(a)
The
city council may, at its discretion, choose to donate public funds
to a local charitable organization of its choosing. However, any such
donation of public funds must directly serve a public purpose in keeping
with the requirements of article III, section 52 of the Texas Constitution.
(b)
A donation as referenced in subsection (a) of this section shall be allowable should it be found that the donation accomplishes a legitimate public purpose, even though such donation may incidentally benefit a private interest in some respects.
(c)
Should
the city council find that a valid public purpose will be obtained
by and through a donation to a charitable organization, such finding
shall be explicitly stated in any motion authorizing said donation.
Further, the minutes of such meeting shall specifically note the city
council’s finding that a public purpose is being accomplished
through the donation.
(Ordinance 071820172 adopted 7/18/17)
The purpose of this public funds investment policy (hereafter
the “investment policy”) is to set specific investment
policy and strategy guidelines for the city in order to achieve the
goals of safety, liquidity, diversity and yield for all investment
activity. In keeping with the state statute, the city council shall
review its investment strategies and policy no less than annually.
This policy satisfies the statutory requirements of the Texas Government
Code, chapter 2256, the Public Funds Investment Act (the “Act”).
(Ordinance 04012019-1, exh. A, sec.
I, adopted 4/1/19)
(a)
Funds covered.
This investment policy shall govern the
investment of all funds and assets of the city, excluding certain
trust and pension funds contractually invested by outside managers
or funds otherwise excluded by contract. These funds are reported
in the city’s annual financial statement report and include:
(Ordinance 04012019-1, exh. A, sec.
II, adopted 4/1/19)
The city shall manage and invest its cash and assets with four
major objectives, listed in order of priority: safety, liquidity,
diversification and yield. All investments shall be undertaken in
a manner responsive to the public trust and consistent with state
and local law.
(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.
(2)
Liquidity.
The investment portfolio shall remain sufficiently
liquid to meet all operating requirements that may be reasonably anticipated.
(3)
Diversification.
In order to attain the objects of safety,
diversification is required in order that potential losses on individual
securities do not exceed the income generated from the remainder of
the portfolio.
(4)
Yield.
The city’s investment strategy is conservative.
The city’s investment portfolio shall be designed with the objective
of attaining a market rate of return, taking into account the city’s
risk constraints and the cash flow needs of the portfolio. “Market
rate of return” may be defined as the average yield of the current
six-month U.S. Treasury bill.
(Ordinance 04012019-1, exh. A, sec.
III, adopted 4/1/19)
(a)
Prudence.
The standard of care to be used by the city
regarding the investment of public funds. The “prudent person”
standard states that “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
to the mayor or highest ranking administrative employee 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.
(c)
Delegation of authority.
(1)
The city secretary, acting on behalf of the city council, is designated
as the investment officer of the city and is responsible for investment
management decisions and activities. The city secretary 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. Other investment officers may be
so designated by the city council.
(2)
Responsibility for the operation of the investment program is hereby
delegated to the investment officer, who shall develop and monitor
written procedures and internal controls for the operation of the
investment program consistent with this investment policy. Procedures
should include references to: safekeeping, delivery vs. payment, investment
accounting, repurchase agreements, wire transfer agreements, and collateral/depository
agreements.
(3)
The city may elect to contract with an investment management firm
registered under the Investment Advisers Act of 1940 or with the state
securities board for the investment and management of its public funds
under its control. Such contract shall not have a term in excess of
two years, and any renewal or extension of the contract must be made
by the city council by ordinance.
(4)
No officer or designee may engage in an investment transaction except
as provided under the terms of this policy and the procedures established.
(d)
Investment advisors.
Investment advisors shall adhere
to the spirit, philosophy and specific terms of the policy and shall
invest with the same objectives. The investment officer shall establish
criteria to evaluate prospective investment advisors, including:
(Ordinance 04012019-1, exh. A, sec.
IV, adopted 4/1/19)
(a)
Internal controls.
The city council shall establish
a system of internal controls, which shall be documented in writing.
The internal controls shall be reviewed by the city’s auditor.
The controls shall be designed to prevent the loss of public funds
arising from fraud, employee error, misrepresentation by third parties,
unanticipated changes in financial markets, or imprudent actions by
employees and officers. The internal control structure shall be designed
to provide reasonable assurance that these objectives are met.
(b)
Internal controls issues.
The following points should
be considered in the development of an internal controls system or
policy:
(1)
Control of collusion;
(2)
Separation of transaction authority from accounting and recordkeeping;
(3)
Custodial safekeeping;
(4)
Avoidance of physical delivery securities;
(5)
Clear delegation of authority to subordinate staff members;
(6)
Written confirmation of transactions for investments and wire transfers;
(7)
Dual authorizations of wire transfers; and
(8)
Development of a wire transfer agreement with the depository bank
and third party custodian.
(c)
Compliance audit.
As part of the annual audit, the city’s
auditor shall formally review internal controls, compliance with the
policy, and the and the [sic] quarterly investment reports prepared
in accordance with the Act, and report the results of such review
to the city council as part of its regular audit report.
(Ordinance 04012019-1, exh. A, sec.
V, adopted 4/1/19)
(a)
Legal basis.
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.
(b)
Third party bank.
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.
(Ordinance 04012019-1, exh. A, sec.
VI, adopted 4/1/19)
(a)
Investment types.
The city is authorized to invest in
the following types of securities, as specified in the Act. Eligible
investments include the following:
(1)
Obligations of or guaranteed by governmental entities, excluding
mortgage backed securities, but including:
(A)
Obligations, including letters of credit, of the United States or
its agencies or instrumentalities;
(B)
Direct obligations of the State of Texas or its agencies and instrumentalities;
(C)
Other obligations, the principal of and interest on which are unconditionally
guaranteed, insured by or backed by the full faith and credit of the
State of Texas or the United States or their respective agencies and
instrumentalities, including obligations that are fully guaranteed
or insured by the FDIC or by the explicit full faith and credit of
the United States; or
(D)
Obligations of states, agencies, counties, cities, and other political
subdivisions of any state having been rated as to investment quality
by a nationally recognized investment rating firm and having received
a rating of not less than A or its equivalent.
(2)
Certificates of deposit, issued by a depository institution that
has its main office or a branch office in the State of Texas if such
certificates of deposit are guaranteed or insured by the FDIC or its
successor, or the National Credit Union Share Insurance Fund or its
successor.
(3)
Fully collateralized repurchase agreements having a defined termination
date, and are secured by a combination of cash and obligations as
described in the Act, pledged to the city, held in the city’s
name, and deposited, at the time the investment is made with the city,
with the city’s custodial bank. Repurchase agreements shall
only be placed through primary government securities dealers, as defined
by the Federal Reserve, or a financial institution doing business
in the State of Texas.
(4)
Commercial paper, having a stated maturity of 270 days or fewer,
rated in the highest tier (e.g., A-1, P-1, F-1, or D-1 or higher)
by at least two nationally recognized rating agencies or which is
recognized by one nationally recognized credit rating agency and fully
secured by an irrevocable letter of credit issued by a domestic bank.
(5)
Investment pools approved by the Act, which have an advisory board
and are continuously rated no lower than AAA by at least one nationally
recognized rating agency, upon approval by the city council. Such
pools must provide an offering circular, investment transaction confirmations
and quarterly reports.
(6)
SEC registered no-load money market mutual funds that have a dollar
rated average stated maturity of 90 days or less and which include
in its investment objective the maintenance of a stable asset value
of $1.00 for each share.
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An investment that requires a minimum rating under this policy
does not qualify as an authorized investment during any period that
the investment does not have the minimum rating. The city will take
all prudent measures consistent with this policy to liquidate an investment
that does not have the minimum rating; however, the city is not required
to liquidate investments that were authorized investments at the time
of purchase.
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(b)
Collateral defined.
The city shall accept only the following
securities as collateral:
(1)
FDIC and FSLIC insurance coverage.
(2)
A bond, certificate of indebtedness, or treasury note of the United
States, or other evidence of indebtedness of the United States that
is guaranteed as to principal and interest by the United States.
(3)
Obligations, the principal and interest on which are unconditionally
guaranteed or insured by the State of Texas.
(4)
A bond of the State of Texas or of a county, city or other political
subdivision of the State of Texas having been rated as investment
grade (investment rating no less than “A” or its equivalent)
by a nationally recognized rating agency with a remaining maturity
of ten (10) years or less.
(c)
Subject to audit.
All collateral shall be subject to
inspection and audit by the city’s auditors.
(Ordinance 04012019-1, exh. A, sec.
VII, adopted 4/1/19)
(a)
Investment types.
The city is specifically prohibited
from investing in any of the following:
(1)
Structured notes, investments with inverse-floaters, collateralized
mortgage obligations, or any other form of derivative;
(2)
Any investment not authorized by this policy or the Act;
(3)
Any instrument for which there would not be a ready market for immediate
resale;
(4)
Any investment pool in which the city would own more than 20% of
the market value of the pool;
(5)
Highly sophisticated investments not freely conducted in the marketplace,
e.g., derivatives; and
(6)
Any one mutual fund in which the city would own more than 10% of
the total assets of the mutual fund.
(b)
Borrowed funds.
The city is also specifically prohibited
from borrowing funds for the purpose of reinvesting the funds to leverage
return.
(Ordinance 04012019-1, exh. A, sec.
VIII, adopted 4/1/19)
(a)
Highest trust.
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. The investment strategies
herein are deemed essential to meeting the stated policy goals.
(b)
Risk management.
Each investment transaction shall be
conducted in a manner intended to avoid capital losses, whether from
security defaults, safekeeping, or erosion of market value. In order
to achieve this goal the following strategies will be utilized to
mitigate credit risk and interest rate risk.
(1)
Credit risk.
The city will minimize credit risk, which
is the risk of loss due to the failure of the security issuer or backer,
by:
(A)
Limiting investments to the types of securities listed in section 2.06.037 of this investment policy;
(B)
Pre-qualifying the financial institutions, broker/dealers, intermediaries,
and advisers with which the city will do business; and
(C)
Diversifying the investment portfolio so that the impact of potential
losses from any one type of security or from any one individual issuer
will be minimized.
(2)
Interest rate risk.
The city will minimize interest
rate risk, which is the risk that the market value of securities in
the portfolio will fall due to changes in market interest rates, by:
(A)
Structuring the investment portfolio so that securities mature to
meet cash requirements for ongoing operations, thereby avoiding the
need to sell securities on the open market prior to maturity; and
(B)
Investing operating funds primarily in shorter-term securities, money
market mutual funds, or similar investment pools and limiting the
average maturity of the portfolio in accordance with this policy.
(c)
Selection.
The choice of high-grade government investments
and high-grade money market instruments is designed to ensure the
marketability of such investments should unforeseen liquidity needs
arise.
(d)
Diversification.
It is the policy of the city to diversify
its investment portfolios. To eliminate risk of loss resulting from
the over-concentration of assets in a specific maturity, issuer, or
class of securities, all cash and cash equivalent assets in all city
funds shall be diversified by maturity, issuer, and class of security.
(Ordinance 04012019-1, exh. A, sec.
IX, adopted 4/1/19)
(a)
Exemptions.
Any investment currently held that does
not meet the guidelines of this policy shall be exempted from the
requirements of this policy. At maturity or liquidation, such monies
shall be reinvested only as provided by this policy.
(b)
Amendments.
This policy shall be reviewed on an annual
basis. Any changes must be approved by the city council and any other
appropriate authority, as well as the individuals charged with maintaining
internal controls.
(Ordinance 04012019-1, exh. A, sec.
X, adopted 4/1/19)
The policy must be reviewed not less than annually by the city
council.
(Ordinance 04012019-1, exh. A, sec.
XI, adopted 4/1/19)
