CC Resolution No. 1364 2598
RESOLUTION NO. 1364
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 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 24"' day of September, 1998, 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 24" day of September, 1998.
/.
PETE C. ALFARO,Mayor
ATTEST:
EILEEN P. HALL, City Clerk
APPROVED AS TO FORM:
ACIO RAMIREZ, SR., 'ty ttorney
c:\MyDocuments\Council\Meetings\September\ApprovelnvestmentPol icy&Slrategy24.doc
CITY OF
BAYTOWN, TEXAS
INVESTMENT POLICY
EXHIBIT A
CITY OF BAYTOWN
INVESTMENT POLICY
TABLE OF CONTENTS
1.0 Policy............................................................................................................................... 1
2.0 Scope............................................................................................................................... 1
3.0 Prudence.......................................................................................................................... 1
4.0 Objectives ........................................................................................................................ 1
5.0 Delegation of Authority .................................................................................................... 2
6.0 Ethics and Conflicts of Interest ......................................................................................... 2
7.0 Training........................................................................................................................... 3
8.0 Authorized Financial Dealers............................................................................................ 3
9.0 Authorized and Suitable Investments................................................................................. 3
10.0 Collateralization............................................................................................................... 4
11.0 Safekeeping and Custody.................................................................................................. 5
12.0 Diversification.................................................................................................................. 5
13.0 Maximum Maturities........................................................................................................ 5
14.0 Internal Control................................................................................................................ 5
15.0 Performance Standards..................................................................................................... 5
16.0 Reporting......................................................................................................................... 5
17.0 Investment Policy Adoption .............................................................................................. 5
EXHIBITS
A Authorized Investment Officials................................................................................................. 6
B Statement of Ethics and Conflicts of Interest.............................................................................. 7
C Approved Broker/Dealers, Financial Institutions and Investment Pools....................................... 8
D Certification by Business Organization...................................................................................... 9
EInvestment Strategy................................................................................................................ 10
City of Baytown
Investment Policy
1.0 Policy - It is the policy of the City of Baytown, Texas (City) to invest public funds in a
manner which will ensure that the investments are duly authorized properly managed
adequately protected and fully collateralized The City shall seek to provide the highest
return with the maximum security while meeting the daily cash flow demands of the City
and conforming to the City Charter, the Public Funds Investment Act (Chapter 2256
Government Code as amended) and all other 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 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.
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).
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.
City of Baytown Revised September 1998
Investment Policy
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 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 (Exhibit A) 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.
program shall attend at least ene (1) tFaifliflg session related te Fespensibilities-
a the Public r , Investmentn hi 1 (12 th c
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investment responsibilities. Additionally, pe sens responsible feF the investment
pfe ,a less h,in enee a two M\
a
year period and reeeive net less than ten (10) hOUFS Of iflStPdetiffli
lati o
bili6es under the Publie Funds investment Aet.
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
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City of Baytown Revised September 1998
Investment Policy
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 (Exhibit B).
7.0 Training - Each investment official for the City of Baytown shall attend at least one
training session relating to investments within 12 months after assuming such duties
Training shall be in accordance with the public Funds Investment Act and include
education in investment controls security risks market risks and compliance with state
statutes governing the investment of public funds Investment officials shall attend an
investment training session not less than once every two years thereafter and shall receive
not less than ten (10) hours of instruction relating to investment responsibilities from an
independent source, which has been approved by the City Council (Section 2256 008
Government Code) The Government Treasurers Organization of Texas the Government
Finance Officers Association of Texas. the Texas Municipal League and the University of
North Texas are hereby approved as independent sources that may provide such training
to investment officials.
8.0 Authorized Financial Dealers - The Director of Finance will maintain a list, xhibit
"� 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 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.
8.1 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.
8.2 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.
9.0 Authorized and Suitable Investments - The City is empowered by statute to invest in
the following types of securities:
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City of Baytown Revised September 1998
Investment Policy
• Obligations of the United States or its agencies and instrumentalities;
• Direct obligations of the State of Texas or its agencies;
• 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;
• 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;
• Certificates of deposit issued by state and national banks domiciled in this state;
• 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;
• Certificates of deposit issued by savings banks domiciled in this state;
• SEC registered, no load money market mutual fund with a dollar weighted average
portfolio maturity of 90 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;
• 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;
• Other investment instruments that are approved by the state for municipality
participation.
10.0 Collateralization - Collateral ization 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 Collateral ization level will
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City of Baytown Revised September 1998
Investment Policy
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.
11.0 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.
12.0 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.
13.0 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.
14.0 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.
15.0 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. 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.
16.0 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. 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.
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City of Baytown Revised September 1998
Investment Policy
EXHIBIT B
City of Baytown
Statement of Ethics and Conflicts of Interest
Investment officials for the City of Baytown shall refrain from personal business relationships with
business organizations that could conflict with the proper execution of the investment program, or which
could impair their ability to make partial investment decisions. This would only apply to personal business
relationships with business organizations, which have been approved by City Council to conduct
investment transactions with the City of Baytown.
An investment official is considered to have a personal business relationship with a business organization
if..
(1) The investment official owns 10 percent or more of the voting stock or shares of the business
organization or owns $5,000 or more of the fair market value of the business.
(2) Funds received by the investment official from the business organization exceed 10 percent of
the investment official's gross income for the previous year.
(3) The investment official has acquired from the business organization during the previous year
investments with a book value of$2,500 or more for the personal account of the investment
official.
I do hereby certify that I do not have a personal business relationship with any business organization
approved to conduct investment transactions with the City of Baytown nor am I related within the second
degree by affinity or consanguinity, as determined under Chapter 573, to an individual seeking to sell an
investment to the City of Baytown as of the date of this statement.
City of Baytown
Investment Officials
Monte Mercer, Assistant City Manager Date
L.M. Daws, Treasurer Date
Donna Sams, Controller Date
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City of Baytown Revised September 1998
Investment Policy
The investment reports shall be included for review in the City's annual audit.
17.0 Investment Policy Adoption - The City's investment policy shall be adopted by
resolution of the City Council. The policy shall be reviewed and approved annually-by4he
Finanee r,....mitt.... and any adilleatien .tie_ete must be approved by the City Council.
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City of Baytown Revised September 1998
Investment Policy
EXHIBIT A
City of Baytown
Authorized Investment Officials
Monte Mercer, Assistant City Manager
L.M. Daws, Treasurer
Donna Sams, Controller
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City of Baytown Revised September 1998
Investment Policy
EXHIBIT D
City of Baytown
Certification by Business Organization
date
City of Baytown, Texas
(Attn: Designated Investment official)
P 0 Box 424
Baytown, TX 77522-0424
Dear Mr/s. (investment official):
This certification is executed on behalf of the City of Baytown, Texas (the Investor)and
, (the Business Organization)
pursuant to the Public Funds Investment Act, Chapter 2256, Texas Government Code, (the Act) in
connection with investment transactions conducted between the Investor and Business Organization.
The undersigned Qualified Representative of the Business Organization hereby certifies on behalf of the
Business Organization that:
1. The undersigned is a Qualified Representative of the Business Organization offering to enter an
investment transaction with the Investor (Note: as such terms are used in the Public Funds Investment
Act, chapter 2256, Texas Local Government Code) and;
2. The Qualified Representative of the Business Organization has received and reviewed the Investment
Policy furnished by the Investor and;
3. The Qualified Representative of the Business Organization has implemented reasonable procedures and
controls in an effort to preclude investment transactions conducted between the Business Organization
and the Investor that are not authorized by the Investor's investment policy, except to the extent that
this authorization is dependent on an analysis of the makeup of the investor's entire portfolio or
requires and interpretation of the subjective investment standards.
Qualified Representative of the Business Organization
Signed By:
Name
Title
Date
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City of Baytown Revised September 1998
Investment Policy
EXHIBIT C
City of Baytown
Approved Broker/Dealers, Financial Institutions and Investment Pools
Broker/Dealers
First Southwest
Everen Securities
Public Depositories
Baytown State Bank (Primary)
Citizens Bank (BAWA)
Investment Pools
TexPool
Logic Investment Pool
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City of Baytown Revised September 1998
Investment Policy
EXHIBIT E
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 principal.
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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City of Baytown Revised September 1998
Investment Policy
INVESTMENT STRATEGY (Continued)
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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City of Baytown Revised September 1998
Investment Policy
INVESTMENT STRATEGY (Continued)
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.
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City of Baytown Revised September 1998
Investment Policy
INVESTMENT STRATEGY (Continued)
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 investment 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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