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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.