City of Aurora, MO Investment Policy

[Ord. No. 2022-3270, 11-8-2022]

Scope. The City of Aurora, Missouri, shall invest public funds in accordance with the investment policy of the City of Aurora, Missouri, which shall read as follows:

Policy. It is the policy of the City of Aurora, Missouri, to invest public funds in a manner which will provide a reasonable investment return with the maximum security while meeting the daily cash flow demands of the City and conforming to all State and local Statutes governing the investment of public funds.

Applicability. This investment policy applies to all financial assets of the City of Aurora, Missouri. These funds are accounted for in the City's Annual Financial Report and include:

General Fund.

Parks and Recreation and Stormwater Fund.

Transportation Fund.

Police and Fire Facility (Capital Project) Fund.

Community Hospital Capital Improvement Fund.

Wastewater Fund.

Recreation Center Fund.

Any new fund created by the City Council unless specifically exempt.

Pooling Of Funds. Except for cash in certain restricted and special funds, the City of Aurora may consolidate cash balances from all funds to maximize investment earnings. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles.

General Objectives.

The primary objectives, in priority order, of the City of Aurora's investment activities shall be:

Safety. Safety of principal is the foremost objective of the investment program. Investments of the City of Aurora, Missouri, shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is a consideration in order that potential losses of individual securities do not exceed the income generated from the remainder of the portfolio.

Liquidity. The City of Aurora's investment portfolio will remain sufficiently liquid to enable the City of Aurora, Missouri, to meet all operating requirements which might be reasonably anticipated.

Return On Investment. The City of Aurora's investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the City of Aurora's investment risk constraints and the cash flow characteristics of the portfolio.

Stability. It shall be the policy City of Aurora to avoid excessive and/or continuous transfers of the investment capital of the City of Aurora's investment portfolio in an attempt to achieve minimal gains in interest or elimination of broker/advisor fees. This would include: changing of banks, financial advisors, investment firms, or brokerage firms.

Standards Of Care.

Prudence.

All participants in the investment process shall act responsibly as custodians of the public trust.

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 safety of this capital as well as the probable income to be derived.

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.

The City Treasurer, acting in accordance with written procedures and the 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 appropriate action is taken to control adverse developments.

Delegation Of Authority.

Management responsibility for the investment program is hereby delegated to the City Treasurer. No person may engage in an investment transaction except as provided under the terms of this policy. The City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.

The City Treasurer shall submit a monthly investment report to the City Council and the City Manager for review.

Ethics And Conflict Of Interest.

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 their ability to make impartial investment decisions.

Employees and investment officials shall disclose to the City Council any material financial interest in financial institutions that conduct business within this jurisdiction, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the City of Aurora's portfolio. Employees and officers shall subordinate their personal investment transactions to those of the City of Aurora, Missouri, particularly with regard to the time of purchases and sales.

Investment Transactions.

Authorized Financial Dealers And Institutions.

A list will be maintained of financial institutions authorized to provide investment transactions. In addition, a list also will be maintained of approved security broker/dealers selected by creditworthiness as determined by the investment officer and approved by the governing body. These may include "primary" dealers or regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 15C3-1 (uniform net capital rule).

All financial institutions and broker/dealers who desire to become qualified for investment transactions must supply the following as appropriate:

(1)

Audited financial statements.

(2)

Proof of National Association of Securities Dealers (NASD) certification.

(3)

Proof of State registration.

(4)

Completed broker/dealer questionnaire.

(5)

Certification of having read and understood and agreeing to comply with the City of Aurora's investment policy.

An annual review of the financial condition and registration of qualified financial institutions and broker/dealers will be conducted by the City Manager and the City Treasurer.

Suitable And Authorized Investments.

Investment Types. In accordance with and subject to restrictions imposed by current Statues, the following list represents the entire range of investments that City of Aurora will consider, and which shall be authorized for the investments of funds by the City of Aurora.

Governmental And Agency Debt. Those securities issued by and or guaranteed by the Federal Government or an Agency or Instrumentality of the Federal Government:

(1)

United States Treasury Securities. The City of Aurora may invest in obligations of the United States government for which the full faith and credit of the United States are pledged for the payment of principal and interest.

(2)

United States Agency Securities. The City of Aurora may invest in obligations issued or guaranteed by any agency of the United States Government as described in Subsection (E)(2) of this Section.

Fixed Income Investments Secured By The FDIC insurance And/Or Collateral.

(1)

Repurchase Agreements. The City of Aurora may invest in contractual agreements between the City of Aurora and commercial banks or primary government securities dealers. The purchaser in a repurchase agreement (repo) enters into a contractual agreement to purchase U.S. Treasury and government agency securities while simultaneously agreeing to resell the securities at predetermined dates and prices.

(2)

Collateralized Public Deposits (Certificates of Deposit). Instruments issued by financial institutions which state that specified sums have been deposited for specific periods of time and at specified rates of interest. The certificates of deposit are required to be backed by acceptable collateral securities as dictated by State Statute.

Other Fixed Income Debt Issued By Commercial Enterprises. It should be noted that investments in the following instruments require an additional level of care and prudence when undertaken by the Investment Officer. Because these investments are in commercial credits as opposed to governmental credit, or subject to the added safety of collateral, the risk of loss of principal is significantly higher for the following investments than in the four (4) prior categories. Added financial training and education is recommended for the Investment Officer wishing to participate in and/or manage a commercial paper program. Outside professional management of your commercial paper program is highly recommended.

(1)

Bankers Acceptances. Bills of exchange or time drafts on and accepted by a commercial bank, otherwise known as bankers' acceptances. An issuing bank must have received the highest letter and numeral ranking (i.e., A1/P1) by at least two (2) nationally recognized statistical rating organizations (NRSROs). Must be issued by domestic commercial banks. Purchases of bankers' acceptances may not exceed one hundred eighty (180) days to maturity. No more than five percent (5%) of the total market value of the portfolio may be invested in the bankers' acceptances of any one (1) issuer and no more than twenty-five percent (25%) of the entire portfolio may be invested in banker's acceptances.

(2)

Commercial Paper. Commercial paper which has received the highest letter and numeral ranking (i.e., A1/P1) by at least two (2) nationally recognized statistical rating organizations (NRSROs). Eligible paper is further limited to issuing corporations that have a total commercial paper program size in excess of two hundred fifty million dollars ($250,000,000.00) and have long term debt ratings, if any, of "A" or better from at least one NRSRO. Purchases of commercial paper may not exceed one hundred eighty (180) days to maturity. Approved commercial paper programs should provide some diversification by industry. Additionally, purchases of commercial paper in the industry sectors that may from time to time be subject to undue risk and potential illiquidity should be avoided. The only asset-backed commercial paper programs that are eligible for purchase are fully supported programs that provide adequate diversification by asset type (trade receivables, credit card receivables, auto loans, etc.) No securities arbitrage programs or commercial paper issued by Structured Investment Vehicles (SIVs) shall be considered. No more than five percent (5%) of the total market value of the portfolio may be invested in the commercial paper of any one (1) issuer. No more than twenty-five percent (25%) of the entire investment portfolio may be invested in commercial paper. Commercial paper issuers must be subject to weekly credit reviews and daily news research and analysis and a monitoring program must be established to promulgate best practices credit monitoring.

Security Selection. The following list represents the entire range of United States Agency Securities that the City of Aurora will consider, and which shall be authorized for the investment of funds by the City of Aurora. Additionally, the following definitions and guidelines should be used in purchasing the instruments:

U.S. Govt. Agency Coupon and Zero Coupon Securities. Bullet coupon bonds with no embedded options with maturities of five (5) years or less.

U.S. Govt. Agency Discount Notes. Purchased at a discount with maximum maturities of one (1) year.

U.S. Govt. Agency Callable Securities. Restricted to securities callable at par only with final maturities of five (5) years or less.

U.S. Govt. Agency Step-Up Securities. The coupon rate is fixed for an initial term. At coupon date, the coupon rate rises to a new higher fixed term. Restricted to securities with final maturities of five (5) years or less.

Investment Restrictions And Prohibited Transactions. To provide for the safety and liquidity of the City of Aurora's funds, the investment portfolio will be subject to the following restrictions:

Borrowing for investment purposes ("Leverage'') is prohibited.

Instruments known as variable rate demand notes, floaters, inverse floaters, leveraged floaters, and equity-linked securities are not permitted. Investment in any instrument, which is commonly considered a "derivative" instrument (e.g., options, futures, swaps, caps, floors, and collars), is prohibited.

Contracting to sell securities not yet acquired in order to purchase other securities for purpose of speculating on developments or trends in the market is prohibited.

Collateralization.

Collateralization will be required on two (2) types of investments: certificates of deposit and repurchase agreements. The market value (including accrued interest) of the collateral should be at least one hundred percent (100%).

For certificates of deposit, the market value of collateral must be at least one hundred percent (100%) or greater of the amount of certificates of deposits plus demand deposits with the depository, less the amount, if any, which is insured by the Federal Deposit Insurance Corporation, or the National Credit Unions Share Insurance Fund.

All securities, which serve as collateral against the deposits of a depository institution, must be safe-kept at a non-affiliated custodial facility. Depository institutions pledging collateral against deposits must, in conjunction with the custodial agent, furnish the necessary custodial receipts within five (5) business days from the settlement date.

The City of Aurora shall have a depository contract and pledge agreement with each safe-keeping bank that will comply with the Financial Institutions, Reform, Recovery, and Enforcement Act of 1989 (FIRREA). This will ensure that the City of Aurora's security interest in collateral pledged to secure deposits is enforceable against the receiver of a failed financial institution.

Repurchase Agreements. These securities for which repurchase agreements will be transacted will be limited to U.S. Treasury and government agency securities that are eligible to be delivered via the Federal Reserve Fedwire book entry system. Securities will be delivered to the City of Aurora's designated Custodial Agent. Funds and securities will be transformed on a delivery vs. payment basis.

Investment Parameters.

Diversification. The investments shall be diversified to minimize the risk of loss resulting from over concentration of assets in specific maturity, specific issuer, or specific class of securities. Diversification strategies shall be established and periodically reviewed. At a minimum, diversification standards by security type and issuer shall be:

U.S. treasuries and securities having principal and/or interest guaranteed by the U.S. Government	100%
Collateralized time and demand deposits	100%
U.S. Government agencies, and government sponsored enterprises	no more than 70%
Collateralization repurchase agreements	no more than 50%
U.S. Government agency callable securities	no more than 50%

Maximum Maturities.

To the extent possible, the City of Aurora shall attempt to match its investments with anticipated cash flow requirements. Investments in repurchase agreements shall mature and become payable not more than ninety (90) days (90) from the date of purchase. The City of Aurora shall adopt weighted average maturity limitations that should not exceed three (3) years and is consistent with the investment objectives.

Because of inherent difficulties in accurately forecasting cash flow requirements, a portion of the portfolio should be continuously invested in readily available funds such as in bank deposits or overnight repurchase agreements to ensure that appropriate liquidity is maintained to meet ongoing obligations.

Internal Control And Reporting.

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 transactions made over the last quarter. This management summary will be prepared in a manner that will allow the City of Aurora to ascertain whether investment activities during the reporting period have conformed to the investment policy. The report should be provided to the governing body of the City of Aurora. The report will include the following:

Listing of individual securities held at the end of the reporting period.

Realized and unrealized gains or losses resulting from appreciation or depreciation by listing the cost and market value of securities over one-year duration (in accordance with Government Accounting Standards Board (GASB) 31 requirements). [Note, this is only required annually.]

Listing of investment maturity dates.

Percentage of the total portfolio which each type of investment represents.

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 may be established against which portfolio performance shall be compared on a regular basis.

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 annually to the City Council of the City of Aurora. This will ensure that review of the investment portfolio, in terms of value and price volatility, has been performed.

Policy Considerations Exemption. Any investment currently held that does not meet the guidelines of this policy shall be exempt from the requirements of this policy. At maturity or liquidation, such monies shall be reinvested only as provided by this policy.

Investment Policy Adoption.

This investment policy shall be adopted by ordinance of the City Council.

The policy shall be reviewed on an annual basis by the City Manager and the City Treasurer.

Any recommended modifications or changes of this policy shall require the approval and adoption in ordinance form by the Aurora City Council.