risk or market changes.
The investment portfolio will be managed in accordance with
the parameters specified within the policy. The portfolio should obtain
a market average rate of return during a market and economic conditions
of stable interest rates. In general, the Treasurer will strive to
earn an average rate of return consistent with the U.S. Treasury Bill
rate of return for a given period of time for the average weighted
maturity of the City's investments.
A.
The Treasurer
shall prepare an investment report at least quarterly, including a
succinct management summary to provide a clear picture of the status
of the current investment portfolio. This management summary will
be prepared in a manner which will allow the entity to ascertain whether
investment activities during the reporting period have conformed to
this investment policy. The report should be provided to the Mayor
and City Council.
This policy shall be reviewed from time to time by the Treasurer.
The Mayor and City Council must approve any modifications made thereto.
