The fiscal year shall begin on October 1st and shall end at
midnight September 30th of each year.
(Ordinance 1560 adopted 5/22/18)
(a)
The
city administrator or, in his absence or incapacity, the finance/human
resource director is hereby authorized to sign and disburse funds
by check for payment of obligations incurred by the city which meet
the following criteria:
(1)
The obligation is incurred in the regular course of business and
there exists an item in the duly passed annual budget providing funds
for the payment of items of the same type or category.
(2)
The check is drawn on the general operating account of the city and
the city administrator has verified that sufficient funds are on deposit
to cover the checks to be issued and all other outstanding checks.
(3)
The receipt of the service or goods or materials had been verified
by the department head by placing his initials on the invoice or check.
(4)
Except under circumstances hereafter stated, the check has been co-signed
and approved by at least one (1) alderperson after the verification
by the department head as set out above. The requirement of co-signature
can be fulfilled by the signature of both the finance/human resources
director and city administrator in lieu of an alderperson for payroll
checks and payroll related expenses, which include, by way of example
and not limitation, the payment of payroll taxes to a federal or state
agency, child support payments and payments for health and disability
insurance.
(b)
Under
no circumstances shall any payment from funds arising from bonded
indebtedness or certificates of obligation be disbursed under this
section.
(Ordinance 1560 adopted 5/22/18)
(a)
Purpose.
The purpose of this policy is to establish
a key element of the financial stability of the city by setting guidelines
for fund balance. Unassigned fund balance is an important measure
of economic stability. It is essential that the city maintain adequate
levels of unassigned fund balance to mitigate financial risk that
can occur from unforeseen revenue fluctuations, unanticipated expenditures,
and similar circumstances. The fund balance also provides cash flow
liquidity for the city’s general operations.
(b)
Fund balance.
(1)
(2)
(3)
(4)
(5)
Fund equity.
Definitions.
An accounting distinction is made between the portions of
fund equity that are spendable and nonspendable. These are broken
into five categories:
Assigned fund balance.
Comprises amounts intended to be used by the government for
specific purposes. Intent can be expressed by the city council or
by an official or body to which the city council delegate authority.
In governmental funds other than the general fund assigned fund balance
represents the amount that is not restricted or committed. This indicates
that resources in other governmental funds are, at a minimum intended
for the purpose of that fund.
Committed fund balance.
Includes amounts that can be used only for the specific purposes
determined by a formal action of the city council. Commitments may
be changed or lifted only by the city council taking the same formal
action that imposed the constraint originally.
Nonspendable fund balance.
Includes amounts that are not in a spendable form or are
required to be maintained intact. Examples are inventory or permanent
funds.
Restricted fund balance.
Includes amounts that can be spent only for the specific
purposes stipulated by external resource providers either constitutionally
or through enabling legislation. Examples include grants.
Unassigned fund balance.
Is the residual classification of the general fund and includes
all amounts not contained in other classifications. Unassigned amounts
are technically available for any purpose.
A fund’s equity is generally the difference between
the assets and liabilities.
(c)
Policy.
(1)
Committed fund balance.
The city council is the city’s
highest level of decision-making authority and the formal action that
is required to be taken to establish, modify, or rescind a fund balance
commitment is a resolution approved by the city council at the city’s
council meeting. The resolution must either be approved or rescinded,
as applicable, prior to the last day of the fiscal year for which
the commitment is made. The amount subject to the constraint may be
determined in the subsequent period.
(2)
Assigned fund balance.
The city council has authorized
the city’s mayor and city administrator as the official authorized
to assign fund balance to a specific purpose as approved by this fund
balance policy.
(3)
Minimum unassigned fund balance.
The city shall strive
to maintain the general fund unassigned fund balanced at a minimum
of 90 days of current year budgeted expenditures. After the general
fund had gathered sufficient resources, additional unassigned funds
will be allowed to accumulate for future general fund capital improvements.
Should such use reduce the balance below the appropriate level set
as the objective for that fund, the city shall take action necessary
to restore the unreserved, undesignated fund balance to acceptable
levels within three years.
(4)
Retained earnings of other operating funds.
In other
operating funds, the city shall strive to maintain a positive retained
earnings position to provide sufficient reserves for emergencies and
revenue shortfalls. The minimum working capital in the enterprise
funds shall strive to be 90 days of current year budgeted expenditures.
(5)
Current years expenditures.
After these funds have gathered
sufficient resources, additional unassigned funds will be allowed
to accumulate for further utility/operating fund capital improvements.
(6)
Use of fund balance/retained earnings.
Fund balance
and retained earnings may be used in one or a combination of the following
ways: emergencies, one-time expenditures that do not increase recurring
operating costs, major capital expenditures, and start-up expenditures
for new programs undertaken at mid-year.
(Ordinance 1560 adopted 5/22/18)
(a)
It is the policy of the city that after allowing for the anticipated
cash flow requirements on the city and giving due consideration to
the safety and risks of investments, all available funds shall be
invested in conformance with these legal and administrative guidelines
to obtain a market rate of return.
(b)
Effective cash management is recognized as essential to good
fiscal management. An active cash management and investment policy
will be pursued to take advantage of investment interest as a viable
and material source of revenue for city funds. The city's portfolio
shall be designed and managed in a manner responsive to the public
trust and shall be invested in conformance with state and federal
regulations, applicable bond resolution requirements, and the adopted
investment policy. The city will invest public funds in a manner which
will provide the maximum security and an appropriate market rate of
return while meeting the daily cash flow demands of the city.
(c)
The city is required under the Public Funds Investment Act (chapter 2256 of the Texas Government Code) to adopt a formal written investment policy for the investment of public funds. The policies in this article 1.06 serve to satisfy the statutory requirement (specifically the Public Funds Investment Act, chapter 2256 of the Texas Government Code (the Act) to define, adopt and review a formal investment strategy and policy.
(Ordinance 1588 adopted 8/20/2019; Ordinance 1619 adopted 8/18/2020; Ordinance 1695 adopted 7/18/2023)
(a)
Purpose.
The purpose of this investment policy
(the "policy") is to set forth specific investment policy and strategy
guidelines for the city in order to achieve the goals of safety, liquidity,
achieving market rate of return, and maintaining public trust for
all investment activities. The city council of the city shall review
the investment strategy and policy at least annually, and the city
council shall annually approve the investment policy revisions, if
any, by ordinance.
(b)
Investment strategy.
The city maintains a comprehensive and proactive cash management program that is designed to monitor and control all city funds to ensure maximum utilization and yield a market rate of return. The basic and underlying strategy of this program is that all of the city's funds are earning interest. It is the responsibility and obligation of the city to maintain a flexible approach and be prepared to modify the investment strategy as market conditions dictate. The investment strategy described as is predicated on conditions as now exist and are subject to change. The investment strategy emphasizes low credit risk, diversification, and the management of maturities. The strategy also considers the expertise and time constraints of the investment officers. The allowable investment instruments as defined in Subsection (f) of this policy reflect the avoidance of credit risk. Diversification refers to dividing investments among a variety of securities offering independent returns. This strategy uses local government investment pools to achieve diversification. The management of maturities refers to structuring the maturity dates of the direct investments so that, while funds are initially invested for a longer period of time, some investments mature as cash needs require.
(1)
The primary investment strategy and objectives of the city as specified in this policy Subsection (d) are listed in their order of importance: Safety and preservation of principal; maintenance of sufficient liquidity to meet operating needs; achieve a market rate of return on the investment portfolio; and seek at all times to maintain public trust by adhering to the above stated objectives.
(2)
The list of investment authorized by this policy intentionally
excludes some investments allowed by state law. The restrictions limit
possible credit risk and provide the maximum measure of safety. Within
the investment objectives, the investment strategy is to utilize authorized
investments for maximum advantage to the city. To increase the interest
earnings for funds identified as being available for investment over
longer periods of time, based upon a cash requirement projection,
the city will consider the following strategies:
(A)
Strategy No. 1.
Diversifying the city's investment
opportunities through the use of local government investment pools
and money market mutual funds as authorized by city council. An investment
pool is an entity created to invest public funds jointly on behalf
of its participants and whose investment objectives in order of priority
match those objectives of the city. Funds are usually available from
investment pools on a same-day basis, meaning the pools have a high
degree of liquidity. Because of the size and expertise of their staff,
investment pools are able to prudently invest in a variety of the
investment types allowed by state law. In this manner, investment
pools achieve diversification. The strategy of the city calls for
the use of investment pools as a primary source of diversification,
and supplemental source of liquidity. Funds that may be needed on
a short-term basis but that are in excess of the amount maintained
at the depository bank are available for deposit in investment pools.
(B)
Strategy No. 2.
Building a ladder of investment
policy authorized securities with staggered maturities for all or
part of the longer-term investable funds. The benefits of this ladder
approach include the following:
(i)
It is straight-forward and easily understood;
(ii)
It represents a prudent diversification method;
(iii)
All investments remain within the approved maturity
horizon;
(iv)
It will normally allow the city to capture a reasonable
portion of the yield curve; and
(v)
It provides predictable cash flow with scheduled
maturities and reinvestment opportunities.
(C)
Strategy No. 3.
Pursuant to the Public Funds Investment
Act (Texas Government Code 2256.003), the city may, at its discretion,
contract with an investment management firm registered under the Investment
Advisors Act of 1940 (15 U.S.C. section 80b-1 et seq.) with the state
securities board to provide for investment and nondiscretionary management
of its public funds or other funds under its control.
(i)
An appointed investment advisor shall act solely
in an advisory and administrative capacity, within the guidelines
of this investment policy. At no time shall the advisor take possession
of securities or funds or otherwise be granted discretionary authority
to transact business on behalf of the city. Any contract awarded by
the city council for investment advisory services may not exceed two
years, with an option to be extended by mutual consent of both parties.
(ii)
Duties of the investment advisor contracted by
the city shall abide by the Prudent Expert Rule, whereby investment
advice shall, at all times be given with the judgement and care, under
circumstances then prevailing, which persons paid for their special
prudence, discretion and intelligence in such matters exercise in
the management of their client's affairs, not for speculation by the
client or production of fee income by the advisor or broker, but for
investment by the client with emphasis on the probable safety of the
capital while considering the probable income to be derived.
(D)
Strategy No. 4.
The city will maintain portfolio(s)
which utilize four specific investment strategy considerations designed
to address the unique characteristics of the fund group(s) represented
in the portfolio(s):
(i)
Investment strategies for operating funds and pooled
funds 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 that will
experience minimal volatility during economic cycles through diversification
by security type, maturity date and issuer. All security types, as
authorized by this policy, are considered suitable investments for
the operating and pooled funds.
(ii)
Investment strategies for debt service funds shall
have the primary objective the assurance of investment liquidity adequate
to cover the debt service obligation on the required payment date(s).
These funds have predictable payment schedules. Therefore, investment
maturities shall not exceed the anticipated cash flow requirements.
(iii)
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.
Managing the debt service reserve fund's portfolio maturities not
to exceed the call provisions of the bond issue will reduce the investment's
market risk if the city's bonds are called and the reserve fund liquidated.
No investment maturity shall exceed the final maturity of the bond
issue.
(iv)
Investment strategies for special projects and
capital projects funds will have as their primary objective to assure
that anticipated cash flows are matched with adequate investment liquidity.
Market conditions and arbitrage regulations will influence the investment
of capital project funds. When market conditions allow, achieving
a positive spread to applicable arbitrage yield is desired objective,
although at no time shall the anticipated expenditure schedule be
exceeded in an attempt to increase yield.
(E)
Strategy No. 5. Hold to maturity.
The strategy
of the city is to maintain sufficient liquidity in its portfolio so
that it does not need to sell a security prior to maturity. Should
it become necessary to sell a security prior to maturity, where the
sale proceeds are less than the current book value, the prior written
consent of the city council must be obtained. Securities may be sold
prior to maturity by the investment officer at or above their book
value at any time.
(F)
Strategy No. 6. Pooling of deposits and investments.
All demand deposits of the city will be concentrated with one
central depository. This procedure will maximize the city's ability
to pool cash for investment purposes, and provide more manageable
banking relationships. In addition, depositories not holding demand
deposits of the city may be eligible to bid or submit proposals on
city investments.
(G)
Strategy No. 7. Depository bank relationships.
This policy shall further seek to maintain good depository bank relationships
while minimizing the cost of banking services. The city will seek
to maintain a depository contract which will be managed to a level
that minimizes the cost of the banking relationships to the city,
while allowing the city to earn an appropriate return on idle demand
deposits.
(H)
Strategy No. 8. Single pooled fund group.
A single
strategy is specified, in accordance with the single pooled funds
group as defined in this policy. However, earnings from investments
will be allocated on a pro-rata cash basis to the individual funds
and used in a manner that will be best service the interests of the
city.
(I)
Strategy No. 9. Maximizing investible cash balances.
Procedures shall be established and implemented in order to
maximize investible cash by decreasing the time between the actual
collection and the deposit of receipts, and by controlling disbursements.
(c)
Scope.
The investment policy shall govern the
investments of all financial assets considered to be part of the city
and includes the following funds or fund types: General fund, utility
fund, debt service fund, capital projects fund, special revenue funds,
and any other funds which have been contractually delegated to the
city for management purposes. The city may add or delete funds as
may be required by law, or for proper accounting procedures. This
policy does not include funds governed by approved trust agreements,
or assets administered for the benefit of the city by outside agencies
under retirement or deferred compensation programs. Additionally,
bond funds (including debt service and reserve funds) are governed
by bond ordinances and are subject to the provisions of the Internal
Revenue Code and applicable federal regulations governing the investment
of bond proceeds.
(d)
Investment objectives.
Funds of the city shall
be invested in accordance with all applicable State statutes, this
policy, and any other approved, written administrative procedures.
The four objectives of the city's investment shall be as follows (in
the order of priority):
(1)
Safety of principal.
Safety of principal invested
is the foremost objective in the investment decisions of the city.
Each investment transaction shall seek to ensure the preservation
of capital in the overall portfolio. The risk of loss shall be controlled
by investing only in authorized securities as defined in this policy,
by qualifying the financial institutions with which the city will
transact, and by portfolio diversification. Safety is defined as the
undiminished return of the principal on the city's investments. All
investment officers shall understand the suitability of investment
to the financial requirements of the city.
(2)
Liquidity.
The investment portfolio shall be managed to maintain liquidity to ensure that funds will be available to meet the city's cash flow requirements and by investing in securities with active secondary markets. Investments shall be structured in such a manner as will provide the liquidity necessary to pay obligations as they become due. A portion of the portfolio also may be placed in money market mutual funds or local government investment pools which offer same-day liquidity for short-term funds. A security may be liquidated prior to its stated maturity to meet unanticipated cash requirements, or to otherwise favorably adjust the city's portfolio, in accordance with Subsection (b)(2)(E) above.
(3)
Market rate-of-return (yield).
The city's investment
portfolio shall be designed to optimize a market rate-of-return on
investments consistent with risk constraints and cash flow requirements
of the portfolio. The investment portfolio shall be managed in a manner
which seeks to attain a market rate-of-return throughout budgetary
and economic cycles. The city will not attempt to consistently attain
an unrealistic above market rate-of-return, as this objective will
subject the overall portfolio to greater risk. Therefore, the city's
rate-of-return objective is secondary to those of safety and liquidity.
Rate-of-return (yield) is defined as the rate of annual income return
on an investment, expressed as a percentage.
(4)
Public trust.
All participants in the city's investment
program shall seek to act responsibly as custodians of the public
trust. Investment officials shall avoid any transaction which might
involve a conflict of interest or otherwise impair public confidence
in the city's ability to govern effectively. All officials of the
city having either a direct or indirect role in the process of investing
idle funds shall act responsibly as custodians of the public trust.
(e)
Investment responsibility.
As provided in this
policy, the daily operation and management of the city's investments
are the responsibility of the following persons.
(1)
Delegation of authority.
The city administrator
is authorized to deposit, withdraw, invest, transfer, or manage in
any other manner the funds of the city subject to these written policies.
Management responsibility for the investment program is hereby delegated
to the city administrator, who shall establish written procedures
for the operation of the investment program, consistent with this
policy. Such procedures shall include explicit delegation of authority
to persons responsible for investment transactions. All persons involved
in investment activities will be referred to the policy as "investment
officials." No persons may engage in an investment transaction except
as provided under the terms of this policy and the procedures established
by the city administrator. The city administrator shall be responsible
for all transactions undertaken and shall establish a system of controls
to regulate the activities of subordinate investment officials. The
system of controls shall be designed to provide reasonable assurance
that ensures the assets of the city are protected from loss, theft,
or misuse. The concept of reasonable assurance recognizes that;
(A)
The cost of a control should not exceed the benefits likely
to be derived;
(B)
The valuation of costs and benefits requires estimates and judgements
by management; and
(C)
The city administrator shall be designated as the primary investment
officer for the city and shall be responsible for investment decisions
and activities under the direction of city council. The city administrator
may designate other personnel as an investment officer as needed.
Commitment of financial and staffing resources in order to maximize
total return through active portfolio management shall be the responsibility
of city council.
(2)
Prudence.
The standard of prudence to be applied
by the investment officer shall be "prudent person" rule, which requires
that each investment be judged on its own merits. All investments
shall be made in a prudent manner. In determining whether the investment
officer has exercised prudence with respect to an investment decision,
the determination shall be made taking into consideration the following:
(3)
Due diligence.
The investment officer acting in
accordance with written policies and 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 in a timely manner and that appropriate action
is taken to control adverse developments. All investment officials
involved in investment transactions will be bonded.
(4)
Ethical standards and conflicts of interest.
All
city investment officials having a direct or indirect role in the
investment of city funds shall act as custodians of the public trust
avoiding any transaction which might involve a conflict of interest,
the appearance of a conflict of interest, or any activity which might
otherwise discourage public confidence. 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 the ability to make impartial investment decisions.
An investment officer who has a personal business relationship with
the depository bank or with any entity 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
of 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 Texas
Ethics Commission and the city council.
(5)
Training.
The investment officer shall attend
at least one ten-hour training session relating to the officer's responsibility
under the Public Funds Investment Act within twelve (12) months after
assuming duties and attend an investment training session not less
than once every two (2) years, receiving additional ten (10) hours
of training. Either the Government Finance Officers Association of
Texas, the Government Treasurers Organization of Texas, the Texas
Municipal League, the University of North Texas Center of Public Management,
or the North Central Texas Council of Government shall endorse such
training.
(f)
Authorized investments.
Investments described below are authorized by the Public Funds Investment Act. Subsection (f)(10) of this policy describes those investments that are specifically prohibited by the act. In addition, the specific investments may at times be restricted or prohibited by the city administrator, as the investment officer, due to current market conditions. Securities that were authorized investments at the time of purchase are not required to be liquidated. Except as provided above, city funds governed by this policy may be invested in:
(1)
Obligations of the United States of America or its agencies
and instrumentalities.
(2)
Direct obligations of the state or its agencies and instrumentalities;
(3)
Other obligations, the principal and interest of which are unconditionally
guaranteed or insured by, or backed by the full faith and credit of,
the state or the United States or their respective agencies and instrumentalities,
including obligations that are fully guaranteed or insured by the
Federal Deposit Insurance Corporation or by the explicit full faith
and credit of the United States;
(4)
Obligations of states, agencies, counties, cities, or 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; and
(5)
Certificates of deposit that are issued by a city council approved
state, national, or savings bank, domiciled in this state are:
(A)
Guaranteed or insured by the FDIC, or its successor;
(B)
Secured by obligations that are described in this section above,
which have a market value not less than the principal amount of the
certificates, but excluding those securities prohibited by the Public
Funds Investment Act and this policy; or
(C)
Secured in any other manner and amount provided by law for deposits
for the city.
(D)
Certificates of deposit may be transacted with approved public
depositories provided the city has on file a signed security agreement
that complies with the Public Funds Collateral Act and details:
(6)
Eligible local government investment pools.
Public
funds investment pools which invest in instruments and follow practices
allowed by current law as defined in section 2256.016 of the Texas
Government Code, provided that:
(A)
The investment pool has been authorized by the city council;
(B)
The pool shall have furnished the investment officer an offering
containing the information required by section 2256.016A(b) of the
Texas Government Code;
(C)
The pool shall furnish the investment officer investment transaction
confirmations with respect to all investments made with it;
(D)
The pool shall furnish to the investment officer monthly reports
containing the information required under section 2256.016(c) of the
Texas Government Code;
(E)
The pool is continuously rated no lower than "AAA" or "AAA-m"
or an equivalent rating by at least one nationally recognized rating
service;
(F)
The pool marks its portfolio to market daily;
(G)
The pool's investment objectives shall be to maintain a stable
net asset value of one dollar ($1.00); and
(H)
The pool's investment philosophy and strategy are consistent
with this policy.
(7)
Repurchase agreements, reverse repurchase agreements, banker's acceptance, and commercial paper. These investments are authorized for the city to the extent they are contained in the public funds investment pools in which the city invests. Only fully collateralized direct repurchase agreements with the city's bank depository are authorized city investments. All city repurchase agreement transactions shall be governed by a signed master repurchase agreement. Repurchase agreements must also be secured in accordance with state law as described in Subsection (j).
(8)
Regulated no-load money market mutual funds.
These
investments are authorized, under the following conditions:
(A)
The money market fund is registered with and regulated with
the securities and exchange commission;
(B)
The fund provides the city with a prospectus and other information
required by the Securities and Exchange Act of 1934 or the Investment
Company Act of 1940;
(C)
The fund has a dollar-weighted average portfolio maturity of
ninety (90) days or less;
(D)
The investment objectives include the maintenance of a stable
net asset value of one dollar ($1.00) per share; and
(E)
The fund is continuously rated no lower than "AAA" or an equivalent
by at least one nationally recognized rating service.
(9)
The city may not invest funds under its control in any amount
that exceeds 10% of the total assets of any individual money market
mutual funds and all prudent measure will be taken to liquidate an
investment that is downgraded to less than the required minimum designated
rating.
(10)
Prohibited investments: Under the Public Funds Investment Act,
the following are not authorized investments, regardless of any other
law to the contrary:
(A)
Obligations whose payment represents the coupon
payment on the outstanding principal balance of the underlying mortgage-backed
security collateral and pay no principal. (Commonly referred to as
IOs).
(B)
Obligations whose payment represents the principal
stream of cash flow from the underlying mortgage-backed security collateral
and bears no interest. (Commonly referred to as Pos).
(C)
Collateralized mortgage obligations that have stated
final maturity date of greater than 10 years.
(D)
Collateralized mortgage obligations, the interest
rate to which is determined by an index that adjusts opposite to the
changes in a market index.
(E)
The practice of "leveraging" whereby funds are
borrowed for the sole purpose of investing shall not be practiced.
(g)
Diversification.
Diversification of investment
instruments shall be utilized to avoid incurring unreasonable risks
resulting from over-concentration of investments in a specific maturity,
a specific issue, or a specific class of securities. With the exception
of U.S. Government securities (debt obligations issued by the U.S.
Government, its agencies and instrumentalities) as authorized in this
policy, and authorized local government investment pools, no more
than fifty percent (50%) of the total investment portfolio will be
invested in any one security type or with a single financial institution.
Diversification of the portfolio considers diversification by maturity
dates and diversification by investment instrument.
(1)
Diversification by maturities.
The longer the
maturity of investments, the greater their price volatility. Therefore,
it is the city's policy to concentrate it investment portfolio in
shorter term securities in order to limit principal risks caused by
change in interest rates. The city will attempt to match investments
with anticipated cash flow requirements. Unless matched to a specific
cash flow, the city will not directly invest in securities maturing
more than two (2) years from the date of purchase. However, the above
described obligations, certificates, or agreements may be collateralized
using longer date instruments. The city shall diversify the use of
investment instruments to avoid incurring unreasonable risks inherent
to over-investing in specific instruments, individual financial institutions
or maturities. Maturity scheduling shall be managed by the investment
officer so that maturities of investments shall be timed to coincide
with projected cash flows. The entire city portfolio including funds
at the city's depository bank, shall comprise one pooled fund group,
and the maximum average dollar-weighted maturity allowed based on
the stated maturity date for the portfolio is two hundred seventy
(270) days. Investment maturities for debt service interest and sinking
funds and/or other types of reserves funds, whose use is never anticipated,
may not exceed three years.
(2)
Diversification by investment instrument.
Diversification
by investment instrument shall not exceed the following guidelines
for each type of instrument;
(A)
Interest bearing demand deposits 100%.
(B)
Treasury obligations 100%.
(C)
Government agency securities and instrumentalities 80%.
(D)
Government sponsored corporations 50%.
(E)
Authorized local government pools (per Pool) 100%.
(F)
Fully collateralized certificates of deposit 50%.
(G)
Full collateralized repurchase agreements 50%.
(H)
SEC-regulated no-load money market mutual fund (per fund) 20%.
(h)
Authorized financial dealers and institutions.
Financial institutions (federally insured banks) with and through
whom the city invests shall be state or national banks that have their
main office or a branch office in this state. No public deposit shall
be made except in a qualified public depository as establishes by
state laws. Broker/dealers authorized to provide investment services
to the city may include only those authorized by the city council.
All banking services will be governed by a depository contract awarded
by the city council. In additions, the city administrator shall maintain
a list of authorized security broker/dealers, and investment pools
that are authorized by the city council.
(1)
All financial institutions with whom the city does business
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, acknowledging 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.
(2)
Annual review of responder's financial conditions.
An annual review of the financial condition and registration of qualified
responders will be conducted by the city administrator. The review
may include, but is not limited to, review of rating agency reports,
review call reports, and analyses of management, profitability, capitalization,
and asset quality. Financial institutions and brokers/dealers desiring
to conduct business with the city shall be required to provide any
financial data requested by the investment officer. Upon completion
of the annual review by the city administrator, the financial institutions
and brokers/dealers desiring to conduct business with the city shall
be approved by city council.
(3)
Selection criteria for federally insured financial institutions
shall include the following
(4)
Monitoring investments.
The investment officer
of the city is responsible for monitoring the investments made by
a financial institution and/or broker/dealer to determine that they
are in compliance with the provisions of the investment policy.
(i)
Delivery versus payment.
It is the policy of the
city that all security transactions except CD's, investment pools,
tri-party repurchase agreements, and mutual funds entered into with
the city shall be conducted on a "delivery versus payment" (DVP) basis
through the Federal Reserve System. By doing this, city funds are
not released until the city has received, through the Federal Reserve
wire, the securities purchased. The city shall authorize the release
of funds only after receiving notification from the safekeeping bank
that a purchased security has been received in the safekeeping account
of the city. The notification may be oral, but shall be confirmed
in writing.
(j)
Safekeeping and collateralization.
(1)
Safekeeping.
All securities owned by the city
shall be held by its safekeeping agent, except the collateral for
bank deposits. The collateral for bank deposits will be held in the
city's name in the bank's trust department, or alternatively, in a
Federal Reserve Bank account in the city's name, or a third-party
bank, at the city's discretion. Original safekeeping receipts shall
be obtained and held by the city. The city shall contract with a bank
or banks for the safekeeping of securities either owned by the city
as part of its investment portfolio or held as collateral to secure
time deposits.
(2)
Collateralization.
All deposits of city funds,
repurchase agreements, and securities lending agreements, including
any accrued interest, will be fully collateralized by securities permitted
under this policy. Collateral securities shall have a market value
of not less than 102% of the amount of the deposits, secured thereby,
adjusted by the insurance coverage provided those deposits by the
Federal Deposit Insurance Corporation. Collateral will always be held
by an independent third party with whom the city has a current custodial
agreement. A clearly marked evidence of ownership (safekeeping or
trust receipt) must be supplied to the city and retained. Determination
of market value on collateral shall be made on a weekly basis. All
collateral relationships will comply with the terms of the Public
Funds Collateral Act.
(A)
For certificates of deposit and other evidence of deposit, collateral
shall be at 102% of market or par, whichever is lower. The market
value of collateral will always equal or exceed the principal plus
accrued interest of deposits at financial institution.
(B)
Financial institutions with which the city invests or maintains
other deposits shall provide monthly, and as requested by the city
administrator, a listing of the collateral pledged to the city, marked
to current market prices. The listing shall include total pledged
securities itemized by name, type, description, par value, current
market value, maturity date, and Moody's or Standard & Poor's
rating, if applicable. The city and the financial institution shall
jointly assume the responsibility for ensuring that the collateral
is sufficient.
(C)
Collateralized deposits.
Consistent with the requirements
of state law, the city requires all bank deposits to be federally
insured or collateralized with eligible securities. Financial institutions
serving as city depositories will be required to sign a "Depository
Agreement" with the city and the city's safekeeping agent. The collateralized
deposit portion of the agreement shall define the city's rights to
the collateral in the event of default, bankruptcy, or closing and
shall establish a perfected security interest in compliance with Federal
and State regulations, including:
(i)
The agreement must be in writing;
(ii)
The agreement has to be executed by the depository
and the city contemporaneously with the acquisition of the asset;
(iii)
The agreement must be approved by the board of
directors of the loan committee of the depository and a copy of the
meeting minutes must be delivered to the city; and
(iv)
The agreement must be part of the depository's
"official record" continuously since its execution.
(D)
Depository.
Not less than every five (5) years,
a depository shall be selected through the city's banking services
procurement process, which shall include a formal request for proposal
and consistent with state law. In selecting depositories, the service
cost and creditworthiness of institutions shall be considered, and
the city administrator shall conduct a comprehensive review of prospective
depository's credit characteristics and financial history. All banks
will execute a depository agreement covering collateral issues for
sale of time deposits if not covered by the competitively bid bank
service agreement.
(k)
Internal controls.
The investment officer shall
establish a system of written internal controls, which shall be reviewed
annually by independent auditors. The controls shall be designed to
prevent loss of public funds due to fraud, error, misrepresentation,
unanticipated market changes, or imprudent actions. The internal controls
are to be reviewed annually in conjunction with an external independent
audit. This review will provide assurance of compliance with policies
and procedures as specified by this policy. The city, in conjunction
with its annual financial audit, shall perform a compliance audit
of management controls and adherence to the city's established investment
policy.
(l)
Reporting.
The investment officer shall prepare
and submit a quarterly investment report to city council of all investment
transaction for all funds covered for the preceding reporting period.
This report will describe the compliance with generally accepted accounting
principles, of each fund group that states the beginning market value,
additions, and changes to market value, ending market value and fully
accrued interest for the reporting period and comply with the rules
of section 2256.023 of the Local Government Code.
(1)
Annual report.
Within ninety (90) days of the
end of the fiscal year, the city administrator shall present an annual
report of the investment program and investment activity. This report
may be presented as a component of the fourth quarter report to the
city council. The reports prepared by the city administrator shall
be formally reviewed at least annually by an independent auditor,
and the result of the review shall be reported to city council by
the auditor.
(2)
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 past quarter. This management summary will be prepared
in manner that 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 include the following:
(A)
A listing of individual securities held at the end of the reporting
period. This list will include the name of the funds or pooled group
fund for which each individual was acquired;
(B)
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;
(C)
Additions and changes to the market value during the period;
(D)
Fully accrued interest for the reporting period;
(E)
Average weighted yield to maturity of portfolio on entity investments
as compared to applicable benchmarks;
(F)
Listing of investments by maturity date;
(G)
The percentage of the total portfolio which each type of investment
represents; and
(H)
Statement of compliance with the city's investment portfolio
with state law and the investment strategy and policy approved by
city council.
(m)
Investment policy adoption and amendment.
The
city's investment policy shall be adopted and amended by ordinance
of the city council only. The city's written policies and procedures
for investments are subject to review not less than annually to stay
current with changing laws, regulations and needs of the city. Any
changes or modifications to this investment policy, if any, shall
be approved by the city council, and shall be adopted by a formal
ordinance of the city council.
(Ordinance 1588 adopted 8/20/2019; Ordinance 1619 adopted 8/18/2020; Ordinance 1695 adopted 7/18/2023)
