CC Resolution No. 1322 2536
RESOLUTION NO. 1322
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.
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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, on the 14"' day of December, 1995,the City Council adopted the investment policy and
investment strategies for the City of Baytown; and
WHEREAS, on this the 11°i day of September, 1997, 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 11°i day of September, 1997.
PETE C. ALFAR , Mayor
ATTEST: pp
2�- /9' ,A /
EILEEN P. BALL, City Clerk
APPROVED AS TO FORM:
ACIO RAMIREZ, S ity Attorney
c:\MyDocuments\Council\Meetings\Septeinber\ApprovelnvestmentPo I icyStmtegy.l I.doc
CITY OF BAYTOWN
INVESTMENT POLICY
September 1, 1996
(Revised: September 1, 1997)
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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 Sco e
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 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).
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4.2 Safety - Safety of the principal is the foremost objective of the investment
program. All investments shall be of high quality. 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.
4.3 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
types.
4.6 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 Delectation 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.
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The Finance Director and all persons authorized to administer the investment pram
shall attend at least one (1) training session related to responsibilities under the Public
Funds Investment Act within twelve (12) months of assuming investment responsibilities.
Additionally, persons responsible for the investment program shall attend an investment
training session not less than once in a two (2) ti year period and receive not less than ten
(10) hours of instruction relating to investment responsibilities under the Public Funds
Investment Act.
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 Seetirities and Exchange Co n Rue (uniform of r p
l 150 1rital
rule) the Public Funds Investment Act Section 2256.002 (10), as "Qualified
Representatives". 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.
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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 banks and leans asseeiati domiciled in
this state;
8.08 SEC registered, no load money market mutual fund with a dollar weighted average
portfolio maturity of 90 1-8 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, and provides the City with a prospectus and other information required by
the Securities Exchange Act of 1934 or the Investment Company Act of 1940;
8.09 local government investment funds or pools, authorized by the state for
municipality participation, with a minimum rating of AAA or AAA-m or no lower
than investment grade with a weighted average maturity no greater the ninetY(90)
days;
8.10 other investment instruments that are approved by the state for municipality
participation.
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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 (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.
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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 Reyortin¢
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. Market prices provided by
broker/dealers will be compared to the Wall Street Journal for reasonableness and
accuracy. At a minimum, quarterly reports will include performance, market sector
breakdown, number of trades, fully accrued interest, interest earnings, etc. The
investment reports shall be included for review in the City's annual audit.
16.0 Investment Policy Adoption
The City's investment policy shall be adopted by resolution of the City Council Qty s
legislative authority. The policy shall be reviewed annually by the Finance Committee and
any modification thereto must be approved by the City Council.
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INVESTMENT STRATEGY
(Revised September 1, 1997)
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 (i.e. TexPool, LOGIC, etc.,). For longer term
needs of six (6) months to five (5) 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.
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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.
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.
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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) 6) marketability of the investment if the need arises to liquidate the investment
before maturity.
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Reserve Funds:
Certain reserve funds have been established as required by bond covenants. The
investment objective is 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 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.
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