Loading...
CC Resolution No. 1266 2 446 RESOLUTION NO. 1266 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BAYTOWN, TEXAS, APPOINTING AN INVESTMENT OFFICER AND AN ALTERNATE INVESTMENT OFFICER RESPONSIBLE FOR THE INVESTMENT OF THE FUNDS OF THE CITY OF BAYTOWN; ADOPTING AN INVESTMENT POLICY; AND PROVIDING FOR THE EFFECTIVE DATE THEREOF. WHEREAS, through House Bill 2459, the Legislature recently amended Section 2256 . 005 of the Texas Government Code which requires the City of Baytown to designate one or more officers or employees of the City of Baytown as an investment officer to be responsible for the investment of its funds; and WHEREAS, House Bill 2459 also requires the City of Baytown to adopt an investment policy detailing an investment strategy for each of the funds under the City of Baytown' s control; and WHEREAS, such investment policy must describe the investment objectives for each particular fund using the following priorities in order of importance : (i) understanding of the suitability of the investment of the financial requirements of the entity; (ii) preservation and safety of principal; (iii) liquidity; (iv) marketability of the investment if the need arises to liquidate the investment before maturity; (v) diversification of the investment portfolio; and (vi) yield; and WHEREAS, the Finance Committee has received and reviewed the attached investment policy, which meets the new statutory requirements imposed by House Bill 2459 as well as all other statutory requirements applicable to such investment policy; NOW THEREFORE BE IT R$SOLVED BY THE CITY COUNCIL OF THE CITY OF BAYTOWN, TEXAS : Section 1 : That the City Council of the City of Baytown, Texas, appoints L. M. Daws, Treasurer, as an investment officer, and Donna Sams, Controller, as an alternate investment officer, to be responsible for the investment of the funds of the City of Baytown. Section 2 : That the City Council of the City of Baytown, Texas, adopts the Investment Policy, which is attached hereto as Exhibit "A" and incorporated herein for all intents and purposes . 2447 a 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 affirmative vote of the City Council of the City of Baytown this 14th day of December, 1995 . PETE C. ALFAIrO, Mayor ATTEST : EILEEN P . HALL, City Clerk APPROVED AS TO FORM: ACIO RAMIREZ, S . , City Attorney c:\klhll\resolution\investofficer.res 2 CITY OF BAYTOWN INVESTMENT POLICY September 1, 1995 City of Baytown Page 1 Investment Policy Revised9/01/95 1.0 Policv It is the policy of the City of Baytown, Texas (City) to invest public funds in a manner which will provide the highest return with the maximum security while meeting the daily cash flow demands of the City and conforming to all state and local statutes governing the investment of public funds. 2.0 Scone This investment policy applies to all the investment activities of the City of Baytown, Texas. 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 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. 3.0 Prudence Investments shall be made with judgement 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. 3.1 The standard of prudence to be used by investing officials 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 appropriate action is taken to control adverse developments. 4.0 Objectives The primary objectives, in priority order, of the City's investment activities shall be: 4.1 Safety- Safety of the principal is the foremost objective of the investment program. Investments of the City shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. City of Baytown Page 2 Investment Policy Revised9/01/95 4.2 Liquidity-The City's investment portfolio will remain sufficiently liquid to enable the City to meet operating requirements that might be reasonably anticipated. 4.3 Return of Investments - The City's investment portfolio shall be designed with the objective of attaining a rate of return throughout budgetary and economic cycles, commensurate with the City's investment risk constraints and cash flow characteristics of the portfolio. 5.0 Delegation of Authority_ Authority to manage the City's investment program is derived from the following: City Charter Article VII, Section 67 (9). 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. Procedures should include reference to: safekeeping, PSA repurchase agreements, wire transfer agreements, banking service contracts and collateral/depository agreements. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may 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 activities of subordinate officials. 6.0 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 of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the City Manager any material financial interests in financial institutions that conduct business within this jurisdiction, and further disclose any large personal financial/investment positions that could be related to the performance of the City, particularly with regard to the time of purchases and sales. 7.0 Authorized Financial Dealers The Director of Finance will maintain a list of financial institutions authorized to provide investment services. In addition, a list will also be maintained of approved security broker/dealers selected by credit worthiness who are authorized to provide investment services in the State of Texas. These may include "primary" dealers or regional dealers that qualify under Securities and Exchange Commission Rule 15C3-1 (uniform net capital rule). No public deposit shall be made except in a qualified public depository as established by state laws. City of Baytown Page 3 Investment Policy Revised9/01/95 All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the Director of Finance with the following: audited financial statements,proof of national association of securities dealers certification, trading resolution,proof of state registration, completed broker/dealer questionnaire, certification of having read City's investment policy and depository contract. An annual review of the financial condition and registrations of qualified bidders will be conducted by the Director of Finance. A current audited financial statement is required to be on file for each financial institution and broker/dealer in which the City invests. 8.0 Authorized and Suitable Investments The City is empowered by statute to invest in the following types of securities: 8.01 obligations of the United States or its agencies and instrumentalities; 8.02 direct obligations of the State of Texas or its agencies; 8.03 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; 8.04 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; 8.05 certificates of deposit issued by state and national banks domiciled in this state; 8.06 fully collateralized direct repurchase agreements having a defined termination date, secured by obligations described by subsection 8.01-8.04 of this section, pledged with a third party selected or approved by the political entity, and placed through a primary government securities dealer, as defined by the Federal Reserve, or a bank domiciled in this state; 8.07 certificates of deposit issued by savings and loans associations domiciled in this state; 8.08 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 8.01-8.04 of this section and whose investment objectives include seeking to maintain a stable net asset value of$1 per share; City of Baytown Page 4 Investment Policy Revised9/01/95 8.09 local government investment funds or pools, authorized by the state for municipality participation; 8.10 other investment instruments that are approved by the state for municipality participation. 9.0 Collateralization Collateralization will be required on two types of investments: certificates of deposit and repurchase (and reverse) agreements. In order to anticipate market changes and provide a level of security for all funds, the Collateralization level will be one hundred two percent (102%) of market value of principal and accrued interest. Collateral will always be held by an independent third party with whom the City has a current custodial agreement. A clearly marked evidence of ownership (safekeeping receipt) must be supplied to the City and retained. The right of collateral substitution is granted. 10.0 Safekeeping and Custody All security transactions, including collateral for repurchase agreements, entered into by the City shall be conducted on a delivery-versus-payment (DV?) basis. Securities will be held by a third party custodian designated by the Director of Finance and evidenced by safekeeping receipts. 11.0 Diversification The City will diversify its investments 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 that five percent (5%) of the entire portfolio. 12.0 Maximum Maturities To the extent possible, the City will 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. 13.0 Internal Control The Director of Finance in conjunction with the City's annual audit, shall perform or cause to have performed a compliance audit of management controls on investments and adherence City of Baytown Page 5 Investment Policy Revised 9/01/95 to the entity's established investment policies. This review will provide internal control by assuring compliance with policies and procedures. 14.0 Performance Standards The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and cash flow needs. 14.1 Market Yield (Benchmark) - The City's investment strategy is active. Given this strategy the basis used by the Director of Finance to determine whether market yields are being achieved shall be the three (3) month U.S. Treasury Bill. 15.0 Reporting The Director of Finance is charged with the responsibility of including a market report on investment activity and returns in the City's Financial Report. Reports will include performance, market sector breakdown, number of trades, interest earnings, etc. 16.0 Investment Policy Adoption The City's investment policy shall be adopted by resolution of the City's legislative authority. The policy shall be reviewed annually by the Finance Committee and any modification thereto must be approved by the City's legislative authority. GLOSSARY AGENCIES: Federal agency securities. ASKED: The price at which securities are offered. BANKERS' ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. BID: The price offered by a buyer of securities. (When you are wiling wcuritioa,you aak for a bid.) See Offer. BROKER: A broker brings buyers and sellers together for a commission. CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by a certificate. Large-denomination CD's are typically negotiable. COLLATERAL: Securities, evidence of deposit or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual financial report for the City of Baytown. It includes combined statements for each individual fund and account group prepared in conformity with GAAP. It also includes supporting schedules necessary to demonstrate compliance with finance-related legal and contractual provisions, extensive introductory material, and a detailed Statistical Section. COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. (b)A certificate attached to a bond evidencing interest due on a payment date. DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account. DEBENTURE: A bond secured only by the general credit of the issuer. DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. DISCOUNT: The difference between the cost price of a security and its maturity when quoted at lower than face value. A security selling below original offering price shortly after sale also is considered to be at a discount. DISCOUNT SECURITIES: Non-interest bearing money market instruments that are issued a discount and redeemed at maturity for full face value, e.g., U.S. Treasury Bills. DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individuals, e.g., S&L's, small business firms, students, farmers, farm cooperatives, and exporters. FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $100,000 per deposit. FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open-market operations. FEDERAL HOME LOAN BANKS (FHLB): The institutions that regulate and lend to savings and loan associations. The Federal Home Loan Banks play a role analogous to that played by the Federal Reserve Banks vis-a-vis member commercial banks. FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder-owned corporation. The corporation's purchases include a variety of adjustable mortgages and second loans, in addition to fixed-rate mortgages. FNMA's securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest. FEDERAL OPEN MARKET COMMITTEE (FOMC): Consists of seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of Government Securities in the open market as a means of influencing the volume of bank credit and money. FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and consisting of a seven member Board of Governors in Washington, D.C., 12 regional banks and about 5,700 commercial banks that are members of the system. TREASURY BOND: Long-term U.S. Treasury securities having initial maturities of more than 10 years. TREASURY NOTES: A non-interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months or twelve months. UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that member firms as well as nonmember broker-dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also call net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities, one reason new public issues are spread among members of underwriting syndicates. Liquid capital includes cash and assets easily converted into cash. YIELD: The rate of annual income return on an investment, expressed as a percentage. (a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security. (b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity of the bond. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae): Securities influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. Security holder is protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, VA or FMHM mortgages. The tern "passthroughs" is often used to describe Ginnie Maes. LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked prices is narrow and reasonable size can be done at those quotes. LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment. MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold. MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase--reverse repurchase agreements that establishes each party's rights in the transactions. A master agreement will often specify, among other things, the right of the buyer- lender to liquidate the underlying securities in the event of default by the seller-borrower. MATURITY: The date upon which the principal or stated value of an investment becomes due and payable. MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, bankers' acceptances, etc) are issued and traded. OFFER: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See Asked and Bid. OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. PORTFOLIO: Collection of securities held by an investor. PRIMARY DEALER: A group of government securities dealers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC)-registered securities broker-dealers, banks, and a few unregulated firms. PRUDENT PERSON RULE: An investment standard. In some states the law requires that a fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody state- -the so-called legal list. In other states the trustee may invest in a security if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital. QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability and which has been approved by the Public Deposit Protection Commission to hold public deposits. RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond the current income return. REPURCHASE AGREEMENT (RP OR REPO): A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. The security "buyer" in effect lends the "seller" money for the period of the agreement, and the terms of the agreement are structured to compensate him for this. Dealers use RP extensively to finance their positions. Exception: When the Fed is said to be doing RP, it is lending money, that is, increasing bank reserves. SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection. SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution. SECURITIES& EXCHANGE COMMISSION: Agency created by Congress to protect investors in securities transactions by administering securities legislation. SEC RULE 15C3-1: See Uniform Net Capital Rule. TREASURY BILLS: A non interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three, six, twelve months. INVESTMENT STRATEGY STATEMENT The City of Baytown maintains portfolios which utilize four specific investment strategy considerations, designed to address the unique characteristics of the fund groups represented in the investment portfolios. A. OPERATING FUNDS AND COMMINGLED POOLS CONTAINING OPERATING FUNDS Investment strategies for operating funds and commingled pools containing operating funds have as their primary objective to assure that anticipated cash flows are matched with adequate investment liquidity. The secondary objective is to create a portfolio structure which will experience minimal volatility during economic cycles. This may be accomplished by purchasing quality, short-to medium-term securities which will complement each other in a laddered or barbell maturity structure. B. DEBT SERVICE FUNDS Investment strategies for debt service funds shall have as the primary objective the assurance of investment liquidity adequate to cover the debt service obligation on the required payment date. Securities purchased shall not have a stated final maturity date which exceeds the debt service payment date. C. DEBT SERVICE RESERVE FUNDS Investment strategies for debt service reserve funds shall have as the primary objective the ability to generate a dependable revenue stream to the appropriate debt service fund from securities with a low degree of volatility. Except as may be required by the bond ordinance specific to an individual issue, securities should be of high quality, with short-to intermediate-term maturities. Volatility shall be further controlled through the purchase of securities carrying the highest coupon available, within the desired maturity and quality range, without paying a premium, if at all possible. Such securities will tend to hold their value during economic cycles. D. SPECIAL PROJECTS OR SPECIAL PURPOSE FUNDS Investment strategies for special projects or special purpose fund portfolios will have as their primary objective to assure that anticipated cash flows are matched with adequate investment liquidity. These portfolios should include at least 10% in highly liquid securities to allow for flexibility and unanticipated project outlays. The stated final maturity dates of securities held should not exceed the estimated project completion date.