City_of_Tucson_Investment_Policy.pdf

VIII. Cash Management and Investment Policy

I. GOVERNING AUTHORITY

Effective cash flow management and cash investment practices are recognized as essential to good fiscal management. The investment policy is intended to provide for the prudent and efficient investment of the City’s temporarily idle cash while safely maximizing returns within carefully defined investment parameters. The investment policies and practices of the City are based on guidelines mandated by Arizona state statute, the Tucson City Code, and prudent money management.

Arizona Revised Statute (“ARS”) Title 35, Article 2 outlines eligible investments for state and city treasure monies. ARS Section 35-321 (11) provides that cities governed by charter have the option of operating their investments under Title 35, Article 2. The City is a chartered city and is electing to establish its own investment policy. The City is a chartered city and is electing to establish its own investment policy. General procedures for the investment of City monies are prescribed in the City of Tucson Municipal Code, Chapter XIII, Section 12. ARS Section 35-323 does, however, require that charter cities follow the collateral requirements outlined in ARS Section 35-323(G).

Cash management includes the activities undertaken to ensure maximum cash availability and maximum investment yield at acceptable levels of risk on a government’s idle cash. The purpose of this policy is to establish guidelines covering the investment of City monies and to establish reporting guidelines. Cash handling policies and procedures are addressed in Administrative Directive 3.02-

II. SCOPE

This investment policy applies to all funds managed directly by the City of Tucson, excluding Certificates of Participation proceeds, Tucson Supplemental Retirement System Custodial/Trust Accounts or Deferred Compensation Plan funds. The aforementioned excluded funds that are governed by the terms of their covenants and/or Boards. The City maintains various portfolios. Each portfolio is managed separately but will be referred to collectively as the “portfolio” for purposes of this policy. All funds are accounted for in the City’s Comprehensive Annual Financial Report.

Pooling of Funds Except for cash in certain restricted and special funds, the City will consolidate cash and reserve balance from all eligible funds to maximize investment earnings and to increase efficiencies with regard to investment pricing, safekeeping and administration. Consolidated cash may exclude TSRS Pension Trust, Workers Compensation Trust and Self-Insured Medical Trust Funds.

The City will maintain a cash flow tracking system for use in projecting the cash needs of the City to optimize the efficiency of the City's investment and cash management program.

III. GENERAL OBJECTIVES

A. In accordance with Chapter XXIX Section 3 of the City Charter, the Chief

Financial Officer/BSD Director is responsible for the investment of City monies. The Chief Financial Officer (CFO)/ Business Services Department (BSD) Director, or their designee, shall invest all funds of the City according to four criteria, in order of importance: (1) legality, (2) safety, (3) liquidity, and (4) return.

B. City monies will be invested in accordance with provisions of Chapter XIII

Section 12 of the City Charter, various City Ordinances and this Policy. The City shall also comply with the State statutes and Federal laws.

C. 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; safety of principal shall not be compromised to earn higher yields. Monies shall be invested at the highest interest rates obtainable after giving consideration to the provisions of this directive.

Payment of investment securities purchased shall be made only upon delivery of the securities to the City of Tucson’s custodial bank.

D. Investment maturities shall be scheduled to enable the City to meet all operating requirements which might be reasonably anticipated. Surplus and idle money related to the day-to-day operation of the City may be invested in authorized investments with a final maturity not exceeding five years from the date of investment.

Safekeeping and Custody

1. Delivery vs. Payment

All trades of marketable securities will be executed by delivery vs.

payment (DVP) to ensure that securities are deposited in an eligible custody account prior to the release of funds.

2. Safekeeping Securities will be held by a centralized independent third-party custodian selected by the city as with all securities held in the City’s name. The safekeeping institution shall annually provide a copy of their most recent report on internal controls (Statement of Auditing Standards No. 70, or SAS 70).

3. Internal Controls

The City’s CFO or BSD Director shall establish a system of internal controls aligned with the City’s Cash Handling Administrative Directive.

IV. STANDARDS OF CARE

1. Prudence The standard of prudence to be used by investment officials shall be the "uniform prudent investor act" standard and shall be applied in the context of managing an overall portfolio. The CFO or BSD Director acting in accordance with written procedures and this 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.

2. Ethics and Conflicts of Interest Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions.

Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business, in accordance with applicable laws. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the City of Tucson.

3. Delegation of Authority Authority to manage the investment program is granted to the CFO or BSD Director. Responsibility for the operation of the investment program is hereby delegated to the CFO or BSD Director, who shall act in accordance with established written procedures and internal controls for the operation of the investment program consistent with this investment policy. At a minimum, procedures should include references to the following: safekeeping, delivery vs. payment, investment accounting, repurchase agreements, wire transfer agreements, and collateral/depository agreements. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the CFO or BSD Director. The CFO or BSD Director shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. If the City retains an external investment advisor to serve in a fiduciary capacity on behalf of the city, this process can be delegated to the designated investment advisor. The investment adviser shall make decisions in compliance with this Policy and other guidelines designated by the finance committee.

V. SUITABLE AND AUTHORIZED INVESTMENTS

1. Obligations issued or guaranteed by the United States or any of the senior debt of its agencies, sponsored agencies, corporations, sponsored corporations or instrumentalities.

2. Repurchase agreements whose underlying collateral consists of the foregoing;

3. Commercial paper of prime quality that is rated within the top two ratings by a nationally recognized rating agency. All commercial paper must be issued by corporations organized and doing business in the United States.

4. Bonds, notes, and debentures or other evidence of indebtedness that are denominated in U.S. dollars, and that carry at a minimum an "A" or better rating, at the time of purchase, from at least two nationally recognized rating agencies.

5. Money Market funds whose portfolios are limited to the foregoing;

6. Community Banking and/or Certificates of Deposit and other evidences of deposits at banks, savings and loan associations, and credit unions, located in the Tucson city limits, up to the amount insured by an agency of the federal government; deposits in excess of the amount insured are authorized if collateralized by obligations of the U.S. Government, its agencies, and instrumentalities, or General Obligation municipal bonds rated A or better, at the minimum state mandated required amount on deposit, calculated on market values. The collateral must be held by the Trust department of the financial institution or delivered to the City's agent.

7. The State of Arizona Local Government Investment Pool, within the provisions outlined in this directive.

8. Negotiable or brokered certificates of deposit issued by a nationally or state-chartered bank or savings and loan association. Eligible negotiable certificates of deposit shall be rated “A” or its equivalent by a Nationally Recognized Statistical Rating Organization (NRSRO).

9. Bonds, notes or other evidences of indebtedness of this state or any of its counties, incorporated cities or towns or school districts or special taxing districts, including registered warrants, substitute checks and electronic funds transfers that bear interest pursuant to section 11-635 rated “A” or its equivalent by a NRSRO.

10. Bonds, notes or evidences of indebtedness of any county, municipal district, municipal utility or special taxing district of any state that are payable from revenues, earnings or a special tax specifically pledged for the payment of the principal and interest on the obligations, and for the payment of which a lawful sinking fund or reserve fund has been established and is being maintained, but only if no default in payment on principal or interest on the obligations to be purchased has occurred within five years of the date of investment, or, if such obligations were issued less than five years before the date of investment, no default in payment of principal or interest has occurred on the obligations to be purchased nor any other obligations of the issuer within five years of the investment

11. Bonds, notes or evidences of indebtedness issued by any county improvement district or municipal improvement district of any state to finance local improvements authorized by law, if the principal and interest of the obligations are payable from assessments on real property within the improvement district. An investment shall not be made if:

a) The face value of all such obligations, and similar obligations outstanding, exceeds fifty percent of the market value of the real property, and if improvements on which the bonds or the assessments for the payment of principal and interest on the bonds are liens inferior only to the liens for general ad valorem taxes

b) A default in payment of principal or interest on the obligations to be purchased has occurred within five years of the date of investment, or, if the obligations were issued less than five years before the date of investment, a default in the payment of principal or interest has occurred on the obligations to be purchased or on any other obligation of the issuer within five years of the investment.

12. The City will follow Arizona State Statute for Investment of Public Monies with respect to its eligible investment allocations.

VI. COMPETITIVE BIDDING

1. The City shall maintain a listing of financial institutions which are approved for investment purposes. Banks shall comply with the provisions of the City of Tucson Banking Policy (Administrative Directive 3.01-3). Financial institutions which have received a Community Reinvestment Rating of "Outstanding" or "Satisfactory" and which are determined to be in sound financial condition shall be given the opportunity to bid on City monies available for investment. At minimum, the City shall conduct an annual evaluation of each bank's creditworthiness to determine whether it should be on the "Qualified Institution" listing. Securities dealers not affiliated with a bank shall be required to be classified as reporting dealers affiliated with the New York Federal Reserve Bank, as primary dealers in government Securities.

2. City monies will be invested with the financial institution offering the highest yield plus the maturity, quality (safety) and diversification required. At least three bids will be solicited for investment securities that are not new issues.

3. Bids need not be taken on a rollover of proceeds of a maturing investment for 7 days or less, investments in Government and Agency securities on an initial offering, or on overnight investment of monies in clearing accounts if market rates are offered by the servicing financial institution. The purchase of securities on an initial offering shall be rotated among securities dealers

4. Bids shall be taken as needed for cash not projected to be spent for immediate operating needs. Securities to be considered in the bid for liquidity funds will include money market funds, repurchase agreements, treasury bills, agency discount notes, and commercial paper.

5. If the city uses an investments advisor, the advisor may be granted discretion to execute transactions utilizing their own list of approved broker/dealers.

VII. PERFORMANCE

The City’s portfolio is managed with the objective of obtaining a market rate of return, commensurate with identified risk constraints and cash flow characteristics. Because the composition fluctuates, depending on the market and credit conditions, an appropriate index will be selected by the Chief Financial Officer or BSD Director and used to monitor performance.

Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk.

VIII. REPORTING

1. Methods The investment advisor shall prepare and provide City with a quarterly investment report that provides an analysis of the status of the current investment portfolio. The report will include, at a minimum, the following:

• Listing of individual securities held at the end of the reporting period including type, purchase date, maturity date, purchase price, book value, and market value.

• Yield to maturity at cost of all holdings.

• Percentage of the total portfolio which each type of investment represents.

2. Performance Standards

The investment portfolio will be managed in accordance with the parameters specified within this policy and to obtain a market average rate of return during budgetary and economic cycles.