HomeMy WebLinkAboutRES 05-208 RESOLUTION NO. 05-208
BE IT RESOLVED BY THE CITY COUNCIL
OF THE CITY OF BEAUMONT:
THAT the City of Beaumont Investment Policy, substantially in the form attached hereto as
Exhibit "A," has been reviewed and is hereby in all things adopted. All changes to the
policy are reflected therein.
PASSED BY THE CITY COUNCIL of the City of Beaumont this the 20th day of
September, 2005. i,,�v�►we>ao
gEAUMOryT\��1
IV
U , y4f.'eic
/ W
�� 2 - Mayor Guy N. Goodson -
City of Beaumont
Investment Policy
L Introduction
It is the policy of the City of Beaumont to invest public funds in a manner which will ensure
that the investments are duly authorized,properly managed,adequately protected and fully
collateralized. The City shall seek the highest investment return with the maximum security
while meeting daily cash needs and conforming to the City Charter, the Public Funds
Investment Act(Chapter 2256,Government Code as amended)and all other state and local
statutes governing the investment of public funds.
II. Scope
This investment policy applies to all financial assets of the City as accounted for in the City's
Comprehensive Annual Financial Report. These include General, Special Revenue,Debt
Service,Capital Projects,Enterprise,Internal Service and Fiduciary Funds. All are pooled
for investment purposes except debt service and debt service reserve funds. Interest is
allocated monthly to each fund based on its individual cash balance.
11L Prudence
Investments shall be made with judgment and care, under prevailing circumstances, that a
person of prudence, discretion, and intelligence would exercise in the management of the
person's own affairs,not for speculation,but for investment,considering the probable safety
of capital and the probable income to be derived. The "prudent person" standard shall be
applied in the context of managing the total portfolio rather than a single investment
providing that the decision was consistent with this investment policy. (Section 2256.006,
Government Code)
Investment officials acting in accordance with written procedures and the investment policy
and exercising due diligence shall be relieved of responsibility for an individual security's
credit risk or market price changes provided that deviations from exceptions are reported
in a timely fashion and appropriate action is taken to control adverse developments.
IV. Objectives
The primary objectives, in priority order, of the City's investment activities shall be
preservation and safety of principal, liquidity and yield. (Section 2256.006, Government
Code)
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EXHIBIT "A"
City of Beaumont- Investment Policy
A. Safety of principal
The City ofBeaumont has as its foremost objective to ensure the safety of principal.
Investments of the City shall be undertaken in a manner that seek to ensure the
preservation of capital in the overall portfolio. To attain this objective diversification
is required in order to eliminate an over-concentration of assets in one institution,
maturity or type of securities.
B. Li uidi
The City's investment portfolio will remain sufficiently liquid to enable the City to
meet all operating requirements which might be reasonably anticipated. The portfolio
shall be constructed so that investment maturities are matched with forecasted cash
flow requirements and limited by investments in securities with an active secondary
market.
C. Yield
The City's investment portfolio shall be designed with the objective of attaining a rate
of return which is consistent with risk limitations and cash flow characteristics of the
City's investments.
V. Delegation of Authority
Authority to manage the City's investment program is derived from the City Charter(article
VII, section 1-2). The Charter designates the City Manager as Director of Finance who
shall have custody of all public funds, investments, bonds and notes of the City and be
responsible for their safekeeping. The City Manager shall establish written procedures for
the operation of the investment program consistent with this investment policy which
include explicit delegation of authority to persons responsible for investment transactions.
The City Manager shall be responsible for all transactions undertaken and shall establish a
system of controls to regulate the activities of subordinate officials.
Each"investment official"shall be approved by resolution of City Council to invest the City
of Beaumont's funds. As shown in exhibit"A", the City Manager,the Finance Officer and
the City Treasurer are currently approved as investment officials of the City of Beaumont.
Such approval of specific persons shall remain in effect until rescinded by the City Council
or until termination of the person's employment by the City of Beaumont. Investment
officials shall not deposit,withdraw,transfer or manage the funds of the City of Beaumont
in a manner that is not consistent with the"prudent person"standard as described in section
III of this policy. (Section 2256.005 (f)-(h), Government Code)
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City of Beaumont-Investment Policy
VL Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from personal
business activity that could conflict with proper execution of the investment program, or
which could impair their ability to make impartial investment decisions.
Investment officials shall disclose any personal business relationships with business
organizations approved to conduct investment transactions with the City of Beaumont as
described in Section 2256.005 (i)(1-3)of the Government Code. They shall also disclose
any specific individuals who seek to sell investments to the City and are related to the
employee within the second degree by affinity or consanguinity, as determined under
Chapter 573. Disclosure shall be filed with the Texas Ethics Commission and the City
Council of the City of Beaumont. An ethics statement signed by each investment official
is attached as exhibit`B".
VII. Training
Each investment official of the City of Beaumont shall attend as least ten(10) hours of
training relating to investment responsibilities within 12 months after assuming such duties
and shall continue to attend an investment training session not less than once every two
years thereafter consisting of at least ten (10) hours of instruction. Training shall be in
accordance with the Public Funds Investment Act and include education in investment
controls, security risks, strategy risks, market risks, and compliance with state statutes
governing the investment of public funds. All training shall be conducted by an
independent source which has been approved by City Council. (Section 2256.008,
Government Code) The Government Treasurers Organization of Texas, the Government
Finance Officers Association of Texas, the Texas Municipal League and the University of
North Texas are hereby approved as"independent sources"who may provide such training
to investment officials.
VIII. Selection of Financial Dealers, Institutions and Investment Pools
Authorized investments shall only be purchased from those institutions included on the
City's list of broker/dealers, financial institutions and investment pools as approved by the
City Council. An "approved list", as shown in exhibit "C", shall be maintained by
investment officials at all times and reviewed by the City Council on an annual basis.
(Section 2256.025, Government Code)
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City of Beaumont-Investment Policy
Any business organization which seeks to execute investment transactions with the City of
Beaumont shall provide a written instrument certifying that they have received and
thoroughly reviewed the City's investment policy and have implemented reasonable
procedures and controls in a effort to preclude investment transactions that are not
authorized by this policy. The certification, as shown in exhibit"D", must be signed by a
qualified representative of the business organization. Investment officials shall not buy any
securities from a firm which has not filed this instrument. (Section 2256.005 (k)-(1),
Government Code)
A. Broker/Dealers
The City shall select broker/dealers by creditworthiness and may include "Primary
Government Securities Dealers"or regional dealers that qualify under Securities and
Exchange Commission(SEC)Rule 15C3-1(uniform net capital rule). Broker/dealers
selected must be members in good standing of the National Association of Securities
Dealers,Inc.(NASD)and be licensed by the State of Texas. The minimum net capital
requirement is$ 5,000,000 and the business must have been in operation for at least
five years. Firms who desire to become approved bidders for investment transactions
must supply the City with audited financial statements,a trading agreement and other
information regarding their capabilities, experience, general reputation, size and
capitalization. Each firm will be reviewed by investment officials and a
recommendation made for approval by City Council.
B. Public Depositories
The City Council shall select a primary depository every three years. The primary
depository as authorized by the City Council shall meet all requirements of the state
law concerning depositories for municipal funds. (Chapter 105, Government Code)
The institution offering the most favorable terms and conditions for the handling of
City funds shall be selected as the depository.
The City Council may also establish agreements with financial institutions under
separate contract for additional services which are necessary in the administration,
collection,investment,and transfer ofmunicipal funds.(Section 105.018,Government
Code) Financial institutions who desire to become approved bidders for investment
transactions shall submit information similar to that of a broker/dealer as described
above (section VIII-A). No deposit shall be made except in a qualified public
depository as established by State Law. The City of Beaumont shall not place
deposits or investments with Saving and Loan Associations or Credit Unions.
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City of Beaumont- Investment Policy
C. Investment Pools
Investment officials may invest funds of the City of Beaumont through an eligible
investment pool with specific approval by resolution of City Council and execution
of a written agreement. To become eligible, investment pools must first meet all
requirements of State Law.They shall provide the City with an offering circular which
contains specific and detailed information and provide detailed monthly transaction
and performance reports. Pools shall have advisory boards composed of qualified
members representing participants and non-participants who do not have a business
relationship with the pool. (Section 2256.016-2256.019,Government Code) Before
selection,-pools-shall_be-thoroughly reviewed and y investment officials-__
Annually, a review of the financial condition and registrations of approved bidders will be
conducted by investment officials. A current audited financial statement is required to be
on file for each financial institution, broker/dealer or investment pool in which the City of
Beaumont invests.
IX. Authorized and Suitable Investments
Authorized investments for municipal governments in the state of Texas are set forth in the
Public Funds Investment Act, as amended. (Section 2256.009-2256.019, Government
Code) Suitable investments for the City of Beaumont are limited to the following:
i
♦ Direct Obligations ofthe United States or its agencies and instrumentalities which are
non-callable and have a maximum stated maturity date of 5 years or less. Federal
agencies which do not carry the eq)lic.it 17 S. Government <rnarantee must he
continuousk! rated no lower than AA.- ;A-1 or an equivalent ratinL, by at least one
nationally reco,�-,nized ratinL aLlenc'\.
♦ Certificates of deposit issued by approved depository banks as described above
(section VIII-B)which have a maximum stated maturity date of 5 years or less and
are insured by the Federal Deposit Insurance Corporation, or their successors; or
secured by obligations that are described in Section 2256.009(a)of the Government
Code.
♦ Fully collateralized direct repurchase agreements with a defined termination date of
90 days or less which are secured by obligations of the United States or its agencies
and instrumentalities and pledged with a third party other than an agent for the
pledgor. Investment officials may invest in repurchase agreements through an
approved primary government securities dealer or an approved depository bank as
described above(section VIII-A,B). Each issuer of repurchase agreements shall be
required to sign a master repurchase agreement.
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City of Beaumont-Investment Policy
♦ No load money market mutual funds registered with and regulated by the Securities
and Exchange Commission with a dollar weighted average stated maturity of 90 days
or less whose assets consist exclusively of direct obligations of the United States and
whose investment objectives include the maintenance of a stable net asset value of$1
per share. Money market mutual funds must provide the City with a prospectus and
other information required by the Securities and Exchange Act of 1934 (Section
2256.014 (a), Government Code) and be specifically approved by City Council or
purchased through the City's primary depository as an overnight investment tool.
♦ Approved investment pools as described above (section VIII-C) which are
continuously rated no lower than AAA,AAA-m or an equivalent rating by at least one
nationally recognized rating agency.
k':-udent, rne:lsmes .vIH be taken to liquidate an investment thw is dcnvii,,raded tC, less
than tite required nti«ii.nurn rating,,
X. Marking to Market
All securities and certificates of deposit will be purchased or sold after at least two (2)
offers or bids are taken to verify that the City is receiving a fair market value or price for
the investment.
The market value shall continue to be monitored at least quarterly through on-line
investment software to which the City subscribes, the Wall Street Journal or some other
recognized market pricing source. The City of Beaumont shall not obtain market pricing
from business organizations who may engage in investment transactions with the City.
XI. Collateralization
Collateralization will be required on all deposits, certificates of deposit and repurchase
agreements. The collateralization level shall be equal to at least one hundred two percent
(102%) of the aggregate market value of the deposit or investment including accrued
interest less an amount insured by the Federal Deposit Insurance Corporation. Evidence
of the pledged collateral shall be documented by a tri-party custodial or a master repurchase
agreement with the collateral pledged clearly listed in the agreement. Collateral shall be
reviewed monthly to assure that the market value of the securities pledged equals or
exceeds the related deposit or investment balance.
Collateral requirements shall be in accordance with both the Public Funds Investment Act
and the Public Funds Collateral Act(Chapter 2256 and 2257, Government Code).
Collateral underlying repurchase agreements is limited to direct obligations of the United
States or its agencies and instrumentalities. The City of Beaumont shall accept a surety
bond or the following investment securities as collateral on deposits and certificates of
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City of Beaumont-Investment Policy
deposit:
♦ Direct obligations of the United States or its agencies and instrumentalities.
♦ Direct obligations of this state or its agencies and instrumentalities.
♦ Collateralized mortgage obligations directly issued by a federal agency or
instrumentality of the United States and excluding those mortgage backed securities
considered a high-risk mortgage security as described by Section 2257.0025 of the
Government Code as well as those of the nature described by section 2256.009 (b)
of the Government Code.
♦ Other obligations which are guaranteed or backed by the full faith and credit of this
state or the United States or their respective agencies and instrumentalities.
♦ Obligations of states, agencies, counties, cities and other political subdivisions rated
not less than A or its equivalent.
♦ Letters of credit issued by the United States or its agencies and instrumentalities.
XIL Safekeeping and Custody
Collateral shall be placed for safekeeping in a custodial account at the Federal Reserve Bank
or at an institution not affiliated with a firm pledging collateral. All safekeeping
arrangements shall be in accordance with a tri-party custodial agreement which clearly
defines the responsibilities of each party and outlines the steps to be taken in order for the
City to gain access to the collateral in the event of a "failure". The custodial agreement
shall be executed between the City, the firm pledging the collateral and the custodial
institution. All safekeeping receipts shall be delivered to the City and all collateral(whether
a pledge or substitution) shall be formally accepted and released by City Council.
All security transactions,including collateral for repurchase agreements,entered into by the
City shall be conducted on a delivery-versus-payment(DVP)basis. That is,funds shall not
be wired or paid until verification has been made that the correct security was received by
the safekeeping institution. Pool funds and mutual funds are excluded from this
requirement. The security shall be held in the name of the City or on behalf of the City.
The City shall not purchase securities from the firm or banking institution designated as the
safekeeping institution.
XM. Diversification
The City of Beaumont will diversify its investments to eliminate an over-concentration of
assets in any one security type or institution.
i
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City of Beaumont-Investment Policy
♦ Up to ninety percent(90%)par of the portfolio may be invested in direct obligations
of the United State Ml -I reasur\ Securities
T , -,el.CIIT% JWJ-0211T i P,ir M,the portfi,dlo Illa". be Invested 1111._ S Agclic', of
I!1,-11 1.11!-1 ell!;I,!it le-
\o illoic than 11111-tY percent fl,-tr of Tile P( rttollo lll<rl I C In',ested with am
A-enc of I ll.St 1-11 Ill e I I M it,,
♦ No more than fifty percent(50%)par of the portfolio may be invested in certificates
of deposit or repurchase agreements.
♦ [I to �fln PC,r-n it one hundred percent i i OW n,i par of the
portfolio may be invested in investment pools im liclu IditN PLI
MMItIcliffillids VVIT11 110 1 I-ICIFe T113 11 C11 11T` ()ercei iI i 80"u 1 p!-I I" oft the p.ortfo lie, lllv'es-ted
it" all\, one poo
more' than fifi,%; pet-cvI11 P,-Il- of tile J)ortfinlio llvn be lliveoed III lllolle-\
ii-larket ]IMILIal fttl-lds
♦ No more than twenty five percent(251/o)par of the portfolio may be invested with any
one institution in certificates of deposit and/or repurchase agreements. Additionally,
these investments shall not exceed ten percent (10%) of the capitalization of the
financial institution.
XW. Investment Strategies
The City of Beaumont shall maintain a separate investment strategy for each of the three
fund types represented in the portfolio. (Section 2256.005,(d), Government Code)
A. Pooled Fund Groups
Investment strategies for pooled fund groups containing operating funds have as their
primary objective to ensure that anticipated cash flows are matched with adequate
investment liquidity. Securities purchased shall not have a final stated maturity date
which exceeds two(2)years from the date of purchase without specific approval by
the City Council. The dollar weighted average maturity of the portfolio shall not
exceed 365 days as calculated using the stated final maturity dates of each security.
B. Debt Service Funds
Investment strategies for debt service funds shall have as their primary objective to
ensure that investments mature as necessary to cover the debt service obligation on
the required payment date. The stated final maturity date on securities purchased
shall not exceed the debt service payment date unless excess funds are available. in
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City of Beaumont-Investment Policy
that case, maximum maturities shall not exceed two (2) years from the date of
purchase and the dollar weighted average maturity of the portfolio shall not exceed
365 days as is consistent with investment strategies for operating funds.
C. Debt Service Reserve Funds
Investment strategies for debt service reserve funds shall have as their primary
objective to seek the highest investment return with maximum security in order to
produce a dependable revenue stream to the appropriate fund. Securities shall be
invested in accordance with specific bond ordinances and shall not have a stated
maturity date which exceeds the final maturity date of the bonds. At no time shall
maximum maturities exceed five(5)years from the date of purchase.
XV. Internal Control
The City of Beaumont, in conjunction with its annual financial audit shall perform a
compliance audit of management controls on investments and adherence to the City's
investment policy. (Section 2256.005(m), Government Code)
XVL Performance Standards
The City intends to pursue an active versus a passive portfolio management
philosophy. That is, securities may be sold before they mature if market conditions
present an opportunity for the City to benefit from the trade.
The investment portfolio shall be designed with the objective of obtaining a rate of
return throughout budgetary and economic cycles which is consistent with risk
limitations and cash flow needs of the City . Given this strategy, the basis used by
investment officials to determine whether market yields are being achieved shall be the
average return on 90 day U.S. Treasury Bills.
XVII. Reporting
Investment officials shall submit a monthly report to City Council summarizing the
results of the City's investment activity. This report shall include the status of the
current portfolio position, performance, trading activity, interest earnings and
collateral.
A quarterly report shall be submitted to the City Manager,as Chief Executive Officer,
and the City Council detailing investment transactions and performance for the
reporting period in accordance with state law.(Section 2256.023,Government Code)
The report shall be jointly prepared and signed by all investment officials. It shall
include a summary statement prepared in compliance with generally accepted
accounting principles for each fund type and a detailed listing that states the beginning
market value, changes to the market value, ending market value and fully accrued
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City of Beaumont-Investment Policy
interest for the period. In addition, investment officials shall report on adherence to
the City's investment strategies as expressed in this policy.
The quarterly reports shall be formally reviewed by the City's independent auditor on
an annual basis and the results of the review shall be reported to City Council.
(Section 2256.023, (d), Government Code)
XVM. Investment Policy Adoption
The City's investment policy is hereby adopted by resolution of the City Council on
September 26, 1995. The City Council shall review and approve any modifications
to the policy on an annual basis. This policy serves to satisfy the statutory
requirement to define and adopt a formal investment policy as set forth in Section
2256.005 of the Government Code.
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