[1]
Editor's note—Ord. No. 1351, §§ 1, 2, adopted May 9, 2006, amended the former Art. III, §§ 2-211—2-229, and enacted a new Art. III as set out herein. The former Art. III pertained to similar subject matter and derived from Ord. No. 1109, § 1, adopted Jan. 12, 1999; Ord. No. 1286, §§ 1—8, adopted Mar. 23, 2004.
It is the policy of the city that the administration of its funds and the investment of those funds shall be handled as its highest public trust. Investment shall be made in a manner which will provide the maximum security of principal invested through limitations and diversification while meeting the daily cash flow needs of the city and conforming to all applicable state statutes governing the investment of public funds.
The receipt of a market yield will be secondary to the requirements for safety and liquidity. It is the intent of the city to be in complete compliance with local law and the Texas Public Funds Investment Act, chapter 2256, Texas Government Code (the "act"). The earnings from investments will be used in a manner that best serves the interests of the city.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1650, § 1, 5-12-15)
This investment policy applies to all the financial assets and funds of the city. The city commingles its funds into one pooled investment portfolio for investment purposes to gain efficiency and maximum investment opportunity. These funds are defined in the city's comprehensive annual financial report (CAFR) and include:
(1) 
General fund;
(2) 
Enterprise funds;
(3) 
Special revenue funds;
(4) 
Capital project funds;
(5) 
Debt service funds;
(6) 
Trust and agency funds;
(7) 
Vehicle and equipment replacement funds; and
(8) 
Any new fund created, unless specifically exempted by city council and this policy.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1433, § 1, 5-27-08; Ordinance 1650, § 1, 5-12-15)
(a) 
Objective.
It is the policy of the city that all funds shall be managed and invested with four primary objectives, listed in order of their priority: safety, liquidity, diversification and yield. Investments are to be chosen in a manner which promotes diversity by market sector, credit and maturity in response to cash needs and market conditions. The choice of high-credit quality government investments and money market instruments are designed to assure the marketability of those investments should liquidity needs arise. To meet anticipated cash flow and control for over-extension the maximum weighted average maturity (WAM) of the overall portfolio shall not exceed six months.
(1) 
Safety of principal.
Safety of principal is the foremost objective of the city. Investments of the city shall be undertaken in a manner that seeks to ensure the preservation of capital. Each investment transaction shall be conducted in a manner to avoid capital losses, whether they be from security defaults, safekeeping, or erosion of market value.
(2) 
Liquidity.
The city's investment portfolio will be based on a cash flow analysis of needs and will remain sufficiently liquid to enable it to meet all operating requirements which might be reasonably anticipated.
(3) 
Diversification.
Diversification of the portfolio will include diversification by maturity and market sector and will include the use of a number of broker/dealers for diversification and market coverage.
(4) 
Yield.
The city's investment portfolio shall be designed with the objective of attaining a reasonable market rate, taking into account the city's risk constraints and the cash flow needs of the portfolio. The benchmark for the commingled portfolio shall be the yield on the current six-month U.S. Treasury Bill for the comparable period designated for its comparability to the expected cash flow and maximum weighted average maturity (WAM).
(b) 
Strategy.
The city maintains one commingled portfolio for investment purposes which incorporates the specific investment strategy considerations and the unique characteristics of the fund groups represented in the portfolio. The city shall pursue a conservative strategy. Securities may be sold before they mature if market conditions present an opportunity to benefit from the trade but the strategy will be primarily buy-and-hold.
(1) 
The investment strategy for operating funds has as its primary objective assurance that anticipated liabilities are matched and adequate liquidity provided. This may be accomplished by purchasing high credit quality securities (0–2 years) which will complement each other in a laddered maturity structure permitting some extension for yield enhancement.
(2) 
The investment strategy for debt service funds shall have as its primary objective the assurance of available funds adequate to fund the debt service obligations on a timely basis. Successive debt service dates will be fully funded before any maturity extension.
(3) 
The investment strategy for debt service reserve funds shall have as its primary objective the ability to generate a revenue stream to the debt service funds from high quality securities. The potential for loss shall be further controlled through the purchase of securities within the desired maturity range.
(4) 
The investment strategy for capital projects or capital project funds will have as its primary objective assurance that anticipated cash flows are matched and provide adequate investment liquidity. A liquidity buffer should be maintained to provide flexibility and for unanticipated project outlays.
(c) 
Cash management.
Effective cash management is recognized as essential to good fiscal management. Cash management is defined as the process of managing monies in order to ensure maximum cash availability. The city shall maintain a cash management program which includes timely collection of accounts receivable, prudent investment of its available cash, disbursement of payments in accordance with invoice terms and the management of banking services.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1650, § 1, 5-12-15)
Authority to manage the city's investment program is derived from the city charter, ordinances, statutes and resolutions. Direct specific investment parameters for the investment of public funds in Texas are found in the act. The Public Funds Collateral Act, chapter 2257, Texas Government Code, specifies collateral requirements for all public funds deposits. All investments will be made in accordance with these statutes, bond requirements and city ordinances to include Ordinance 1351, Ordinance 1354, Ordinance 1433, Ordinance 1499, and Ordinance 1559.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1650, § 1, 5-12-15)
(a) 
Management responsibility.
(1) 
Management responsibility for the investment program is hereby delegated to the city manager who shall be responsible for administrative oversight.
(2) 
The city manager is also responsible for considering the quality and capability of staff, investment advisors, and consultants involved in investment management and procedures. All participants in the investment process shall seek to act responsibly as custodians of the public trust.
(b) 
Investment officer(s).
(1) 
The city council will designate investment officer(s) by resolution. The investment officer(s) shall develop and maintain procedures for the operation of the investment program consistent with this investment policy. Procedures will include safekeeping, funds transfers, investment procedures, banking services, and collateral.
(2) 
The investment officer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials and staff. The investment officer(s) shall designate a staff person as a liaison/deputy in the event circumstances require timely action and the investment officer is not available.
(3) 
No officer or designee may engage in an investment transaction except as provided under the terms of this policy and the supporting procedures.
(4) 
Each designated investment officer will obtain ten hours of investment training within the first 12 months of taking the position and ten hours of training within each two-year fiscal years thereafter.
(c) 
City council responsibilities.
The city council holds ultimate fiduciary responsibility for the portfolio. It will designate investment officer(s), receive and review quarterly reporting, provide for investment officer training, approve broker/dealers, and review and adopt the investment policy and strategy at least annually.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1650, § 1, 5-12-15)
(a) 
The standard of care to be used in the investment function shall be the "prudent person rule" and shall be applied in the context of managing the overall portfolio. This standard 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 expected income to be derived."
(b) 
Limitation of personal liability.
The investment officer(s) and those delegated investment authority under this policy, when acting in accordance with the written procedures and this policy and in accord with the prudent person rule, shall be relieved of personal liability in the management of the portfolio provided that deviations from expectations for a specific security's credit risk or market price change or portfolio shifts are reported in a timely manner and that appropriate action is taken to control adverse market effects. In determining whether an investment officer has exercised prudence with respect to an investment decision, the determination shall be made taking into consideration the investment of all funds over which the officer has responsibility rather than a consideration as to the prudence of a single investment.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1650, § 1, 5-12-15)
(a) 
Controls.
The investment officer(s) shall establish a system of written internal controls which will be reviewed annually with the independent auditor of the city. The controls shall be designed to prevent loss of public funds due to fraud, employee error, misrepresentation by third parties, unanticipated market changes, or imprudent actions by employees of the city.
(b) 
Cash flow forecasting.
Cash flow forecasting is designed to protect and sustain cash flow requirements. Supplemental to the financial and budgetary systems, the investment officer(s) will maintain a cash flow forecasting process designed to monitor and forecast cash positions for investment purposes.
(c) 
Monitoring credit ratings.
The investment officer(s) shall monitor, on no less than a monthly basis, the credit rating on all authorized investments in the portfolio based upon independent information from a nationally recognized rating agency. If any security falls below the minimum rating required by policy, the investment officer shall notify the city manager of the loss of rating, and liquidate the investment within one week.
(d) 
Monitoring FDIC status for mergers and acquisitions.
The investment officer(s) shall monitor, on no less than a weekly basis, the status and ownership of all banks issuing brokered CDs owned by the city based upon information from the FDIC. If any bank has been acquired or merged with another bank in which brokered CDs are owned, the investment officer shall immediately liquidate any brokered CD which places the city above the FDIC insurance level.
(e) 
Competitive bidding.
All securities, including certificates of deposit, will be purchased or sold only after three or more offers/bids are taken to verify that the city is receiving fair market value/price for the investment.
(f) 
Delivery versus payment (DVP).
All securities shall be purchased on a delivery versus payment (DVP) settlement basis. The safekeeping agent shall not release city funds until receipt of the security. The safekeeping agent shall provide the city with proof of ownership delivered within one business day.
(g) 
Unauthorized investments.
Investments need not be liquidated if authorized at the time of purchase.
(h) 
Documentation of investment transactions.
All investment transactions, including the transfer of funds for investment purposes, shall be documented and such documentation maintained by the investment officer(s).
(i) 
Compliance audit.
At least once a year, the investment officer(s) shall complete a compliance audit to assure that the investment program is operating in compliance with the policy and the act.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1650, § 1, 5-12-15)
Authorized investments shall be limited to the instruments listed below and as further described by the act. If additional types of securities are approved for investment by state statute, they will not be eligible for investment by the city until this policy has been amended and the amended version adopted by the city council.
(1) 
Obligations of the United States government, its agencies and instrumentalities, not to exceed two years to stated maturity, excluding all mortgage-backed securities;
(2) 
Fully insured or collateralized depository certificates of deposit issued by a bank or a savings bank doing business in Texas which is guaranteed or insured by the Federal Deposit Insurance Corporation, or its successor, or collateralized in accordance with this policy not to exceed two years to stated maturity, to include CDARS;
(3) 
Fully insured share certificates from Texas based credit unions, insured by the NCUIF, with a stated maturity not to exceed two years;
(4) 
FDIC insured brokered certificates of deposit securities from a bank in any US state, delivered versus payment to the city's safekeeping agent, not to exceed two years to maturity. Purchased from a bank or broker doing business in Texas. Before purchase, the investment officer must verify the FDIC status of the bank (on www.fdic.gov) to assure that the bank is FDIC insured;
(5) 
Fully collateralized repurchase agreements as defined by the act, not to exceed 180 days to stated maturity, managed under an executed Bond Market Association Master Repurchase Agreement. The repurchase transactions shall be placed only through a primary government securities dealer, as defined by the Federal Reserve of NY, or a financial institution doing business in Texas. Flex repurchase agreements specifically for capital projects may extend beyond two years but must to match the expenditure plan of the bond projects;
(6) 
AAA-rated SEC registered money market mutual funds which strive to maintain a $1.00 net asset value;
(7) 
Texas Local Government Investment Pools, complying with the act, which strive to maintain a $1.00 net asset value; and
(8) 
Fully insured or collateralized interest-bearing accounts in any bank in Texas.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1354, § 1, 6-27-06; Ordinance 1433, § 1, 5-27-08; Ordinance 1499, § 1, 4-27-10; Ordinance 1559, § 1, 2-14-12; Ordinance 1650, § 1, 5-12-15)
(a) 
Investment officer(s) 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.
(b) 
Investment officer(s) shall disclose to the Texas Ethics Commission and the city council, within the quarter, any personal financial interest representing ten percent ownership or voting stock in an amount greater than $10,000.00 with a business, or receipt of funds from the business exceeding ten percent of gross income for the previous year, or interest in real property if the interest has a fair market value of $2,500.00 or more. Any relationships within the second degree by affinity or consanguinity, as specified in chapter 171 of the Texas Local Government Code with their officers, brokers and employees who conduct business with the city shall also be reported.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1650, § 1, 5-12-15)
(a) 
All investments made by the city will be made through an authorized broker/dealer or a bank in Texas. A list of a least three broker/dealers will be maintained in order to assure competitive bidding (exhibit A to the policy, a copy of which is on file in the office of the city secretary).
(b) 
Securities broker/dealers must meet certain criteria as determined by the investment officer(s). The following criteria must be met by those firms on the list:
(1) 
Provision of a audited financial statement each year;
(2) 
Proof of certification by the Financial Industry Regulatory Agency (FINRA) and provision of firm's CRD number;
(3) 
Proof of current registration with the Texas State Securities Commission; and
(4) 
Policy certification.
(c) 
Every broker/dealer, pool, and bank with whom the city transacts business will be provided a copy of this investment policy for review to assure that they are familiar with the goals and objectives of the investment program. A representative of the firm will be required to return a signed certification acceptable to both parties stating that the policy has been received and reviewed and that controls are in place to assure that only authorized securities are sold to the city. Material changes to the policy will require re-certification of the policy.
(d) 
A list of qualified broker/dealers will be reviewed and adopted at least annually by the city council.
(e) 
In order to perfect the DVP process the banking services depository, or its brokerage subsidiary, will not be used as a broker.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1559, § 2, 2-14-12; Ordinance 1650, § 1, 5-12-15)
(a) 
It is the policy of the city to diversify its investment portfolio. Invested funds shall be diversified to minimize risk or loss resulting from over-concentration of assets in a specific maturity, specific issuer, or specific class of securities. Diversification strategies shall be established and periodically reviewed. Diversification guidelines by security type shall be:
SECURITY TYPE
MAX % OF PORTFOLIO
U.S. Treasury Obligations
100%
U.S. Government Agencies and Instrumentalities
Not to exceed 80%
Depository CDs
Not to exceed 50%
Brokered Certificate of Deposit Securities
Not to exceed 30%
Repurchase Agreement
Not to exceed 20%
*Flex agreement by bond issue
100%
Money Market Fund
100%
*% ownership of fund
Not to exceed 10%
Local Government Investment Pools
100%
*Maximum percent ownership of pool
Not to exceed 20%
(b) 
The investment officer(s) shall diversify security types and maturities, to the extent possible and attempt to match investments with anticipated cash flow requirements. Matching maturities with cash flow dates will reduce the need to sell securities prior to maturity, thus reducing market risk. The investment officer may not invest more that 20 percent of the portfolio for a period greater than one year. The investment officer may not invest any portion of the portfolio for a period greater than two years with the exception of a flex repurchase agreement.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1499, § 2, 4-27-10; Ordinance 1650, § 1, 5-12-15)
(a) 
Safekeeping.
(1) 
The laws of the state and prudent treasury management require that all purchased securities be bought on a delivery versus payment basis and be held in safekeeping by either the city, an independent third party financial institution, or the city's designated banking services depository.
(2) 
All safekeeping arrangements shall be designated by the investment officer(s) and an agreement of the terms executed in writing. The third party custodian shall be required to issue safekeeping receipts to the city listing each specific security, rate, description, maturity, cusip number, and other pertinent information. Each safekeeping receipt will be clearly marked that the security is held for the city or pledged to the city. Substitution allowed with prior city approval.
(3) 
All securities pledged to the city for certificates of deposit or demand deposits shall be held by an independent third party bank doing business in Texas. The safekeeping bank may not be within the same holding company as the bank from which the securities are pledged.
(b) 
Collateralization.
Collateralization is required on all time and demand deposits above FDIC insurance coverage. In order to anticipate market changes and provide a level of additional security for all funds, the collateralization level required will be 102 percent of the book value of the principal plus accrued interest. Collateral will be held in accordance with a written agreement approved by the pledging bank's board or loan committee to fulfill FDIC requirements.
(c) 
Custody.
Collateral shall be held by an independent, third party custodian approved by the city. The custodian shall provide a written monthly report directly to the city listing all pledged collateral by description and market value at a minimum. The pledging bank is responsible for maintaining collateral levels at all times.
(d) 
Authorized collateral.
(1) 
Obligations of the U.S. government, its agencies and instrumentalities including mortgage-backed securities and CMO which pass the bank test;
(2) 
Obligations of any U.S. state, agencies, counties, cities, or other political subdivisions of any state rated at least 'A' as to investment quality by a nationally recognized rating agency;
(3) 
An irrevocable letter of credit from the FHLB;
(4) 
Pooled collateral under the terms of the Public Funds Collateral Act.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1433, § 1, 5-27-08; Ordinance 1499, § 3, 4-27-10; Ordinance 1650, § 1, 5-12-15)
The investment officer(s) shall submit monthly to the city manager and quarterly to the city council investment reports containing sufficient information to permit an informed outside reader to evaluate the performance of the investment program and in compliance with the act. Market prices for market valuations will be obtained from an independent source.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1650, § 1, 5-12-15)
(a) 
Banking services depository.
The city will designate one banking institution through a competitive process as its central banking services provider at least every five years. This institution will be used for normal banking services including disbursements, collections, and safekeeping of securities. In selecting a depository, the services, cost of services, credit worthiness, earnings potential, and collateralization by the institutions shall be considered.
All time and demand deposits in any depository shall be insured or collateralized at all times in accordance with this policy.
(b) 
Additional depositories.
Other banking institutions from which the city may purchase certificates of deposit will also be designated as a depository after they provide their latest audited financial statements to the city. All depositories holding deposits above FDIC coverage will execute a written depository agreement and have the bank's board or bank loan committee pass a resolution approving the agreement and provide collateral in accordance with the policy.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1650, § 1, 5-12-15)
The city's investment policy and strategies shall be reviewed and adopted annually by the city council. A written resolution adopting that review and denoting changes to the policy from the review will be passed by the city council.
(Ordinance 1351, § 3, 5-9-06; Ordinance 1433, § 1, 5-27-08; Ordinance 1499, § 4, 4-27-10; Ordinance 1650, § 1, 5-12-15)