CC Resolution No. 1170 2162
RESOLUTION NO. 1170
A RESOLUTIOI*,OF THE CITY COUNCIL OF THE CITY OF BAYTOWN,
TEXAS, ADOPTING A REVISED INVESTMENT POLICY; AND
PROVIDING FOR THE EFFECTIVE DATE THEREOF.
WHEREAS, the current City of Baytown investment policy has
been reviewed and revisions are recommended; and
WHEREAS, a revised policy which will allow the City to enhance
its current yield on investments while continuing to maintain a
prudent investment policy has been prepared; and
WHEREAS, all investments proposed are authorized by the public
funds investment act of 1987; NOW THEREFORE
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, adopts the City of Baytown Investment Policy in accordance
with the terms and provisions set out in said policy attached
hereto as Exhibit "A" which is incorporated herein and made a part
hereof for all purposes.
Section 2 : 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 affirmative vote of the
City Council of the City of Baytown, this the llth day of February,
1993 .
i
l
'BOBBY RED LLE, Mayor
ATTRST:
EILE�HALL, City Clerk
ACIO RAMIREZ, SR. , City Attorney
Iegalle nciV2-11-93rosINVP-STpolicy
2163
CITY OF BAYTOWN
INVESTMENT POLICY
REVISION DATE 2/11/93
Z . SCOPE
This investment policy applies to the investment activities of
the government of the City of Baytown, Texas.
FUNDS INCLUDED All financial assets of all funds managed by
the City but not limited to receipt of Tax Revenues, Charges
for Services, Bond Proceeds, Interest Incomes, Loans and Funds
received by the City where the City performs a custodial
function.
II. OBJECTIVES
SAFETY The primary objective of the City's investment
activity is the preservation of capital in the overall
portfolio. Each investment transaction shall seek first to
ensure that capital losses are avoided, whether they be from
securities defaults or erosion of market value.
LIQUIDITY The City's investment portfolio will remain
sufficiently liquid to enable the City to meet operating
requirements that might be reasonably anticipated. Liquidity
shall be achieved by investing in securities with active
secondary markets.
YIELD The City's cash management portfolio shall be designed
with the objective of regularly exceeding the average rate of
return on the three month U. S. Treasury Bill. The investment
program shall seek to augment returns above this threshold
consistent with risk limitations identified herein and prudent
investment principles.
RISK OF LOSS All participants in the investment process shall
seek to act responsibly as custodians of the public trust.
Investment officials shall avoid any transaction that might
impair public confidence in the city's ability to govern
effectively. The City will attempt to avoid volatile
investments which may result in potentially adverse return on
investments.
III . OVERSIGHT RESPONSIBILITY
Oversight Responsibility for the investment activity of the
City of Baytown shall rest with the City Manager and the
Finance Director with quarterly review by the Finance
Committee and the City Council.
2164
IV. RESPONSIBILITY AND CONTROL
DELEGATION Management responsibility for the investment
program is hereby delegated to the Director of Finance, who
shall establish written procedures for the operation of the
investment program, consistent with this investment policy.
Such procedures shall include explicit delegation of authority
to persons responsible for investment transactions.
SUBORDINATES All persons involved in investment activities
will be referred to as "Investment Officials" . No person
shall 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 of Finance shall be
responsible for all transactions undertaken, and shall
establish a system of controls to regulate the activities of
Subordinate Investment Officials.
QUARTERLY REPORTS The Director of Finance shall submit
quarterly an investment report that summarizes recent market
conditions, economic developments and anticipated investment
conditions. The report shall summarize the investment
strategies employed in the most recent quarter, describe the
portfolio in terms of investment securities, maturities, risk
characteristics and other features. The report shall explain
the quarter's total investment return and compare the return
to budgetary expectations. The report shall include an
appendix that discloses all transactions during the quarter.
ANNUAL REPORTS Within 90 days of the end of the fiscal year,
the Director of Finance shall present a comprehensive annual
report on the investment program and investment activity. The
annual report shall include twelve-month and quarterly
comparison of returns, and shall suggest improvements that
might be made in the investment program.
PRUDENCE Investments shall be made with the exercise of due
care, 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 own capital as well as the probable income to be
derived.
CONFLICTS OF INTEREST Officers and employees involved in the
investment process shall not engage in personal business
activity that could conflict with proper execution of the
investment program, or which could impair their ability to
make impartial decisions.
DISCLOSURE Employees and Investment Officials shall disclose
to the City Manager any material financial interests in
financial institutions that conduct business with the City of
Baytown, and shall further disclose any large financial or
investment positions that could be related to the performance
2165
of the City's portfolio. Employees and Investment Officers
shall subordinate their personal investment transactions to
those of this jurisdiction, particularly with regard to the
timing of purchases and sales.
V. INVESTMENTS
ACTIVE PORTFOLIO MANAGEMENT The City intends to pursue active
versus passive portfolio management philosophy. That is,
securities may be sold before they mature if market conditions
present an opportunity for the City to benefit from the trade.
ELIGIBLE INVESTMENTS Assets of funds of the government of
the City of Baytown may be invested in:
A. obligations of the United States or its agencies and
instrumentalities;
B. direct obligations of the State of Texas or its
agencies;
C. other obligations, the principal of and interest on
which are unconditionally guaranteed or insured by the
State of Texas or the United States or its agencies and
instrumentalities;
D. obligations of states, agencies, counties, cities and
other political subdivisions of any state having been
rated as to investment quality by a nationally
recognized investment rating firm and having received a
rating of not less than A or its equivalent;
E. certificates of deposit issued by state and national
banks domiciled in this state that are:
1. guaranteed or insured by the Federal Deposit
Insurance Corporation, or its successor; or
2 . secured by obligations that are described by
subsections A-D of this section, which are intended
to include all direct agency or instrumentality
issued mortgage backed securities rated AAA by a
national recognized rating agency, or by the Public
Funds Investment Act of 1987, codified as Art.
842a-2 , Revised Civil Statutes and that have a
market value of not less than the principal amount
of the certificates;
F. fully collateralized direct repurchase agreements having
a defined termination date, secured by obligations
described by subsection A-D of this section, pledged
with a third party selected or approved by the political
entity, and placed through a primary government
2166
securities dealer, as defined by the Federal Reserve, or
a bank domiciled in this state.
G. certificates of deposit issued by savings and loans
associations domiciled in this state that are:
1. guaranteed or insured by the Federal Savings and
Loan Insurance Corporation, or its successor; or
2 . secured by obligations that are described by
subsections A-D of this section, which are intended
to include all direct agency or instrumentality
issued mortgage backed securities rated AAA by a
national recognized rating agency, or by Public Funds
Investment Act of 1987, codified as Art. 842a-2,
Revised Civil Statutes and that have a market value
of not less than the principal amount of the
certificates;
H. SEC registered, no load money market mutual fund with
a dollar weighted average portfolio maturity of 120 days
or less whose assets consist exclusively of the
obligations that are described by subsection A-D of this
section and whose investment objectives include seeking
to maintain a stable net asset value of $1 per share;
I. local government investment funds or pools, authorized
by the state for municipality participation;
J. other investment instruments that are approved by the
state for municipality participation.
PROCUREMENT Investments of subsections A-H of this section
may be made only after competitive bids are solicited from at
least three sources.
LENGTH OF INVESTMENTS Except for an amount equal to the
Revenue Debt Service Reserve Funds plus 50% of the expected
ending working capital balances for the operating funds, the
City of Baytown shall invest in individual instruments whose
average life does not exceed five (5) years at the time of
purchase.
DIVERSIFICATION it is the policy of the City of Baytown to
diversify its investment portfolios. Assets held in the
common investment portfolio shall be diversified to eliminate
the risk of loss resulting from one concentration of assets in
a specific maturity, a specific issuer or a specific class of
securities. Diversification strategies shall be determined
and revised periodically by the Finance Committee and reviewed
with City Council.
2167
In establishing specific diversification strategies, the
following general policies and constraints shall apply:
A. Portfolio maturities shall be staggered in a way that
protects interest income from the volatility of interest
rates and that avoids undue concentration of assets in a
specific maturity sector. Securities shall be selected
which provide for stability of income and reasonable
liquidity.
B. The Finance Director and City Manager shall establish
strategies and guidelines for the percentage of the total
portfolio that may be invested in securities other than
repurchase agreements, treasury bills and notes, or
insured and collateralized certificates of deposits. The
Finance Committee shall conduct a quarterly review of
these guidelines and shall evaluate the probability of
market and default risk in various investment sectors as
part of its considerations.
VI. SELECTION OF BANKS AND DEALERS
BIDDING PROCESS Depositories shall be selected through the
City's banking services procurement process, which shall
include a formal request for proposal (RFP) issued every two
(2) years. In selecting depositories, the credit worthiness
of institutions shall be considered, and the Director of
Finance shall conduct a comprehensive review of prospective
depositories credit characteristics and financial history.
INSURABILITY Banks and Savings & Loans Associations seeking
to establish eligibility for the City's competitive
certificate of deposit purchase program, shall submit
financial statements, evidence of Federal insurance and other
information as required by the Director of Finance.
PRIMARY DEALERS AND APPROVED LIST For brokers and dealers of
government securities, the Finance Director and City Manager
shall select only those dealers reporting to the Market
Reports Division of the Federal Reserve Bank of New York,also
known as "primary government securities dealers" , unless a
comprehensive credit and capitalization analysis reveals that
other firms are adequately financed to conduct public
business. All brokers and dealers must be authorized by the
Finance Director and City Manager. Investment Officers shall
not conduct business with any firm which has been removed from
the approved list by the Finance Director and City Manager.
Dealers approved by the Finance Director and City Manager
shall be reviewed by the Finance Committee on a quarterly
basis.
2168
VII. SAFEKEEPING AND CUSTODY
INSURANCE OR COLLATERAL All deposits and investments of City
funds other than direct purchases of U. S. Treasuries or U. S.
Agencies shall be secured by pledged collateral with a market
value equal to no less than 100% of the deposits or
investments less an amount insured by the FDIC or FSLIC.
Evidence of the pledged collateral shall be maintained by the
Director of Finance or a third party financial institution.
Repurchase agreements shall be documented by specific
agreement noting the collateral pledged in each agreement.
Collateral shall be reviewed monthly to assure the market
value of the securities pledged equals or exceeds the related
bank balances.
SAFEKEEPING AGREEMENT All safekeeping arrangements shall be
in accordance with a Safekeeping Agreement approved by the
Finance Committee which clearly defines the procedural steps
for gaining access to the collateral should the City of
Baytown determine that the City's funds are in jeopardy. The
safekeeping institution, or Trustee, shall be the Federal
Reserve Bank or an institution not affiliated with the firm
pledging the collateral. The safekeeping agreement shall
include the signatures of the City of Baytown, the firm
pledging the collateral, and the Trustee.
COLLATERAL DEFINED The City of Baytown shall accept only the
following securities as collateral:
A. FDIC and FSLIC insurance coverage;
B. United States Treasuries and Agencies;
C. Texas State, City, County, School or Road District
bonds with a remaining maturity of ten (10) years
or less with rating from a nationally recognized
investment rating firm and having received a rating
of not less than A or its equivalent;
D. Other securities as approved by the Finance
Committee.
SUBJECT TO AUDIT All collateral shall be subject to
inspection and audit by the Director of Finance or the City's
independent auditors.
DELIVERY VERSUS PAYMENT Treasury Bills, Notes & Bonds and
Government Agencies' securities shall be purchased using the
delivery versus payment method. That is, funds shall not be
wired or paid until verification has been made that the
collateral was received by the Trustee. The collateral shall
be held in the name of the City or held on behalf of the City.
The Trustee's records shall assure the notation of the City's
ownership of or explicit claim on the securities. The
2169
original copy of all safekeeping receipts shall be delivered
to the City.
VIII.MANAGEMENT AND INTERNAL CONTROLS
The Director of Finance shall establish a system of internal
controls which shall be reviewed by the City's independent
auditor. The controls shall be designed to prevent losses of
public funds arising from fraud, employee error,
misrepresentation by third parties, unanticipated changes in
financial markets, or imprudent actions by employees or
Investment Officers of the City.
Controls and managerial emphasis deemed most important shall
be employed where practical are:
A. Control of collusion.
B. Separation of duties.
C. Separation of transaction authority from accounting
and record keeping.
D. Custodian safekeeping receipts records management.
E. Avoidance of bearer-form securities.
F. Clear delegation.
G. Documentation on investment bidding events.
H. Written confirmation of telephone transactions.
I. Reconcilement and comparisons of security receipts
with the investment subsidiary records.
J. Compliance with investment policies.
K. Accurate and timely reports.
L. Validation of investment maturity decisions with
supporting cash flow data.
M. Adequate training and development of Investment
Officials.
2170
N. Verification of all interest income and security
purchase as sell computations.
O. Review of financial condition of brokers, dealers
and depository institutions.
P. Staying informed about market conditions, changes,
and trends that require adjustments in investment
strategies.