[Ord. No. 3820, 1-10-2023]
This policy applies to the investment of all operating funds of the City of Bolivar, Missouri.
[Ord. No. 3820, 1-10-2023]
Except for cash in certain restricted and special funds, the City of Bolivar will 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.
[Ord. No. 3820, 1-10-2023]
Investment through external programs, facilities and professionals operating in a manner consistent with this policy will constitute compliance.
[Ord. No. 3820, 1-10-2023]
A.
The primary objectives, in priority order, of investment activities shall be safety, liquidity, and yield:
1.
Safety. Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk.
a.
Credit Risk. The City of Bolivar will minimize credit risk, the risk of loss due to the failure of the security issuer or backer, by:
b.
Interest Rate Risk. The City of Bolivar will minimize the risk that the market value of securities in the portfolio will fall due to changes in general interest rates, by:
B.
Liquidity. The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands (static liquidity). Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets (dynamic liquidity). A portion of the portfolio also may be placed in bank deposits or repurchase agreements that offer same-day liquidity for short-term funds.
C.
Yield. The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of secondary importance compared to the safety and liquidity objectives described above. The core of investments is 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 with the following exceptions:
[Ord. No. 3820, 1-10-2023]
A.
Prudence. All participants in the investment process shall act responsibly as custodians of the public trust. The standard of prudence to be applied by the personnel of the Investment Division is the "prudent investor" 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."
B.
Ethics And Conflicts Of Interest. Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with which business is conducted on behalf of the City of Bolivar.
C.
Delegation Of Authority. Authority to manage the investment program is granted to the City's Director of Finance (the "investment officer") and City Administrator, with the supervision of the Board of Aldermen for the City of Bolivar (the "Governing Body"). No person may engage in an investment transaction except as provided under the terms of this policy. The investment officer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.
[Ord. No. 3820, 1-10-2023]
A.
Authorized Financial Dealers And Institutions. All financial institutions and broker/dealers who desire to become qualified for investment transactions must supply the following as appropriate:
B.
Internal Controls.
1.
The investment officer is responsible for establishing and maintaining an internal control structure that will be reviewed annually with the City of Bolivar's independent auditor. The internal control structure shall be designed to ensure that the assets of the City of Bolivar are protected from loss, theft or misuse and to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of control should not exceed the benefits likely to be derived, and (2) the valuation of costs and benefits require estimates and judgements by management.
2.
The internal controls shall address the following points:
a.
Control of collusion.
b.
Separation of transaction authority from accounting and record keeping.
c.
Custodial safekeeping.
d.
Avoidance of physical delivery securities.
e.
Clear delegation of authority to subordinate staff members.
f.
Written confirmation of transactions for investment and wire transfers.
g.
Development of a wire transfer agreement with the lead bank and third-party custodian.
C.
Delivery vs. Payment. All trades where applicable will be executed by delivery vs. payment (DVP) to ensure that securities are deposited in eligible financial institutions prior to the release of funds. All securities shall be perfected in the name for the account of the City of Bolivar and shall be held by a third-party custodian as evidenced by safekeeping receipts.
[Ord. No. 3820, 1-10-2023]
A.
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 Bolivar will consider and which shall be authorized for the investments of funds by the City of Bolivar.
1.
Governmental And Agency Debt. Those securities issued by and or guaranteed by the Federal Government or an Agency or Instrumentality of the Federal Government:
a.
United States Treasury Securities. The City of Bolivar 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.
Fixed Income Investments Secured By The FDIC Insurance And/Or Collateral:
a.
Repurchase Agreements. The City of Bolivar may invest in contractual agreements between the City of Bolivar 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.
b.
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.
3.
Other Fixed Income Debt Issued By Commercial Enterprises:
a.
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 bankers' acceptances.
b.
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 (1) 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.
B.
Security Selection. The following list represents the entire range of United States agency securities that the City of Bolivar will consider and which shall be authorized for the investment of funds by the City of Bolivar. Additionally, the following definitions and guidelines should be used in purchasing the instruments:
1.
U.S. Govt. Agency Coupon and Zero Coupon Securities. Bullet coupon bonds with no embedded options with maturities of five (5) years or less.
2.
U.S. Govt. Agency Discount Notes. Purchased at a discount with maximum maturities of one (1) year.
3.
U.S. Govt. Agency Callable Securities. Restricted to securities callable at par only with final maturities of five (5) years or less.
4.
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.
C.
Investment Restrictions And Prohibited Transactions. To provide for the safety and liquidity of the City of Bolivar's funds, the investment portfolio will be subject to the following restrictions:
1.
Borrowing for investment purposes ("leverage") is prohibited.
2.
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.
3.
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.
D.
Collateralization.
1.
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%).
2.
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.
3.
All securities, which serve as collateral against the deposits of a depository institution, must be safekept at a non-affiliated custodial facility. Depository institutions pledging collateral against deposits must, in conjunction with the custodial agent, furnish the necessary custodial receipts with five (5) business days from the settlement date.
4.
The City of Bolivar shall have a depository contract and pledge agreement with each safekeeping bank that will comply with the Financial Institutions, Reform, Recovery, and Enforcement Act of 1989 (FIRREA). This will ensure that the City of Bolivar's security interest in collateral pledged to secure deposits is enforceable against the receiver of a failed financial institution.
E.
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 Bolivar's designated custodial agent. Funds and securities will be transformed on a delivery vs. payment basis.
[Ord. No. 3820, 1-10-2023]
A.
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:
1.
U.S. treasuries and securities having principal and/or interest guaranteed by the U.S. government: one hundred percent (100%).
2.
Collateralized time and demand deposits: one hundred percent (100%).
3.
U.S. government agencies, and government-sponsored enterprises: no more than seventy percent (70%).
4.
Collateralization repurchase agreements: no more than fifty percent (50%).
5.
U.S. government agency callable securities: no more than fifty percent (50%).
B.
Maximum Maturities.
1.
To the extent possible, the City of Bolivar 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 from the date of purchase. The City of Bolivar shall adopt weighted average maturity limitations that should not exceed five (5) years and is consistent with the investment objectives.
2.
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.
[Ord. No. 3820, 1-10-2023]
A.
Methods. The investment officer shall prepare an investment report at least quarterly, including a management summary that provides an analysis of the status of the current investment portfolio and transactions made over the last quarter. This management summary will be prepared in a manner that will allow the City of Bolivar 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 Bolivar. The report will include the following:
1.
Listing of individual securities held at the end of the reporting period.
2.
Realized and unrealized gains or losses resulting from appreciation or depreciation by listing the cost and market value of securities over one (1) year duration [in accordance with Government Accounting Standards Board (GASB) 31 requirements]. [Note, this is only required annually.]
3.
Average weighted yield to maturity of portfolio an investments as compared to applicable benchmarks.
4.
Listing of investment by maturity date.
5.
Percentage of the total portfolio which each type of investment represents.
B.
Performance Standards. The investment portfolio will be managed in accordance with the parameters specified within this policy. The portfolio should obtain a market average rate of return during a market/economic environment of stable interest rates. A series of appropriate benchmarks may be established against which portfolio performance shall be compared on a regular basis.
C.
Marking To Market. The market value of the portfolio shall be calculated at least quarterly, and a statement of the market value of the portfolio shall be issued at least annually to the Governing Body of the City of Bolivar. This will ensure that review of the investment portfolio, in terms of value and price volatility, has been performed.