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CC Resolution No. 1290 2487 RESOLUTION NO. 1290 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BAYTOWN, TEXAS, APPROVING THE INVESTMENT POLICY AND STRATEGY OF THE CITY OF BAYTOWN IN COMPLIANCE WITH THE PUBLIC FUNDS INVESTMENT ACT; AND PROVIDING FOR THE EFFECTIVE DATE THEREOF. WHEREAS, the Public Funds Investment Act (the "Act") requires that the City Council of the City of Baytown, as a governing body of an investing entity, adopt a written investment policy regarding the investment of its funds and funds under its control, and WHEREAS, an integral part of the investment policy is a separate written investment strategy describing the investment objectives for each of the funds under the control of the City Council; and WHEREAS, pursuant to the Act, the City Council must review its investment policy and investment strategies not less than annually; and WHEREAS, on the 14th day of December, 1995, the City Council adopted the investment policy and investment strategies for the City of Baytown; and WHEREAS, on this the 12th day of September, 1996, and before adopting the policy and strategies referenced hereinbelow, the City Council conducted its review; NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF BAYTOWN, TEXAS: Section 1: That in compliance with the Public Funds Investment Act, the City Council of the City of Baytown, Texas, hereby approves the City of Baytown's Investment Policy and Strategy, which is attached hereto as Exhibit "A" and incorporated herein for all intents and 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 council meeting of September 12, 1996. PETE C. ALFAR , Mayor ATTEST: D EILEEN P. HALL, City Clerk APPROVED AS TO FORM: " ACIO RAM11Z EZ, SR., 'ity Attorney c M20\city council\resolulions\investmem.policy CITY OF BAYTOWN INVESTMENT POLICY ANNUAL REVIEW The Public Funds Investment Act requires and annual review of the City Investment Policy and Strategies. Below is a summary of the proposed changes. INVESTMENT POLICY 2.0 Scope • housekeeping language syntax 4.0 Objectives • Added Investment Suitability to this list of objectives. Section 8.0 details the authorized investments approved by the City. • Revised Safety definition to include high quality investments, with the portfolio managed by weighted average maturity. • Added Marketability to include active secondary markets. • Added Diversification further defined diversification (Section 11.0 discusses levels of diversification). 6.0 Ethics and Conflicts of Interest • Substituted City for Jurisdiction 16.0 Investment Policy Adoption • Substituted City Council for Legislative Authority INVESTMENT STRATEGY No significant changes. Minor housekeeping for consistency in the language. SUMMARY None of the changes proposed are significant to the overall investment program. The policy was enhanced to provide clearer direction. EXHIBIT A CITY OF BAYTOWN INVESTMENT POLICY September 1, 1995 (Revised: September 1, 1996) City of Baytown Revised: Investment Policy 09/01/96 1.0 Policy 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 Scope 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 are not limited to receipt-a Tax Revenues, Charges for Services, Bond Proceeds, Interest Incomes, and Loans and Funds received by the City where the City performs a custodial function. 3.0 Prudence 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. 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 Investment Suitability - Any investment eligible in this Investment Policy is suitable (Section 8.0). Pagel City of Baytown Revised: Investment Policy 09/01/96 4.4-2 Safety - Safety of the principal is the foremost objective of the investment program. All investments shall be of high quality. v4t 4ef ult-�. Market price fluctuations will however, occur, by managing the weighted average days to maturity the price volatility of the overall portfolio will be minimized. 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. 4.23 Liquidity - The City's investment portfolio will remain sufficiently liquid to enable the City to meet operating requirements that might be reasonably anticipated. 4.4 Marketability - Securities with active and efficient secondary markets are necessary in the event of an unanticipated cash requirement. 4_5 Diversification - Diversification by investment type shall be maintained by ensuring an active and efficient secondary market on portfolio investments and by controlling the market and opportunity risks associated with specific investment des. 4.-36 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 Deleeation 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. Page 2 City of Baytown Revised: Investment Policy 09/01/96 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 the City, 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. 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; Page 3 City of Baytown Revised: Investment Policy 09/01/96 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; 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. Page 4 City of Baytown Rc vised: Investment Policy 09/01/96 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 (DVP) 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 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. Page 5 City cf Baytown Revised: Investment Policy 09/01/96 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 Council 's legislative auth Page 6 INVESTMENT STRATEGY (Revised September 1, 1996) The City of Baytown's investment portfolio will be designed and managed to ensure that it will meet all the requirements established by the City of Baytown investment policy and the Public Funds Investment Act. The overall investment strategy outlined in the investment policy has been further refined in this investment strategy statement by the following fund types. Operating Funds: Operating Funds generally have greater cash flow needs than other funds types. The operating fund portfolio may consist of any approved investment type with the understanding that the financial requirements of the operating funds will dictate the maturity dates of the investment. At utmost importance is the preservation and safety of the investment principle. Additionally each investment will be viewed for its liquidity and marketability of the investment if the need arises to liquidate the investment before maturity. The final determining factors for the investment strategy will be the diversification of the investment portfolio and the yield of the investment. To achieve short term needs of one (1) to one hundred and eighty (180) days, funds will be invested in approved investment pools (ie. TexPool, LOGIC,etc,). For longer term needs of six (6) months to five u years, funds will be invested in approved investments with objectives prioritized as follows: 1) understanding the suitability of the investment to the financial requirements of the City of Baytown; 2) preservation and safety of principal; 3) liquidity; 4) marketability of the investment if the need arises to liquidate the investment before maturity; 5) diversification of the investment portfolio; and 6) yield. Debt Service Funds: The debt service requirements are usually semi-annual, thus allowing the investment strategy to mirror debt obligation payment dates. The strategy for debt service funds allows greater flexibility since the actual requirements are known into the future. Investments will still meet the adopted policies; however, planning maturity dates to match debt requirement dates will be the primary objective. Investment Strategy Page 2 Revised: 09/01/96 The investment instruments will be primarily in approved investment types with maturities at six or twelve months established to match debt requirement dates. Shorter term investment may be used to meet these objectives and longer term investments may be used when fund balance reserves exceed one year's debt service requirements. To achieve this strategy the following objectives are prioritized to evaluate investment opportunities: 1) understanding the suitability of the investment to the financial requirements of the City of Baytown; 2) preservation and safety of principal; 3) yield; 4) marketability of the investment if the need arises to liquidate the investment before maturity; 5) diversification of the investment portfolio; and 6) liquidity. Capital Improvement Funds: Bond proceeds can be invested over the life of the project; however, the exact disbursement of the funds is not always known. The investment objective of the capital improvement funds is to schedule maturities to maximize investment earnings while preserving principle. The key to an effective strategy is to be aware of the project needs and match maturities to the period funds are needed. The investment objective for capital projects funds is still to match investment maturities with funding needs. As short term needs are recognized investment maturities will be moved into approved investment pools to meet financial requirements. Longer term needs will be invested with the following objectives as prioritized for capital improvement funds: 1) understanding the suitability of the investment to the financial requirements of the City of Baytown; 2) preservation and safety of principal; 3) diversification of the investment portfolio; 4) yield; 5) liquidity; and 6) marketability of the investment if the need arises to liquidate the investment before maturity. Investment Strategy Page 3 Revised: 09/01/96 Reserve Funds: Certain reserve funds have been established as required by bond covenants. The investment objective strategy is established to invest reserve funds to the extent that maturities are established to the limit of the investment policy or to the end of the bond requirements whichever is shorter. The overall investment strategy ebjeetive for reserve funds will not rely on investment pools; however, the use of pools is not prohibited. Longer term investments objectives are prioritized as follows: 1) understanding the suitability of the investment to the financial requirements of the City of Baytown; 2) diversification of the investment portfolio; 3) preservation and safety of principal; 4) yield; 5) liquidity; and 6) marketability of the investment if the need arises to liquidate the investment before maturity.