Rosenberg_Investment_Policy.docx

City of Rosenberg Investment Policy and Strategy

Table of Contents

1. Policy

The purpose of this investment policy shall be to establish and provide the City of Rosenberg (the City) with specific policy guidelines in order to conduct the investment program of the City, and to ensure that all investments of City funds will be made in compliance with State Statutes, the Public Funds Investment Act, Chapter 2256, Texas Local Government Code, City of Rosenberg Charter and Ordinances, and Governmental Accounting Standards Board Statement No. 3. The City will strive to invest public funds in a manner which will provide maximum security and the best commensurate yield while meeting the daily cash flow demands of the City.

2. Scope; Applicability

2.1 The Investment Policy applies to all financial assets of the City. The policy establishes guidelines for those who can invest City funds, how City funds will be invested, and when and how a regular review of investments will be made. The following types of funds, accounted for in the City’s Annual Comprehensive Financial Report, are invested:

The City’s investment strategy emphasizes low credit risk, diversification, and the management of maturities. The strategy takes into account the expertise and time constraints of the investment officers. The objectives listed in this section and the allowable investments listed in Section 6 reflect the strategy to avoid credit risk. Diversification refers to dividing investments among a variety of securities offering independent returns. The use of investment pools achieves diversification. The management of maturities refers to structuring the maturity dates of investments so that investments mature at different time throughout the year. This strategy is specified, in accordance with the consolidated fund group discussed in Section 2.

Investment maturities for bond funds and/or other types of reserve funds may not exceed three (3) years, provided however, that no more than fifty percent (50%) of the City’s overall portfolio may be invested in maturities exceeding two (2) years.

Funds of the City shall be invested in accordance with all applicable Texas statutes, this policy and any other approved, written administrative procedures. The financial assets of the City shall be invested in accordance with the following provisions:

3.1 Suitability

Each investment must be in conformance with all Federal regulations, State of Texas Statutes and other legal requirements - including City Charter, City Ordinances, and this Investment Policy.

3.2 Safety of Principal

Safety of principal is the foremost objective of the investment program. The City will give priority to the preservation and safety of the principal invested. Investments will be made in a manner that will mitigate credit risk and interest rate risk.

3.3 Liquidity

The City’s investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements, which might be reasonably anticipated. Liquidity shall be achieved by matching investment maturities with forecasted cash flow requirements. Short-term investment pools and no-load money market mutual funds provide daily liquidity and may be utilized as a competitive yield alternative to fixed maturity investments.

3.4 Marketability

Investments should have an active and efficient secondary market to enable the City to liquidate investments prior to the maturity if the need should arise.

3.5 Diversification

The investment portfolio shall be diversified to minimize market and credit risk in any particular sector and shall be diversified by maturity to stabilize interest income throughout market cycles.

3.6 Public Trust

Investment Officers shall seek to act responsibly as custodians of the public trust. Investment Officers shall avoid transactions that might impair public confidence in the City’s ability to govern effectively.

3.7 Return on Investment (Yield).

The City will invest in a manner that will maximize earning to the greatest extent, consistent with State and local laws and the objectives of safety and liquidity.

4. Delegation of Authority.

All officials of the City having either a direct or indirect role in the process of investing idle funds shall act responsibly as custodians of the public trust. Investment officials shall avoid any transaction that might involve a conflict of interest or otherwise impair public confidence in the ability of the City to govern effectively.

4.1 Finance/Audit Committee. As a requirement of this section, a Finance/Audit Committee shall hereby be established. The purpose of the Finance/Audit Committee shall be to determine and review investment policies and the results of the investment activities of the City; advise the Investment Officer as to any factors affecting market conditions, investment activities, and target rates of return; authorize financial institutions and broker/dealer bid lists; and to recommend any changes that may be appropriate to investment ordinances, policies and procedures. The membership of the Finance/Audit Committee shall be composed of the members of the City Council’s Finance/Audit Committee, the City Manager or their written designee, the Investment Officer, and Assistant Director of Finance. Members of the Finance/Audit Committee shall serve without compensation. The Investment Officer shall serve as chairman of the Finance/Audit Committee.

4.2 Investment Officers. The Finance Director shall be designated as the Investment Officer for the City and shall be responsible for investment decisions and activities under the direction of the City Manager or their written designee. The City’s investment officers shall establish written procedures for the operation of the investment program consistent with this Investment Policy. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except under the terms of this policy and the written procedures. Authority granted to a person to invest the City’s funds is effective until rescinded or until termination of the person’s employment by the City. The investment officers shall be responsible for all transactions undertaken and shall establish a system of controls, to regulate the activities of subordinate officials. The investment officers shall possess sufficient working knowledge of economics and securities markets, as well as the supervisory experience and judgment necessary to carry out the responsibilities outlined in this policy. In the event the position of Finance Director becomes vacant, the City Manager shall serve as an investment officer during such vacancy.

4.3 Training of Investment Officers. All investment officers of the City shall attend at least one training session within twelve (12) months of assuming duties and containing not less than ten (10) hours of instruction from an independent source listed below. The training must include education on investment controls, security risks, strategy risks, market risks, and compliance with state laws governing investment activities. They must also attend at least eight (8) hours of continuing education not less than once in a two-year period that begins on the first day of the City’s fiscal year and consists of the two consecutive fiscal years after that date. The City shall provide investment training in compliance with the Public Funds Investment Act to ensure the quality and capability of investment management. The training provider must be an independent source approved by the City’s Finance/Audit Committee. Training may be sponsored by the following:

Texas Municipal League (TML) Government Finance Officers Association (GFOA)

4.4 Prudence. The standard of prudence to be applied by the Investment Officer shall be the “prudent person” rule, which states, “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 Investment Officers, while acting in accordance with written procedures and exercising due diligence, shall not be held personally responsible for a specific security’s credit risk or market price changes, provided that these deviations are reported immediately, and that appropriate action is taken to control adverse developments.

4.5 Internal Control. The Investment Officers shall establish a system of written internal controls, which shall be reviewed annually by independent auditors. The controls shall be designated to prevent loss of public funds due to fraud, error, misrepresentation, unanticipated market changes, or imprudent actions.

The Internal controls shall address the following points at a minimum:

· Control of collusion,

· Separation of transaction authority from accounting and record keeping,

· Custodial safekeeping,

· Clear delegation of authority,

· Written confirmation for all transactions, and

· Review, maintenance and monitoring of security procedures both manual and automated

Annually the Investment Officer shall perform an internal compliance audit to assure compliance with requirements of this Policy and the Act. Annually, the City’s external auditor shall review the quarterly reports.

5. Ethics and Conflicts of Interest.

City staff 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 the ability to make impartial investment decisions. City Staff should disclose to the City Manager any material financial interests in financial institutions that conduct business with the City, and they shall further disclose positions that could be related to the performance of the City’s portfolio. City staff shall subordinate their personal financial transactions to those of the City, particularly with regard to timing of purchases and sales.

City funds governed by this policy may only be invested in the instruments described below, all of which are authorized by Chapter 2256 of the Government Code (Public Funds Investment Act.) However, investments in instruments other than government securities shall be made only if the yield is equal to or is greater than the bond equivalent yield on U.S. Treasury obligations of comparable maturity.

Investments not listed below, including collateralized mortgage obligations and reverse repurchases agreements, are strictly prohibited. In addition, the purchase of specific issues may at times be restricted or prohibited by the Finance Director, as investment officer, due to current market conditions.

An investment that requires a minimum rating under this section does not qualify as an authorized investment during this period if the investment does not meet 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.

Existing Investments – The City shall monitor changes in the credit ratings of existing investments quarterly or in the event of any significant market changes. The City shall use Credit Rating Agencies (i.e. Moody’s, Standard and Poor’s or Fitch) broker/dealers or through online or printed publications (i.e. Wall Street Journal, Bloomberg). Any investment, currently held, that was authorized at the time of purchase, and that does not meet the guidelines of this policy shall be reviewed to determine ability to liquidate due to material adverse changes in the value since time of purchase, and holding the security to maturity does not negatively affect disbursements or cash flow, a recommendation of holding said security to maturity is acceptable. At all times, liquidations shall be in effect taking in to account the “prudent” person standard in Section 4.4 of this policy.

6.1 Financial Institution Deposits (Sec 2256.010). Funds, such as Certificates of Deposit, Certificates of Deposit Account Registry Services, or other evidences of deposit may be placed at a financial institution or approved broker that meets the following requirements:

6.1.1 The main or branch office must be located in Texas and meet the requirements of the Act.

6.1.2 The deposits 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, or secured by obligations in a manner allowed by Section 9. Safekeeping and Collateral.

6.2 Investment Pools (Sec 2256.016). An investment pool is an entity created to invest public funds jointly on behalf of entities that participate in the pool and whose investment objectives, in order of priority, are safety, liquidity, and yield. Investment Pools must meet all the requirements of state law as determined under Chapter 2256 of the Government Code, as amended and must meet the following criteria:

6.2.1 The Investment Committee and City Council must approve the use of specific investment pools and shall, at least annually, review, revise and adopt a list of approved investment pools.

6.2.2 An investment pool must provide an offering circular or other similar disclosure instrument and provide monthly and transaction reporting as required by Section 2256.016 of the Texas government Code.

6.2.3 A public funds investment pool created to function as a money market mutual fund, organized in conformity with Chapter 791 (Interlocal Cooperation Contracts Act) and Chapter 2256 (Public Funds Investment Act) of the Government Code must: a.) have a dollar-weighted average stated maturity of 60 days or fewer; b.) seek to maintain a stable net asset value of $1 per share; and c.) be rated not less than AAA or an equivalent rating by at least one nationally recognized rating service.

6.3 U.S. Treasuries and Agencies (Sec 2256.009). Obligations of the United States of America, its agencies and instrumentalities, including other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed by the full faith and credit of the United States of America or its agencies or instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation (FDIC) or by the full faith and credit of the United States.

6.4 Direct obligations of the State of Texas or its agencies and instrumentalities (Sec 2256.009) rated as to investment quality by a nationally recognized investment rating firm not less than AA or its equivalent, including other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed by the full faith and credit of, the State of Texas, or the United States of America or its agencies or instrumentalities, including obligations that are fully guaranteed or insured by the Federal Deposit Insurance Corporation (FDIC) or by the full faith and credit of the United States.

6.5 Other Obligations (Sec 2256.009). Obligations of counties, cities, or other political subdivisions of any State have been rated as to investment quality by a nationally recognized investment rating firm and having received a rating of not less that “A” or its equivalent.

6.6 Repurchase Agreements (Sec 2256.011) Fully collateralized repurchase agreements provided the City has on file a signed Master Repurchase Agreement, approved by the City Attorney, which details eligible collateral, collateralization ratios, standards for collateral custody and control, collateral valuation, and conditions for agreement terminations and provided the repurchase agreement:

6.7 Money Market Mutual Fund (Sec 2256.014). No-load money market mutual funds that are:

7. Selection of Qualifying Institutions Qualifying institutions shall be of two types: federally insured financial institutions, or securities brokers and/or dealers.

An investment provider offering to engage in an investment transaction with the City shall be presented with the Investment Policy of the City. The qualified representative of a local government investment pool or discretionary investment management firm must execute a written instrument to acknowledge that the business organization has implemented reasonable procedures and controls to preclude transactions conducted between the City and the business organization that are not authorized by the City’s Investment Policy.

7.1 Financial Institutions: Selection criteria for federally insured financial institutions shall include the following:

7.2 Brokers/Dealers: Selection criteria for broker/dealers shall include the following:

7.3 The Investment Officer shall maintain an approved bid list containing both financial institutions and brokers/dealers with which the City is authorized to conduct investment transactions. Additions to or deletions from the bid list shall be reviewed and approved at least annually by the Finance/Audit Committee. (List attached.)

8.1 Consistent with the requirements of the Public Funds Collateral Act, it is the policy of the City of Rosenberg to require full collateralization of all uninsured collected balances, plus accrued interest for all eligible investment securities purchased by the City. Securities pledged as collateral for certificates of deposit or other evidence of deposit shall be retained in safekeeping in an independent third-party bank that has a branch located within the State of Texas. The market value of collateral will always equal or exceed the principal plus accrued interest of deposits at financial institutions. The City, financial institution, and the safekeeping bank shall operate in accordance with the master safekeeping agreement approved by all three parties. The safekeeping agreement must clearly state that the safekeeping bank is instructed to release purchased and collateral securities to the City in the event the City has determined that the depository bank has failed to pay on any matured investments in certificates of deposit, or has determined that the funds of the City are in jeopardy for whatever reason, including involuntary closure or change of ownership. The City shall always maintain the original safekeeping receipt for all investment and pledged collateral.

8.2 Release of collateral or substitution of securities must be approved in writing by the Investment Officer, with the consent of the City Manager.

8.3 The City may accept the following securities as collateral for its certificates of deposit and other evidences of deposit (V.T.C.A., Government Code, Section 2256.001, et. Seq. formerly Article 842a-2, Section 2, V.T.C.S., as amended);

It shall be the duty of the City to manage the investment portfolio to enhance overall investment income through active fund management.

9.1 Monitoring of Performance. The Investment Officer shall routinely monitor the contents of the portfolio, the available markets and the relative values of competing instruments and adjust the portfolio accordingly.

9.2 Diversification of Portfolio.

9.2.1 Diversification by Maturities. The City shall diversify the use of investment instruments to avoid incurring unreasonable risks inherent in over-investing in specific instruments, individual financial institutions or maturities. Maturity scheduling shall be managed by the Investment Officer so that the maturities of investments shall be timed to coincide with projected cash flow needs. The maximum dollar-weighted average maturity of all funds in the pooled fund group shall not exceed one year.

9.2.2 Diversification by Investment Instrument. Diversifications by investment instrument shall not exceed the following guidelines:

Percentage of Portfolio (Maximum)

U.S. Government Agency Securities and Instrumentalities of Government Sponsored Corporations

75%

Investment Pools The maximum to be invested in any one pool shall be 55% of the 95% of the total portfolio percentage authorized for total pool investment less bond funds. (One pool maximum shall be 52.25% of total portfolio.) Bond funds may be invested at 100%.

95%

9.3 The City shall invest local funds in investments yielding the highest possible rate return while providing necessary protection of the principal consistent with the operating requirements of this section or written policies.

9.4 It is the policy of the City to require competitive bidding for all individual security purchases and sales except for:

At least three bids or offers must be solicited for all other transaction involving individual securities. The City’s Investment Advisor is also required to solicit at least three bids or offers when transacting trades on the City’s behalf. In situations where the exact security being offered in not offered by other dealers, offers on the closest comparable investment may be used to establish a fair market price for the security.

9.5 The Investment Officers may order investments orally but shall be required to provide written confirmation of the investment order from the financial institution or broker/dealer.

9.6 All investments purchased by the City shall be purchased “delivery versus payment” (DVP), meaning the City shall authorize the release of funds only after receiving notification from the safekeeping bank that a purchased security has been received in the safekeeping account of the City. The notification may be oral but shall be confirmed in writing.

9.7 Investments will never be prematurely sold at less than acquisition cost without the authorization of the City Council.

To the extent possible, the City will attempt to match its investments with anticipated cash flow requirements. The City will not directly invest in securities maturing more than three (3) years from date of purchase. The settlement date is considered the date of the purchase. However, the City may collateralize its certificates of deposits and repurchase agreements using longer-dated investments not to exceed 30 years.

11. Reporting.

The Investment Officer shall generate reports as specified for management purposes at least quarterly. Such reports shall be submitted to the Finance/Audit Committee, and to the City Council, and must be signed by the Investment Officer. Reports must include a statement of compliance of the investment portfolio with the approved investment strategy and with the Public Funds Investment Act. Market prices for all investments are closely monitored using a nationally recognized securities database. Additionally, reports must include, but are not limited to, the following:

11.1 A list of all investments by type, financial institution or broker/dealer, by fund and by maturity date at the end of the reporting period.

11.2 Investment activities during the reporting period, including investment purchases and maturities or sales.

11.3 Realized and unrealized gain or losses resulting from appreciation or depreciation by listing the cost and market value of securities (in accordance with Governmental Accounting Standards Board (GASB) requirements.)

11.4 Average-weighted yield to maturity of portfolio on investment as compared to applicable benchmarks.

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

Quarterly reports must also be reviewed at least annually by an independent auditor, and the auditor shall report the results to the Finance/Audit Committee. In conjunction with its annual financial audit, a compliance audit of management controls on investments and adherence to the City’s established investment policies will be performed by the independent auditors.

12. Investment Policy Adoption.

The City Council shall adopt the written investment policy by resolution. The City Council shall review the policy and strategies annually. Revisions shall be made only by City Council resolution.

Authorized Brokers/Dealers

Duncan Williams

Wells Fargo

FHN Financial

Hilltop Securities

Multi-Bank Securities

Authorized Investment Pools

LOGIC

Lonestar

Texas CLASS

Texas TERM

TexPool

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