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HomeMy WebLinkAboutRes 2017-02 Accepting the City's Investment PolicyCity of West University Place Harris County, Texas RESOLUTION NO. 2017 -02 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST UNIVERSITY PLACE, TEXAS, REVIEWING AND ACCEPTING THE CITY OF WEST UNIVERSITY PLACE'S INVESTMENT POLICY IN ACCORDANCE WITH THE PUBLIC FUNDS INVESTMENT ACT; ALL MATTERS RELATED THERETO; AND PROVIDING FOR THE EFFECTIVE DATE THEREOF. WHEREAS, the City of West University Place, Texas, established policies and procedures for the investment of funds on March 21, 1988 by Resolution Number 88 -03; and WHEREAS, in 1995 and 2009 through 2016, the City Council amended the City's Investment Policy to incorporate amendments according to the Public Funds Investment Act, including improved management of the City's investments and reflecting any organizational changes; and WHEREAS, Texas Government Code, Section 2256.005(e) requires that the Investment Policy shall be made in accordance with written policies approved, at least annually, by the governing body; and WHEREAS, investment policies must address safety of principal, liquidity, yield, diversification and maturity, with primary emphasis on safety of principal; NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF WEST UNIVERSITY PLACE, TEXAS: Section 1. That the City of West University Place, Texas, has reviewed the City's Investment Policy and that in Section 2 hereof records any changes made by the City Council to such document. Section 2. That the City Council of the City of West University Place, Texas, hereby adopts the changes made in Exhibit A, Exhibit B, and Exhibit C of the West University Place Investment Policy, which is attached hereto as Attachment - 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 West University Place, Texas. INTRODUCED, READ and PASSED, by the affirmative vote of the City Council of the City of West University,P_! ,mss, this the 13`h day of February, 2017. S V Signed: �ER A. Gilliam, City Secretary an V. Sample, M or , Lay iwanager Approved as to legal form: Alan Petrov, City Attorney ATTACHMENT — A (This page intentionally left blank) CITY OF WEST UNIVERSITY PLACE, TEXAS INVESTMENT POLICY City of West University Place Investment Policy Table of Contents I. Policy IL Purpose III. Scope IV. General Objectives A. Safety B. Liquidity C. Public Trust D. Yield V. Standards of Care A. Prudence B. Ethics and Conflicts of Interest C. Delegation of Authority D. Training E. Internal Controls VI. Safekeeping and Custody A. Authorized Financial Dealers and Institutions B. Competitive Bids C. Delivery vs. Payment VII. Suitable and Authorized Investments A. Eligible Investments B. Collateralization C. Existing Investments VIII. Investment Parameters A. Diversification B. Maximum Maturities IX. Investment Strategies X. Reporting A. Methods B. Performance Standards C. Marking to Market 4A.lt]YII. A - Authorized Investment Officials 9 B - Statement of Ethics and Conflicts of Interest 10 C — Approved Broker/Dealers, Financial Institutions and Investment Pools 11 D — Certification by Business Organization 12 E — Investment Strategy 13 City of West University Place Investment Policy I. Policy It is the policy of the City of West University Place (the "City ") to administer and invest its funds in a manner that will preserve the principal and maintain the liquidity while meeting the daily cash flow requirements of the City. The City will conform to all federal, state and local statutes, rules and regulations governing the 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 the written instrument so adopted shall record any changes made to the Investment Policy or investment strategies. II. Purpose The purpose of this policy is to comply with Chapter 2256 of the Texas Government Code ( "Public Funds Investment Act "), which requires each entity to adopt a written investment policy regarding the investment of its funds and funds under its control. The investment policy addresses the methods, procedures and practices that must be exercised to ensure effective and judicious fiscal management of the entity's funds. III. Scope This investment policy applies to all financial assets 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, loans and funds received by the City where the City performs a custodial function. However, this policy does not apply to the assets administered for the benefit of the City by outside agencies under deferred compensation programs or other retirement programs. The City will consolidate cash balances from all funds to maximize investment earnings, (except as otherwise required by covenants in bond ordinances, credit agreements as defined in V.T.C.A, Government Code § 1371.001 or other applicable regulations). Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. City of West University Place Investment Policy IV. 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. Credit Risk and Concentration of Credit Risk — The City will minimize credit risk, the risk of loss due to the failure of the security issuer or backer, and concentration of credit risk, the risk of loss attributed to the magnitude of investment in a single issuer, by: • Limiting investments to the safest types of securities, • 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 manage the risk that the market value of securities in the portfolio will fail 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, • Investing operating funds primarily in shorter -term securities, money market mutual funds, or similar investment pools, and; • Diversify maturities and stagger purchase dates to minimize the impact of market movements over time. 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, a portion of the portfolio will be invested in money market mutual funds or local government investment pools that offer same -day liquidity for short-term funds. Additionally, a portion of the portfolio will consist of securities with active secondary or resale markets. C. Public Trust — All participants in the City's investment process shall seek to act responsibly as custodians of the public trust. Investment officers City of West University Place Investment Policy shall avoid any transaction that might impair public confidence in the City's ability to govern effectively. D. 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: • A security with declining credit may be sold early to minimize loss of principal • Liquidity needs of the portfolio require that the security be sold V. Standards of Care A. Prudence - The standard of prudence to be used by investing officials shall be the "prudent investor" rule. This rule states that "Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived." The determination of whether an investing official has exercised prudence with respect to an investment decision shall be applied in the context of managing an overall portfolio rather than a consideration as to the prudence of a single investment. 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 that deviations from expectations are reported in a timely fashion and appropriate action is taken to control unfavorable developments. 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 officials shall disclose to the City any material interests in financial institutions that conduct business with the City. They shall further disclose any personal financial /investment positions that could be related to the performance of the investment portfolio. (See Exhibit B.) City of West University Place Investment Policy Furthermore, an investment official who has a personal business relationship with an organization seeking to sell an investment to the City shall file a statement disclosing that personal business interest. An investment official who is related within the second degree by affinity or consanguinity to an individual seeking to sell an investment to the City shall file a statement disclosing that relationship. A statement required under this subsection must be filed with the Texas Ethics Commission and the City Council. C. Delegation of Authority - Authority to manage the City's investment program is granted to the Finance Director, hereinafter referred to as investment officer, and derived from the following: City Charter Article VII, Section 7.O1c. Responsibility for the operation of the investment program is hereby delegated to the investment officer, who shall act in accordance with established procedures and internal controls for the operation of the investment program consistent with this investment policy. This policy includes 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 terns of this policy and the procedures established by the investment officer. The investment officer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate activities of subordinate officials. D. Training - Investment officials must complete at least 10 hours of investment training within 12 months of taking office or assuming duties, and shall attend an investment training session not less than once in a two year period and receive not less than 10 hours of instruction relating to investment responsibilities. The City shall provide the training through courses and seminars offered by professional organizations and associations in order to insure the quality and capability of the City's investment personnel making investment decisions in compliance with Public Funds Investment Act (PFIA). Professional organizations and associations that may provide investment training included the Government Treasurer's Organization of Texas, the University of North Texas, the Government Finance Officers Association of Texas, or the Texas Municipal League. E. Internal Controls - The Finance Director is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the entity 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 (a) the cost of a control should not exceed the benefits likely to be derived and (b) the valuation of costs and benefits requires estimates and judgments by management. Therefore, the Finance Director shall City of West University Place Investment Policy establish a process for annual independent review by an external auditor during the annual audit to assure compliance with policies and procedures. VI. Safekeeping and Custody A. Authorized Financial Dealers and Institutions —The investment officer will maintain a list of financial institutions and security broker /dealers authorized to provide investment services (Exhibit C) to the City. This list shall be reviewed, revised as necessary and adopted at least annually. No public deposit shall be made except in a qualified public depository as established by state laws. Those firms that request to become qualified bidders for securities transactions will be required to provide 1) a completed broker /dealer questionnaire (Exhibit D) that provides information regarding creditworthiness, experience and reputation, and 2) a certification stating the firm has received, read and understood the Entity's investment policy and agree to comply with the policy. Authorized firms may include primary dealers or regional dealers that qualify under Securities & Exchange Commission Rule 150 -1 (Uniform Net Capital Rule), and qualified depositories. All investment providers, including financial institutions, banks, money market mutual funds, and local government investment pools, must sign a certification acknowledging that the organization has received and reviewed the Entity's investment policy and that reasonable procedures and controls have been implemented to preclude investment transactions that are not authorized by the Entity's policy. B. Competitive Bids — The City's policy requires competitive bidding for all individual security purchases and sales except for a) transactions with money market mutual funds and local government investment pools and b) treasury and agency securities purchased at issue through an approved broker /dealer or financial institution. C. Delivery vs. Payment — All trades with the exception of investment pools and mutual funds 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's name by a third -party custodian as evidenced by safekeeping receipts of the institution with which the securities are deposited. VQ. Suitable and Authorized Investments A. Eligible Investments — Assets of the City may be invested in the following instruments described below. All of these investments are authorized by the Public Funds Investment Act. Only those instruments listed in this section are authorized. City of West University Place Investment Policv 1. Obligations of the United States of America, its agencies and instrumentalities 2. Certificates of Deposit issued by a depository institution that has its main office or a branch in Texas. The certificate of deposit must be guaranteed or insured by the Federal Deposit Insurance Corporation or its successor or the National Credit Union Share Insurance Fund or its successor and secured by obligations in a manner and amount as provided by law. In addition, certificates of deposit obtained through a depository institution which are fully collateralized under a pledge agreement approved by the City are authorized investments. 3. No -load Money Market Mutual Funds that 1) are registered and regulated by the Securities and Exchange Commission, 2) have a dollar weighted average stated maturity of 90 days or less, 3) seek to maintain a net asset value of $1.00 per share and 4) are rated no lower than AAA or an equivalent rating by at least one nationally recognized rating service. 4. Local Government Investment Pools, authorized by a separate resolution, which meet the requirements of Chapter 2256.016 of the Public Funds Investment Act and are rated no lower than AAA or an equivalent rating by at least one nationally recognized rating service. B. Collateralization — Collateralization will be required on all funds on deposit with a depository bank, other than investments. 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 on the deposits, less an amount insured by the FDIC. Securities pledged as collateral will be held in the City's name by an independent third party with whom the City has a current custodial agreement. The Finance Director is responsible for entering into collateralization agreements with third party custodians in compliance with this Policy. The agreements are to specify the acceptable investment securities for collateral, including provisions relation to possession f the collateral, the substitution or release of investment securities, ownership of securities, and the method of valuation of securities. A clearly marked evidence of ownership (safekeeping receipt) must be supplied to the City and retained. Collateral shall be reviewed at least quarterly to assure that the market value of the pledged securities is adequate. C. Existing Investments — Any investment currently held that does not meet the guidelines of this policy, but were authorized investments at the time of purchase, is not required to be liquidated; however, the City shall take City of West University Place Investment Policy all prudent measures consistent with this Investment Policy to liquidate an investment that does not or no longer qualifies as an authorized investment. VIII. Investment Parameters A. Diversification — The investments shall be diversified by security type and institution. With the exception of U.S. Treasuy securities, Government- sponsored enterprises (GSE's) 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 five- percent (5 %) of the entire portfolio at the time of purchase of the security. 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 three (3) years from the date of purchase. The composite portfolio will have a weighted average maturity of 365 days or less. This dollar weighted average maturity will be calculated using the stated final maturity dates of each security. IX. Investment Strategies The City 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. 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 portfolio shall not exceed one (1) year. 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. City of West University Place Investment Policy X. Reporting A. Methods — In compliance with the City charter, the investment officer shall prepare an investment report at least monthly, including a management summary that provides an analysis of the status of the current investment portfolio and transactions made over the last month. 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 the City to ascertain whether investment activities during the reporting period have conformed to the investment policy. The report should be provided to the City Council. An independent auditor shall formally review the reports prepared under this section at least annually, and that auditor shall report instances of non- compliance to City Council in the annual audit management letter. B. 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 investment officer shall determine whether market yields are being achieved by comparing the portfolio market yield to the three (3) month U.S. Treasury Bill, the six (6) month U.S. Treasury Bill and the two (2) year U.S. Treasury Note. 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 monthly. 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. City of West University Place Investment Policv EXHIBIT A City of West University Place Authorized Investment Officials ,finance Director ,Treasurer Controller Deleted: 9 I Rhonda Daugherty, CPA, Deleted: Rene. Dobbs, City of West University Place Investment Policy EXHIBIT B City of West University Place Statement of Ethics and Conflicts of Interest Investment officials for the City of West University Place shall retain from personal business relationships with business organizations that could conflict with the proper execution of the investment program, or which could impair their ability to make partial investment decisions. This would only apply to personal business relationships with business organizations that have been approved by City Council to conduct investment transactions with the City of West University Place. An investment official is considered to have a personal business relationship with a business organization if: (1) The investment official owns 10 percent or more of the voting stock or shares of the business organization or owns $5,000 or more of the fair market value of the business. (2) Funds received by the investment official from the business organization exceed 10 percent of the investment official's gross income for the previous year. (3) The investment official has acquired from the business organization during the previous year investments with a book value of $2,500 or more for the personal account of the investment official. I do hereby certify that I do not have a personal business relationship with any business organization approved to conduct investment transactions with the City of West University Place, nor am 1 related within the second degree by affinity or consanguinity, as determined under Chapter 573, to an individual seeking to sell an investment to the City of West University Place as of the date of this statement. City of West University Place Investment Officials Finance Director treasurer Date 10 Deleted: Rhonda Daugherty, CPA, Deleted: Rmea Dobbs, City of West University Place Investment Policv EXHIBIT C City of West University Place Approved Broker/Dealers, Financial Institutions and Investment Pools Broker /Dealers Coastal Securities jlilltoo Securities (formerly "First Southwest Company ") Deleted: Fir45outhww Company Public Depositories JP Morgan Chase, NA (Primary) Investment Pools TexPool 11 City of West University Place Investment Policy EXHIBIT D City of West University Place Certification by Business Organization date City of West University Place, Texas (Attn: Designated Investment official) 3800 University Blvd. West University Place, TX 77005 Dear Mr /s. (investment official): This certification is executed on behalf of the City of West University Place, 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 Registered Principal of the Business Organization hereby certifies on behalf of the Business Organization that: 1. The undersigned is a Registered Principal 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 Registered Principal of the Business Organization has received and reviewed the Investment Policy furnished by the Investor and; 3. The Registered Principal of the Business Organization has implemented reasonable procedures and controls in an effort to preclude investment transactions conducted between the Business Organization and the Investor that are not authorized by the Investor's investment policy, except to the extent that this authorization is dependent on an analysis of the makeup of the investor's entire portfolio or requires and interpretation of the subjective investment standards. Registered Principal Broker Assigned to the Account Signed By: Printed Name Title Date 12 City of West University Place Investment Policy EXHIBIT E INVESTMENT STRATEGY The City of West University's investment portfolio will be designed and managed to ensure that it will meet all the requirements established by the City of West University's investment policy and the Public Funds Investment Act. The overall investment strategy outlined in the investment policy has been further refined in this investment strategy statement by the following fund types. Operating Funds: Operating Funds generally have greater cash flow needs than other funds types. The operating fund portfolio may consist of any approved investment type with the understanding that the financial requirements of the operating funds will dictate the maturity dates of the investment. At utmost importance is the preservation and safety of the investment principal. Additionally each investment will be viewed for its liquidity and marketability of the investment if the need arises to liquidate the investment before maturity. The final determining factors for the investment strategy will be the diversification of the investment portfolio and the yield of the investment. To achieve short-term needs of one (1) to one hundred and eighty (180) days, funds will be invested in approved investment pools. For longer -term needs of six (6) months to five (5) years, funds will be invested in approved investments with objectives prioritized as follows: 1) understanding the suitability of the investment to the financial requirements of the City of West University Place; 2) preservation and safety of principal; 3) liquidity; 4) marketability of the investment if the need arises to liquidate the investment before maturity; 5) diversification of the investment portfolio; and 6) yield. 13 City of West University Place Investment Policy INVESTMENT STRATEGY (Continued) Debt Service Funds: The debt service requirements are usually semi - annual, thus allowing the investment strategy to mirror debt obligation payment dates. The strategy for debt service funds allows greater flexibility since the actual requirements are known into the future. Investments will still meet the adopted policies; however, planning maturity dates to match debt requirement dates will be the primary objective. The investment instruments will be primarily in approved investment types with maturities at six or twelve months established to match debt requirement dates. Shorter -term investment may be used to meet these objectives and longer -term investments may be used when fund balance reserves exceed one year's debt service requirements. To achieve this strategy the following objectives are prioritized to evaluate investment opportunities: 1) understanding the suitability of the investment to the financial requirements of the City of West University Place; 2) preservation and safety of principal; 3) yield; 4) marketability of the investment if the need arises to liquidate the investment before maturity; 5) diversification of the investment portfolio; and 6) liquidity. 14 City of West University Place Investment Policy INVESTMENT STRATEGY (Continued) Capital Improvement Funds: Bond proceeds can be invested over the life of the project; however, the exact disbursement of the funds is not always known. The investment objective of the capital improvement funds is to schedule maturities to maximize investment earnings while preserving principle. The key to an effective strategy is to be aware of the project needs and match maturities to the period funds are needed. The investment objective for capital projects funds is still to match investment maturities with funding needs. As short-tens needs are recognized investment maturities will be moved into approved investment pools to meet financial requirements. Longer -term needs will be invested with the following objectives as prioritized for capital improvement funds: 1) understanding the suitability of the investment to the financial requirements of the City of West University Place; 2) preservation and safety of principal; 3) diversification of the investment portfolio; 4) yield; 5) liquidity; and 6) marketability of the investment if the need arises to liquidate the investment before maturity. 15 City of West University Place Investment Policy INVESTMENT STRATEGY (Continued) Reserve Funds: Certain reserve funds have been established as required by bond covenants. The investment objective is to invest reserve funds to the extent that maturities are established to the limit of the investment policy or to the end of the bond requirements whichever is shorter. The overall investment strategy for reserve funds will not rely on investment pools; however, the use of pools is not prohibited. Longer -term investment objectives are prioritized as follows: 1) understanding the suitability of the investment to the financial requirements of the City of West University Place; 2) diversification of the investment portfolio; 3) preservation and safety of principal; 4) yield; 5) liquidity; and 6) marketability of the investment if the need arises to liquidate the investment before maturity. 16