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HomeMy Public PortalAboutResolution 06-95 Finance-Investment Policy Adoptione Resolution No. 6-95 A RESOLUTION OF THE MAYOR AND COUNCIL OF MCCALL, IDAHO RELATING TO FINANCE; ADOPTING AN INVESTMENT POLICY. WHEREAS: From time to time the City of McCall has funds that are not immediately needed for public purposes. The City desires to prudently invest those funds to maximize the public benefits of such funds. NOW, THEREFORE, be it resolved by the Mayor and City Council of McCall, Idaho, as follows: Section 1: That the policy annexed hereto and made a part of this resolution as if set forth entirely herein, be and it is hereby adopted and approved. Section 2: That the City Treasurer be, and the same is hereby authorized and directed to invest City funds in accord with this policy. Section 3: That this resolution be in full force from its passage and approval. PASSED AND APPROVED this 23d day of March 1995. Al LEST: AsT1,70-„, Mayor City of McCall Investment Policy 1.0 Policy: It is the policy of the City of McCall to invest public funds in a manner which will provide the highest investment return with the maximum security while meeting the daily cash flow demands of the City and conforming to all state statutes governing investment of public funds. 2.0 Scope: This financial policy applies to all financial assets of the City of McCall. These funds are accounted for in the City of McCall's General Purpose Financial Statements. 2.1 Funds: 2.1.1 General Fund 2.1.2 Streets Special Revenue Fund 2.1.3 Library Special Revenue Fund 2.1.4 Recreation Special Revenue Fund 2.1.5 Tort Liability Special Revenue Fund 2.1.6 Drug Enforcement Special Revenue Fund 2.1.7 Debt Service Fund 2.1,8 Capital Projects Fund 2.1.9 Water Enterprise Fund 2.1.10 Sewer Enterprise Fund 2.1.11 Golf Enterprise Fund 2.1.12 Airport Enterprise Fund 2.1.13 Self Insurance Internal Service Fund 2.1.14 Urban Renewal Fund 3.0 Prudence: Investments shall be made with judgment and care --under circumstances then prevailing --which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital, as well as the probable income to be derived. 3.1 The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and the investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. 4.0 Obiective: The primary objectives, in priority order, of the City of McCall's investment activities shall be: 4.1 Safety: Safety of principal is the foremost objective of the investment program. Investments of the City of McCall shall be undertake in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is Investment Policy Page 2 required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. 4.2 Liquidity: The City of McCa11's investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated. 4.3 Return on Investments:. The City's investment portfolio shall be designed with the objective of attaining a rate of return throughout budgetary and economic cycles, commensurate with the City of McCall's investment risk constraints and the cash flow characteristics of the portfolio. 5.0 Delegation of Authority: Authority to manage the City of McCall's investment program is derived from Section 50-1013, Idaho Code. Management responsibility for the investment program is hereby delegated to the City Treasurer, who shall establish written procedures for the operation of the investment program consistent with this investment policy. Procedures should include reference to: PSA repurchase agreements, wire transfer agreements, banking service contracts and collateral/depository agreements. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the City Treasurer. The City Treasurer shall be responsible for all ,transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. 6.0 Ethics and Conflicts of Interest: Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with property execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the City Manager any material financial interests in financial institutions that conduct business within this jurisdiction, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the City of McCall, particularly with regard to the time of purchases and sales. 7,0 Authorized Financial Dealers and Institutions: The City Treasurer will maintain a list of financial institutions authorized to provide investment services. In addition, a list will also be maintain of approved security broker/dealer selected by credit worthiness who are authorized to provide investment services in the State of Idaho. These may included "primary" dealers or regional dealers that qualify under Securities & Exchange Commission Rule 15C3-1 (uniform net capital rule). No public deposit shall be made except in a qualified public depository as established by state laws. All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the City Treasurer with the following: (1) Audited Financial Statements; (2) proof of National Association of Securities Dealers (NASD) certification, (3) proof of registration with the State of Idaho; and (4) certification of having read the City of McCall's investment policy. An annual review of the financial condition and registrations of qualified bidders will be conducted by the City Treasurer. Investment Policy Page 3 A current audited financial statement is required to be on file for each financial institution and broker/dealer in which the City of McCall invests. 8.0 Authorized and Suitable Investments: The City of McCall is empowered by statute to invest in the following types of securities: 8.1 Revenue bonds issued under the Revenue. Bond Act. 8.2 City coupon bonds provided for under Section 50-1019. 8.3 LID: bonds provided for under Chapter 17, Title 50. 8.4 Time deposit accounts with public depositories. 8.5 Bonds, treasury bills; interest -bearing notes, or other obligations of the United States, or those for which the faith and credit of the United States are pledged for payment of principal and interest. 8.6 General obligation bonds of the State of Idaho for which the faith and credit of the State of Idaho are pledged for payment of principal and interest. 8:7 General obligation bonds of any county, city, metropolitan water district, municipal utility district, school district, or other taxing districts of Idaho. 8.8 Notes, bonds, debentures, or other similar obligations issued by the Farm Credit System or institutions forming a part thereof under the Farm Credit Act of 1971; in bonds or debentures of the Federal Home Bank Board; in bonds, debentures and other obligations of the Federal Home Loan Bank Board; in bonds, debentures and other obligations of the Federal National Mortgage Association; in the bonds of any federal home loan bank established under the National Housing Act; and instrumentalities of the government of the State of Idaho or the United States. 8.9 Repurchase agreements with Idaho public depositories covered by any legal investment for the State of Idaho. 8.10 Tax anticipation notes and registered warrants of the State of Idaho and the taxing districts of the State of Idaho. 8.11 Savings accounts including, but not limited to, accounts on which interest or dividends are paid and upon which negotiable orders of withdrawal may be drawn, and similar transaction accounts. 8.12 Time deposit accounts and other savings accounts of state and federal savings and loan. associations located within the geographical boundaries of the state in amounts not to exceed the insurance provided by the federal savings, and loan corporation, including but not limited to accounts on which interest or dividends are paid and upon which negotiable orders of withdrawal may be drawn, and similar transaction accounts. 8.13 Share, savings, and deposit accounts of state and federal credit unions located within the geographical boundaries of the state in amounts not to exceed the insurance provided, including, but not limited to accounts on which interest or dividends are paid and upon which negotiable orders of withdrawal may be drawn, and similar transaction accounts. Investment Policy Page 4 9.0 Collateralization: Collteralization will be required on two types of investments: certificates of deposits and repurchase agreements. In order to anticipate market changes and provide a level of security for all funds, the collateralization level will be 102% of market value of principal and accrued interest. Collateral will always be held by an independent third party with whom thecity has a current custodial agreement. A clearly marked evidence of ownership (safekeeping receipt) must be supplied tothe city and retained. 10.0 Safekeeping and Custody: Allsecurity transactions, including collateral for repurchase agreements, entered into by the City of McCall shall be conducted on a delivery -versus -payment (DVP) basis. Securities will be held by a third party custodian designated by the Treasurer and evidenced by safekeeping receipts. 11.0 Diversification: The City of McCall will diversify its investments by security typeand institution.. With the exception of U.S. Treasury securities and authorized pools, no more than 50% of the city's total investment portfolio will be invested ina single security type or with_ a single financial institutions. 12.0 Maximum Maturities: To the extent possible, the City of McCall will attempt to match is investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the City will not directly invest in securities maturing more than one year from the date of purchase. However-,. the City may collateralize its repurchase agreements using longer -dated investments not to exceed three years to maturity. 13.0 Internal Control: The City will, in conformity with section 50-1010, Idaho Code, provide an annual audit meeting the standards of the American Institute of Certified Public Accountants' "Generally Accepted Auditing Standards" by an independent auditor. This audit will provide internal control by assuring compliance with policies and procedures. 14.0 Performance Standards: The investment portfolio shall be designed with the objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow needs. 14.1 Market Yield (Benchmark): The basis used by the Treasurer to determine whether market yields are being achieved shall be the six-month U.S. Treasury Bill rate. 15.0 Reporting:; The Treasurer ischarged with the responsibility of including a market report on investment activity and returns in the City's Financial Report. Investment Policy Page 5 16.0 Investment Policy Adoption: The City's investment policy shall be adopted by resolution of the City Council. The policy shall be reviewed annually by the City Manager and City Treasurer. Any modifications made to the policy shall also be by resolution of the City Council. 1 GLOSSARY AGENCIES: Federal agency securities. ASKED: The price at which securities are offered. BANKERS' ACCEPTANCE (BA): A draft or bill or exchanged accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. BID: The price offered by a buyer of securities. (When you are selling securities, you ask for a bid.) See Offer. BROKER: A broker brings buyers and sellers together for a commission. CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity evidenced by the a certificate. Large -denomination CD's are typically negotiable. COLLATERAL: Securities, evidence of deposit or other property which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies. COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR): The official annual report for the City of McCall. It includes five combined statements for each individual fund and account group prepared in conformity with Generally Accepted Accounting Principals (GAAP.) It also includes support schedules necessary to demonstrate compliance with finance -related legal and contractual provisions, extensive introductory material, and a detailed StatisticalSection. COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on the bond's face value. (b) A certificate attached to a bond evidencing interest due on a payment date. DEALER: A dealer, as opposed to a broker, acts a principal in all transactions, buying and selling for his own account. DEBENTURE: A bond security only by the general credit of the issuer. DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery versus payment and delivery versus receipt. Delivery versus payment is delivery of securities with an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. DISCOUNT: The difference between the cost price of a security and its maturity when quoted a lower than face value. A security selling below original offering price shortly after sale is considered to be at a discount. DISCOUNT SECURITIES: Non -interest bearing money market instruments that are issued at discount and redeemed at maturity for full face value, e.g. U.S. Treasury Bills. DIVERSIFICATION: Dividing investment funds among a variety of securities offering independent returns. FEDERAL CREDIT AGENCIES: Agencies of the Federal government set up to supply credit to various classes of institutions and individual, e.g., S&L's, small business firms, students, farmers, farm cooperatives, and exporters. FEDERAL ' DEPOSIT INSURANCE CORPORATION (FDIC): A federal agency that insures bank deposits, currently up to $100,000 per deposit. FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open -market operations. FEDERAL HOME LOAN BANKS (N'HLB): The institutions that regulate, and lend to savings and loan associations. The Federal Home Loan Banks play a role analogous to that played by the Federal Reserve Banks vis-a-vis member commercial banks. LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a 2 substantial loss of value. In the money market, a security is said to be liquid if the spread between bid and asked price is narrow and reasonable size can be done at those quote. LOCAL GOVERNMENT INVESTMENT POOL (LIP): The aggregate of all funds from political subdivisions that are placed in the custody of the State Treasurer for investment and reinvestment. MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold MASTER REPURCHASE AGREEMENT: A written contract covering all future transaction between the parties to repurchase -- reverse repurchase agreements that establishes each party's rights in the transactions. A master repurchase agreement will often specify, among other things, the right of the buyer -lender to liquidate the underlying securities in the event of default by the seller -borrower. MATURITY: The date upon which the principal or stated value of an investment. becomes due and payable. MONEY MARKET: The market in which short-term debt instruments (bills, commercial paper, bankers' acceptances, etc.) are issued and traded. 014'.1B'LR: The price asked by a seller of securities. (When you are buying securities, you ask for an offer.) See Asked and Bid. OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank asdirected by the FMC in order to influence the volume of money and credit inthe economy. Purchases inject reserves into the bank system and stimulate growth of money and credit: sales: have the opposite effect. Open market operations are the Federal Reserve's most important and most flexible monetary policy tool. PORTFOLIO: Collection of securities held by an investor. PRIMARY DEALER: A group of government securities dealers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Primary dealers include securities and Exchange Commission (SEC) -registered securities broker -dealers; banks, and a few unregulated firms. PRUDENT PERSON RULE: An investment standard In some states the law requires that a fiduciary, such as a trustee, may invest money only in a list of securities selected by the custody state --the so-called legal list. In other states, the trustee may invest in a security f it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital. QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemption from the payment of any sales or compensation use or ad valorem taxes under the laws of this state; which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability and which has been approved by the Public Deposit. Protection Commission to hold public deposits. RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized' yield to maturity on a bond or the current income return. REPURCHASE AGREEMENT (RP' OR REPO): A holder of securities sells these securities to an investor with an agreement of repurchase them at a fixed price on a fixed date. The security "buyer" in effect lends the "seller" money for the period of the agreement, and the terms of the agreement are structuredare structured to compensate the "buyer" for this. Dealers use REPO extensively to finance their positions. Exception: When the Fed is said to be doing RP, it is lending money, that is, increasing bank reserves. SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities 3 and valuables of all types and descriptions are held in the bank's vaults for protection. SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution.