It is the policy of the city to invest public funds in a manner that will provide the highest investment return with the maximum security while meeting the daily cash flow demands of the entity and conforming to all state and local rules governing the investment of public funds.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)
(a) 
Scope.
This investment policy applies to all public funds over which the city has custody or control, that the law does not require the city to deposit in the state treasury, and that the city has the authority to invest, unless such funds are specifically restricted by federal, state, or local regulations.
(b) 
Public Funds Investment Act.
The Public Funds Investment Act of 1987, as amended and codified as chapter 2256 of the Texas Government Code, defines the legal investment options of Texas municipalities and requires each city to adopt a written investment policy for the investment of the city’s funds and funds under the city’s control.
(c) 
Public Funds Collateral Act.
The Texas Public Funds Collateral Act, as amended and codified at chapter 2257 of the Texas Government Code, authorizes the creation of public funds investment pools and establishes criteria for allowable investments and collateral.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)
When used in this division, the following definitions shall apply unless the context clearly indicates otherwise:
Bankers’ acceptance.
A draft, bill, or exchange accepted by a bank or trust company. The accepting institution and the issuer guarantee payment of the bill.
Broker.
A broker who brings buyers and sellers together for a commission.
Certificate of deposit.
A time deposit with a specific maturity evidenced by a certificate.
Collateral.
Securities, evidence of deposit, or other property that a borrower pledges to secure repayment of a loan. Also, securities pledged by a bank to secure deposits of public monies.
Coupon.
The annual rate of interest that a bond’s issuer promises to pay the bondholder on the bond’s face value; a certificate attached to a bond evidencing interest due on a payment date.
Dealer.
A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his or her own account.
Delivery-versus-payment and delivery-versus-receipt.
Two methods exist for delivery of securities: delivery-versus-payment and delivery-versus-receipt. Delivery-versus-payment is delivery of securities with an exchange of money for the securities. Delivery-versus-receipt is delivery of securities with an exchange of a signed receipt for the securities.
Diversification.
Dividing investment funds among a variety of securities offering independent returns.
Federal Deposit Insurance Corporation (FDIC).
A federal agency that insures bank deposits, currently up to $250,000.00 per deposit.
Federal funds rate.
The rate of interest at which federal funds are traded. This rate is currently pegged by the Federal Reserve through open-market operations.
Investment officer.
The individual that the city council appoints to assume responsibility for investing the city’s funds to which the Texas Government Code, chapter 2256, refers.
Investment pool.
Has the meaning set forth in section 2256.002 of the Government Code.
Market value.
Has the meaning set forth in section 2256.002 of the Government Code.
Maturity.
The date upon which the principal or stated value of an investment becomes due and payable.
Money market.
The market in which short-term debt instruments (bills, commercial paper, bankers’ acceptances, etc.) are issued and traded.
Offer.
The price asked by a seller of securities.
Pooled fund group.
Has the meaning set forth in section 2256.002 of the Government Code.
Portfolio.
A collection of securities held by an investor.
Qualified public depositories.
A financial institution that does not claim exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this state, that has segregated eligible collateral having a value of not less than its maximum liability, and that the public deposit protection commission has approved to hold public deposits.
Rate of return.
The yield obtainable on a security based on its purchase price or its current market price.
Repurchase agreement.
A holder of securities sells securities to an investor with an agreement to repurchase them at a fixed price on a fixed date.
SEC Rule 15C3-1.
The securities and exchange commission requirement that member firms and nonmember broker-dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1 (SEC Rule 15C3-1). Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities. Liquid capital includes cash and assets easily converted into cash.
Treasury bills or notes.
A noninterest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months, or one year.
Treasury bond.
Long-term U.S. Treasury securities having initial maturities of more than ten years.
Yield.
The rate of annual income return on an investment.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)
(a) 
Authorized and suitable investments.
According to the Public Fund Investment Act of 1987, as amended, and the Public Funds Collateral Act, as amended, the legal investment options of the city include:
(1) 
Obligations of the United States or its agencies and instrumentalities;
(2) 
Direct obligations of the state or its agencies and instrumentalities;
(3) 
Other obligations that the state or the United States or their respective agencies and instrumentalities unconditionally guaranteed, insured, or backed by full faith and credit both the principal and the interest;
(4) 
Obligations of states, agencies, counties, cities or other political subdivisions of any state that a nationally recognized rating firm rated as to investment quality and that received a rating of not less than “A” or its equivalent;
(5) 
Certificates of deposit that a state or national bank, a savings and loan association, or a credit union, that is domiciled in the state, issued, and that meet the security requirements of section 2256.010 of the Texas Government Code;
(6) 
Repurchase agreements that are fully collateralized and that meet the requirements of section 2256.011 of the Texas Government Code; and
(7) 
Investment pools, subject to the limitations of sections 2256.016–019 of the Texas Government Code.
(b) 
Pooled fund groups.
The maximum dollar-weighted average maturity for pooled fund groups shall be one year.
(c) 
Maximum maturity.
To the extent possible, the city will attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the city will not directly invest in securities maturing more than five (5) years from the date on which the city purchased the securities. However, the city may collateralize its repurchase agreements using longer-dated investments not to exceed ten (10) years to maturity. The city may invest reserve funds in securities exceeding forty (40) years if the maturities of such investments are made to coincide as nearly as practicable with the expected use of the funds.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)
(a) 
Loss of required rating.
An investment that requires a minimum rating to be authorized does not qualify as an authorized investment during the period that the investment loses that minimum rating. The city shall take all prudent measures consistent with this investment policy to liquidate an investment that does not have the minimum required rating.
(b) 
Unauthorized investments.
The city shall not invest in the following investments:
(1) 
Obligations for which payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and that do not pay principal;
(2) 
Obligations for which payment represents the principal stream of cash flow from the underlying mortgage-backed security collateral and bears no interest;
(3) 
Collateralized mortgage obligations that have a stated final maturity date of more than ten years;
(4) 
Collateralized mortgage obligations for which an index that adjusts opposite to the changes in a market index determines the interest rate; and
(5) 
Securities purchased from a person who has not delivered a written instrument to the investment officer stating that the seller of the securities has:
(A) 
Received and thoroughly reviewed the investment policy of the city; and
(B) 
Acknowledged that the seller has implemented reasonable procedures and controls in an effort to preclude imprudent investment activities which are not authorized by the policy.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)
(a) 
Standard of care.
The city shall make investment transactions with judgment and care, under the circumstances at the time of the transaction, in the manner that a person of prudence, discretion, and intelligence would exercise in managing her or his own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived.
(b) 
Objectives.
The following investment objectives shall govern all of the city’s investments, in the following order of importance:
(1) 
Preservation and safety of principal.
Preservation and safety of principal is the foremost objective of the investment program. The city shall make investments in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, the city shall diversify its investments so that potential losses on individual securities do not exceed expected income generated from the remainder of the portfolio.
(2) 
Liquidity.
The city shall invest its investment portfolio with a maturity schedule and level of liquidity that enables the city to pay for all of its reasonably anticipated operating requirements, including the city’s expected cash flow needs.
(3) 
Yield.
The city shall invest its investment portfolio to obtain the maximum possible rate of return throughout the city’s budgetary and economic cycles, taking into account the investment risks associated with the protection of capital.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)
The city council, as an integral part of its investment policy, shall adopt a separate written investment strategy for the investment of each of the city’s funds or group of funds under the city’s control applying the following priorities in order of importance:
(1) 
Understanding of the suitability of the investment to the financial requirements of the city.
(2) 
Preservation and safety of principal.
Preservation and safety of principal is the foremost objective of the investment program. The city shall make investments in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, the city shall diversify its investments so that potential losses on individual securities do not exceed expected income generated from the remainder of the portfolio.
(3) 
Liquidity.
The city shall invest its investment portfolio with a maturity schedule and level of liquidity that enables the city to pay for all of its reasonably anticipated operating requirements, including the city’s expected cash flow needs.
(4) 
Marketability.
The city shall invest with an eye to marketability of the investment if the need arises to liquidate the investment before maturity.
(5) 
Diversification of the investment portfolio.
The city will diversify its investments by security type and institution.
(6) 
Yield.
The city shall invest its investment portfolio to obtain the maximum possible rate of return throughout the city’s budgetary and economic cycles, taking into account the investment risks associated with the protection of capital.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)
(a) 
Delegation of authority to investment officer.
The city council shall appoint an investment officer, from time to time, by separate ordinance or resolution, who shall be responsible for the investment of the city’s funds consistent with this investment policy. The authority granted to the investment officer is effective until rescinded by the city, until the expiration of the officer’s term of office, or the termination of the person’s employment by the city, or if an investment management firm, until expiration of the contract with the city. The investment officer shall exercise the judgment and care, under prevailing circumstances, that a prudent person would exercise in the management of the person’s own affairs; however, the city council retains ultimate responsibility as fiduciaries of the assets of the city. Unless authorized by law, a person may not deposit, withdraw, transfer or manage in any other manner the funds of the city.
(b) 
Potential liability of investment officer.
(1) 
Standard of care.
In determining whether an investment officer or investment official has exercised prudence with respect to an investment decision, the city shall consider:
(A) 
The investment of all funds, or funds under the city’s control, over which the investment official had responsibility rather than the consideration of the prudence of a single investment; and
(B) 
Whether the investment decision was consistent with the written investment policy of the city.
(2) 
Potential liability.
An investment officer or investment official acting in accordance with written procedures and the investment policy, and exercising due diligence, shall not be personally responsible for an individual security’s credit risk or market price change, provided that the investment officer or investment official reports deviations from expectations in a timely fashion and takes appropriate action to control adverse developments.
(c) 
Authority of investment officer.
The investment officer shall have the authority to deposit, withdraw, invest, transfer, and manage the city’s funds consistent with the provisions of this investment policy and may appoint an investment coordinator, finance director or other investment official to carry out the day-to-day operations to deposit, transfer, invest, and manage the city’s funds consistent with the provisions of this investment policy.
(d) 
Training.
The investment officer, investment coordinator, finance director or any other investment official shall attend at least one training session relating to the person’s responsibilities within twelve months after taking office or assuming duties and again every other year as required under the PFIA.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)
(a) 
Disclosure to city council.
The investment officer shall file a written statement with the city council describing:
(1) 
Any material financial interest in financial institutions that conduct business with the city;
(2) 
Any personal financial or investment positions amounting to more than fifteen thousand dollars ($15,000.00) invested with or collected from a financial institution that is or could be related to the performance of the city’s investments, particularly with regard to the time of purchases and sales;
(3) 
Any personal or business relationship with an entity seeking to sell an investment to the entity;
(b) 
Disclosure to city council and state ethics commission.
The investment officer shall file a written statement with the city council and with the state ethics commission describing all relationships within the second degree by affinity or consanguinity, as defined in the Texas Government Code chapter 573, to an individual seeking to sell an investment to the city.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)
(a) 
Authorized institutions and brokers/dealers.
(1) 
The city council shall, at least annually, review the financial institutions and, if applicable, the qualified brokers that are authorized to engage in investment transactions with the city.
(2) 
Securities dealers may include primary dealers (designated dealers of the Federal Reserve Bank of New York), or regional dealers that qualify under Securities and Exchange Commission Rule 15C3-1 or 15C3-3. The city shall not make any public deposits except in a qualified public depository as established by state laws.
(b) 
Requirements prior to any transactions.
To provide a process that will screen out institutions that lack economic viability or whose past practices suggest that investing in such firms would impair the safety of public capital, all financial institutions and broker/dealers who desire to become qualified bidders for investment transactions shall:
(1) 
Complete a broker/dealer or financial institution questionnaire;
(2) 
Provide annual audited financial statements; and
(3) 
Provide a written statement that states that he or she:
(A) 
Has received and thoroughly reviewed the investment policy of the city; and
(B) 
Acknowledges that his or her organization has implemented reasonable procedures and controls in an effort to preclude imprudent investment activities arising out of investment transactions conducted between his or her organization and the city.
(c) 
Bidding requirements.
The investment officer shall solicit bids from at least three qualified broker/dealers prior to the purchase or sale of any investment instrument. The bidders shall submit their bids in writing and the investment officer shall keep all bids on file for one (1) year after their submission. The investment officer will recommend to city council, the most competitive investment opportunity provided the opportunity adequately meets the objectives, strategy, and parameters established by the city.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)
(a) 
Required collateral.
A surety bond, an investment security, or an ownership or beneficial interest in an investment security (other than an option contract to purchase or sell an investment security) shall secure all deposits of public funds, as proscribed in section 2257.021 of the Texas Government Code.
(b) 
Amount of collateral.
The total value of security used to secure a deposit of public funds shall be greater than or equal to the amount of the deposit of public funds plus the amount of any accrued interest and minus the extent that the United States or an instrumentality of the United States insures the deposit.
(1) 
The value of a surety bond is its face value.
(2) 
The value of an investment security is its market value.
(c) 
Eligibility to secure deposits.
The investment officer shall determine if an investment security is eligible to secure deposits of public funds. The investment officer is required to approve a substitution or release of an investment security.
(d) 
Safekeeping of collateral.
An independent third-party depository, eligible under the limitations of section 2257.041 of the Texas Government Code, shall hold collateral in a safekeeping or trust account on the city’s behalf. The city’s depository shall identify on its records the pledge of the security to the city and supply the city with a trust receipt showing evidence of collateral ownership, which the city shall keep on file.
(e) 
Records.
(1) 
Records of the city’s depository.
The city’s depository shall maintain a separate, accurate, and complete record relating to: each pledged investment security, each transaction involving that security, and each deposit of public funds. The city’s depository shall allow the city council or the investment officer, investment coordinator, finance director and other investment officials access to the records at any reasonable time to verify a pledged investment security or the depository’s records.
(2) 
Records of the investment officer.
The investment officer shall maintain a separate, accurate, and complete record relating to: each pledged investment security and each transaction involving that security. The investment officer shall allow the city council access to the records at any reasonable time to verify a pledged investment security or the investment officer’s records.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)
The city shall purchase all securities, including collateral, on a delivery-versus-payment basis through a third-party safekeeping/custody account. The city will authorize the investment officer to release the city’s funds to the broker/dealer only after the broker/dealer delivers securities matching those described for purchase by the city to the city’s safekeeping account through the investment officer. The investment officer shall forward the original safekeeping receipt/confirmation to the city.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)
(a) 
Annual financial audit.
The investment officer shall obtain an independent, external auditor to conduct an annual financial audit of the city’s investment policy and strategies. The auditor shall also examine and verify pledged investment securities and report any significant or material noncompliance to the city council.
(b) 
Compliance audit of management controls.
In conjunction with its annual financial audit, the external auditor shall perform a compliance audit of management controls on investments and adherence to the city’s investment policy and report any significant or material noncompliance to the city council.
(c) 
Internal management reports.
Every three months, the investment officer or designated investment official shall prepare and submit to the city council a written report of investment transactions for each fund or pooled fund group covered by this investment policy for the preceding reporting period. The investment officer and the investment official shall prepare the report in compliance with all requirements of section 2256.023 of the Texas Government Code.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)
The city’s primary investment strategy is passive. To protect the portfolio from imprudent trading, the investment officer normally shall not sell a security until such time as the current market value of the security is at least equal to the purchase price of the security plus accrued interest. However, should holding the security to maturity adversely affect the financial position of the city, the investment officer may authorize sale of the security. In general, the performance of the investment portfolio is based on the goal to purchase securities with rates of return equal to or greater than U.S. Treasury obligations with like maturities.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)
City council shall review its investment policy and investment strategies not less than annually. City council shall adopt an ordinance stating that it has reviewed the investment policy and investment strategies and that the ordinance so adopted shall record any changes made to either the investment policy or investment strategies.
(Ordinance 2012-O-436 adopted 10/11/12; Ordinance 2014-O-471 adopted 9/25/14; Ordinance 2015-O-481 adopted 10/8/15; Ordinance 2016-O-498 adopted 11/10/16; Ordinance 2017-O-517 adopted 11/9/17; Ordinance 2018-O-538 adopted 11/8/18; Ordinance 2019-O-550 adopted 11/14/19)