CC Resolution No. 2472RESOLUTION NO. 2472
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BAYTOWN,
TEXAS, APPROVING THE CITY OF BAYTOWN'S INVESTMENT POLICY
AND STRATEGY STATEMENT IN ACCORDANCE WITH THE PUBLIC
FUNDS INVESTMENT ACT; AND PROVIDING FOR THE EFFECTIVE DATE
THEREOF.
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BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF BAYTOWN, TEXAS:
Section 1: That the City Council of the City of Baytown, Texas, has reviewed the City's
Investment Policy and Strategy Statement; and the policy and statement approved in Section 2 hereof
record any changes made by the City Council to either such document.
Section 2: That the City Council of the City of Baytown, Texas, hereby approves the
Investment Policy, including the Strategy Statement of the City of Baytown, which is attached hereto
as Exhibit "A" and incorporated herein for all intents and purposes.
Section 3: This resolution shall take effect immediately from and after its passage by the
City Council of the City of Baytown.
INTRODUCED, READ and PASSED, by the
of Baytown this the 27`h day of April, 2017.
ATTEST:
LETICIA BRYSCH, City rk
APPROVED AS TO FORM:
INATIORAMIREZ, SR., Ci ttorney
of the City Council of the City
STYPHEI". DONCARLOS,
cobfsO F legal\KarenTiles.City Counci1\Reso1utions\2017\April 27\ApprovelnvestmentPolicy&Strategy.doc
Exhibit "A"
CITY OF BA YTO WN, TEl"S
INVESTMENT POLICY
Revised 04/27/17
City of Baytown
Investment Policy
Table of Contents
I.
Policy
1
II.
Scope
1
III.
General Objectives
A. Safety
1
B. Liquidity
2
C. Yield
2
IV.
Standards of Care
A. Prudence
2
B. Ethics and Conflicts of Interest
3
C. Delegation of Authority
3
D. Training
3
V.
Safekeeping and Custody
A. Authorized Financial Dealers and Institutions
4
B. Internal Controls
4
C. Delivery vs. Payment
5
VI.
Suitable and Authorized Investments
A. Eligible Investments
5-14
B. Collateralization
14
VII.
Investment Parameters
A. Diversification
15
B. Maximum Maturities
15
VIII.
Investment Strategies
15
DX.
Reporting
A. Methods
15
B. Performance Standards
16
C. Marking to Market
16
EXHIBITS
A - Authorized Investment Officers 17
B - Statement of Ethics and Conflicts of Interest 18
C — Approved Broker/Dealers, Financial Institutions and Investment Pools 19
D — Certification by Business Organization 20
E — Investment Strategy 21-24
City of Baytown
Investment Policy
I. Policy
It is the policy of the City of Baytown (the "City") to administer and invest its funds
in a manner that will preserve principal and maintain liquidity while meeting the daily
cash flow requirements of the City. The City will conform to all federal, state and
local statutes, rules, and regulations governing investment of the City's funds.
The City's policy is to hold investments to maturity; however, securities may be sold
in order to minimize the potential loss of principal on a security whose credit quality
has declined; to swap into another security which would improve the quality, yield or
target duration of the portfolio; or to meet unanticipated liquidity needs of the
portfolio.
Not less than annually, City Council shall adopt a written instrument by resolution
stating that it has reviewed the Investment Policy and investment strategies and that
the written instrument so adopted shall record any changes made to the Investment
Policy or Investment Strategies.
H. Scope
This investment policy applies to all the investment activities of the City. These
funds are accounted for in the City's Comprehensive Annual Financial Report and
include all financial assets of all funds managed by the City, including but not limited
to tax revenues, charges for services, bond proceeds, interest income, and loans and
funds received by the City where the City performs a custodial function.
III. General Objectives
The primary objectives, in priority order, of the City's investment activities shall be
safety, liquidity, and yield:
A. Safety — Safety of the 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. The objective
will be to minimize credit risk and interest rate risk.
i. Credit Risk — The City will minimize credit risk, the risk of loss
due to the failure of the security issuer or backer, by:
0 Limiting investments to the safest types of securities;
• Pre -qualifying the financial institutions, broker/dealers,
intermediaries, and advisers with which the City will do
business; and
• Diversifying the investment portfolio so that potential losses on
individual securities will be minimized
ii. Interest Rate Risk — The City will minimize the risk that the
market value of securities in the portfolio will fall due to changes
in general interest rates, by:
• 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
• Investing operating funds primarily in shorter -term securities,
money market mutual funds, or similar investment pools
B. Liquidity — The investment portfolio shall remain sufficiently liquid to
meet all operating requirements that may be reasonably anticipated. This
is accomplished by structuring the portfolio so that securities mature
concurrent with cash needs to meet anticipated demands. Furthermore,
since all possible cash demands cannot be anticipated, the portfolio shall
consist largely of securities with active secondary or resale markets. A
portion of the portfolio also may be placed in money market mutual funds
or local government investment pools that offer same-day liquidity for
short-term funds.
C. Yield — The investment portfolio shall be designed with the objective of
attaining a market rate of return throughout budgetary and economic
cycles, taking into account the investment risk constraints and liquidity
needs. Return on investment is of secondary importance compared to the
safety and liquidity objectives described above. The core of investments
is limited to relatively low risk securities in anticipation of earning a fair
return relative to the risk being assumed. Securities shall not be sold prior
to maturity with the following exceptions:
• A security with declining credit may be sold early to minimize loss of
principal;
• To swap into another security which would improve the quality, yield
or target duration of the portfolio; and
• Liquidity needs of the portfolio require that the security be sold
2
IV. Standards of Care
A. Prudence - The standard of care to be used by investment officers shall be
the "prudent person" standard and shall be applied in the context of
managing an overall portfolio. Investment officers acting in accordance
with written procedures and the investment policy and exercising due
diligence shall be relieved of personal responsibility for an individual
security's credit risk or market price changes, provided deviations from
expectations are reported in a timely fashion and the liquidity and the sale
of securities are carried out in accordance with the terms of this policy.
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 proper execution and management of the investment
program, or that could impair their ability to make impartial investment
decisions. Employees and investment officers shall disclose to the City
and the Texas Ethics Commission any material financial interests in
financial institutions that conduct business with the City. They shall
further file a disclosure statement with the Texas Ethics Commission and
the City that includes any large personal financial/investment positions
that could be related to the performance of the investment portfolio. See
Exhibit B.
C. Delegation of Authority — City employees authorized to engage in
investment transactions and authorized as Investment Officers are the
Director of Finance, the Treasurer, and the Financial Analyst.
Management responsibility for the investment program is assigned to the
Director of Finance. This authority is derived from the Texas Government
Code Chapter 2256. Responsibility for the operation of the investment
program is hereby delegated to the Director of Finance, who shall act in
accordance with established written procedures and internal controls for
the operation of the investment program consistent with this Investment
Policy. Procedures should include reference to: safekeeping, delivery vs.
payment, investment accounting, repurchase agreements, wire transfer
agreements, and collateral/depository agreements. Such procedures shall
include explicit delegation of authority to persons responsible for
investment transactions. (See Exhibit A) No person maty engage in an
investment transaction except as provided under the terms of this policy
and the procedures established by the Director of Finance. The Director
3
of Finance shall be responsible for all transactions undertaken and shall
establish a system of controls to regulate activities of subordinate officers.
D. Training — Investment Officers shall attend at least one investment
training session within 12 months after taking office or assuming
investment duties, and shall attend investment training not less than once
annually, beginning on the first day of the City of Baytown's fiscal year
and consisting of one (1) consecutive fiscal year after that date, and
receive not less than 10 hours of instruction relating to investment
responsibilities. The City of Baytown shall provide the training through
courses and seminars offered by professional organizations and
associations in order to ensure the quality and capability of the City of
Baytown's investment personnel making investment decisions in
compliance with Public Funds Investment Act (PFIA). Professional
organizations and associations that may provide investment training
include the Government Treasurer's Organization of Texas, the University
of North Texas, the Government Finance Officers Association of Texas, or
the Texas Municipal League.
V. Financial Institutions, Broker/Dealers, Safekeeping and Custody
A. Authorized Financial Dealers and Institutions —Investment Officers will
maintain a list of financial institutions and security broker/dealers
authorized to provide investment services (Exhibit Q. These may include
"primary" dealers or regional dealers. No public deposit shall be made
except in a qualified public depository as established by state law.
All financial institutions and broker/dealers who desire to become qualified
bidders for investment transactions must supply Investment Officers with
the following, as appropriate:
• Audited financial statements
• Proof of Financial Industry Regulatory Authority (FINRA)
certification
• Proof of state registration
• Completed broker/dealer questionnaire (Exhibit D)
• Certification by a qualified representative of the firm that the firm
has a) received and reviewed the City's Investment Policy and b)
has implemented reasonable procedures and controls in an effort to
preclude investment transactions that are not authorized by the
City's Investment Policy, except to the extent that this authorization
is dependent on an analysis of the makeup of the City's entire
portfolio or requires an interpretation of subjective investment
standards.
4
The governing body and/or the Finance Committee shall at least annually
review and/or revise and adopt a list of qualified brokers that are authorized
to engage in investment transactions with the City.
B. Internal Controls — The Director of Finance is responsible for
establishing and maintaining an internal control structure designed to
ensure that the assets of the City 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 (1) the cost of a control should not exceed the
benefits likely to be derived and (2) the valuation of costs and benefits
requires estimates and judgments by management.
Accordingly, the investment officer shall establish a process for an annual
independent review by an external auditor to assure compliance with
policies and procedures. The internal controls shall address the following
points:
• Control of collusion
• Separation of transaction authority from accounting and record
keeping
• Custodial safekeeping
• Avoidance of physical delivery securities
• Clear delegation of authority to subordinate staff members
• Written confirmation of transactions for investments and wire
transfers
• Development of a wire transfer agreement with the lead bank and
third party custodian
C. Delivery vs. Payment — All trades where applicable will be executed by
delivery vs. payment (DVP) to ensure that securities are deposited in an
eligible financial institution prior to the release of funds. Securities and
collateral will be held in the City's name by a third -party custodian as
evidenced by safekeeping receipts.
VI. Investments
A. Eligible Investments — Assets of the City may be invested in the
instruments described below. All of these investments are authorized by
Chapter 2256 of the Texas Government Code (Public Funds Investment
Act, or the Act).
An investment that requires a minimum rating under this section does not
qualify as an authorized investment during the period the investment does
not have the minimum rating. The City shall take all prudent measures
consistent with this Investment Policy to liquidate an investment that does
not have the minimum rating.
5
hi order to monitor rating changes in investments acquired with public
funds, Investment Officers shall, on at least a monthly basis, verify the
ratings of investments currently held by the City with either the authorized
broker/dealer from which the investment was purchased, or a
broker/dealer currently authorized to engage in investment transactions
with the City. As a condition of engaging in investment transactions with
the City, brokers/dealers shall, when requested by the City's Investment
Officer(s), provide said Investment Officer(s) with written verification of
the ratings of investments currently owned by the City. The City shall
take all prudent measures consistent with this Investment Policy to
liquidate an investment that does not have the minimum rating.
1. Obligations of, or Guaranteed By Governmental Entities
(a) Except as provided by Subsection (b), the following are authorized
investments under this subchapter:
(i) obligations, including letters of credit, of the United States or
its agencies and instrumentalities;
(ii) direct obligations of this state or its agencies and
instrumentalities;
(iii) collateralized mortgage obligations directly issued by a
federal agency or instrumentality of the United States, the
underlying security for which is guaranteed by an agency or
instrumentality of the United States;
(iv) other obligations, the principal and interest of which are
unconditionally guaranteed or insured by, or backed by the full
faith and credit of this 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;
(v) obligations of states, agencies, counties, cities, and other
political subdivisions of any state rated as to investment quality
by a nationally recognized investment rating firm not less than A
or its equivalent.
(b) The following are not authorized investments under this section:
0
(i) obligations whose payment represents the coupon payments
on the outstanding principal balance of the underlying mortgage-
backed security collateral and pays no principal;
(ii) obligations whose payment represents the principal stream of
cash flow from the underlying mortgage-backed security
collateral and bears no interest;
(iii) collateralized mortgage obligations that have a stated final
maturity date of greater than 10 years; and
(iv) collateralized mortgage obligations the interest rate of which
is determined by an index that adjusts opposite to the changes in
a market index.
2. Certificates of Deposit and Share Certificates
A certificate of deposit is an authorized investment under this
subchapter if the certificate is issued by a state or national bank
domiciled in this state, a savings bank domiciled in this state, or a state
or federal credit union domiciled in this state and is:
(i) guaranteed or insured by the Federal Deposit Insurance
Corporation or its successor or the National Credit Union Share
Insurance Fund or its successor;
(ii) secured by obligations that are described by Section 1(a),
including mortgage backed securities directly issued by a federal
agency or instrumentality that have a market value of not less
than the principal amount of the certificates, but excluding those
mortgage backed securities of the nature described by Section
1(b); or
(iii) secured in any other manner and amount provided by law for
deposits of the investing entity.
3. Repurchase Agreements
(a) A fully collateralized repurchase agreement is an authorized
investment under this subchapter if the repurchase agreement:
(i) has a defined termination date;
(ii) is secured by a combination of cash and obligations described
by Section 1(a)(i); and
7
(iii) requires the securities being purchased by the City or cash
held by the City to be pledged to the City, held in the City's
name, and deposited at the time the investment is made with the
City or with a third party selected and approved by the City; and
(iv) is placed through a primary government securities dealer, as
defined by the Federal Reserve, or a financial institution doing
business in this state.
(b) In this section, "repurchase agreement" means a simultaneous
agreement to buy, hold for a specified time, and sell back at a future
date obligations described by Section 1(a)(i), at a market value at the
time the funds are disbursed of not less than the principal amount of
the funds disbursed. The term includes a direct security repurchase
agreement and a reverse security repurchase agreement.
(c) Notwithstanding any other law, the term of any reverse security
repurchase agreement may not exceed 90 days after the date the
reverse security repurchase agreement is delivered.
(d) Money received by an entity under the terms of a reverse security
repurchase agreement shall be used to acquire additional authorized
investments, but the term of the authorized investments acquired must
mature not later than the expiration date stated in the reverse security
repurchase agreement.
4. Banker's Acceptances
A banker's acceptance is an authorized investment under this policy if
the banker's acceptance:
(i) has a stated maturity of 270 days or fewer from the date of its
issuance;
(ii) will be, in accordance with its terms, liquidated in full at
maturity;
(iii) is eligible for collateral for borrowing from a Federal
Reserve Bank; and
(iv) is accepted by a bank organized and existing under the laws
of the United States or any state, if the short-term obligations of
the bank, or of a bank holding company of which the bank is the
largest subsidiary, are rated not less than A-1 or P-1 or an
equivalent rating by at least one nationally recognized credit
rating agency.
5. Commercial Paver
Commercial paper is an authorized investment under this policy if the
commercial paper:
(i) has a stated maturity of 270 days or fewer from the date of its
issuance; and
(ii) is rated not less than A-1 or P-1 or an equivalent rating by at
least:
(A) two nationally recognized credit rating agencies;
or
(B) one nationally recognized credit rating agency and
is fully secured by an irrevocable letter of credit issued
by a bank organized and existing under the laws of the
United States or any state.
6. Mutual Funds
(a) A no-load money market mutual fund is an authorized investment
under this policy if the mutual fund:
(i) is registered with and regulated by the Securities and
Exchange Commission;
(ii) provides the investing entity with a prospectus and other
information required by the Securities Exchange Act of 1934 (15
U.S.C. Section 78a et seq.) or the Investment Company Act of
1940 (15 U.S.C. Section 80a-1 et seq.);
(iii) has a dollar -weighted average stated maturity of 90 days or
fewer; and
(iv) includes in its investment objectives the maintenance of a
stable net asset value of $1 for each share.
(b) In addition to a no-load money market mutual fund permitted as an
authorized investment in Subsection (a), a no-load mutual fund is an
authorized investment under this subchapter if the mutual fund:
(i) is registered with the Securities and Exchange Commission;
0
(ii) has an average weighted maturity of less than two years;
(iii) is invested exclusively in obligations approved by this
subchapter;
(iv) is continuously rated as to investment quality by at least one
nationally recognized investment rating firm of not less than
AAA or its equivalent; and
(v) conforms to the requirements set forth in Sections 5(b) and
(c) relating to the eligibility of investment pools to receive and
invest funds of investing entities.
(c) The City is not authorized by this section to:
(i) invest in the aggregate more than 15 percent of its monthly
average fund balance, excluding bond proceeds and reserves and
other funds held for debt service, in mutual funds described in
Subsection (b);
(ii) invest any portion of bond proceeds, reserves and funds held
for debt service, in mutual funds described in Subsection (b); or
(iii) invest its funds or funds under its control, including bond
proceeds and reserves and other funds held for debt service, in
any one mutual fund described in Subsection (a) or (b) in an
amount that exceeds 10 percent of the total assets of the mutual
fund.
7. Guaranteed Investment Contracts
(a) A collateralized guaranteed investment contract is an authorized
investment for bond proceeds under this policy if the guaranteed
investment contract:
(i) has a defined termination date;
(ii) is secured by direct and unsubordinated obligations described
by Section 2256.009(a)(1) of the Act, excluding those
obligations described by Section 2256.009(b) of the Act, in an
amount at least equal to the amount of bond proceeds invested
under the contract; and
(iii) is pledged to the City and deposited with the City or with a
third party selected and approved by the City.
10
(b) Bond proceeds, other than bond proceeds representing reserves
and funds maintained for debt service purposes, may not be invested
under this policy in a guaranteed investment contract with a term of
longer than five years from the date of issuance of the bonds.
(c) To be eligible as an authorized investment:
(i) the City Council must specifically authorize guaranteed
investment contracts as an eligible investment in the order,
ordinance, or resolution authorizing the issuance of bonds;
(ii) the City must receive bids from at least three separate
providers with no material financial interest in the bonds
from which proceeds were received;
(iii) the City must purchase the highest yielding guaranteed
investment contract for which a qualifying bid is received;
(iv) the price of the guaranteed investment contract must take
into account the reasonably expected drawdown schedule for
the bond proceeds to be invested; and
(v) the provider must certify the administrative costs reasonably
expected to be paid to third parties in connection with the
guaranteed investment contract.
8. Investment Pools
(a) The City may invest its funds and funds under its control through
an eligible investment pool if the City Council by rule, order,
ordinance, or resolution, as appropriate, authorizes investment in the
particular pool. An investment pool shall invest the funds it receives
from entities in authorized investments permitted by this subchapter.
An investment pool may invest its funds in money market mutual
funds to the extent permitted by and consistent with Subchapter A of
the Texas Government Code, Chapter 2256 and the investment
policies and objectives adopted by the investment pool.
(b) To be eligible to receive funds from and invest funds on behalf of
the City under this section, an investment pool must furnish to the
investment officer or other authorized representative of the City an
offering circular or other similar disclosure instrument that contains, at
a minimum, the following information:
11
(i) the types of investments in which money is allowed to be
invested;
(ii) the maximum average dollar -weighted maturity allowed,
based on the stated maturity date, of the pool;
(iii) the maximum stated maturity date any investment security
within the portfolio has;
(iv) the objectives of the pool;
(v) the size of the pool;
(vi) the names of the members of the advisory board of the pool
and the dates their terms expire;
(vii) the custodian bank that will safekeep the pool's assets;
(viii) whether the intent of the pool is to maintain a net asset
value of one dollar and the risk of market price fluctuation;
(ix) 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;
(x) the name and address of the independent auditor of the pool;
(xi) 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; and
(xii) the performance history of the pool, including yield, average
dollar -weighted maturities, and expense ratios.
(c) To maintain eligibility to receive funds from and invest funds on
behalf of the City under this section, an investment pool must furnish
to the investment officer or other authorized representative of the City:
(i) investment transaction confirmations; and
(ii) a monthly report that contains, at a minimum, the following
information:
12
(A) the types and percentage breakdown of securities in
which the pool is invested;
(B) the current average dollar -weighted maturity, based on
the stated maturity date, of the pool;
(C) the current percentage of the pool's portfolio in
investments that have stated maturities of more than one
year;
(D) the book value versus the market value of the pool's
portfolio, using amortized cost valuation;
(E) the size of the pool;
(F) the number of participants in the pool;
(G) the custodian bank that is safekeeping the assets of the
pool;
(H) a listing of daily transaction activity of the City;
(I) the yield and expense ratio of the pool, including a
statement regarding how yield is calculated;
(J) the portfolio managers of the pool; and
(K) any changes or addenda to the offering circular.
(d) The City by contract may delegate to an investment pool the
authority to hold legal title as custodian of investments purchased with
its local funds.
(e) In this section, "yield" shall be calculated in accordance with
regulations governing the registration of open-end management
investment companies under the Investment Company Act of 1940, as
promulgated from time to time by the federal Securities and Exchange
Commission.
(f) To be eligible to receive funds from and invest funds on behalf of
the City under this section, a public funds investment pool created to
function as a money market mutual fund must mark its portfolio to
market daily, and, to the extent reasonably possible, stabilize at a $1
net asset value. If the ratio of the market value of the portfolio divided
by the book value of the portfolio is less than 0.995 or greater than
1.005, portfolio holdings shall be sold as necessary to maintain the
13
ratio between 0.995 and 1.005. In addition to the requirements of its
investment policy and any other forms of reporting, a public funds
investment pool created to function as a money market mutual fund
shall report yield to its investors in accordance with regulations of the
federal Securities and Exchange Commission applicable to reporting
by money market funds.
(g) To be eligible to receive funds from and invest funds on behalf of
the City under this section, a public funds investment pool must have
an advisory board composed:
(i) equally of participants in the pool and other persons who do
not have a business relationship with the pool and are qualified to
advise the pool, for a public funds investment pool created under
Chapter 791 and managed by a state agency; or
(ii) of participants in the pool and other persons who do not have
a business relationship with the pool and are qualified to advise
the pool, for other investment pools.
(h) To maintain eligibility to receive funds from and invest funds on
behalf of the City under this section, an investment 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.
(i) If the investment pool operates an Internet website, the information
in a disclosure instrument or report described in Subsections (b),
(c)(2), and (f) of Texas Government Code Chapter 2256, Subchapter
A, Section 2256.016 must be posted on the website.
6) To maintain eligibility to receive funds from and invest funds on
behalf of the City, an investment pool must make available to the City
an annual audited financial statement of the investment pool in which
the City has funds invested.
(k) If an investment pool offers fee breakpoints based on fund
balances invested, the investment pool in advertising investment rates
must include either all levels of return based on the breakpoints
provided or state the lowest possible level of return based on the
smallest level of funds invested.
B. Collateralization — Collateralization will be required on three types of
investments: certificates of deposit, repurchase (including reverse
repurchase) agreements, and guaranteed investment contracts (GICs). In
order to anticipate market changes and provide a level of security for all
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funds, the Collateralization level will be one hundred two percent (102%)
of market value of principal and accrued interest.
Likewise, all time and demand deposits with collected balances in excess
of FDIC or NCUA insurance levels shall be collateralized to a minimum
of 102% of principal and accrued interest. The depository shall be
responsible for maintaining collateralization margins based on the market
value of securities pledged to the City. Collateral will be held in the
City's name by an independent third party with whom the City has a
current custodial agreement approved by the Council and executed under
the terms of FIRREA (Financial Institutions Reform, Recovery, and
Enforcement Act) as amended. A clearly marked evidence of ownership
(safekeeping receipt) must be supplied to the City and retained. The right
of collateral substitution is granted, subsequent to the review and approval
of an authorized City of Baytown Investment Officer.
C. Existing Investments — Any investment currently held that is no longer
an authorized investment under the Public Funds Investment Act (PFIA)
or this policy, but was an authorized investment at the time of purchase, is
not required to be liquidated.
VII. Investment Parameters
A. Diversification — The investments shall be diversified by security type
and institution. With the exception of U.S. Treasury securities and
authorized pools, the City will diversify the entire portfolio to comply with
the investment strategy; however, in no case shall any single investment
transaction be more than five -percent (5%) of the entire portfolio.
B. Maximum Maturities — To the extent possible, the City shall attempt to
match its investments with anticipated cash flow requirements. Unless
matched to a specific cash flow, the City will not directly invest in
securities maturing more than five (5) years from the date of purchase.
VIII. Investment Strategies
The City maintains separate portfolios for individual funds or groups of funds
that are managed according to the terms of this Policy and the corresponding
investment strategies listed in Exhibit E. The investment strategy for
portfolios established after the annual Investment Policy review and adoption
will be managed in accordance with the terms of this Policy and applicable
agreements until the next annual review when a specific strategy will be
adopted.
The City maintains a pooled fund group that is an aggregation of the majority
of City funds including tax receipts, enterprise fund revenues, fine and fee
15
revenues, as well as some, but not all, bond proceeds, and grants. This
portfolio is maintained to meet anticipated daily cash needs for City
operations, capital projects and debt service. In order to ensure the ability of
the City to meet obligations and to minimize potential liquidation losses, the
dollar -weighted average stated maturity of the Investment Pool shall not
exceed 2 years. The objectives of this portfolio are to ensure safety of
principal; ensure adequate investment liquidity; limit market and credit risk
through diversification; and attain the best feasible yield in accordance with
the objectives and restrictions set for in this Policy
IX. Reporting
2. Methods — Investment officers shall jointly prepare an investment
report at least quarterly, including a management summary that
provides an analysis of the status of the current investment portfolio
and transactions made over the last quarter. This management
summary will be prepared in a manner consistent with the
requirements of Section 2256.023 (Internal Management Reports) of
the PFIA, and that will allow the City to ascertain whether investment
activities during the reporting period have conformed to the
investment policy. The report should be provided to the Finance
Committee and the City Council.
An independent auditor shall formally review the quarterly reports
prepared under this section at least annually, and that auditor shall report
the results of the review to City Council.
3. Performance Standards — The investment portfolio shall be managed
in accordance with the objectives specified in this policy (safety,
liquidity, yield). The portfolio should obtain a market average rate of
return during a market/economic environment of stable interest rates.
The basis used by investment officers to determine whether market
yields are being achieved shall be the three (3) month U.S. Treasury
Bill.
4. Marking to Market — The market value of the portfolio shall be
calculated at least monthly and a statement of the market value of the
portfolio shall be issued at least quarterly. The market value of each
investment shall be obtained from a source such as the Wall Street
Journal, a reputable brokerage firm or security pricing service and
reported on the investment reports.
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EXHIBIT A
City of Baytown
Authorized Investment Officers
Wade Nickerson, Director of Finance
Brent Yowell, Treasurer
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EXHIBIT B
City of Baytown
Statement of Ethics and Conflicts of Interest
Investment officers for the City of Baytown shall refrain from personal business relationships
with business organizations that could conflict with the proper execution of the investment
program, or which could impair their ability to make partial investment decisions. This would
only apply to personal business relationships with business organizations that have been approved
by City Council to conduct investment transactions with the City of Baytown.
An investment officer is considered to have a personal business relationship with a
business organization if -
(1)
f
(1) The investment officer owns 10 percent or more of the voting stock or shares of
the business organization or owns $5,000 or more of the fair market value of the
business.
(2) Funds received by the investment officer from the business organization exceed
10 percent of the investment officer's gross income for the previous year.
(3) The investment officer has acquired from the business organization during the
previous year investments with a book value of $2,500 or more for the personal
account of the investment officer.
I do hereby certify that I do not have a personal business relationship with any business
organization approved to conduct investment transactions with the City of Baytown, nor am I
related within the second degree by affinity or consanguinity, as determined under Chapter 571
to an individual seeking to sell an investment to the City of Baytown as of the date of this
statement.
City of Baytown
Investment Officers
Wade Nickerson, Director of Finance Date
Brent Yowell, Treasurer
18
Date
EXHIBIT C
City of Baytown
Approved Broker/Dealers, Financial Institutions and Investment Pools
Broker/Dealers
Cantor Fitzgerald
Mutual Services, Inc.
Wells Fargo Brokerage Services, LLC
Hilltop Securities, Inc.
Duncan -Williams, Inc.
Multi -Bank Securities, Inc.
Vining Sparks 1BG, L.P.
FTN Financial
Public Depository
JP Morgan Chase, NA (Primary)
Investment Pools
TexPool
TexSTAR
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EXHIBIT D
City of Baytown
Certification by Business Organization
date
City of Baytown, Texas
(Attn: Designated Investment officer)
P O Box 424
Baytown, TX 77522-0424
Dear Mr/s. (investment officer):
This certification is executed on behalf of the City of Baytown, Texas (the Investor) and
, (the Business Organization)
pursuant to the Public Funds Investment Act, Chapter 2256, Texas Government Code, (the Act)
in connection with investment transactions conducted between the Investor and Business
Organization.
The undersigned Qualified Representative of the Business Organization hereby certifies on behalf
of the Business Organization that:
1. The undersigned is a Qualified Representative of the Business Organization offering to enter
an investment transaction with the Investor (Note: as such terms are used in the Public Funds
Investment Act, chapter 2256, Texas Local Government Code) and;
2. The Qualified Representative of the Business Organization has received and reviewed the
Investment Policy furnished by the Investor and agrees, on behalf of the Business
Organization, to comply with its requirements under the investment policy and;
3. The Qualified Representative of the Business Organization has implemented reasonable
procedures and controls in an effort to preclude investment transactions conducted between
the Business Organization and the Investor that are not authorized by the Investor's
investment policy, except to the extent that this authorization is dependent on an analysis of
the makeup of the investor's entire portfolio or requires an interpretation of the subjective
investment standards.
Qualified Representative of the Business Organization
Signed By:
Name
Title
Date
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EXHIBIT E
INVESTMENT STRATEGY
It is the policy of the City of Baytown, Texas (the "City") that, giving due regard to the safety and
risk of investments, all funds shall be invested at all times in conformance with State and Federal
statutes, applicable trust agreements or related bond document requirements, the City's adopted
Investment Policy and this Investment Strategy. The City's portfolio shall be designed and managed
in a manner responsive to the public trust and consistent with the Investment Policy.
In accordance with the Public Funds Investment Act, City investment strategies establish
maximum maturities and maximum dollar -weighted average maturity limits for each
portfolio and address the priorities for those funds (in order of priority):
• Suitability of the investment to the financial requirements of the City and the particular
Fund Type;
• Preservation and safety of principal;
• Liquidity;
• Marketability of the investment if the need arises to liquidate the investment prior to
maturity;
• Diversification of the investment portfolio; and
• Yield.
Effective investment strategy development coordinates the primary objectives of the City's
Investment Policy and cash management procedures with investment security risk/return analysis
to enhance interest earnings and reduce investment risk. The City intends to generally utilize a
buy and hold strategy but will evaluate more active strategies, such as swaps or outright sales of
securities, for incremental income when appropriate. The structure of the portfolio(s) will be
primarily dependent upon the continuing cash flow requirements of the funds represented. The
portfolio(s) will reflect both the short and long term needs of the funds. A limited liquidity buffer
will be maintained to cover any unanticipated cash needs, where appropriate.
With a more active position, maturity selections may be extended to gain incremental income or
adjust portfolios to economic and market conditions. It is recognized that more active
management may increase the overall weighted average maturity of the portfolios due to
additional volatility.
The City's Investment Officer(s) shall monitor and evaluate the ongoing economic environment
and incorporate market information from reliable sources as well as current and anticipated City
financial conditions when prudently implementing these strategies. Anticipated changes in the
City's investment strategy shall be reported to the Finance Committee as part of the quarterly
investment reporting.
The City expects, but is not required by law, to consolidate and commingle funds from similar
type funds or all funds in an attempt to maximize investment earnings. Investment income by
fund will be recognized and allocated on a monthly basis based on respective fund balances for
the period in accordance with generally accepted accounting principles.
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FUND TYPE IDENTIFICATION
Each major fund type has varying cash flow requirements and liquidity needs. Therefore, specific
strategies shall be implemented considering the fund type's unique requirements. City funds shall
be analyzed and invested according to the following major fund types:
a. Operating Funds
Operating funds have ongoing cash needs in support of ongoing operations and required transfers.
Funds include: General Fund
b. Capital Improvement Funds
Capital Improvement funds have cash needs dependent upon anticipated construction, acquisition
and payment schedules. Funds include: Construction Fund, Capital Improvement Fund
C. Debt Service Funds
Debt Service funds are structured to provide for debt service payments for the City's bonds. The
expenditures are strictly scheduled and occur normally in six month intervals. Funds include:
Bond Interest Accounts and Bond Principal Accounts.
d. Liquidity Buffer Accounts
Liquidity funds are to assure the City's liquidity for anticipated and unanticipated needs within
one month. A liquidity buffer is needed in all but debt service funds which have well-defined and
unalterable liabilities.
INVESTMENT STRATEGY BY TYPE
In order to minimize market risks or principal loss due to interest rate fluctuations, investment
maturities and portfolio structures will be limited by the anticipated cash flow requirements of the
various fund types. The general investment strategies are established by fund type. The use of
liquidity buffers in fund types is to provide for unanticipated liabilities.
a. Operating Funds
The short term (one to six months) needs of the operating funds will generally be addressed
through a laddered portfolio and the longer term (six to twelve months) needs of the operating
funds will be structured in a more loosely structured ladder. Core funds, not intended for use
within one year may be extended to two years.
Operating Funds are designed to meet ongoing demands. The portfolio(s) will utilize high credit
quality securities with no perceived credit risk to meet those demands and assure liquidity if
needed. Securities with active and efficient secondary markets are necessary in the event of an
unanticipated cash requirement. Investment maturities shall be laddered based on the anticipated
operating needs of the City. Market cycle risk will be reduced by diversifying the appropriate
maturity structure. Operating Funds require the greatest short-term liquidity of any of the fund
types, investment pools and money market mutual funds can provide daily liquidity.
Price volatility of the overall portfolio(s) will be minimized by requiring a maximum dollar -
weighted average days to maturity (WAM) for the Operating portfolio(s) of 180 days and
restricting the maximum allowable maturity to two years.
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Attaining a competitive market yield is a desired objective. The yields on the three-month and
one-year Treasury Bills shall be the minimum yield objective and benchmarks for these funds in
accordance with their anticipated WAM restrictions.
b. Capital Improvement Funds
Capital Improvement Funds are designed to meet anticipated needs for construction and certain
fixed liabilities, are primarily funded by bond proceeds and should have reasonably predictable
draw down schedules.
Investment maturities will generally follow the anticipated cash flow requirements. Investment
pools and money market mutual funds shall provide readily available funds generally equal to one
month's anticipated cash flow needs. The portfolio(s) must be based upon the anticipated
schedules but also provide for changing schedules and cash needs and to minimize the effect of
market fluctuations. As such they require a laddered portfolio based on known needs and a
liquidity buffer to provide for unanticipated needs.
Securities with active and efficient secondary markets of high -credit quality with no perceived
default risk are to be used.
A single flex repurchase agreement may be utilized, and structured to satisfy expenditure
requests. The flex may be used effectively to manage against falling interest rates and protect
against negative arbitrage.
US tax and arbitrage regulations require competitive market rates. The portfolio(s) will be
structured in such a way as to avoid negative arbitrage on bond proceeds and will comply with all
arbitrage provisions. For Capital Improvement Funds that have an arbitrage yield, achieving a
positive spread to the applicable arbitrage yield is the desired objective.
If the arbitrage yield is not applicable, then current market conditions will determine the portfolio
structure and strategy.
At no time shall the investment maturities of a fund exceed the anticipated expenditure schedule.
The maximum maturity limits shall reflect the then -current expenditure plan for the proceeds.
C. Debt Service Funds
Debt Service funds are structured to provide for debt service payments for the City's bonds. The
expenditures are strictly scheduled and occur normally in six month intervals. The portfolio(s)
will utilize high credit quality securities with no perceived credit risk to meet those demands and
assure liquidity if needed.
The maximum maturity for the investments in these portfolios will be one year and every known
debt service date shall be fully funded before extensions are made. The maximum dollar
weighted average maturity will be six months to fulfill these obligations.
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d. Liquidity Buffer Accounts
A liquidity buffer, dependent in size upon then—current economic conditions and City cash flow
needs, shall be maintained in Operating and Capital Improvement Funds to *meet immediate cash
needs of at least one month and provide for reasonable, unanticipated liabilities. The maximum
maturity of these liquid invested funds should be one day. These funds may be invested in money
market mutual funds, local government pools, or in a depository overnight sweep.
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