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CC Resolution No. 14012655 RESOLUFTON NO. 1401 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, 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 91h day of September, 1999, 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 9`h day of September, 1999. /�,�ce� PETE C. ALFARO, ayor ATTEST: EILEEN P. HALL, City Clerk APPROVED AS TO FORM: Gam/ M 4ffiACIO RAMIREZ, W, City Attorney c: MyDocuments\ Counci ]\Mwlings\September\Approvelnves MtPolicy &Strategy.doc CITY OF BAYTOWN, TEXAS INVESTMENT POLICY City Co a cil Action Adopted 9/1/96 Revised 9/1/97 Revised 9/1/98 Revised 9/1/99 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 Investment Policy Revised September 1999 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. 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 (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. 2 City of Baytown Revised September 1999 Investment Policy 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, (Exhibit "C "), 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: • 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 arc unconditionally 3 City of Baytown Revised September 1999 Investment Policy 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 - 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°/x) 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 4 City of Baytown Revised September 1999 Investment Policy 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. 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 by the City Council. 5 City of Baytown Investment Policy EXHIBIT A City of Baytown Authorized Investment Officials L.M. Daws, Director of Finance Donna Sams, Controller Rhonda Schmitz, Treasurer Revised September 1999 City of Baytown Revised September 1999 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 L.M. Daws, Director of Finance Date Donna Sams, Controller Date Rhonda Schmitz, Treasurer Date City of Baytown Revised September 1999 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) Investment Pools TexPool Logic Investment Pool City of Baytown Revised September 1999 Investment Policy EXHIBIT D City of Baytown Certification by Business Organization date City of Baytown, Texas (Attn: Designated Investment official) P O 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: 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 fumished 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 City of Baytown Investment Policy F.XHIRIT F INVESTMENT STRATEGY (Revised September 1, 1997) Revised September 1999 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. IC City of Baytown Investment Policy INVESTMENT STRATEGY (Continued) Debt Service Funds: Revised September 1999 The debt service requirements are usually semi - annual, thus allowing the investment strategy to minor 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. City of Baytown Investment Policy INVESTMENT STRATEGY (Continued) Capital Improvement Funds: Revised September 1999 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. 12 City of Baytown Investment Policy INVESTMENT STRATEGY (Continued) Reserve Funds: Revised September 1999 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. 13