The purpose of this investment policy (the "policy") is to set
forth specific investment policy and strategy guidelines for the city
in order to achieve the goals of safety, liquidity, achieving a market
rate of return, and maintaining public trust for all investment activities.
The city council shall review the investment strategy and policy at
least annually, and the city council shall annually approve the investment
policy revisions, if any, by formal resolution.
(Ordinance 2957, sec. 5, adopted 9/28/20; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
The city maintains a comprehensive and proactive cash management program that is designed to monitor and control all city funds to ensure maximum utilization and yield a market rate of return. The basic and underlying strategy of this program is that all of the city's funds are earning interest. It is the responsibility and obligation of the city to maintain a flexible approach and be prepared to modify the investment strategy as market conditions dictate. The investment strategy described is predicated on conditions as now exist and are subject to change. The investment strategy emphasizes low credit risk, diversification, and the management of maturities. The strategy also considers the expertise and time constraints of the investment officers. The allowable investment instruments as defined in section 1.09.076 of this policy reflect the avoidance of credit risk. Diversification refers to dividing investments among a variety of securities offering independent returns. This strategy uses local government investment pools to provide a cash equivalent investment option. The management of maturities refers to structuring the maturity dates of the direct investments so that, while funds are initially invested for a longer period of time, some investments mature as cash needs require.
(1)
The primary investment strategy and objectives of the city as specified in this policy (see section 1.09.074) are listed below, in their order of importance:
(2)
The list of investments authorized by this policy intentionally
excludes some investments allowed by state law. The restrictions limit
possible credit risk and provide the maximum measure of safety. Within
the investment objectives, the investment strategy is to utilize authorized
investments for maximum advantage to the city. To increase the interest
earnings for funds identified as being available for investment over
longer periods of time, based upon a cash requirement projection,
the city will consider the following strategies:
(A)
Strategy No. 1.
Utilizing cash equivalent investment
opportunities through the use of local government investment pools
and money market mutual funds as authorized by the city council. An
investment pool is an entity created to invest public funds jointly
on behalf of its participants and whose investment objectives in order
of priority match those objectives of the city. Funds are usually
available from investment pools on a same-day basis, meaning the pools
have a high degree of liquidity. Because of the size and expertise
of their staff, investment pools are able to prudently invest in a
variety of the investment types allowed by state law. In this manner,
investment pools achieve liquidity and diversification. The strategy
of the city calls for the use of investment pools as a primary source
of liquidity and supplemental source of diversification. Funds that
may be needed on a short-term basis but that are in excess of the
amount maintained at the depository bank are available for deposit
in investment pools.
(B)
Strategy No. 2.
Building a ladder of investment
policy authorized investments with staggered maturities for all or
part of the longer-term investable funds. The benefits of this ladder
approach include the following:
(i)
It is straight-forward and easily understood;
(ii)
It represents a prudent diversification method;
(iii)
All investments remain within the approved maturity
horizon;
(iv)
It will normally allow the city to capture a reasonable
portion of the yield curve; and
(v)
It provides predictable cash flow with scheduled maturities
and reinvestment opportunities.
(C)
Strategy No. 3.
(i)
Pursuant to the Act (Texas Government Code 2256.003), the city
may, at its discretion, contract with an investment management firm
registered under the Investment Advisors Act of 1940 (15 U.S.C. section
80b-1 et seq.) and with the state securities board to provide for
investment and nondiscretionary management of its public funds or
other funds under its control.
(ii)
An appointed investment advisor shall act solely
in an advisory and administrative capacity, within the guidelines
of this investment policy. At no time shall the advisor take possession
of investments or funds or otherwise be granted discretionary authority
to transact business on behalf of the city. Any contract awarded by
the city council for investment advisory services may not exceed two
years.
(iii)
Duties of the investment advisor contracted by
the city shall abide by the prudent expert rule, whereby investment
advice shall, at all times, be given with the judgment and care, under
circumstances then prevailing, which persons paid for their special
prudence, discretion and intelligence in such matters exercise in
the management of their client's affairs, not for speculation
by the client or production of fee income by the advisor or broker,
but for investment by the client with emphasis on the probable safety
of the capital while considering the probable income to be derived.
(D)
Strategy No. 4.
The city will maintain portfolio(s)
which utilize four specific investment strategy considerations designed
to address the unique characteristics of the fund group(s) represented
in the portfolio(s):
(i)
Investment strategies for operating funds and pooled funds containing
operating funds have as their primary objective to assure that anticipated
cash flows are matched with adequate investment liquidity. The secondary
objective is to create a portfolio that will experience minimal volatility
during economic cycles through diversification by security type, maturity
date and issuer. All security types, as authorized by this policy,
are considered suitable investments for the operating and pooled funds.
(ii)
Investment strategies for debt service funds shall
have as the primary objective the assurance of cash equivalent balances
adequate to cover the debt service obligation on the required payment
date(s). These funds have predictable payment schedules. Therefore
investment maturities shall not exceed the anticipated cash flow requirements.
(iii)
Investment strategies for debt service reserve
funds shall have as the primary objective the ability to generate
a dependable revenue stream to the appropriate debt service fund.
Managing the debt service reserve fund's portfolio maturities
to not exceed the call provisions of the bond issue will reduce the
investment's market risk if the city's bonds are called
and the reserve fund liquidated. No investment maturity shall exceed
the final maturity of the bond issue.
(iv)
Investment strategies for special projects and
capital projects funds will have as their primary objective to assure
that anticipated cash flows are matched with adequate investment liquidity.
Market conditions and arbitrage regulations will influence the investment
of capital project funds. When market conditions allow, achieving
a positive spread to applicable arbitrage yield is the desired objective,
although at no time shall the anticipated expenditure schedule be
exceeded in an attempt to increase yield.
(E)
Strategy No. 5 - Hold until maturity.
The strategy
of the city is to maintain sufficient liquidity in its portfolio so
that it does not need to sell or redeem an investment prior to maturity.
Should it become necessary to sell or redeem prior to maturity, where
the sale proceeds are less than the current book value, the prior
written consent of the city administrator must be obtained. Investments
may be sold or redeemed prior to maturity by the investment officer
at or above their book value at any time.
(F)
Strategy No. 6 - Pooling of deposits and investments.
All demand deposits of the city will be concentrated with a
primary depository. This procedure will maximize the city's ability
to pool cash for investment purposes, and provide more manageable
banking relationships. In addition to the primary depository, other
depositories may be eligible to provide selective banking services
and bid on city investments.
(G)
Strategy No. 7 - Primary depository bank relationships.
This policy shall further seek to maintain good primary depository
bank relationships while minimizing the cost of banking services.
The city will seek to maintain a primary depository contract which
will be managed to a level that minimizes the cost of the banking
relationship to the city, while allowing the city to earn an appropriate
return on idle demand deposits.
(H)
Strategy No. 8 - Single pooled fund group.
A single
strategy is specified, in accordance with the single pooled fund group
as defined in this policy. However, earnings from investments will
be allocated on a pro-rata cash basis to the individual funds and
used in a manner that will best service the interests of the city.
(I)
Strategy No. 9 - Maximizing investible cash balances.
Procedures shall be established and implemented in order to
maximize investible cash by decreasing the time between the actual
collection and the deposit of receipts, and by the controlling of
disbursements.
(Ordinance 2957, sec. 5, adopted 9/28/20; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
The investment policy shall govern the investment of all financial
assets considered to be part of the city and includes the following
funds or fund types: General fund, utility fund, debt service fund,
capital projects fund, special revenue funds, and any other funds
which have been contractually delegated to the city for management
purposes. The city may add or delete funds as may be required by law,
or for proper accounting procedures. This policy does not include
funds governed by approved trust agreements, or assets administered
for the benefit of the city by outside agencies under retirement or
deferred compensation programs. Additionally, bond funds (including
debt service and reserve funds) are governed by bond ordinances and
are subject to the provisions of the Internal Revenue Code and applicable
federal regulations governing the investment of bond proceeds.
(Ordinance 2957, sec. 5, adopted 9/28/20; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
Funds of the city shall be invested in accordance with all applicable
state statutes, this policy and any other approved, written administrative
procedures. The four objectives of the city's investment activities
shall be as follows (in the order of priority):
(1)
Safety of principal.
Safety of principal invested
is the foremost objective in the investment decisions of the city.
Each investment transaction shall seek to ensure the preservation
of capital in the overall portfolio. The risk of loss shall be controlled
by investing only in authorized investments as defined in this policy,
by qualifying the financial institutions with which the city will
transact, and by portfolio diversification. Safety is defined as the
undiminished return of the principal on the city's investments.
All investment officers shall understand the suitability of investment
to the financial requirements of the city.
(2)
Liquidity.
The investment portfolio shall be managed to maintain liquidity to ensure that funds will be available to meet the city's cash flow requirements and by investing in securities with active secondary markets. Investments shall be structured in such a manner as will provide the liquidity necessary to pay obligations as they become due. A portion of the portfolio also may be placed in financial institution deposits, money market mutual funds or local government investment pools which offer same-day liquidity for short-term funds. An investment may be redeemed or liquidated prior to its stated maturity to meet unanticipated cash requirements, or to otherwise favorably adjust the city's portfolio, in accordance with section 1.09.072(2)(E) above.
(3)
Market rate-of-return (yield).
The city's
investment portfolio shall be designed to optimize a market rate-of-return
on investments consistent with risk constraints and cash flow requirements
of the portfolio. The investment portfolio shall be managed in a manner
which seeks to attain a market rate of return throughout budgetary
and economic cycles. The city will not attempt to consistently attain
an unrealistic above market rate-of-return, as this objective will
subject the overall portfolio to greater risk. Therefore, the city's
rate of return objective is secondary to those of safety and liquidity.
Rate of return (yield) is defined as the rate of annual income return
on an investment, expressed as a percentage.
(4)
Public trust.
All participants in the city's
investment program shall seek to act responsibly as custodians of
the public trust. Investment officials shall avoid any transaction
which might involve a conflict of interest or otherwise impair public
confidence in the city's ability to govern effectively. All officials
of the city having either a direct or indirect role in the process
of investing idle funds shall act responsibly as custodians of the
public trust.
(Ordinance 2957, sec. 5, adopted 9/28/20; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
As provided in this policy, the daily operation and management
of the city's investments are the responsibility of the following
persons.
(1)
Delegation of authority.
(A)
The city finance director and staff accountant will serve as
"investment officers" and are authorized to deposit, withdraw, invest,
transfer or manage in any other manner the funds of the city. Day-to-day
management responsibility for the investment program is hereby delegated
to the city finance director, who shall establish written procedures
for the operation of the investment program, consistent with this
policy. Such procedures shall include explicit delegation of authority
to persons responsible for investment activities. All persons involved
in investment activities will be referred to in this policy as "investment
officials." No persons may engage in an investment transaction except
as provided under the terms of this policy and the procedures established
by the city finance director. The city finance director shall be responsible
for all transactions undertaken, and shall establish a system of controls
to regulate the activities of subordinate investment officials. The
system of controls shall be designed to provide reasonable assurance
that ensures the assets of the city are protected from loss, theft
or misuse. The concept of reasonable assurance recognizes that:
(B)
The city finance director shall be designated as the primary
investment officer for the city and shall be responsible for investment
decisions and activities under the direction of the city administrator.
Commitment of financial and staffing resources in order to achieve
the city's investment objectives through active portfolio management
shall be the responsibility of the city council.
(2)
Prudence.
The standard of prudence to be applied
by each investment officer shall be the "prudent person" rule, which
states, "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." In determining whether
an investment officer has exercised prudence with respect to an investment
decision, the determination shall be made taking into consideration
the following:
(3)
Due diligence.
An investment officer acting in
accordance with written policies and procedures and exercising due
diligence, shall not be held personally responsible for a specific
investment's credit risk or market price changes, provided that
these deviations are reported in a timely manner and that appropriate
action is taken to control adverse developments. All investment officials
involved in investment transactions will be bonded.
(4)
Ethical standards and conflicts of interest.
All
city investment officials having a direct or indirect role in the
investment of city funds shall act as custodians 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. Officers and employees involved
in the investment process shall refrain from personal business activity
that could conflict with proper execution of the investment program,
or which could impair the ability to make impartial investment decisions.
An investment officer who has a personal business relationship with
the depository bank or with any entity seeking to sell an investment
to the city shall file a statement disclosing that personal business
interest. An investment officer who is related within the second degree
of affinity or consanguinity to an individual seeking to sell an investment
to the city shall file a statement disclosing that relationship. A
statement required under this subsection must be filed with the Texas
Ethics Commission and the city council.
(5)
Training.
Each investment officer shall attend
at least one ten-hour training session relating to the officer's
responsibility under the act within twelve (12) months after assuming
duties, and attend an investment training session not less than once
every two years (aligned with the city's fiscal year), receiving
an additional eight (8) hours of PFIA training.
(Ordinance 2957, sec. 5, adopted 9/28/20; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
As stated previously, safety of principal is the primary objective
in investing public funds and can be accomplished by limiting two
types of risk-credit risk and interest rate risk. Credit risk is the
risk associated with the failure of an investment's issuer or
backer. Interest rate risk is the risk that the value of a portfolio
will decline due to an increase in the general level of interest rates.
In order to provide for safety of principal as the city's primary
objective, only certain investments are authorized as acceptable investments
for the city. The following list of authorized investments for the
city intentionally excludes some investments authorized by law. These
restrictions are placed in order to limit possible risk and provide
the maximum measure of safety to city funds.
(1)
Authorized and acceptable investments.
The authorized
list of investment instruments is as follows:
(A)
Obligations of the United States or its agencies and instrumentalities,
excluding mortgage-backed securities.
(B)
Direct obligations of the state, or its agencies and instrumentalities.
(C)
Other obligations, the principal of and interest on which are
unconditionally guaranteed or insured by, or backed by the full faith
and credit of, the 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, excluding
mortgage-related securities.
(D)
Financial institution deposits.
(i)
Deposits with a depository institution that has its main office
or a branch office in this state and is:
(ii)
Deposits placed through a broker or financial
institution that has its main office or a branch office in the state
that arranges for deposit of the funds in one or more federally insured
depository institutions, wherever located, for an account of the city,
and in compliance with the requirements of the act.
(E)
Eligible local government investment pools.
Public
funds investment pools which invest in instruments and follow practices
allowed by the current law as defined in section 2256.016 of the Texas
Government Code, provided that:
(i)
The investment pool has been authorized by the city council;
(ii)
The pool shall have furnished the investment officer
an offering circular containing the information required by section
2256.016(b) of the Texas Government Code;
(iii)
The pool shall furnish the investment officer
investment transaction confirmations with respect to all investments
made with it;
(iv)
The pool shall furnish to the investment officer
monthly reports containing the information required under section
2256.016(c) of the Texas Government Code;
(v)
The pool is continuously rated no lower than "AAA" or "AAA-m"
or an equivalent rating by at least one nationally recognized rating
service;
(vi)
The pool marks its portfolio to market daily;
(vii)
The pool's investment objectives shall be
to maintain a stable net asset value of one dollar ($1.00); and
(viii)
The pool's investment philosophy and strategy
are consistent with this policy.
(F)
Repurchase agreements, reverse repurchase agreements, bankers'
acceptances, and commercial paper.
These investments are authorized for the city to the extent that they are contained in the portfolios of approved public funds investment pools in which the city invests. Only fully collateralized direct repurchase agreements with the city's bank depository are authorized city investments. All city repurchase agreement transactions shall be governed by a signed master repurchase agreement. Repurchase agreements must also be secured in accordance with state law as described in section 1.09.080.
(G)
Regulated no-load money market mutual funds.
(i)
These investments are authorized, under the following conditions:
a.
The money market mutual fund is registered with and regulated
by the Securities and Exchange Commission;
b.
The fund provides the city with a prospectus and other information
required by the Securities Exchange Act of 1934 or the Investment
Company Act of 1940;
c.
The fund has a dollar-weighted average portfolio maturity in
compliance with Securities and Exchange Commission regulation;
d.
The investment objectives include the maintenance of a stable
net asset value of one dollar ($1.00) per share; and
e.
The fund is continuously rated no lower than "AAA" or an equivalent
rating by at least one nationally recognized rating service.
(ii)
The city may not invest funds under its control
in an amount that exceeds 10% of the total assets of any individual
money market mutual fund.
(2)
Investment instruments not authorized.
The investment
officer shall not knowingly permit city funds to be invested with
any of the following investment instruments that are strictly prohibited:
(A)
Obligations whose payment represents the coupon payments on
the outstanding principal balance of the underlying mortgage-backed
security collateral and pays no principal.
(B)
An obligation whose payment represents the principal stream
of cash flow from the underlying mortgage-backed security collateral
and bears no interest.
(C)
Collateralized mortgage obligations that have a stated final
maturity date of greater than ten years.
(D)
Collateralized mortgage obligations, the interest rate of which
is determined by an index that adjusts opposite to the changes in
a market index.
(E)
Any investment prohibited by chapter 2270 of the Texas Government
Code.
(F)
Any other restricted instruments or limitations that involve
outright speculation.
(G)
The practice of "leveraging" whereby funds are borrowed for
the sole purpose of investing shall not be practiced.
(H)
The city shall take all prudent measures to liquidate an investment
that is downgraded to less than the required minimum designated rating.
(I)
The city is not required to liquidate an investment that was
authorized at the time of purchase.
(Ordinance 2957, sec. 11, adopted 9/28/20; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
Diversification of investment instruments shall be utilized
to avoid incurring unreasonable risks resulting from over-concentration
of investments in a specific maturity, a specific issue, or a specific
class of investments, where appropriate. Diversification of the portfolio
considers diversification by maturity dates and diversification by
investment instrument, as appropriate.
(1)
Diversification by maturities.
The longer the
maturity of investments, the greater their price volatility. Therefore,
it is the city's policy to concentrate its investment portfolio
in shorter-term investments in order to limit principal risks caused
by change in interest rates. The city will attempt to match its investments
with anticipated cash flow requirements. However, the above described
financial institution deposits or repurchase agreements may be collateralized
using longer date instruments. The city shall diversify the use of
investment instruments to avoid incurring unreasonable risks inherent
in over-investing in specific instruments, individual financial institutions
or maturities, where appropriate. Maturity scheduling shall be managed
by the investment officers so that maturities of investments shall
be timed to coincide with projected cash flow needs.
(Ordinance 2957, sec. 11, adopted 9/28/20; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
Financial institutions (federally insured banks) with or through
whom the city invests shall be state or national banks that have their
main office or a branch office in this state. No public deposit shall
be made except in a qualified public depository as established by state
laws. Broker/dealers authorized to provide investment services to
the city may include only those authorized by the city council. All
banking services will be governed by a depository contract acceptable
to the city. In addition, the city finance director shall maintain
a list of authorized security brokers/dealers, and investment pools
that are authorized by the city council.
(2)
Review of bidders financial conditions.
A periodic
review of the financial condition and registration of qualified investment
providers will be conducted by the city finance director, as necessary.
The review may include, but is not limited to, review of rating agency
reports, review of call reports, and analyses of management, profitability,
capitalization, and asset quality. Financial institutions and brokers/dealers
desiring to conduct business with the city shall be required to provide
any financial data requested.
(3)
Monitoring investments.
The investment officer(s)
of the city is responsible for monitoring the investments made by
a financial institution and/or broker/dealer to determine that they
are in compliance with the provisions of the investment policy.
(4)
investment policy certification.
All investment
providers and advisors shall provide the city a certification of having
read the city's investment policy, signed by a qualified representative
of the organization, and acknowledging that the organization has implemented
reasonable procedures and controls in an effort to preclude imprudent
investment activities arising out of investment transactions conducted
between the city and the organization.
(Ordinance 2957, sec. 11, adopted 9/28/20; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
It is the policy of the city that all security transactions
entered into with the city shall be conducted on a "delivery versus
payment" (DVP) basis through the federal reserve system or other system.
By doing this, city funds are not released until the city has received,
through the city's safekeeping agent, the securities purchased.
The city's funds shall only be released after the safekeeping
bank has received the purchased security and it has been placed in
the safekeeping account of the city.
(Ordinance 2957, sec. 11, adopted 9/28/20; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
(a)
Safekeeping.
All securities owned by the city
shall be held by its safekeeping agent. Original safekeeping receipts
shall be obtained and held by the city. 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.
(b)
Collateralization.
Consistent with the requirements
of the Public Funds Collateral Act, it is the policy of the city to
require full insurance or collateralization of all city funds on deposit
with a depository bank. The market value of the investments securing
the deposit of funds shall be at least equal to but not less than
102% of the amount of the deposits of funds reduced to the extent
that the deposits are insured by the Federal Deposit Insurance Corporation
(FDIC). Securities pledged as collateral shall be held in the city's
segregated account at the Federal Reserve Bank or by an independent
third party with whom the city has a current custodial agreement.
The agreement is to specify the acceptable investment securities as
collateral, including provisions relating to possession of the collateral,
the substitution or release of investment securities, ownership of
securities, and the method of valuation of securities. The custodial
agreement must clearly state that the custodian is instructed to release
collateral securities to the city in the event the city has determined
that the depository bank has failed to pay on any withdrawal request,
or has determined that the funds of the city are in jeopardy for whatever
reason, including involuntary closure or change of ownership. A clearly
marked evidence of ownership, e.g., pledge or collateral receipt,
must be supplied to the city and retained by the city. Any collateral
with a maturity over five (5) years must be approved by an investment officer
before the transaction is initiated. Release of collateral or substitution
of securities must be approved in writing by an investment officer.
(1)
The city may accept collateral as authorized by the Public Funds
Collateral Act (chapter 2257 of the Texas Government Code). All collateral
shall be subject to inspection and audit by the city or the city's
independent auditors.
(2)
Financial institutions with which the city maintains deposits
shall require the custodian to provide monthly, and as requested by
an investment officer, a listing of the collateral pledged to the
city, marked to current market prices. The listing shall include total
pledged securities itemized by name, type, description, par value,
current market value, maturity date, and Moody's or Standard
& Poor's rating, if applicable. The city and the financial
institution shall jointly assume the responsibility for ensuring that
the collateral is sufficient.
(3)
Collateralized deposits.
Consistent with the requirements
of state law, the city requires all bank deposits to be federally
insured or collateralized with eligible securities. Financial institutions
serving as city depositories will be required to sign a "depository
agreement" with the city. The collateralized deposit portion of the
agreement shall define the city's rights to the collateral in
the event of default, bankruptcy, or closing and shall establish a
perfected security interest in compliance with federal and state regulations,
including:
(A)
The agreement must be in writing;
(B)
The agreement has to be executed by the depository and the city
contemporaneously with the acquisition of the asset;
(C)
The agreement must be approved by the board of directors of
the loan committee of the depository and a copy of the meeting minutes
must be delivered to the city; and
(D)
The agreement must be part of the depository's "official
record" continuously since its execution.
(4)
Primary depository.
Not less than every five years,
a primary depository shall be selected through the city's banking
services procurement process, which shall include a formal request
for application and consistent with state law. In selecting a primary
depository, the service cost and credit worthiness of institutions
shall be considered, and the city finance director shall conduct a
comprehensive review of prospective depository's credit characteristics
and financial history.
(Ordinance 2957, sec. 11, adopted 9/28/20; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
The investment officer shall establish a system of written internal
controls. The controls shall be designed to prevent loss of public
funds due to fraud, error, misrepresentation, or imprudent actions.
The city, in conjunction with its annual financial audit, shall perform
a compliance audit of internal and management controls, and adherence
to the city's established investment policy.
(Ordinance 2957, sec. 11, adopted 9/28/20; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
(a)
A market rate of return is a general term referring to the approximate interest rate that could be earned by an investor in a specific maturity range at any given point in time. For example, an investor seeking to earn "a market rate of return" while maintaining an investment portfolio with an average maturity of 90 days would hope to earn approximately the same as a three-month agency discount note. If the investor earns a rate much higher than this, it might signal an inappropriate level of risk. The benchmark for performance that is appropriate for the city is provided in section 1.09.085 fund type investment strategies and will be calculated as weighted average yield to maturity.
(b)
To enhance performance, it is the policy of the city to create
a competitive environment for all individual purchases and sales,
financial institution deposits, money market mutual funds, and local
government investment pools.
(Ordinance 3007 adopted 10/11/21; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
The city finance director shall submit a quarterly investment
report, signed by all the investment officers, that summarizes current
market conditions, economic developments, and anticipated investment
conditions. The report shall summarize investment strategies employed
in the most recent quarter and describe the portfolio in terms of
investment securities, maturities, and risk characteristics, and shall
explain the interest income for the quarter.
(1)
Annual report.
Within ninety (90) days of the
end of the fiscal year, the city finance director shall present an
annual report on the investment program and investment activity. This
report may be presented as a component of the fourth quarter report
to the city administrator and city council. The reports prepared by
the city finance director shall be formally reviewed at least annually
by an independent auditor, and the result of the review shall be reported
to the city council by that auditor.
(2)
Methods.
The quarterly investment report shall
include a succinct management summary that provides a clear picture
of the status of the current investment portfolio and transactions
made over the past quarter. This management summary will be prepared
in a manner that will allow the city to ascertain whether investment
activities during the reporting period have conformed to this investment
policy. The report will be provided to the city council. The report
will include the following:
(A)
A listing of individual investments held at the end of the reporting
period. This list will include the name of the fund or pooled group
fund for which each individual investment was acquired;
(B)
Unrealized gains or losses resulting from appreciation or depreciation
by listing the beginning and ending book and market value of investments
for the period. Market values shall be obtained from financial institutions
or portfolio reporting services independent from the broker/dealer
from which the security was purchased;
(C)
Additions and changes to the market value during the period;
(D)
Fully accrued interest for the reporting period;
(E)
Average weighted yield to maturity of portfolio on entity investments
as compared to applicable benchmarks;
(F)
Listing of investments by maturity date;
(G)
The percentage of the total portfolio which each type of investment
represents;
(H)
Verification of current credit rating for all investments that
have a required minimum credit rating; and
(I)
Statement of compliance of the city's investment portfolio
with state law and the investment strategy and policy approved by
the city council.
(Ordinance 3007 adopted 10/11/21; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
The city's investment policy shall be adopted and amended
by resolution of the city council only. The city's written policies
and procedures for investments are subject to review and approval
not less than annually to stay current with changing laws, regulations
and needs of the city.
(Ordinance 3007 adopted 10/11/21; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
The city maintains portfolios which utilize four investment
strategy considerations designed to address the unique characteristics
of the fund types represented in the portfolios:
(1)
Operating funds and pooled funds.
(A)
Suitability.
Any investment eligible in the investment
policy is suitable for operating funds and pooled funds.
(B)
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 funds and pooled fund's portfolio to less than
365 days and restricting the maximum allowable maturity to two years,
the price volatility of the overall portfolio will be minimized.
(C)
Marketability.
Securities with active and efficient
secondary markets are necessary in the event of an unanticipated cash
flow requirement. Historical market "spreads" between the bid and
offer prices of a particular security-type of less than a quarter
of a percentage point will define an efficient secondary market.
(D)
Liquidity.
The operating funds and pooled 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.
(E)
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.
(F)
Yield.
Attaining a competitive market yield for
comparable investment-types and portfolio restrictions is the desired
objective. The average monthly TexPool yield will be the minimum yield
objective.
(2)
Debt service funds.
(A)
Suitability.
Any investment eligible in the investment
policy is suitable for the debt service fund.
(B)
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.
(C)
Marketability.
Securities with active and efficient
secondary markets are not necessary as the event of an unanticipated
cash flow requirement is not probable.
(D)
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. 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.
(E)
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.
(F)
Yield.
Attaining a competitive market yield for
comparable investment-types and portfolio restrictions is the desired
objective. The average monthly TexPool yield will be the minimum yield
objective.
(3)
Debt service reserve funds.
(A)
Suitability.
Any investment eligible in the investment
policy is suitable for debt service reserve funds. Bond resolution
and loan documentation constraints and insurance company restrictions
may create specific considerations in addition to the investment policy.
(B)
Safety of principal.
All investments shall be
of high quality with no perceived default risk. Market price fluctuations
may occur. However, managing debt service reserve fund maturities
to not exceed the call provisions of the borrowing reduces the investment's
market risk if the city's debt is redeemed and the reserve fund
liquidated. No stated final investment maturity shall exceed the shorter
of the final maturity of the borrowing or three years. Annual mark-to-market
requirements or specific maturity and average life limitations within
the borrowing's documentation will influence the attractiveness
of market risk and reduce the opportunity for maturity extension.
(C)
Marketability.
Securities with less active and
efficient secondary markets are acceptable for debt service reserve
funds.
(D)
Liquidity.
Debt service reserve funds have no
anticipated expenditures. The funds are deposited to provide annual
debt service payment protection to the city's debt holders. The
funds are "returned" to the city at the final debt service payment.
Market conditions and arbitrage regulation compliance determine the
advantage of investment diversification and liquidity. Generally,
if investment rates exceed the cost of borrowing, the city is best
served by locking in investment maturities and reducing liquidity.
If the borrowing cost cannot be exceeded, then concurrent market conditions
will determine the attractiveness of locking in maturities or investing
shorter and anticipating future increased yields.
(E)
Diversification.
Market conditions and the arbitrage
regulations influence the attractiveness of staggering the maturity
of fixed rate investments for debt service reserve funds. At no time
shall the final debt service payment date of the bond issue be exceeded
in an attempt to bolster yield.
(F)
Yield.
Achieving a positive spread to the applicable
borrowing cost is the desired objective. Debt service reserve fund
portfolio management shall at all times operate within the limits
of the investment policy's risk constraints.
(4)
Special projects and capital projects funds.
(A)
Suitability.
Any investment eligible in the investment
policy is suitable for special projects and capital projects funds.
(B)
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 three years
and by managing special projects and capital projects funds to balance
the short-term and long-term anticipated cash flow requirements, the
market risk of the portfolio will be minimized.
(C)
Marketability.
The balancing of short-term and
long-term cash flow needs requires the short-term portion of the special
projects and capital projects fund's portfolio to have securities
with active and efficient secondary markets. Historical market "spreads"
between the bid and offer prices of a particular security-type of
less than a quarter of a percentage point will define an efficient
secondary market. Securities with less active and efficient secondary
markets are acceptable for the long-term portion of the portfolio.
(D)
Liquidity.
Special projects and capital projects
funds used as part of a CIP plan or scheduled repair and replacement
program are reasonably predictable. However unanticipated needs or
emergencies may arise. Selecting investment maturities that provide
greater cash flow than the anticipated needs will reduce the liquidity
risk of unanticipated expenditures.
(E)
Diversification.
Investment maturities should
blend the short-term and long-term cash flow needs to provide adequate
liquidity and yield enhancement and stability. A "barbell" maturity
ladder may be appropriate.
(F)
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.
(Ordinance 3007 adopted 10/11/21; Ordinance
3060 adopted 10/10/2022; Ordinance 3106 adopted 9/11/2023)
