CC Resolution No. 2766 RESOLUTION NO. 2766
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BAYTOWN,
TEXAS, APPROVING THE CITY OF BAYTOWN'S INVESTMENT POLICY
AND STRATEGY STATEMENT IN ACCORDANCE WITH THE PUBLIC
FUNDS INVESTMENT ACT;AND PROVIDING FOR THE EFFECTIVE DATE
THEREOF.
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BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF BAYTOWN,TEXAS:
Section 1: That the City Council of the City of Baytown, Texas, has reviewed the
City's Investment Policy and Strategy Statement; and the policy and statement approved in Section
2 hereof records any changes made by the City Council to either such document.
Section 2: That the City Council of the City of Baytown, Texas, hereby approves the
Investment Policy, including the Strategy Statement of the City of Baytown, which is 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 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 27t1i day of January, 2022.
BRANDON CAPETILLO, yor
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APPROVED AS TO FORM:
TREVOR FANNING, Interim City Attorney
RAKaren Anderson\RESOLUTIONS CITY COUNCIL\2022\2022.01.27\ApprovelnvestmentPolicyStrategyStmt.docx
EXHIBIT "A"
CITY OF BA YTO WN, TE.3AS
INVESTMENT POLICY
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BAYTOWN
Revised 06/25/20
City of Baytown
Investment Policy
Table of Contents
I. Policy 1
II. Scope 1
III. General Objectives
A. Safety I
B. Liquidity 2
C. Yield 2
IV. Standards of Care
A. Prudence 2
B. Ethics and Conflicts of Interest 3
C. Delegation of Authority 3
D. Training 3
V. Safekeeping and Custody
A. Authorized Financial Dealers and Institutions 4
B. Internal Controls 4
C. Delivery vs. Payment 5
VI. Suitable and Authorized Investments
A. Eligible Investments 5-12
B. Collateralization 12
VII. Investment Parameters
A. Diversification 12
B. Maximum Maturities 12
VIII. Investment Strategies 13
IX. Reporting
A. Methods 13
B. Performance Standards 13
C. Marking to Market 13
EXHIBITS
B - Statement of Ethics and Conflicts of Interest 14
C—Approved Broker/Dealers, Financial Institutions and Investment Pools 15
D—Certification by Business Organization 16
E—Investment Strategy 17-20
City of Baytown
Investment Policy
I. Policy
It is the policy of the City of Baytown (the "City") to administer and invest its funds in
a manner that will preserve principal and maintain liquidity while meeting the daily cash
flow requirements of the City. The City will conform to all federal, state andlocal
statutes, rules, and regulations governing investment of the City's funds.
The City'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,City Council shall adopt a written instrument by resolution stating
that it has reviewed the Investment Policy and investment strategies and that thewritten
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 the City. 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, including but not limited to tax
revenues, charges for services, bond proceeds, interest income, and loans and funds
received by the City where the City performs a custodial function.
III. General Objectives
The primary objectives, in priority order, of the City's investment activities shall be
safety, liquidity, and yield:
A. Safety — Safety of the 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.
i. Credit Risk — The City will minimize credit risk, the risk of loss
due to the failure of the security issuer or backer, by:
• Limiting investments to the safest types of securities;
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• Pre-qualifying the financial institutions, broker/dealers,
intermediaries,and advisers with which the City will do business;
and
• Diversifying the investment portfolio so that potential losses on
individual securities will be minimized
ii. Interest Rate Risk—The City will minimize the risk that the market
value of securities in the portfolio will fall due to changes in general
interest rates, by:
• 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
• 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 matureconcurrent
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 fundsor local government
investment pools that offer same-day liquidity forshort-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 safetyand
liquidity objectives described above. The core of investments is limitedto
relatively low risk securities in anticipation of earning a fair returnrelative to
the risk being assumed. Securities shall not be sold prior to maturity with the
following exceptions:
• A security with declining credit may be sold early to minimize loss of
principal;
• To swap into another security which would improve the quality, yield or
target duration of the portfolio; and
• Liquidity needs of the portfolio require that the security be sold.
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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 the City and the Texas
Ethics Commission any material financial interests in financial institutions
that conduct business with the City. They shall further file a disclosure
statement with the Texas Ethics Commission and the City 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—Responsibility forthe 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.
The Director of Finance may delegate day-to-day activities to a responsible
individual(s) who has received the appropriate training required by state
statute. 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 officers.
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D. Training—Investment Officers shall attend at least one investment training
session totaling not less than 10 hours 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 City of Baytown's fiscal
year and consisting of one(1) consecutive fiscal year after that date and receive
not less than 8 hours of instruction relating to investment responsibilities. The City
of Baytown shall provide the training through courses and seminars offered by
professional organizations and associations in order to ensure the qualityand
capability of the City of Baytown'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,Investment Advisors,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 C). These may include "primary"
dealers or regional dealers. No public deposit shall be madeexcept in a
qualified public depository as established by state law.
All financial institutions and broker./dealers who desire to become qualified
bidders for investment transactions must supply Investment Officers with the
following, as appropriate:
• Audited financial statements
• Proof of Financial Industry Regulatory Authority (FINRA)
certification
• Proof of state registration
• Completed broker/dealer questionnaire
• Written acknowledgement by a qualified representative of the firm
that the broker dealer has a)received and reviewed the City's Investment
Policy.
• Qualified Business Organizations which include local government investment
pools and discretionary investment advisors are required to review policy and
certify in writing that they have implemented reasonable procedures and
controls in an effort to preclude investment transactions that are not
authorized by the City's Investment Policy, except to the extent that this
authorization is dependent on an analysis of the makeup of the City's entire
portfolio or requires an interpretation of subjective investment standards.
(EXHIBIT D)
The governing body and/or the Finance Committee shall at least annually
review and/or revise and adopt a list of qualified brokers that are authorized
to engage in investment transactions with the City.
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The City may retain the services of an investment advisory firm registered under the
Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State
Securities Board to assist in the review of the investment policy,cash flow requirements,the
formulation of investment strategies, the execution of security purchases, sales and
deliveries, as well as attend quarterly investment meetings, provide monthly and quarterly
reporting and market updates. The investment advisor will also be responsible for
perfornung broker/dealer financial due diligence on the City's behalf and provide a list of its
authorized brokerAealers on an annual basis. The City, however, retains ultimate
responsibility as fiduciary of its assets. The investment advisory contract may not be for a
term longer than two years and its renewal or extension must be approved by the City Council
by ordinance or resolution as required by the Tex.Gov't. Code Sec.2256.003(b).
B. Internal Controls —The Director of Finance is responsible for establishing
and maintaining an internal control structure designed to ensure that the assets
of the City 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 investment officer 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:
• Control of collusion
• Separation of transaction authority from accounting and record
keeping
• Custodial safekeeping
• Avoidance of physical delivery securities
• Clear delegation of authority to subordinate staff members
• Written confirmation of transactions for investments and wire
transfers
• 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 fmancial institution prior to the release of funds. Securities and
collateral will be held in the City's name by a third-party custodian as
evidenced by safekeeping receipts.
VI. Investments
A. Eligible Investments—Assets of the City may be invested in the instruments
described below. All of these investments are authorized by Chapter 2256 of
the Texas Government Code(Public Funds Investment Act, or the Act).
An investment that requires a minimum rating under this Section 2256.021
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does not qualify as an authorized investment during the period the investment
does not have the minimum rating. The City shall take all prudent measures
consistent with this Investment Policy to liquidate an investment that does
not have the minimum rating.
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 City 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 City. As
a condition of engaging in investment transactions with the City,
brokers/dealers shall, when requested by the City's Investment Officer(s),
provide said Investment Officer(s) with written verification of the ratings of
investments currently owned by the City. If the City has engaged an
Investment Advisor, the advisor shall be responsible for verifying credit
ratings.
The City 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.
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(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 Sectionl(b);
or
(iii) secured in any other manner and amount provided by law under
Texas Government Code Chapter 2257 (The Public Funds
Collateral Act).
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;
(ii) is secured by a combination of cash and obligations described
by Section I(a)(i); and
(iii) requires the securities being purchased by the City or cash held
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by the City to be pledged to the City, held in the City's name, and
deposited at the time the investment is made with the City or with a
third party selected and approved by the City; 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 1(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 banker's acceptance is an authorized investment under this policy if
the banker's acceptance:
(i) has a stated maturity of 180 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
(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 ratingagency.
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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 policy 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.);
(iii) has a dollar-weighted average stated maturity of 60 days or
fewer; and
(iv) includes in its investment objectives the maintenance of a
stable net asset value of$1 for each share.
(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 a weighted average maturity of less than two years;
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(iii) is invested exclusively in obligations approved by this
subchapter;
(iv) is continuously rated as to investment quality by at least one
nationally recognized investment rating firm of not less than AAA
or its equivalent; and
(v) conforms to the requirements set forth in Sections 5(b) and (c)
relating to the eligibility of investment pools to receive and invest
funds of investing entities.
(c) The City 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
(iii) is pledged to the City and deposited with the City or with a
third party selected and approved by the City.
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(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 City Council must specifically authorize guaranteed
investment contracts as an eligible investment in the order,
ordinance, or resolution authorizing the issuance of bonds;
(ii) the City must receive bids from at least three separate providers
with no material financial interest in the bonds from which
proceeds were received;
(iii)the City 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
The City may invest its funds and funds under its control through an
eligible investment pool if the City Council 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 Texas Government Code, Chapter 2256.016 and the
investment policies and objectives adopted by the investment pool.
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B. 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
the market value,including 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 (LOC), or a combination thereof, and shall be marked to
market on at least a monthly basis. An FHLB LOC is not a marketable
security and therefore isn't subject to price change. As a result, the FHLB
LOC required amount shall be 100% of outstanding balance plus accrued
interest.
Likewise, all time and demand deposits with collected balances 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 collateralization margins based on the market value of
securities pledged to the City. Collateral will be held in the City's name by
an independent third party with whom the City 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 City 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, the City will diversify the entire portfolio to comply with 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, the City shall 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.
VIII. Investment Strategies
The City maintains separate portfolios for individual funds or groups of funds
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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.
The City maintains a pooled fund group that is an aggregation of 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 City operations, capital
projects and debt service. In order to ensure the ability of the City 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
forth in this Policy
IX. Reporting
2. 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 willbe prepared
in a manner consistent with the requirements of Section 2256.023
(Internal Management Reports) of the PFIA, and that will allow the City
to ascertain whether investment activities during the reporting period
have conformed to the investment policy. The report should be provided
to the Finance Committee and the City Council.
An independent auditor shall formally review the quarterly reports
prepared under this section at least annually, and that auditor shallreport
the results of the review to City Council.
3. Performance Standards—The investment portfolio shall be managed in
accordance with the objectives specified in this policy (safety, liquidity,
and yield). The portfolio should obtain a market average rate of return
during a market/economic environment of stable interest rates. The basis
used by investment officers to determine whether marketyields are being
achieved shall be the three(3)month U.S. TreasuryBill.
4. 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 including, but not limited to
the City's investment advisor, the Wall Street Journal, the City's
safekeeping agent,a reputable brokerage firm not having sold the security
being priced or security pricing service.
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EXHIBIT C
City of Baytown
EHIBIT B
City of Baytown
Statement of Ethics and Conflicts of Interest
Investment officers 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 impartial investment decisions. Such conflicts would only
apply to personal business relationships with business organizations that have been approved by City
Council to conduct investment transactions with the City of Baytown.
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 City of Baytown,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 City of Baytown as of the
date of this statement.
City of Baytown
Investment Officers
W. Victor Brownlees, Director of Finance Date
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EXHIBIT C
City of Baytown
Approved Broker./Dealers, Financial Institutions and Investment Pools
Broker/Dealers
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)
Investment Pools
TexPool
TexSTAR
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EXHIBIT D
City of Baytown
Certification by Business Organization
date
City of Baytown,Texas
(Attn:Designated Investment officer)
P O Box 424
Baytown,TX 77522-0424
Dear Mr.'s. (investment
officer):
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 agrees,on behalf of the Business Organization,
to comply with its requirements under the investment policy 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 City of Baytown,Texas (the "City")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 City's adopted Investment Policy
and this Investment Strategy.The City'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, City 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 the City 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 the City's
Investment Policy and cash management procedures with investment security risk/return analysis to
enhance interest earnings and reduce investment risk.The City 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.
The City'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 City financial
conditions when prudently implementing these strategies. Anticipated changes in the City's
investment strategy shall be reported to the Finance Committee as part of the quarterly investment
reporting.
The City 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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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. City funds shall be
analyzed and invested according to the following major fund types:
a. OperatingFunds
unds
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,Capital Improvement Fund
C. Debt Service Funds
Debt Service funds are structured to provide for debt service payments for the City's bonds. The
expenditures are strictly scheduled and occur normally in six month intervals. Funds include: Bond
Interest Accounts and Bond Principal Accounts.
d. Liquidity Buffer Accounts
Liquidity funds are to assure the City'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 operatingfunds 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 the City. Market cycle risk will be reduced by diversifying the appropriate
maturity structure.Operating Funds require the greatest short-term 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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Attaining a competitive market yield is a desired objective. The yields on the three-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 schedulesbut 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 bufferto 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 the City'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.
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d. Liquidity Buffer Accounts
A liquidity buffer, dependent in size upon then—current economic conditions and City 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 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.
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