BAWA Resolution No. 2021-23RESOLUTION NO. 2021-23
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE BAYTOWN
AREA WATER AUTHORITY ADOPTING THE BAYTOWN AREA WATER
AUTHORITY'S INVESTMENT POLICY AND STRATEGY STATEMENT;
AND PROVIDING FOR THE EFFECTIVE DATE THEREOF.
BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE BAYTOWN AREA
WATER AUTHORITY:
Section 1: That the Board of Directors of the Baytown Area Water Authority hereby
acknowledges that it has reviewed the investment policy and strategy statement and that the written
instrument adopted in Section 2 hereof records any changes made to either the investment policy
or investment strategies.
Section 2: That the Board of Directors of the Baytown Area Water Authority hereby
adopts its investment policy, including the investment strategies contained therein, which are
attached hereto as Exhibit "A" and incorporated herein for all intents and purposes.
Section 3: This resolution shall take effect immediately from and after its passage by
the Board of Directors of the Baytown Area Water Authority,
INTRODUCED, READ and PASSED by the affirmative vote of the Board of Directors of
the Baytown Area Water Authority this the 26", day of October, 2021.
iol /B&RENDA BRADLEY SMITH, President
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APPROVED AS TO FORM:
KAREN L. HORNER, General Counsel
RAKaren Anderson%RE•SOLUTIONSIBAWA12021.10.26\Resoltttion - AdoptlnveslmentPolicy.doea
Reviewed 8-19-20
Baytown Area Water Authority
Investment Policy
Table of Contents
I.
Policy
1
II.
Scope
I
III.
General Objectives
I
A. Safety
1
B. Liquidity
2
C. Yield
2
IV.
Standards of Care
3
A. Prudence
3
B. Ethics and Conflicts of Interest
3
C. Delegation of Authority
3
D. Training
4
V.
Financial Institutions, Broker/Dealers, Safekeeping and Custody
4
A. Authorized Financial Dealers and Institutions
4
B. Internal Controls
5
C. Delivery vs. Payment
5
VI.
Suitable and Authorized Investments
5
A. Eligible Investments
5-14
B. Collateralization
14
C. Existing Investments
15
VII.
Investment Parameters
A. Diversification
15
B. Maximum Maturities
15
VIII.
Investment Strategies
15
IX.
Reporting
A. Methods
16
B. Performance Standards
16
C. Marking to Market
16
EXHIBITS
A - Authorized Investment Officers 17
B - Statement of Ethics and Conflicts of Interest 18
C — Approved Broker/Dealers, Financial Institutions and Investment Pools 19
D — Certification by Business Organization 20
E — Investment Strategy 21-24
Baytown Area Water Authority
Investment Policy
Baytown Area Water Authority
Investment Policy
I. Policy
It is the policy of the Baytown Area Water Authority ("BAWA") to administer and
invest its funds in a manner that will preserve principal and maintain liquidity while
meeting the daily cash flow requirements of BAWA. BAWA will conform to all
federal, state and local statutes, rules, and regulations governing the investment of
BAWA's funds.
BAWA's policy is to hold investments to maturity, however, securities may be sold
in order to minimize the potential loss of principal on a security whose credit quality
has declined; to swap into another security which would improve the quality, yield or
target duration of the portfolio; or to meet unanticipated liquidity needs of the
portfolio.
Not less than annually, the BAWA board shall adopt a written instrument by
resolution stating that it has reviewed the Investment Policy and Investment
Strategies and that the written instrument so adopted shall record any changes made
to the Investment Policy or Investment Strategies.
II. Scope
This Investment Policy applies to all the investment activities of BAWA. These
funds are accounted for in BAWA's Comprehensive Annual Financial Report and
include all financial assets of all funds managed for BAWA by the City, including but
not limited to water revenues, charges for services, bond proceeds, and interest
income.
III. General Objectives
The primary objectives, in priority order, of BAWA's investment activities shall be
safety, liquidity, and yield:
A. Safety — Safety of principal is the foremost objective of the investment
program. Investments shall be undertaken in a manner that seeks to
ensure the preservation of capital in the overall portfolio. The objective
will be to minimize credit risk and interest rate risk.
1. Credit Risk — BAWA will minimize credit risk, the risk of loss due to
the failure of the security issuer or backer, by:
(a) Limiting investments to the safest types of securities;
Baytown Area Water Authority
Investment Policy
(b) Pre -qualifying the financial institutions, broker/dealers,
intermediaries, and advisers with which BAWA will do
business; and
(c) Diversifying the investment portfolio so that potential
losses on individual securities will be minimized
2. Interest Rate Risk — BAWA will minimize the risk that the market
value of securities in the portfolio will fail due to changes in general
interest rates, by:
(a) Structuring the investment portfolio so that securities
mature to meet cash requirements for ongoing operations,
thereby avoiding the need to sell securities on the open
market prior to maturity; and
(b) Investing operating funds primarily in shorter -term
securities, money market mutual funds, or similar
investment pools
B. Liquidity — The investment portfolio shall remain sufficiently liquid to
meet all operating requirements that may be reasonably anticipated. This
is accomplished by structuring the portfolio so that securities mature
concurrent with cash needs to meet anticipated demands. Furthermore,
since all possible cash demands cannot be anticipated, the portfolio shall
consist largely of securities with active secondary or resale markets. A
portion of the portfolio also may be placed in money market mutual funds
or local government investment pools that offer same -day liquidity for
short-term funds.
C. Yield — The investment portfolio shall be designed with the objective of
attaining a market rate of return throughout budgetary and economic
cycles, taking into account the investment risk constraints and liquidity
needs. Return on investment is of secondary importance compared to the
safety and liquidity objectives described above. The core of investments
is limited to relatively low risk securities in anticipation of earning a fair
return relative to the risk being assumed. Securities shall not be sold prior
to maturity with the following exceptions:
1. A security with declining credit may be sold early to minimize loss of
principal
2. To swap into another security which would improve the quality, yield
or target duration of the portfolio; and
3. Liquidity needs of the portfolio require that the security be sold
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Investment Policy
IV. Standards of Care
A. Prudence — The standard of care to be used by investment officers 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 the liquidity and the sale
of securities are carried out in accordance with the terms of this policy.
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.
B. 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 and management of the investment
program, or that could impair their ability to make impartial investment
decisions. Employees and investment officers shall disclose to BAWA
and the Texas Ethics Commission any material financial interests in
financial institutions that conduct business with BAWA. They shall
further file a disclosure statement with the Texas Ethics Commission and
BAWA that includes any large personal financial/investment positions that
could be related to the performance of the investment portfolio. See
Exhibit B.
C. Delegation of Authority — City employees authorized to engage in
investment transactions and authorized as Investment Officers are the
Director of Finance, the Treasurer, and the Financial Analyst.
Management responsibility for BAWA's investment program is assigned
to the Director of Finance. This authority is derived from the Texas
Special Districts Code Chapter 8104. Responsibility for the operation of
the investment program is hereby delegated to the Director of Finance,
who shall act in accordance with established written procedures and
internal controls for the operation of the investment program consistent
with this Investment Policy. Procedures should include reference to:
safekeeping, delivery vs. payment, investment accounting, repurchase
agreements, wire transfer agreements, and collateral/depository
agreements. Such procedures shall include explicit delegation of authority
to persons responsible for investment transactions. (See Exhibit A) 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
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Investment Policy
undertaken and shall establish a system of controls to regulate activities of
subordinate officers.
D. Training — Investment Officers shall attend at least one investment
training session within 12 months after taking office or assuming
investment duties, and shall attend investment training not less than once
annually, beginning on the first day of the BAWA's fiscal year and
consisting of one (1) consecutive fiscal year after that date, and receive not
less than 10 hours of instruction relating to investment responsibilities.
The BAWA shall provide the training through courses and seminars
offered by professional organizations and associations in order to ensure
the quality and capability of the BAWA's investment personnel making
investment decisions in compliance with Public Funds Investment Act
(PFIA). Professional organizations and associations that may provide
investment training include the Government Treasurer's Organization of
Texas, the University of North Texas, the Government Finance Officers
Association of Texas, the Association for Financial Professionals, or the
Texas Municipal League.
V. Financial Institutions, Broker/Dealers, Safekeeping and Custody
A. Authorized Financial Dealers and Institutions — Investment Officers will
maintain a list of financial institutions and securities broker/dealers
authorized to provide investment services (Exhibit Q. These may include
"primary" dealers or regional dealers. 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 Investment Officers
with the following as appropriate:
1. Audited financial statements
2. Proof of Financial Industry Regulatory Authority (FINRA)
certification
3. Proof of state registration
4. Completed broker/dealer questionnaire (Exhibit D)
5. Certification by a qualified representative of the firm that the firm
has a) received and reviewed BAWA's Investment Policy and b) has
implemented reasonable procedures and controls in an effort to
preclude investment transactions that are not authorized by
BAWA's Investment Policy, except to the extent that this
authorization is dependent on an analysis of the makeup of BAWA's
entire portfolio or requires an interpretation of subjective investment
standards.
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Investment Policy
The BAWA board shall at least annually review and/or revise and adopt a
list of qualified brokers that are authorized to engage in investment
transactions with BAWA.
B. Internal Controls — The Director of Finance is responsible for
establishing and maintaining an internal control structure designed to
ensure that the assets of BAWA are protected from loss, theft or misuse.
The internal control structure shall be designed to provide reasonable
assurance that these objectives are met. The concept of reasonable
assurance recognizes that (1) the cost of a control should not exceed the
benefits likely to be derived and (2) the valuation of costs and benefits
requires estimates and judgments by management.
Accordingly, the Director of Finance shall establish a process for an
annual independent review by an external auditor to assure compliance
with policies and procedures. The internal controls shall address the
following points:
1. Control of collusion
2. Separation of transaction authority from accounting and record
keeping
3. Custodial safekeeping
4. Avoidance of physical delivery securities
5. Clear delegation of authority to subordinate staff members
6. Written confirmation of transactions for investments and wire
transfers
7. Development of a wire transfer agreement with the lead bank and
third party custodian
C. Delivery vs. Payment — All trades where applicable will be executed by
delivery vs. payment (DVP) to ensure that securities are deposited in an
eligible financial institution prior to the release of funds. Securities and
collateral will be held in the City of Baytown's name (for BAWA) by a
third -party custodian as evidenced by safekeeping receipts.
VI. Investments
A. Eligible Investments — Assets of BAWA may be invested in the
instruments described below. All of these investments are authorized by
Chapter 2256 of the Government Code (Public Funds Investment Act).
An investment that requires a minimum rating under this section does not
qualify as an authorized investment during the period the investment does
not have the minimum rating. BAWA shall take all prudent measures
consistent with this Investment Policy to liquidate an investment that does
not have the minimum rating.
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Baytown Area Water Authority
Investment Policv
In order to monitor rating changes in investments acquired with public
funds, Investment Officers shall, on at least a monthly basis, verify the
ratings of investments currently held by the BAWA with either the
authorized broker/dealer from which the investment was purchased, or a
broker/dealer currently authorized to engage in investment transactions
with the BAWA. As a condition of engaging in investment transactions
with the BAWA, brokers/dealers shall, when requested by the BAWA's
Investment Off cer(s), provide said Investment Officer(s) with written
verification of the ratings of investments currently owned by the BAWA.
The BAWA shall take all prudent measures consistent with this
Investment Policy to liquidate an investment that does not have the
minimum rating.
1. Obligations of, or Guaranteed by Governmental Entities
(a) Except as provided by Subsection (b), the following are authorized
investments under this subchapter:
(i) obligations, including letters of credit, of the United States or
its agencies and instrumentalities;
(ii) direct obligations of this state or its agencies and
instrumentalities;
(iii) collateralized mortgage obligations directly issued by a
federal agency or instrumentality of the United States, the
underlying security for which is guaranteed by an agency or
instrumentality of the United States;
(iv) other obligations, the principal and interest of which are
unconditionally guaranteed or insured by, or backed by the
full faith and credit of this state or the United States or their
respective agencies and instrumentalities, including
obligations that are fully guaranteed or insured by the Federal
Deposit Insurance Corporation or by the explicit full faith
and credit of the United States;
(v) obligations of states, agencies, counties, cities, and other
political subdivisions of any state rated as to investment
quality by a nationally recognized investment rating firm not
less than A or its equivalent; and
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Baytown Area Water Authority
Investment Policy
(b) The following are not authorized investments under this section:
(i) obligations whose payment represents the coupon payments
on the outstanding principal balance of the underlying
mortgage -backed security collateral and pays no principal;
(ii) obligations whose payment represents the principal stream of
cash flow from the underlying mortgage -backed security
collateral and bears no interest;
(iii)collateralized mortgage obligations that have a stated final
maturity date of greater than 10 years; and
(iv) collateralized mortgage obligations the interest rate of which
is determined by an index that adjusts opposite to the changes
in a market index.
2. Certificates of Deposit and Share Certificates
A certificate of deposit is an authorized investment under this
subchapter if the certificate is issued by a state or national bank
domiciled in this state, a savings bank domiciled in this state, or a state
or federal credit union domiciled in this state and is:
(i) guaranteed or insured by the Federal Deposit Insurance
Corporation or its successor or the National Credit Union
Share Insurance Fund or its successor;
(ii) secured by obligations that are described by Section l (a),
including mortgage backed securities directly issued by a
federal agency or instrumentality that have a market value of
not less than the principal amount of the certificates, but
excluding those mortgage backed securities of the nature
described by Section 1(b); or
(iii) secured in any other manner and amount provided by law for
deposits of the investing entity.
3. Repurchase Agreements
(a) A fully collateralized repurchase agreement is an authorized
investment under this subchapter if the repurchase agreement:
(i) has a defined termination date;
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Baytown Area Water Authority
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(ii) is secured by a combination of cash and obligations described
by Section I (a)(i); and
(iii)requires the securities being purchased by BAWA or cash
held by the BAWA to be pledged to BAWA, held in
BAWA's naive, and deposited at the time the investment is
made with BAWA or with a third party selected and
approved by BAWA; and
(iv) is placed through a primary government securities dealer, as
defined by the Federal Reserve, or a financial institution
doing business in this state.
(b) In this section, "repurchase agreement" means a simultaneous
agreement to buy, hold for a specified time, and sell back at a
future date obligations described by Section l (a)(i), at a market
value at the time the funds are disbursed of not less than the
principal amount of the funds disbursed. The term includes a
direct security repurchase agreement and a reverse security
repurchase agreement.
(c) Notwithstanding any other law, the term of any reverse security
repurchase agreement may not exceed 90 days after the date the
reverse security repurchase agreement is delivered.
(d) Money received by an entity under the terms of a reverse security
repurchase agreement shall be used to acquire additional
authorized investments, but the term of the authorized investments
acquired must mature not later than the expiration date stated in the
reverse security repurchase agreement.
4. Banker's Acceptances
A bankers' acceptance is an authorized investment under this policy if
the bankers' acceptance:
(i) has a stated maturity of 365 days or fewer from the date of its
issuance;
(ii) will be, in accordance with its terms, liquidated in full at
maturity;
(iii) is eligible for collateral for borrowing from a Federal
Reserve Bank; and
Baytown Area Water Authority
Investment Policy
(iv) is accepted by a bank organized and existing under the laws
of the United States or any state, if the short-term
obligations of the bank, or of a bank holding company of
which the bank is the largest subsidiary, are rated not less
than A-1 or P-1 or an equivalent rating by at least one
nationally recognized credit rating agency.
5. Commercial Paper
Commercial paper is an authorized investment under this policy if the
commercial paper:
(i) has a stated maturity of 270 days or fewer from the date of
its issuance; and
(ii) is rated not less than A-1 or P-1 or an equivalent rating by
at least:
(a) two nationally recognized credit rating agencies; or
(b) one nationally recognized credit rating agency and is
fully secured by an irrevocable letter of credit issued
by a bank organized and existing under the laws of
the United States or any state.
6. Mutual Funds
(a) A no-load money market mutual fund is an authorized investment
under this subchapter if the mutual fund:
(i) is registered with and regulated by the Securities and
Exchange Commission;
(ii) provides the investing entity with a prospectus and other
information required by the Securities Exchange Act of
1934 (15 U.S.C. Section 78a et seq.) or the Investment
Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.); and
(iii) complies with federal Securities and Exchange Commission
Rule 2a-7 (17 C.F.R. Section 270.2a-7), promulgated under
the Investment Company Act of 1940 (15 U.S.C. Section
80a-1 et seq.).
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Investment Policy
(b) In addition to a no-load money market mutual fund permitted as an
authorized investment in Subsection (a), a no-load mutual fund is
an authorized investment under this subchapter if the mutual fund:
(i) is registered with the Securities and Exchange Commission;
(ii) has an average weighted maturity of less than two years; and
(iii) either has a duration of one year or more and is invested
exclusively in obligations approved by this subchapter; or
(iv) has a duration of less than one year and the investment
portfolio is limited to investment grade securities, excluding
asset -backed securities.
(c) BAWA is not authorized by this section to:
(i) invest in the aggregate more than 15 percent of its monthly
average fund balance, excluding bond proceeds and reserves and
other funds held for debt service, in mutual funds described in
Subsection (b);
(ii) invest any portion of bond proceeds, reserves and funds held
for debt service, in mutual funds described in Subsection (b); or
(iii) invest its funds or funds under its control, including bond
proceeds and reserves and other funds held for debt service, in
any one mutual fund described in Subsection (a) or (b) in an
amount that exceeds 10 percent of the total assets of the mutual
fund.
7. Guaranteed Investment Contracts
(a) A collateralized guaranteed investment contract is an authorized
investment for bond proceeds under this policy if the guaranteed
investment contract:
(i) has a defined termination date;
(ii) is secured by direct and unsubordinated obligations described
by Section 2256.009(a)(1) of the Act, excluding those
obligations described by Section 2256.009(b) of the Act, in
an amount at least equal to the amount of bond proceeds
invested under the contract; and
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Investment Policy
(iii) is pledged to the BAWA and deposited with the BAWA or
with a third party selected and approved by the BAWA.
(b) Bond proceeds, other than bond proceeds representing reserves
and funds maintained for debt service purposes, may not be
invested under this policy in a guaranteed investment contract
with a term of longer than five years from the date of issuance of
the bonds.
(c) To be eligible as an authorized investment:
(i) the BAWA Board must specifically authorize guaranteed
investment contracts as an eligible investment in the order,
ordinance, or resolution authorizing the issuance of bonds;
(ii) the BAWA must receive bids from at least three separate
providers with no material financial interest in the bonds
from which proceeds were received;
(iii) the BAWA must purchase the highest yielding guaranteed
investment contract for which a qualifying bid is received;
(iv) the price of the guaranteed investment contract must take
into account the reasonably expected drawdown schedule for
the bond proceeds to be invested; and
(v) the provider must certify the administrative costs reasonably
expected to be paid to third parties in connection with the
guaranteed investment contract.
8. Investment Pools
(a) BAWA may invest its funds and funds under its control through an
eligible investment pool if the BAWA Board by rule, order,
ordinance, or resolution, as appropriate, authorizes investment in
the particular pool. An investment pool shall invest the funds it
receives from entities in authorized investments permitted by this
subchapter. An investment pool may invest its funds in money
market mutual funds to the extent permitted by and consistent with
Subchapter A of the Texas Government Code, Chapter 2256 and
the investment policies and objectives adopted by the investment
pool.
(b) To be eligible to receive funds from and invest funds on behalf of
BAWA under this section, an investment pool must furnish to the
Investment Officer or other authorized representative of BAWA an
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Investment Policy
offering circular or other similar disclosure instrument that
contains, at a minimum, the following information:
(i) the types of investments in which money is allowed to be
invested;
(ii) the maximum average dollar -weighted maturity allowed,
based on the stated maturity date, of the pool;
(iii) the maximum stated maturity date any investment security
within the portfolio has;
(iv) the objectives of the pool;
(v) the size of the pool;
(vi) the names of the members of the advisory board of the pool
and the dates their terms expire;
(vii) the custodian bank that will safekeep the pool's assets;
(viii) whether the intent of the pool is to maintain a net asset
value of one dollar and the risk of market price fluctuation;
(ix) whether the only source of payment is the assets of the pool
at market value or whether there is a secondary source of
payment, such as insurance or guarantees, and a description
of the secondary source of payment;
(x) the name and address of the independent auditor of the pool;
(xi) the requirements to be satisfied for an entity to deposit funds
in and withdraw funds from the pool and any deadlines or
other operating policies required for the entity to invest
funds in and withdraw funds from the pool; and
(xii) the performance history of the pool, including yield,
average dollar -weighted maturities, and expense ratios;
and
(xiii) the pool's policy regarding holding deposits in cash.
(c) To maintain eligibility to receive funds from and invest funds on
behalf of BAWA under this section, an investment pool must
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Investment Policy
furnish to the Investment Officer or other authorized representative
of the BAWA:
(i) investment transaction confirmations; and
(ii) a monthly report that contains, at a minimum, the following
information:
(A) the types and percentage breakdown of securities in
which the pool is invested;
(B) the current average dollar -weighted maturity, based on
the stated maturity date, of the pool;
(C) the current percentage of the pool's portfolio in
investments that have stated maturities of more than
one year;
(D) the book value versus the market value of the pool's
portfolio, using amortized cost valuation;
(E) the size of the pool;
(F) the number of participants in the pool;
(G) the custodian bank that is safekeeping the assets of the
pool;
(H) a listing of daily transaction activity of the entity
participating in the pool;
(I) the yield and expense ratio of the pool, including a
statement regarding how yield is calculated;
(J) the portfolio managers of the pool; and
(K) any changes or addenda to the offering circular.
(d) BAWA by contract may delegate to an investment pool the
authority to hold legal title as custodian of investments purchased
with its local funds.
(e) In this section, for purposes of an investment pool for which a
$1.00 net asset value is maintained, "yield" shall be calculated in
accordance with regulations governing the registration of open-
end management investment companies under the Investment
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Investment Policy
Company Act of 1940, as promulgated from time to time by the
federal Securities and Exchange Commission.
(f) To be eligible to receive funds from and invest funds on behalf of
BAWA under this section, a public funds investment pool that uses
amortized cost or fair value accounting must mark its portfolio to
market daily, and if the investment pool uses amortized cost, the
investment pool must, to the extent reasonably possible, stabilize at
a $1.00 net asset value, when rounded and expressed to two
decimal places. If the ratio of the market value of the portfolio
divided by the book value of the portfolio is less than 0.995 or
greater than 1.005, the governing body of the investment pool must
take action as the body determines necessary to eliminate or reduce
to the extent reasonably practicable any dilution or unfair result to
existing participants, including a sale of portfolio holdings to
attempt to maintain the ratio between 0.995 and 1.005. The
investment pool must, in addition to the requirements of its
Investment Policy and any other forms of reporting, report yield to
its investors in accordance with regulations of the federal
Securities and Exchange Commission applicable to reporting by
money market funds.
(g) To be eligible to receive funds from and invest funds on behalf of
BAWA under this section, a public funds investment pool must
have an advisory board composed:
(i) equally of participants in the pool and other persons who do
not have a business relationship with the pool and are
qualified to advise the pool, for a public funds investment
pool created under Chapter 791 and managed by a state
agency; or
(ii) of participants in the pool and other persons who do not have
a business relationship with the pool and are qualified to
advise the pool, for other investment pools.
(h) To maintain eligibility to receive funds from and invest funds on
behalf of BAWA under this section, an investment pool must be
continuously rated no lower than AAA or AAA-m or at an
equivalent rating by at least one nationally recognized rating
service.
(i) If the investment pool operates an Internet website, the information
in a disclosure instrument or report described in Subsections (b),
(c)(2), and (f) of Texas Government Code Chapter 2256,
Subchapter A, Section 2256.016 must be posted on the website.
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Investment Policy
(j) To maintain eligibility to receive funds from and invest funds on
behalf of the BAWA, an investment pool must make available to
the BAWA an annual audited financial statement of the investment
pool in which the BAWA has funds invested.
(k) If an investment pool offers fee breakpoints based on fund balances
invested, the investment pool in advertising investment rates must
include either all levels of return based on the breakpoints provided
or state the lowest possible level of return based on the smallest
level of funds invested.
Collateralization — Collateralization will be required on three types of
investments: certificates of deposit, repurchase (including reverse
repurchase) agreements, and guaranteed investment contracts (GICs). 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. Pledged collateral shall
consist of eligible U.S. Treasury securities, eligible securities issued by
U.S. Government Sponsored Enterprises, or Federal Home Loan Bank
Letters of Credit, or a combination thereof, and shall be marked to market
on at least a monthly basis.
Likewise, all time and demand deposits in excess of FDIC or NCUA
insurance levels shall be collateralized to a minimum of 102% of principal
and accrued interest. The depository shall be responsible for maintaining
collateral ization margins. Collateral will be held in the City of Baytown's
name (for the BAWA) by an independent third party with whom the City
of Baytown (for the BAWA) has a current custodial agreement approved
by the Council and executed under the terms of FIRREA (Financial
Institutions Reform, Recovery, and Enforcement Act) as amended. A
clearly marked evidence of ownership (safekeeping receipt) must be
supplied to the BAWA and retained. The right of collateral substitution is
granted, subsequent to the review and approval of an authorized City of
Baytown Investment Officer.
C. Existing Investments — Any investment currently held that is no longer
an authorized investment under the Public Funds Investment Act (PFIA)
or this policy, but was an authorized investment at the time of purchase, is
not required to be liquidated.
VII. Investment Parameters
A. Diversification — The investments shall be diversified by security type
and institution. With the exception of U.S. Treasury securities and
authorized pools, BAWA will diversify the entire portfolio to comply with
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the investment strategy; however, in no case shall any single investment
transaction be more than 10 percent (10%) of the entire portfolio.
B. Maximum Maturities — To the extent possible, BAWA shall attempt to
match its investments with anticipated cash flow requirements. Unless
matched to a specific cash flow, BAWA will not directly invest in
securities maturing more than five (5) years from the date of purchase.
VIII. Investment Strategies
BAWA maintains separate portfolios for individual funds or groups of funds
that are managed according to the terms of this Policy and the corresponding
Investment Strategies listed in Exhibit E. The investment strategy for
portfolios established after the annual Investment Policy review and adoption
will be managed in accordance with the terms of this Policy and applicable
agreements until the next annual review when a specific strategy will be
adopted.
BAWA participates in a pooled fund group, maintained by the City, that is an
aggregation of BAWA's and the majority of City funds including tax receipts,
enterprise fund revenues, fine and fee revenues, as well as some, but not all,
bond proceeds, and grants. This portfolio is maintained to meet anticipated
daily cash needs for BAWA and City operations, capital projects and debt
service. In order to ensure the ability of BAWA to meet obligations and to
minimize potential liquidation losses, the dollar -weighted average stated
maturity of the Investment Pool shall not exceed 2 years. The objectives of
this portfolio are to ensure safety of principal; ensure adequate investment
liquidity; limit market and credit risk through diversification; and attain the
best feasible yield in accordance with the objectives and restrictions set for in
this Policy.
IX. Reporting
A. Methods — Investment officers shall jointly prepare an investment report
at least quarterly, including a management summary that provides an
analysis of the status of the current investment portfolio and transactions
made over the last quarter. This management summary will be prepared
in a manner consistent with the requirements of Section 2256.023 (Internal
Management Reports) of the PFIA, and that will allow BAWA to ascertain
whether investment activities during the reporting period have conformed
to the Investment Policy. The report should be provided to the BAWA
Board.
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Investment Policy
An independent auditor shall formally review the quarterly reports
prepared under this section at least annually, and that auditor shall report
the results of the review to the BAWA Board.
B. Performance Standards — The investment portfolio shall be managed in
accordance with the objectives specified in this policy (safety, liquidity,
yield). The portfolio should obtain a market average rate of return during
a market/economic environment of stable interest rates. The basis used by
the Investment Officer to determine whether market yields are being
achieved shall be the three (3) month U.S. Treasury Bill.
C. Marking to Market — The market value of the portfolio shall be
calculated at least monthly and a statement of the market value of the
portfolio shall be issued at least quarterly. The market value of each
investment shall be obtained from a source such as the Wall Street
Journal, a reputable brokerage firm or security pricing service and
reported on the investment reports.
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Investment Policy
EXHIBIT A
Baytown Area Water Authority
Authorized Investment Officers
W. Victor Brownlees, City of Baytown Director of Finance
Monio Mark, City of Baytown Controller
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Baytown Area Water Authority
Investment Policy
EXHIBIT B
Baytown Area Water Authority
Statement of Ethics and Conflicts of Interest
Investment officers for the Baytown Area Water Authority 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 impartial investment decisions.
This would only apply to personal business relationships with business organizations that have
been approved by the Board of Directors to conduct investment transactions with the Baytown
Area Water Authority.
An investment officer is considered to have a personal business relationship with a
business organization if:
(1) The investment officer 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 officer from the business organization exceed
10 percent of the investment officer's gross income for the previous year.
(3) The investment officer 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 officer.
I do hereby certify that I do not have a personal business relationship with any business
organization approved to conduct investment transactions with the Baytown Area Water
Authority, nor am I related within the second degree by affinity or consanguinity, as determined
under Chapter 573 of the Texas Government Code, to an individual seeking to sell an investment
to the Baytown Area Water Authority as of the date of this statement.
Baytown Area Water Authority
Investment Officers
W. Victor Brownlees, Date
City of Baytown, Director of Finance
Monio Mark,
City of Baytown, Controller
Date
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Baytown Area Water Authority
Investment Policy
EXHIBIT C
Baytown Area Water Authority
Approved Broker/Dealers, Financial Institutions and Investment Pools
Rrnker/Denlers
Cantor Fitzgerald & Co.
Wells Fargo Brokerage Services, LLC
Hilltop Securities, Inc.
Duncan -Williams, Inc.
Multi -Bank Securities, Inc.
Vining Sparks IBG, L.P.
FTN Financial
Raymond James & Associates, Inc.
RBC Capital Markets, LLC
Public Depository
JP Morgan Chase, NA (Primary)
Local Government Investment Pools
TexPool
TexSTAR
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Baytown Area Water Authority
Investment Policv
EXHIBIT D
Baytown Area Water Authority
Certification by Business Organization
date
Baytown Area Water Authority
CIO City of Baytown, Texas
(Attn: Designated Investment offices)
P O Box 424
Baytown, TX 77522-0424
Dear Mr/s. (investment officer):
This certification is executed on behalf of the Baytown Area Water Authority (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 an interpretation of the subjective
investment standards.
Qualified Representative of the Business Organization
Signed By:
Name
Title
Date
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EXHIBIT E
INVESTMENT STRATEGY
It is the policy of the Baytown Area Water Authority ("BAWA") that, giving due regard to
the safety and risk of investments, all funds shall be invested at all times in conformance with
State and Federal statutes, applicable trust agreements or related bond document requirements,
the BAWA's adopted Investment Policy and this Investment Strategy. BAWA's portfolio shall
be designed and managed in a manner responsive to the public trust and consistent with the
Investment Policy.
In accordance with the Public Funds Investment Act, BAWA investment strategies establish
maximum maturities and maximum dollar -weighted average maturity limits for each portfolio
and address the priorities for those funds (in order of priority):
• Suitability of the investment to the financial requirements of BAWA and the particular
Fund Type;
• Preservation and safety of principal;
• Liquidity;
• Marketability of the investment if the need arises to liquidate the investment prior to
maturity;
• Diversification of the investment portfolio; and
• Yield.
Effective investment strategy development coordinates the primary objectives of BAWA's
Investment Policy and cash management procedures with investment security risk/return analysis
to enhance interest earnings and reduce investment risk. BAWA intends to generally utilize a buy
and hold strategy but will evaluate more active strategies, such as swaps or outright sales of
securities, for incremental income when appropriate. The structure of the portfolio(s) will be
primarily dependent upon the continuing cash flow requirements of the funds represented. The
portfolio(s) will reflect both the short and long term needs of the funds. A limited liquidity buffer
will be maintained to cover any unanticipated cash needs, where appropriate.
With a more active position, maturity selections may be extended to gain incremental income or
adjust portfolios to economic and market conditions. It is recognized that more active
management may increase the overall weighted average maturity of the portfolios due to
additional volatility.
BAWA's Investment Officer(s) shall monitor and evaluate the ongoing economic environment
and incorporate market information from reliable sources as well as current and anticipated
BAWA financial conditions when prudently implementing these strategies. Anticipated changes
in the BAWA's Investment Strategy shall be reported to the Board as part of the quarterly
investment reporting.
The BAWA expects, but is not required by law, to consolidate and commingle funds from similar
type funds or all funds in an attempt to maximize investment earnings. Investment income by
fund will be recognized and allocated on a monthly basis based on respective fund balances for
the period in accordance with generally accepted accounting principles.
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Investment Policv
FUND TYPE IDENTIFICATION
Each major fund type has varying cash flow requirements and liquidity needs. Therefore, specific
strategies shall be implemented considering the fund type's unique requirements. BAWA funds
shall be analyzed and invested according to the following major fund types:
a. Operating Funds
Operating funds have ongoing cash needs in support of ongoing operations and required transfers.
Funds include: General Fund.
b. Capital Improvement Funds
Capital Improvement funds have cash needs dependent upon anticipated construction, acquisition
and payment schedules. Funds include: Construction Fund and Capital Improvement Fund.
C. Debt Service Funds
Debt Service funds are structured to provide for debt service payments for BAWA's bonds. The
expenditures are strictly scheduled and occur nonnally in six month intervals. Funds include:
Bond Interest Accounts and Bond Principal Accounts.
d. Liquidity Buffer Accounts
Liquidity funds are to assure BAWA's liquidity for anticipated and unanticipated needs within
one month. A liquidity buffer is needed in all but debt service funds which have well-defined and
unalterable liabilities.
INVESTMENT STRATEGY BY TYPE
In order to minimize market risks or principal loss due to interest rate fluctuations, investment
maturities and portfolio structures will be limited by the anticipated cash flow requirements of the
various fund types. The general investment strategies are established by fund type. The use of
liquidity buffers in fund types is to provide for unanticipated liabilities.
a. Operating Funds
The short term (one to six months) needs of the operating funds will generally be addressed
through a laddered portfolio and the longer term (six to twelve months) needs of the operating
funds will be structured in a more loosely structured ladder. Core funds, not intended for use
within one year may be extended to two years.
Operating Funds are designed to meet ongoing demands. The portfolio(s) will utilize high credit
quality securities with no perceived credit risk to meet those demands and assure liquidity if
needed. Securities with active and efficient secondary markets are necessary in the event of an
unanticipated cash requirement. Investment maturities shall be laddered based on the anticipated
operating needs of BAWA. Market cycle risk will be reduced by diversifying the appropriate
maturity structure. Operating Funds require the greatest short -tern liquidity of any of the fund
types, investment pools and money market mutual funds can provide daily liquidity.
Price volatility of the overall portfolio(s) will be minimized by requiring a maximum dollar -
weighted average days to maturity (WAM) for the Operating portfolio(s) of 180 days and
restricting the maximum allowable maturity to two years.
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Baytown Area Water Authority
Investment Policy
Attaining a competitive market yield is a desired objective. The yields on the six-month and one-
year Treasury Bills shall be the minimum yield objective and benchmarks for these funds in
accordance with their anticipated WAM restrictions.
b. Capital Improvement Funds
Capital Improvement Funds are designed to meet anticipated needs for construction and certain
fixed liabilities, are primarily funded by bond proceeds and should have reasonably predictable
draw down schedules.
Investment maturities will generally follow the anticipated cash flow requirements. Investment
pools and money market mutual funds shall provide readily available funds generally equal to one
month's anticipated cash flow needs. The portfolio(s) must be based upon the anticipated
schedules but also provide for changing schedules and cash needs and to minimize the effect of
market fluctuations. As such they require a laddered portfolio based on known needs and a
liquidity buffer to provide for unanticipated needs.
Securities with active and efficient secondary markets of high -credit quality with no perceived
default risk are to be used.
A single flex repurchase agreement may be utilized, and structured to satisfy expenditure
requests. The flex may be used effectively to manage against falling interest rates and protect
against negative arbitrage.
US tax and arbitrage regulations require competitive market rates. The portfolio(s) will be
structured in such a way as to avoid negative arbitrage on bond proceeds and will comply with all
arbitrage provisions. For Capital Improvement Funds that have an arbitrage yield, achieving a
positive spread to the applicable arbitrage yield is the desired objective.
If the arbitrage yield is not applicable, then current market conditions will determine the portfolio
structure and strategy.
At no time shall the investment maturities of a fund exceed the anticipated expenditure schedule.
The maximum maturity limits shall reflect the then -current expenditure plan for the proceeds.
C. Debt Service Funds
Debt Service funds are structured to provide for debt service payments for BAWA's bonds. The
expenditures are strictly scheduled and occur normally in six month intervals. The portfolio(s)
will utilize high credit quality securities with no perceived credit risk to meet those demands and
assure liquidity if needed.
The maximum maturity for the investments in these portfolios will be one year and every known
debt service date shall be fully funded before extensions are made. The maximum dollar
weighted average maturity will be six months to fulfill these obligations.
d. Liquidity Buffer Accounts
A liquidity buffer, dependent in size upon then —current economic conditions and BAWA cash
flow needs, shall be maintained in Operating and Capital Improvement Funds to meet immediate
cash needs of at least one month and provide for reasonable, unanticipated liabilities. The
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Baytown Area Water Authority
Investment Policy
maximum maturity of these liquid invested funds should be one day. These funds may be
invested in money market mutual funds, local government pools, or in a depository overnight
sweep.
OR