The purpose of this division is to set forth specific investment
policy and strategy guidelines for the city in order to achieve the
goals of safety, liquidity, yield, and public trust for all investment
activity. The city council shall review and adopt, by resolution,
its investment strategies and policy not less than annually. The resolution
shall include a record of changes made to either the investment policy
or strategy. This policy serves to satisfy the statutory requirement
of the current Public Funds Investment Act, V.T.C.A., Government Code
section 2256.001 et seq. (the "Act") to define,
adopt and review a formal investment strategy and policy.
(Ordinance 1278C adopted 3/8/1999; Ordinance adopting 2024 Code)
The city maintains portfolios which utilize four specific investment
strategy considerations designed to address the unique characteristics
of the fund groups represented in the portfolios:
(1)
Investment
strategies for operating funds and commingled pools containing operating
funds have as their primary objective to assure that anticipated cash
flows are matched with adequate investment liquidity. The secondary
objective is to create a portfolio structure which will experience
minimal volatility during economic cycles. This may be accomplished
by purchasing high quality, short- to medium-term securities which
will complement each other in a laddered or barbell maturity structure.
The dollar weighted average maturity of 365 days or less will be calculated
using the stated final maturity date of each security.
(2)
Investment
strategies for debt service funds shall have as the primary objective
the assurance of investment liquidity adequate to cover the debt service
obligation on the required payment date. Securities purchased shall
not have a stated final maturity date which exceeds the debt service
payment date.
(3)
Investment
strategies for debt service reserve funds shall have as the primary
objective the ability to generate a dependable revenue stream to the
appropriate debt service fund from securities with a low degree of
volatility. Securities should be of high quality and, except as may
be required by the bond ordinance specific to an individual issue,
of short- to intermediate-term maturities. Volatility shall be further
controlled through the purchase of securities carrying the highest
coupon available, within the desired maturity and quality range, without
paying a premium, if at all possible.
(4)
Investment
strategies for special projects or special purpose fund portfolios
will have as their primary objective to assure that anticipated cash
flows are matched with adequate investment liquidity. These portfolios
should include at least 10% in highly liquid securities to allow for
flexibility and unanticipated project outlays. The stated final maturity
dates of securities held should not exceed the estimated project completion
date.
(Ordinance 1278C adopted 3/8/1999)
This investment policy applies to all financial assets of the
city. These funds are accounted for in the city's Comprehensive Annual
Financial Report (CAFR) and include:
(1)
General
fund.
(2)
Special
revenue funds.
(3)
Debt
service funds.
(4)
Capital
projects funds.
(5)
Proprietary
funds.
(6)
All
other funds.
(Ordinance 1278C adopted 3/8/1999)
The city shall manage and invest its cash with four objectives,
listed in order of priority: safety, liquidity, yield, and public
trust. The safety of the principal invested always remains the primary
objective. All investments shall be designed and managed in a manner
responsive to the public trust and consistent with state and local
law. The city shall maintain a comprehensive cash management program
which includes collection of accounts receivable, vendor payment in
accordance with invoice terms, and prudent investment of available
cash. Cash management is defined as the process of managing monies
in order to insure maximum cash availability and maximum yield on
short-term investment of pooled idle cash.
(1)
Safety.
The primary objective of the city's investment
activity is the preservation of capital in the overall portfolio.
Each investment transaction shall be conducted in a manner to avoid
capital losses, whether they be from securities defaults or erosion
of market value.
(2)
Liquidity.
The city's investment portfolio shall be
structured such that the city is able to meet all obligations in a
timely manner. This shall be achieved by matching investment maturities
with forecasted cash flow requirements and by investing in securities
with active secondary markets.
(3)
Yield.
The city's cash management portfolio shall be
designed with the objective of regularly exceeding the average rate
of return of U.S. Treasury bills at a maturity level comparable to
the city's weighted average maturity in days. The investment program
shall seek to augment returns above this threshold consistent with
risk limitations identified herein and prudent investment policies.
(4)
Public trust.
All participants in the city's investment
process shall seek to act responsibly as custodians of the public
trust. Investment officials shall avoid any transaction which might
impair public confidence in the city's ability to govern effectively.
(Ordinance 1278C adopted 3/8/1999)
(a)
Investment committee.
An investment committee, consisting
of the city administrator-secretary and the director of finance, shall
meet at least quarterly to determine operational strategies and to
monitor results. The investment committee shall include in its deliberation
such topics as: performance reports, economic outlook, portfolio diversification,
maturity structure, potential risk to the city's funds, authorized
brokers and dealers, and the target rate of return on the investment
portfolio.
(b)
Delegation of authority and training.
Authority to manage
the city's investment program is derived from a resolution of the
city council. The director of finance is designated as investment
officer of the city and is responsible for investment decisions and
activities. The director of finance shall establish written procedures
for the operation of the investment program, consistent with this
investment policy. The investment officer shall attend at least one
training session relating to the officer's responsibility under the
Act within 12 months after assuming duties. The investment officer
shall attend a training session not less than once every two years
and receive 10 hours of training. Such
training from an independent source shall be approved or endorsed
by either the Government Finance Officers Association of Texas, the
Government Treasurers Organization of Texas, the Texas Municipal League,
or the North Central Texas Council of Governments.
(c)
Internal controls.
(1)
The director of finance is responsible for establishing and maintaining
an internal control structure designed to ensure that the assets of
the entity are protected from loss, theft or misuse. The internal
control structure shall be designed to provide reasonable assurance
that these objectives are met. The concept of reasonable assurance
recognizes that (i) the cost of a control should not exceed benefits
likely to be derived; and (ii) the valuation of costs and benefits
requires estimates and judgments by management.
(2)
Accordingly, the director of finance shall establish a process for
annual independent review by an external auditor to assure compliance
with policies and procedures. The results of this review shall be
reported to the city council. The internal controls shall address
the following points:
(A)
Control of collusion.
(B)
Separation of transaction authority from accounting and recordkeeping.
(C)
Custodial safekeeping.
(D)
Avoidance of physical delivery securities.
(E)
Clear delegation of authority to subordinate staff members.
(F)
Written confirmation for telephone (voice) transactions for investments
and wire transfers.
(G)
Development of a wire transfer agreement with the depository bank
or third party custodian.
(d)
Prudence.
(1)
The standard of prudence to be applied by the investment officer
shall be 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." In determining whether an investment
officer has exercised prudence with respect to an investment decision,
the determination shall be made taking into consideration:
(2)
The investment officer, acting in accordance with written procedures
and exercising due diligence, shall not be held personally responsible
for a specific security's credit risk or market price changes, provided
that these deviations are reported immediately and that appropriate
action is taken to control adverse developments.
(e)
Ethics and conflicts of interest.
(1)
City staff 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 the ability to make
impartial investment decisions. City staff shall disclose to the city
administrator-secretary any material financial interests in financial
institutions that conduct business with the city and they shall further
disclose positions that could be related to the performance of the
city's portfolio. City staff shall subordinate their personal financial
transactions to those of the city, particularly with regard to timing
of purchases and sales.
(2)
An investment officer of the city who has a personal business relationship
with an organization seeking to sell an investment to the city shall
file a statement disclosing that personal business interest. An investment
officer who is related within the second degree by affinity or consanguinity
to an individual seeking to sell an investment to the city shall file
a statement disclosing that relationship. A statement required under
this subsection must be filed with the state ethics commission and
the governing body of the entity.
(Ordinance 1278C adopted 3/8/1999; Ordinance adopting 2024 Code)
(a)
Quarterly reporting.
The director of finance shall submit
a signed quarterly investment report that summarizes current market
conditions, economic developments and anticipated investment conditions.
The report shall summarize investment strategies employed in the most
recent quarter, and describe the portfolio in terms of investment
securities, maturities, and risk characteristics, and shall explain
the total investment return for the quarter.
(b)
Annual report.
Within 60 days of the end of the fiscal
year, the director of finance shall present an annual report on the
investment program and investment activity. This report may be presented
as a component of the fourth quarter report to the city administrator-secretary
and city council.
(c)
Methods.
The quarterly investment report shall include
a succinct management summary that provides a clear picture of the
status of the current investment portfolio and transactions made over
the last quarter. This management summary will be prepared in a manner
which will allow the city to ascertain whether investment activities
during the reporting period have conformed to the investment policy.
The report will be prepared in compliance with generally accepted
accounting principles. The report will be provided to the city administrator-secretary
and city council. The report will include the following:
(1)
A listing of individual securities held at the end of the reporting
period. This list will include the name of the fund or pooled group
fund for which each individual investment was acquired.
(2)
Unrealized gains or losses resulting from appreciation or depreciation
by listing the beginning and ending book and market value of securities
for the period. Market values shall be obtained from financial institutions
or portfolio reporting services independent from the broker/dealer
from which the security was purchased.
(3)
Additions and changes to the market value during the period.
(4)
Fully accrued interest for the reporting period.
(5)
Average weighted yield to maturity of portfolio on entity investments
as compared to applicable benchmark.
(6)
Listing of investments by maturity date.
(7)
The percentage of the total portfolio which each type of investment
represents.
(8)
Statement of compliance of the city's investment portfolio with state
law and the investment strategy and policy approved by the city council.
(Ordinance 1278C adopted 3/8/1999; Ordinance adopting 2024 Code)
(a)
Active portfolio management.
The city shall pursue an
active versus a passive portfolio management philosophy. That is,
securities may be sold before they mature if market conditions present
an opportunity for the city to benefit from the trade. The investment
officer will routinely monitor the contents of the portfolio, the
available markets, and the relative value of competing instruments,
and will adjust the portfolio accordingly.
(b)
Investments.
Assets of the city may be invested in the
following instruments; provided, however, that at no time shall assets
of the city be invested in any instrument or security not authorized
for investment under the Act, as the Act may from time to time be
amended. The city is not required to liquidate investments that were
authorized investments at the time of purchase.
(1)
Authorized.
(A)
Obligations of the United States of America, its agencies and instrumentalities,
which have a liquid market with a readily determinable market value.
(B)
Direct obligations of the State of Texas and agencies thereof.
(C)
Other obligations, the principal of and interest on which are unconditionally
guaranteed by the State of Texas or United States of America.
(D)
Obligations of the states, agencies thereof, countries, cities, and
other political subdivisions of any state having been rated as investment
quality by a nationally recognized investment rating firm, and having
received a rating of not less than "A" or its equivalent.
(E)
Certificates of deposit of state and national banks domiciled in Texas, guaranteed or insured by the Federal Deposit Insurance Corporation or its successor or secured by obligations described in subsections (A) through (D) above, which are intended to include all direct agency or instrumentality issued mortgage backed securities rated AAA by a nationally recognized rating agency, or by the current Public Funds Investment Act, V.T.C.A., Government Code section 2256.001 et seq., and that have a market value of not less than the principal amount of the certificates.
(F)
Fully collateralized direct repurchase agreements with a defined
termination date secured by obligations of the United States or its
agencies and instrumentalities pledged with a third party, selected
by the director of finance, other than an agency for the pledger.
(G)
Joint pools of political subdivisions in the State of Texas which
invest in instruments and follow practices allowed by current law.
Investment in such pools shall be limited to 15% of the city's entire
portfolio. A pool must be continuously rated no lower than AAA or
AAA-m or at an equivalent rating by at least one nationally recognized
rating service.
(2)
Not authorized.
The city's authorized investments options
are more restrictive than those allowed by state law. State law specifically
prohibits investment in the following investment securities.
(A)
Obligations whose payment represents the coupon payments on the outstanding
principal balance of the underlying mortgage-backed security collateral
and pays no principal.
(B)
Obligations whose payment represents the principal stream of cash
flow from the underlying mortgage-backed security collateral and bears
no interest.
(C)
Collateralized mortgage obligations that have a stated final maturity
date of greater than 10 years.
(D)
Collateralized mortgage obligations the interest rate of which is
determined by an index that adjusts opposite to the changes in a market
index.
(c)
Holding period.
(1)
The city intends to match the holding periods of investment funds
with liquidity needs of the city. In no case will the average maturity
of investments of the city's operating funds exceed one year. The
maximum final stated maturity of any investment shall not exceed five
years.
(2)
Investments in all funds shall be managed in such a way that the
market price losses resulting from interest rate volatility would
be offset by coupon income and current income received from the volume
of the portfolio during a twelve-month period.
(d)
Risk and diversification.
The city recognizes that investment
risks can result from issuer defaults, market price changes or various
technical complications leading to temporary illiquidity. Risk is
controlled through portfolio diversification which shall be achieved
by the following general guidelines:
(1)
Risk of issuer default is controlled by limiting investments to those
instruments allowed by the Act, which are described herein.
(2)
Risk of market price changes shall be controlled by avoiding over-concentration
of assets in a specific maturity sector, limitation of average maturity
of operating funds investments to one year, and avoidance of over-concentration
of assets in specific instruments other then U.S. Treasury securities
and insured or collateralized certificates of deposit.
(3)
Risk of illiquidity due to technical complications shall be controlled
by the selection of securities dealers as described herein.
(Ordinance 1278C adopted 3/8/1999; Ordinance adopting 2024 Code)
(a)
Depository.
At least every three years a depository
shall be selected through the city's banking services procurement
process, which shall include a formal request for proposal (RFP).
In selecting a depository, the credit-worthiness of institutions shall
be considered, and the director of finance shall conduct a comprehensive
review of prospective depositories' credit characteristics and financial
history.
(b)
Certificates of deposit.
Banks seeking to establish
eligibility for the city's competitive certificate of deposit purchase
program shall submit for review annual financial statements, evidence
of federal insurance and other information as required by the director
of finance.
(c)
Securities dealers.
(1)
For brokers and dealers of government securities, the city shall
select only those dealers reporting to the Market Reports Division
of the Federal Reserve Board of New York, also known as the "primary
government security dealers", unless a comprehensive credit and capitalization
analysis reveals that other firms are adequately financed to conduct
public business. Investment officials shall not knowingly conduct
business with any firm with whom public entities have sustained losses
on investments. All securities dealers shall provide the city with
references from public entities which they are currently serving.
The investment committee shall adopt and annually review a list of
qualified brokers authorized to engage in investment transactions
with the entity.
(2)
All financial institutions and broker/dealers who desire to become
qualified bidders for investment transactions must supply the following
as appropriate:
(A)
Audited financial statements.
(B)
Proof of National Association of Securities Dealers (NASD) certification.
(C)
Proof of state registration.
(D)
Completed broker/dealer questionnaire.
(E)
Certification of having read the city's investment policy signed
by a qualified representative of the organization.
(F)
Acknowledgment that the organization has implemented reasonable procedures
and controls in an effort to preclude imprudent investment activities
arising out of investment transactions conducted between the city
and the organization.
(3)
Qualified representative means a person who holds a position with
a business organization, who is authorized to act on behalf of the
business organization, and who is one authorized to act on behalf
of the business organization, and who is one of the following:
(A)
For a business organization doing business that is regulated by or
registered with a securities commission, a person who is registered
under the rules of the National Association of Securities Dealers;
(B)
For a state or federal bank, a savings bank, or a state or federal
credit union, a member of the loan committee for the bank or branch
of the bank or a person authorized by corporate resolution to act
on behalf of and bind the banking institution; or
(C)
For an investment pool, the person authorized by the elected official
or board with authority to administer the activities of the investment
pool and to sign the certification on behalf of the investment pool.
(d)
Investment pools.
(1)
A through investigation of the pool is required prior to investing,
and on a continual basis. All investment pools must supply the following
information in order to be eligible to receive funds:
(A)
The types of investments in which money is allowed to be invested.
(B)
The maximum average dollar-weighted maturity allowed, based on the
stated maturity date, of the pool.
(C)
The maximum stated maturity date any investment security within the
portfolio has.
(D)
The objectives of the pool.
(E)
The size of the pool.
(F)
The names of the members of the advisory board of the pool and the
dates their terms expire.
(G)
The custodian bank that will safekeep the pool's assets.
(H)
Whether the intent of the pool is to maintain a net asset value of
one dollar and the risk of market price fluctuation.
(I)
Whether the only source of payment is the assets of the pool at market
value or whether there is a secondary source of payment, such as insurance
or guarantees, and a description of the secondary source of payment.
(J)
The name and address of the independent auditor of the pool.
(K)
The requirements to be satisfied for an entity to deposit funds in
and withdraw funds from the pool and any deadlines or other operating
policies required for the entity to invest funds in and withdraw funds
from the pool.
(L)
The performance history of the pool, including yield, average dollar-weighted
maturities, and expense ratios.
(M)
A description of interest calculations and how interest is distributed,
and how gains and losses are treated.
(2)
An annual review of the financial condition and registration of qualified
bidders will be conducted by the director of finance.
(Ordinance 1278C adopted 3/8/1999)
(a)
Insurance or collateral.
All deposits and investments
of city funds other than direct purchases of U.S. Treasuries or agencies
shall be secured by pledged collateral. In order to anticipate market
changes and provide a level of security for all funds, the collateralization
level will be 102% of market value of principal and accrued interest
on the deposits or investments less an amount insured by the FDIC
or FSLIC. Evidence of the pledged collateral shall be maintained by
the director of finance or a third-party financial institution. Repurchase
agreements shall be documented by a specific agreement noting the
collateral pledge in each agreement. Collateral shall be reviewed
weekly to assure that the market value of the pledged securities is
adequate.
(b)
Safekeeping agreement.
Collateral pledged to secure
deposits of the city shall be held by a safekeeping institution in
accordance with a safekeeping agreement which clearly defines the
procedural steps for gaining access to the collateral should the city
determine that the city's funds are in jeopardy. The safekeeping institution,
or trustee, shall be the Federal Reserve Bank or an institution not
affiliated with the firm pledging the collateral. The safekeeping
agreement shall include the signatures of authorized representatives
of the city, the firm pledging the collateral, and the trustee.
(c)
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.
(d)
Subject to audit.
All collateral shall be subject to
inspection and audit by the director of finance or the city's independent
auditors.
(e)
Delivery vs. payment.
Treasury bills, notes, bonds,
repurchase agreements and government agencies' securities shall be
purchased using the delivery vs. payment method. That is, funds shall
not be wired or paid until verification has been made that the correct
security was received by the trustee. The security shall be held in
the name of the city or held on behalf of the city. The trustee's
records shall assure the rotation of the city's ownership of or explicit
claim on the securities. The original copy of all safekeeping receipts
shall be delivered to the city.
(Ordinance 1278C adopted 3/8/1999)
The city investment policy shall be adopted by resolution of
the city council. The policy shall be reviewed for effectiveness on
an annual basis by the investment committee and any modifications
will be recommended for approval to the city council. The city council
shall review these investment policies and strategies not less than
annually.
(Ordinance 1278C adopted 3/8/1999)
