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ORD 1994-09 - Amend Investment Policies 02-08-1994ORDINANCE NO. 94 -09 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF HUNTSVILLE, TEXAS, AMENDING ITS POLICIES FOR INVESTMENTS TO PERMIT INVESTMENT IN SOME INVESTMENT POOLS; AND PERMITTING PURCHASE OF SOME SECURITIES FROM APPROVED MEMBERS OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS; AND MAKING OTHER PROVISIONS RELATED THERETO. WHEREAS the Public Funds Investment Act, now Texas Government Code chapter 2256, requires the City to adopt written investment policies addressing liquidity, diversification, safety of principal, yield, maturity, and quality and capability of investment management, with primary emphasis on safety and liquidity; and WHEREAS the Public Funds Collateral Act, now Texas Government Code chapter 2257, requires the City to adopt written policies addressing investment securities eligible to secure deposits of public funds; WHEREAS Texas Local Government Code Chapter 105 generally authorizes depositories for municipal funds; and WHEREAS City Council desires to amend the investment policies it adopted on March 6, 1990, as amended October 1, 1990; NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF HUNTSVILLE, TEXAS, that: SECTION 1: The attached City of Huntsville Investment Policy shall be adopted as the policy of the City regarding investments, investment securities, and depositories. SECTION 2: This ordinance shall take effect February 8, 1994. PASSED AND APPROVED on the 8th day of February, 1994. THE CITY OF HUNTSVILLE ATTEST: anna Welter, City Secretary AP S TO FORM: Bounds, City Attorney zJJ W. H. Hodges, Mayor CITY OF HUNTSVILLE INVESTMENT POLICIES March 1, 1990 As Amended February 8, 1994 I. SCOPE OF AUTHORITY OF OFFICERS TO INVEST CITY FUNDS These policies are adopted by the City Council to direct, limit and authorize the City Manager and Department of Finance to administer and supervise the financial affairs of the City. Investment of Local Funds Act, now Texas Government Code Chapter 2256, subchapter B. Banking services shall be maintained separately from investment services. These investment policies shall apply to both banking services and investment services. These policies shall apply to all funds or financial resources available for investment by the City. These policies shall not, however, govern funds that are managed under separate investment programs such as retirement funds, pension funds, deferred compensation funds and certain private donations. Id. Public Funds Investment Act, now Texas Government Code Chapter 2256, subchapter, A, especially § 2256.016. Those funds shall be maintained as required by federal and state law, other local policies, or donor stipulations. II. OBJECTIVES The objectives of the City's investment policies shall be, in order of priority: safety, liquidity and yield. A. Safety shall be the foremost objective of the City's investment policies. Safety shall be obtained through protection of principal and safekeeping. 1. The City shall control risk of loss due to the failure of a security issuer or guarantor. Such risk shall be controlled by investing in the safest types of securities, by qualifying the financial institution with whom the City will transact, and by portfolio diversification. 2. The City shall also control risks of loss by requiring collateral for depository bank funds to be held by a financial institution separate from the depository bank. Texas Government Code Chapters 2256 and 2257; Texas Local Government Code Chapter 105. B. Liquidity shall be achieved by matching investment maturities with forecasted cash flow requirements and by investing in securities with active secondary markets. A security may be liquidated to meet unanticipated cash requirements, to redeploy cash into other investments expected to out perform current holdings, or to otherwise adjust the City's portfolio. C. Yield. Investments, other than the overnight cash concentration account, shall be made in permitted obligations at yields equal to or greater than the bond equivalent yield on United States Treasury obligations of comparable maturity. In order to stabilize yield for budgeting purposes, the City shall maintain a portion of its investments in obligations with maturities greater than one year. No investment shall be made with a maturity greater than five years without express authority of the City Council or its Finance Committee. III. RESPONSIBILITY AND CONTROL A. The Director of Finance, under general supervision of the City Manager, shall direct the cash management program of the City. See City Charter art. XI. The City Manager and /or Director of Finance may deposit, withdraw, invest, transfer, and manage City funds. Texas Government Code Chapter 2256.055. B. The Director of Finance shall establish a system of internal controls that shall be reviewed by the Finance Committee. C. The Director of Finance shall make investments with judgment and care. D. In conjunction with the publication of the annual financial statement of the municipality, the Director of Finance shall prepare a report that describes in summary form: 1. the amount of receipts and expenditures of the City treasury; 2. the amount of money on hand; 3. the amount of bonds becoming due for redemption that require action; 4. the amount of interest to be paid during the next fiscal year; and any other information required by law to be reported by the designated officer. Texas Local Government Code § 105.092. In addition, the Director of Finance shall provide the Finance Committee a quarterly report if there are significant changes in investment portfolios or procedures. The Director of Finance shall provide the City Manager a monthly report, which shall include all securities held, average maturities, portfolio diversification, yields, income and all transactions executed for the month. -2- IV. AUTHORIZED INVESTMENTS A. The Director of Finance may invest only in the safest type of securities, which includes: 1. obligations of the United States or its agencies and instrumentalities; 2. direct obligations of the State of Texas or its agencies; 3. an obligation the principal of and interest in which are unconditionally guaranteed by the State of Texas, or the United States or its agencies and instrumentalities (Texas Government Code § 2256.006); 4. a general or special obligation issued by a public agency, payable from taxes, revenues, or a combination of taxes and revenues that has been rated as to investment quality by a nationally recognized rating agency and that has a current rating of not less than A or its equivalent (Texas Government Code § 2257.002 (6)B); 5. certificates of deposit issued by state and national banks domiciled in Texas that are: a. guaranteed or insured by the Federal Deposit Insurance Corporation, or its successors; or b. secured by governmental obligations that are described above (Texas Government Code § 2256.007); 6. certificates of deposit issued by savings and loan associations domiciled in Texas that are: a. guaranteed or insured by the Federal Savings and Loan Insurance Corporation, or its successors; or b. secured by governmental obligations that are described above (Texas Government Code § 2256.007); 7. prime domestic bankers' acceptances (Texas Government Code § 2256.009); -3- 8. commercial paper with a stated maturity of 270 days or less from the date of its issuance that either: a. is rated not less than A -1, P -1, or the equivalent by at least two nationally recognized credit rating agencies; or b. is rated not less than A -1, P -1, or the equivalent by at least one nationally recognized credit rating agency and is fully secured by an irrevocable letter of credit issued by a national or state bond (Texas Government Code § 2256.010); 9. fully collateralized repurchase agreements having a defined termination date, secured by direct obligations of the United States or its agencies, pledged with a third party selected and approved by the Director of Finance, and placed through a bank domiciled in Texas or a primary government securities dealer (as defined by the Federal Reserve) (Texas Government Code § 2256.008); 10. a no -load money market mutual fund that is registered with the Securities and Exchange Commission, has a dollar- weighted average portfolio maturity of 120 days or fewer; is invested solely in obligations described in §§ 2256.006 through 2256.010 of the Texas Government Code, and includes in its investment objectives the maintenance of a stable net asset value of $1 for each share; provided, however, the City may not invest either (a) in the aggregate more than 80% of its monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service in such money market mutual funds (b) its funds, excluding bond proceeds and reserves and other funds held for debt service, in any one money market mutual fund in an amount that exceeds 10% of the total assets of the money market mutual fund; 11. a public funds investment pool approved by resolution of the City which furnishes to the City investment transaction confirmations and a monthly report containing the types and percentage breakdown of securities in which the pool is invested, the current average dollar- weighted maturity of the pool, the percentage of the pool's portfolio in investments with a started maturity greater than one year, the amortized cost carrying value and market value of the pool's portfolio, the size of the pool, the number of participants in the pool, the safekeeping bank, a listing of daily transaction activity of the City, the yield and expense ratio of the pool, the portfolio manager of the pool and any changes or addenda to the offering circular; and -4- 12. common trust funds or a comparable investment device owned or administered by a bank domiciled in this state and whose assets consist of all or a combination of the obligations described above (Texas Government Code § 2256.012). B. All investment transactions will be executed as a delivery versus payment basis. V. COLLATERALIZATION REQUIREMENTS A. All public funds held as a demand or time deposit at a bank or other depository shall be secured by eligible security. Texas Government Code § 2257021. B. An eligible security means: 1 a surety bond; 2. an investment security; or ownership or beneficial interest (but not merely an option contract to purchase or sell) any authorized investment. Texas Government Code § 2257.002(5). C. The market value of the collateral shall equal at least 102% of the cash value of a repurchase agreement. Otherwise, market value of the investment securities used as collateral should be at least equal to the deposits of public funds increased by the amount of any accrued interest and reduced by the extent of insurance through an agency of the United States. Texas Government Code § 2257.022. D. 1. A depository for the City may deposit investment securities pledged to secure deposits of public funds with a custodian that the City has approved as a custodian and that is either: a. a state or national bank domiciled in the State of Texas and which has a capital stock and permanent surplus of not less than $5 million. b. the Texas Treasury Safekeeping Trust Company; or c. a Federal Reserve Bank or its branches. Texas Government Code § 2256. 2. The securities shall be held in trust by the custodian to secure the deposit of public funds of the City in the depository pledging the securities. Texas Government Code § 2257.024. -5- On receipt of the investment securities, the custodian shall immediately, by book entry or otherwise, identify on its books and records the pledge of the securities to the City and shall promptly issue and deliver to the Director of Finance of the City trust receipts for the securities pledged. The security evidenced by the trust receipts is subject to inspection by the City or its agents at any time. Texas Government Code § 2257.045. 4. A custodian holding in trust investment securities of a depository may deposit the pledged securities with a permitted institution. These securities shall be held by the permitted institution to secure funds deposited by the City in the depository pledging the securities. On receipt of the securities, the permitted institution shall immediately issue to the custodian an advice of transaction or other document evidencing the deposit of the securities. When the pledged securities held by a custodian are deposited, the permitted institution may apply book entry procedures to the securities. The records of the permitted institution shall at all times reflect the name of the custodian depositing the pledged securities. The trust receipts the custodian issues to the City shall indicate that the custodian has deposited with the permitted institution the pledged securities held in trust for the depository pledging the securities. Texas Government Code § 2257.042. The custodian shall maintain separate, accurate, and complete records relating to the pledged investment securities and all transactions relating to the pledged investment securities. Texas Government Code § 2257.046. E. The Director of Finance shall inform its depositories of significant changes in the amount or activity of public funds reasonably in advance of such changes. Texas Government Code § 2257.026. VI. PURCHASE PROCEDURES A. The City may, without further bidding: 1. utilize any program established through the Texas Interlocal Cooperation Act which invests in funds authorized by the Public Funds Investment Act; or 2. purchase certificates of deposit or other approved securities through its primary depository bank. -6- B. Other investments should be made after competitive bids, when possible, are solicited. Competitive bids may be solicited orally, in writing, electronically, or in any combination of these methods. If a bank notifies the City that it is unable or unwilling to bid for investments, the City may presume that the bank is unable or unwilling to bid until the bank notifies the City otherwise in writing. Texas Government Code § 2256.014. 1. An offer worksheet shall be kept for each bid transaction showing the name of dealer/bank contacted, name of the person quoting the yield, phone number of the person, amount of principal to be invested, yield quoted, type of investment, fund designation, maturity date, issue date, length of time invested, cusip number, receipt number, estimated interest to be earned, approval by the Director of Finance, and signature of the Director of Finance. 2. The City may utilize the Federal Reserve Bank and security dealers registered with the state which are approved by the Finance Committee for the purchase of direct U.S. Treasury obligations not purchased through a City banking depository. See Texas Government Code 2256.014. C. Investments shall not exceed more than 20% of the capitalization of the financial institution other than the main depository. No more than 75% of the City's total investments shall be concentrated in one institution other than the main depository. All City banking depositories qualify to perform investment services. VII. ESTABLISHMENT OF BANKING DEPOSITORY A. The City shall select a bank, credit union or savings association as its primary depository for normal banking transactions. In addition, the City may designate one or more other depositories for investment transactions. B. The City's primary banking depository shall do business in the City. Texas Local Government Code § 105.011(b). C. Not more than four weeks and not less than one week before the City Council considers applications for its depository, the City shall publish at least once in the City's official newspaper a notice of the meeting at which applications are to be received. Texas Local Government Code § 105.012. -7- D. A bank, credit union or savings association desiring to be selected as the city depository must deliver its application to the City Secretary on or before the time stated in the notice. The application shall be accompanied by an affidavit disclosing that conflict of interest, if any, that apply to the selection of the depository. The City's Finance Committee may review the applications and prepare a recommendation regarding the selection of depositories for Council. Texas Local Government Code §§ 105.013 et seg. E. The City may, after considering the application and the recommendation, if any, of its staff and /or Finance Committee: 1. select as city depositories one or more banks, credit unions or savings associations that offer the most favorable terms and conditions for the handling of the municipal funds; or 2. reject any or all of the applications. F. The City shall retain the right to withdraw any municipal funds deposited in a depository that are not immediately required to pay obligations of the City and invest those funds in direct debt securities of the United States or another approved investment institution. Texas Local Government Code § 105.072. G. The Director of Finance shall immediately deposit in the depository to the credit of the City any money received. H. Except as provided for wire transfers to other depositories or ACH transfers, the funds of the City may be paid out of a depository only on the checks of the City. 1. Checks must be signed by the Mayor and City Manager or Finance Director. A facsimile signature may be used by the Mayor and/or City Manager. Texas Local Government Code 105.074(a) 2. Checks must be authorized by the Mayor, City Manager, or Finance Director. Texas Local Government Code 105.074(b) No checks shall be drawn on a time deposit until its notice period has expired. Texas Local Government Code 105.074(d) 4. No check shall be drawn on a special fund created to pay bonded indebtedness other than to pay principal or interest on the indebtedness, or to invest the fund as provided by these polices or law. 5. All checks shall be payable by the depository at its place of business. Texas Local Government Code 105.075 -8- t 6. The Director of Finance may, with approval of Council, pay a bond, coupon, or other indebtedness of the City at a place other than the depository if by its terms the indebtedness is payable on maturity at the other location. Texas Local Government Code 105.076 7. The Mayor, City Manager, Director of Finance, and Finance Assistant are authorized to each have full authority and are each empowered to take all actions and execute all documents necessary or incidental to investment agreements. VIII. INDEPENDENT AUDIT REVIEW The investment policy, internal control procedures, investment practices, investment performance, and reporting system shall be reviewed by the City's independent auditor annually. Texas Local Government Code Chapter 103. IX. ANNUAL REPORT At least once each year, the City Manager and Director of Finance shall jointly prepare, sign and deliver to the City Council a written report concerning the City's investment transactions for the preceding year and describing in detail the investment position of the City as of the date of the report. Texas Government Code § 2256.057. -9-