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Resolution 96-22 RESOLUTION NO. 9~-~:u A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WYLIE, TEXAS, AMENDING THE CURRENT INVESTMENT POLICY, PROVIDING FOR SCOPE OF THIS POLICY, PROVIDING FOR INVESTMENT OBJECTIVES, PROVIDING FOR AN INVESTMENT COMMITTEE, PROVIDING FOR DELEGATION OF AUTHORITY, PROVIDING FOR STANDARD OF CARE, PROVIDING FOR AUTHORIZED SECURITIES INVESTMENTS, PROVIDING FOR OTHER INVESTMENT GUIDELINES, PROVIDING FOR PORTFOLIO MATURITIES, PROVIDING FOR INVESTMENT LIMITS, PROVIDING FOR SELECTION OF BROKER/DEALERS, PROVIDING FOR SELECTION OF DEPOSITORIES, PROVIDING FOR SAFEKEEPING AND CUSTODY, PROVIDING FOR RECORD KEEPING AND REPORTING, PROVIDING FOR ETHICS AND CONFLICTS OF INTEREST, PROVIDING FOR POLICY REVISIONS; AND MAKING VARIOUS FINDINGS AND PROVISIONS RELATED TO THE SUBJECT. WHEREAS, the City of Wylie acknowledges the high priority of providing the necessary guardianship of public funds in the municipal sector; and, WHEREAS, the City Council expressly intends to set high fiscal standards, delegate treasury and investment duties to appropriate officials, and to review the actual performance at regular intervals; and, WHEREAS, the City Council hereby intends to implement investment requirements set forth in the Texas Government Code, Chapter 2256, Public Funds Investment, Subchapter A - Authorized Investments for Governmental Entities and Subchapter B - Miscellaneous Provisions. NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF WYLIE, TEXAS: Section 1: See Exhibit A - Investment Policy Section 2: This Resolution shall be in full force and effect immediately upon its passage and approval. PASSED AND APPROVED, this the 29th day of October, 1996. ",'''\lmllUlI','''''',_ '1.\\\\" r" . '.,,/- ,,~'I. (" " , ' "", :;"~", ~~I 11 ":,,' , ""~" ~"",~~", ... <~ ~~~/r ',,<A~ neSt \.'" ~ P , Investments Authorized for Municipalities by Local Government Code, Title 10, Chapter 2256, "Public Funds Investment Act" Description Examples Code Section I. Obligations of, or Guaranteed by, Governmental Entities 2256.009 including: .[ A. Obligations of the United States or its instrumentalities US T -bills, 2256.009 (City Policy restricts to maturities < 2 years from US T -notes, purchase date) US T -bonds, Debentures, Discount notes (} B. Direct Obligations of this state or its agencies State Issued 2256.009 Bonds (} C. Collateralized Mortgage Obligations guaranteed by the Fannie Mae, 2256.009 United States Freddie Mac, etc.. . (} D. Other Obligations guaranteed by this state or the United 2256.009 States (} E. Obligations of any state or political subdivision rated Bonds 2256.009 not less than A .[ II, Certificates of Deposit and Share Certificates, issued in this state Bank CD's 2256.010 and properly secured III. Repurchase Agreements: Any authorized 2256.011 .[ A. Repurchase Agreements security bought (} B. Reverse Repurchase Agreements under an agrmnt to repurchase at a specified date. (} IV. Bankers' Acceptances 2256.012 .[ V. Commercial Paper Short-term 2256.013 Promissory Notes .[ VI. Mutual Funds: 2256.014 A. No-load Money Market Mutual Funds B. No-load Mutual Funds .[ VII. Investment Pools rated AAA or AAA-m TexPool, Logic 2256.016 .[ = Investments Authorized by the City of Wylie Investment Policy. (} = Investments NOT Authorized by the City of Wylie Investment Policy. 10/22/96 C:\DAT A-P AM\INVESMTS\INVTBL96.WPD City of Wylie, Texas INVESTMENT POLICY Adopted May 1995 Revised October 1996 CITY OF WYLIE, TEXAS INVESTMENT POLICY Table of Contents SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 OBJECTIVES .........................................................,...... 2 Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Liquidity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Diversification .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Yield. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 INVESTMENT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 DELEGATION OF AUTHORITY ................................................3 INVESTMENT STRATEGY ....................................................4 Operating Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Debt Service Funds ...................................................... 5 Debt Service Reserve Funds ............................................... 5 Special Projects and Special Purpose Funds ................................... 5 STANDARD OF CARE ........................................................ 5 INVESTMENTS .............................................................. 6 U. S. Treasuries, Federal Agencies, Instrumentalities. . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Certificates of Deposit and Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Commercial Paper ....................................................... 8 Investment Pools ........................................................ 8 Investments NOT AUTHORIZED by State Statute .............................8 OTHER INVESTMENT GUIDELINES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 DIVERSIFICATION AND MATURITY LIMITS................................... 10 SELECTION OF BROKER/DEALERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SELECTION OF DEPOSITORIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SAFEKEEPING AND CUSTODY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 RECORD KEEPING AND REPORTING ......................................... 14 ETHICS AND CONFLICTS OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 POLICY REVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 CITY OF WYLIE, TEXAS INVESTMENT POLICY I. SCOPE Chapter 2256 of Title 10 of the Local Government Code (herein after referred to as the "Public Funds Investment Act") prescribes that each city is to adopt rules governing its investment practices and to define the authority of the investment officer. The following Investment Policy addresses the methods, procedures, and practices which must be exercised to ensure effective and judicious fiscal management of the City's funds. This Policy shall not apply to the selection, retention or other issues concerning the depositories of the City's funds in demand and time deposits as provided under Chapter 105 of the Local Government Code. This Policy shall apply to the investment and management of all funds ofthe City under its control, other than those expressly excluded herein or by applicable law or valid agreement. This Policy shall not supersede the restrictions on investment and use applicable to any specific fund and, in the event of any conflict between this Policy and the requirements of any fund subject hereto, the specific requirement applicable to such fund shall be followed as well as all other provisions of this Policy other than those in conflict. The Employees Deferred Compensation Agency Fund is excluded from coverage under this Policy. In order to make effective use of the City's resources, all monies shall be pooled into one investment bank account, except for those monies required to be accounted for in other bank accounts as stipulated by applicable laws, bond covenants or contracts. The income derived from this pooled investment account shall be distributed in accordance with the City's internal procedures. City of Wylie Investment Policy (As Revised October 23, 1996) Page 1 II. OBJECTIVES The City's principal investment objectives, in order of priority, are listed below. Safety The primary objective of the City's investment activity is the preservation of principal (capital) in the overall portfolio. Each investment transaction shall seek first to ensure that capital losses are avoided, whether the loss occurs from the default of a security or from erosion of market value. Liquidity The City's investment portfolio will remain sufficiently liquid to enable the City to meet operating requirements that might be reasonably anticipated. Liquidity shall be achieved by matching investment maturities with forecasted cash flow requirements, by investing in securities with active secondary markets, and by using state or local investment pools. Diversification The governing body recognizes that in a diversified portfolio, occasional measured losses due to market volatility are inevitable, and must be considered within the context of the overall portfolio's return, provided that adequate diversification has been implemented. Therefore, assets held in the common investment portfolio shall be diversified to eliminate the risk of loss resulting from one concentration of assets in a specific maturity, a specific issuer or a specific class of securities. Yield The investment portfolio goal (benchmark), against which portfolio yield is compared, will be established from time to time by the Finance Director. Recommendations by the Investment Committee will be considered when the performance measure is being established. Efforts to seek returns higher than the above goal must be consistent with risk limitations identified in this policy and prudent investment principles. City of Wylie Investment Policy (As Revised October 23, 1996) Page 2 III. INVESTMENT COMMITTEE An investment committee consisting of the City Manager, Director of Finance, designated investment officer, and an outside ex-officio member, will meet on a quarterly basis. The Investment Committee shall be authorized to invite advisors to the meetings as needed including, but not limited to, the city attorney and other outside advisors. The investment officer will present a brief report of pertinent investment activities to the Investment Committee. The primary objective of the committee will be to review general strategies and policies and monitor investment program results. The committee shall include in its deliberations such topics as: performance reports, economic outlook, portfolio diversifications, maturity structure, potential risk to the city's funds, authorized brokers and dealers, and the target rate of return on the investment portfolio. The Investment Committee shall provide for minutes ofit's meetings. IV. DELEGATION OF AUTHORITY Management responsibility for the investment program is delegated by the City Council to the City Manager who will designate the Finance Director as Investment Officer (hereinafter referred to as the "Director"). The Director's authority will at all times be limited by conformance with all Federal regulations, State of Texas statutes and other legal requirements including the City Charter and City Ordinances, including this Policy. The Director shall develop and maintain written administrative procedures for the operation of the investment program consistent with this Policy. The controls shall be designed to prevent, identify and control losses of public funds arising from deviation from this Policy, fraud, employee error, misrepresentation by third parties, or imprudent actions by employees and officers of the City. City of Wylie Investment Policy (As Revised October 23, 1996) Page 3 With written approval from the City Manager, the Director may delegate any phase of the investment management program to members of the City staff. Such approval shall state specifically the functions such person is authorized to perform or that the person is authorized to perform all activities of the Director under this Policy. The Director shall obtain and maintain, at the City's expense, fidelity bonds for himself and each of his designees in amounts determined adequate by the Director (which shall not be less than five percent of the amounts subject to this Policy) for each fiscal year as shown by the approved budget. No person may engage in an investment transaction except as provided under the terms of this Policy and the internal procedures established by the Director. A current list of persons authorized to transact investment business and wire funds on behalf of the City shall be maintained by the Director. The Director and members of the Director's staff (investment officers), authorized to conduct transactions for the city pursuant to this policy shall attend at least one investment training session annually. Training must include education in investment contracts, security risks, strategy risks, market risks and compliance with Chapter 2256, Public Funds Investment of the Government Code. The City of Wylie will encourage it's investment officers to obtain professional credentials. In the discretion of either the City Manager or the Director and in any event upon the termination or reassignment of any member of the Director's staff authorized to conduct transactions for the City pursuant to this Policy, the authority of such person shall be revoked and such revocation of authority shall be immediately communicated by the Director orally and in writing to each and every depository, broker/dealer, investment advisor, custodian and other agency or entity with whom the City has any existing or continuing relationship in the management of its investments. v. INVESTMENT STRATEGY The City of Wylie maintains portfolios which utilize four specific investment strategy considerations designed to address the unique characteristics of the fund groups represented in the portfolios: City of Wylie Investment Policy (As Revised October 23, 1996) Page 4 OPERATING FUNDS: Investment strategies for operating funds have as their primary objective to assure that anticipated cash flows are matched with adequate investment liquidity. The secondary objective is to create a portfolio structure which will experience minimal volatility during economic cycles. This may be accomplished by purchasing high quality, short to medium term securities which will complement each other in a laddered structure. The dollar weighted average maturity of 365 days or less will be calculated using the stated final maturity dates of each security. DEBT SERVICE FUNDS: Investment strategies for debt service funds shall have as the primary objective the assurance of investment liquidity adequate to cover the debt service obligation on the required payment date. Securities purchased shall not have a stated final maturity date which exceeds the debt service payment date. DEBT SERVICE RESERVE FUNDS: The investment strategy for the debt service reserve fund shall have as the primary objective the ability to generate a dependable revenue stream from securities with a low degree of volatility. Securities should be of high quality, with short to intermediate term maturities. SPECIAL PROJECTS AND SPECIAL PURPOSE FUNDS: The investment strategies for special projects or special purpose fund portfolios will have as their primary objective to assure that anticipated cash flows are matched with adequate investment liquidity. The stated final maturity dates of securities held should not exceed the estimated project completion date. VI. STANDARD OF CARE A. 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. Investment of funds shall be governed by the following investment objectives, in order of priority: City of Wylie Investment Policy (As Revised October 23, 1996) Page 5 (I) preservation and safety of principal; (2) liquidity; and (3) diversification; and (4) yield. B. In determining whether an investment officer has exercised prudence with respect to an investment decision, the determination shall be made taking into consideration: (1) the investment of all funds, or funds under the City's control, over which the officer had responsibility rather than a consideration as to the prudence of a single investment; and (2) whether the investment decision was consistent with the written investment policy of the City. C. The Director and his staff shall recognize that the investment activities of the City are a matter of public record. Therefore, all participants in the investment process shall seek to act responsibly as custodians of the public trust. Investment officials shall avoid any transactions that might impair public confidence in the City's ability to govern effectively. VII. INVESTMENTS The City of Wylie is authorized to invest in the following types of investments as specified in the Public Funds Investment Act, (Chapter 2256, Sections 9 through 16, Texas Government Code): A. U. S. Treasuries, Federal Agencies, Instrumentalities (1). Direct obligations of the United States government with a maturity not to exceed two years from the date of purchase; U.S. Treasury Bills, U.S. Treasury Notes, U.S. Treasury Bonds, and U.S. Treasury Strips (book entry U.S. Treasury securities whose coupon has been removed). (2). Debentures or discount notes with a maturity not to exceed two years from the date of purchase issued by, guaranteed by, or for which City of Wylie Investment Policy (As Revised October 23, 1996) Page 6 the credit of any of the following Federal Agencies and Instrumentalities is pledged for payment: Federal National Mortgage Association (FNMA), Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB), Student Loan Marketing Association (SLMA), and Federal Home Loan Mortgage Corporation (FHLMC). (3). Bonds or other interest bearing obligations of which the principal and interest are guaranteed by the full faith and credit of the United States government with a stated maturity not to exceed two years from the date of purchase. A security's "average life" does not constitute a stated maturity. B. Certificates of Deposit and Share Certificates Certificates of Deposit issued by a state or national bank domiciled in this state, a savings and loan association domiciled in this state or federal credit union domiciled in this state which have been approved by the City in accordance with Section X of this investment policy and is: (1) guaranteed or insured by the Federal Deposit Insurance Corporation or its successor or the National Credit Union Share Insurance Fund or its successor; (2) any deposit exceeding FDIC insurance limits shall be fully collateralized by securities listed in items (A. 1 ) and (A.2) above, and the collateral shall be held by the City's third party custodian institution. (3) Bids for Certificates of Deposit may be solicited orally, in writing, electronically, or in any combination of these methods. C. Repurchase Agreements Repurchase Agreements with a defined termination date of 180 days or less on U.S. Treasury and Federal Agency securities listed in items A.(l) and A.(3) above, collateralized at a minimum market value of 102 percent of the dollar value ofthe transaction, with the accrued interest accumulated on the collateral included in the calculation. Repurchase Agreements shall be entered into only with dealers who: I) are recognized as primary reporting dealers with the Market Reports Division of the Federal Reserve Board of New York, or a financial institution doing business in this state; and 2) have an executed, City approved Master City of Wylie Investment Policy (As Revised October 23, 1996) Page 7 Repurchase Agreement. Collateral (purchased securities) shall be held by the City's custodian bank as safekeeping agent, and the market value of the collateral securities shall be marked-to-the-market daily based on the bid price for the previous day as reported in the Wall Street Journal. For the purpose of item D of this section the term "collateral" shall mean "purchased securities" under the terms of the City approved Master Repurchase Agreement. Collateral bearing no coupon will have a maturity not to exceed five years. All other eligible collateral shall have a maturity limit of ten years. D. Mutual Funds A no-load money market mutual fund that is continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent. E. Commercial Paper (1) that has a stated maturity of 270 days or fewer from the date of its issuance; and (2) is rated not less than A-lor P-l or an equivalent rating by at least: (a) two nationally recognized credit rating agencies; or (b) one nationally recognized credit rating agency and is fully secured by an irrevocable letter of credit issued by a bank organized and existing under the laws of the United States or any state. F. Investment Pools Investment Pools rated AAA or AAA-m or at an equivalent rating by at least one national recognized rating service. G. Investments NOT AUTHORIZED by State Statute (These investments are popularly referred to as "derivatives".) The City of Wylie is prohibited from investing in the following types of investments as specified in the Public Funds Investment Act, (Chapter 2256, Section 9(b), Texas Government Code): City of Wylie Investment Policy (As Revised October 23, I996) Page 8 (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage- backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security collateral and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity date of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. VIII. OTHER INVESTMENT GUIDELINES The City seeks active management of its portfolio assets. In the effort of meeting the objectives of this Policy, the City may from time to time sell securities that it owns in order to better position its portfolio assets. Sales of securities prior to maturity shall be documented and approved by the Director before such a transaction is consummated. Sales of securities yielding net proceeds less than 98 percent of the book value of the securities must be approved in advance and in writing by the City Manager. Three examples of situations involving the sale of securities prior to maturity are: (1) swap - to sell an investment to realize a capital gain, (2) to better position selected investments due to a change in market conditions, (3) to react to emergency liquidity demands. Each investment transaction must be based upon competitive quotations received from at least three broker/dealers who have been approved by the City in accordance with Texas law. The purchase and sale of all securities shall be on a delivery versus payment or payment versus delivery basis (i.e., for securities purchases, monies will not be released by the City's safekeeping bank until securities are received at the Federal Reserve Bank for further credit to the City's safekeeping bank. In the case of securities sales, monies will be received by the City's safekeeping bank via the Federal Reserve Bank as the securities are City of Wylie Investment Policy (As Revised October 23, 1996) Page 9 simultaneously released to the purchaser). In this manner the City will always have possession of either its securities or its monies. IX. DIVERSIFICATION AND MATURITY LIMITS It is the policy of the City to avoid concentration of assets in a specific maturity, a specific issue, or a specific class of securities, with the exception of U.S. Treasury issues listed in Section VII A.(l) The asset allocation in the portfolio should, however, be flexible depending upon the outlook for the economy and the securities markets. The City will not exceed the following maximum limits as a percentage of the total portfolio for each of the categories listed below: 5 percent in Commercial Paper 20 percent in Money Market Mutual Funds 30 percent in Certificates of Deposit 60 percent in State and Local Government Investment Pools 30 percent in Instrumentality securities described in Section VII A. (2) In addition to the limitations set forth above, the City's investment in any single money market fund or investment pool shall never exceed 10 percent of the total assets of the money market mutual fund or investment pool. The Director shall evaluate how each security purchased fits into the City's overall investment strategy. The amount of investments in U.S. Treasury and Agency Securities and Repurchase Agreements backed by those securities, as defined in Sections VII A. (1) through A. (3), shall at no time be less than 30 percent of the total portfolio. There shall be no maximum limits on these investments. At all times the City shall maintain 10 percent of its total investment portfolio in instruments maturing in 90 days or less. The weighted average maturity of all securities and certificates of deposit in the City's total investment portfolio at any given time (not including cash or demand deposits) shall not exceed one and one-half years. City of Wylie Investment Policy (As Revised October 23, 1996) Page 10 Maturities shall be selected which provide for both stability of income and reasonable liquidity. x. SELECTION OF BROKER/DEALERS The City shall maintain a list of broker/dealers and financial institutions which have been approved for investment purposes. Securities may only be purchased from those authorized institutions and firms. To be eligible, a broker/dealer must meet at least one ofthe following criteria: 1) be recognized as a Primary Dealer as defined by the New York Federal Reserve Market Reports Division; or 2) report voluntarily to the Market Reports Division of the Federal Reserve Bank of New York. Broker/dealers and other financial institutions will be selected by the Director on the basis of their financial stability, expertise in cash management and their ability to service the City's account. Each broker/dealer, bank, or savings and loan that has been authorized by the City shall be required to submit and annually update a BrokerIDealer Information Request form which includes the firm's most recent financial statements. The Director shall maintain a file which includes the most recent BrokerIDealer information Request forms submitted by each firm approved for investment purposes. A copy of the submitted BrokerIDealer Information Request forms as well as a list of those broker/dealers approved by the City shall be maintained by the Director. INVESTMENT POLICY ACKNOWLEDGMENT. The City of Wylie will provide all approved securities dealers with a copy of the City's Investment Policy. A principal in the firm must execute a written statement acknowledging receipt and review of the policy and a statement acknowledging that reasonable procedures and controls have been implemented to preclude imprudent investment activities being conducted between the entity and the securities firm. All approved broker/dealer firms must have a completed City of Wylie broker/dealer questionnaire, investment policy, written acknowledgment per above guidelines, executed master repurchase agreement, if applicable, and current financial information on file. An investment officer of the City may not buy any securities from a person City of Wylie Investment Policy (As Revised October 23, 1996) Page 11 who has not delivered to the City an instrument substantially in the form provided by this policy. The Director shall review the quality of service and financial stability of each broker/dealer and financial institution approved under this Section at least annually. Any approved broker/dealer or financial institution may be removed from the list of approved broker/dealers with the approval of the Director, if in the opinion of the Director, the firm has not performed adequately or its financial position is considered inadequate. XI. SELECTION OF DEPOSITORIES The City shall maintain a list of authorized banks and savings and loans which are approved to provide Certificates of Deposit. To be eligible for authorization, a bank or savings and loan must be members of the FDIC and meet the minimum credit criteria (described below) of a credit analysis provided by a commercially available bank rating service such as Prudent Man Analysis, Inc., or Sheshunoff Public Finance Bank Rating Service. Banks or savings and loans failing to meet the minimum criteria or, in the judgement of the Director, no longer offer adequate safety for the City will be removed from the list. Bank rating guidelines will be calculated using publicly available information obtained from the Federal Reserve, the Comptroller of the Currency, or the banking institution itself. Data obtained from bank rating services will include factors covering the following: overall rating, liquidity policy, credit risk policy, interest rate policy, profitability and capital policy. Financial institutions selected to issue certificates of deposit to the City in excess of$lOO,OOO or that are selected as Safekeeping or Custodial agents for the City shall meet the following criteria: 1) have a SheshunoffPublic Finance Peer Group Rating of thirty or better on a scale of zero to one hundred with one hundred being the highest rating at the time of selection or 2) have a Prudent Man Express Analysis overall rating of three or better on a scale of one to five with one being the highest quality for the most recent reporting quarter before the time of selection, and 3) qualify as a depository of public funds in the State of Texas. City of Wylie Investment Policy (As Revised October 23, 1996) Page 12 The Director shall maintain a file of the credit rating analysis reports performed for each approved firm. In addition to the foregoing requirements, with respect to bond proceeds and reserves or other funds maintained for debt service purposes, a depository of such funds must be selected by competitive bidding by two banks located within the boundaries of the City or if there are not two banks available within the City's boundaries that are willing and able to accept such deposits, then at least three bids must be obtained from banks situated in Collin County that are willing and able to accept such deposits. XII. SAFEKEEPING AND CUSTODY Investment securities purchased for the City will be delivered by either book entry or physical delivery and shall be held in third-party safekeeping by a Federal Reserve Member financial institution designated as the City's safekeeping and custodian bank. The City may designate more than one custodian bank, but the safekeeping banks shall not be a depository bank. The City shall execute a Safekeeping Agreement with each bank prior to utilizing the custodian's safekeeping services. Only a state or national bank located within the State of Texas may be utilized as a custodian of securities pledged to secure certificates of deposit. The safekeeping agreement must provide that the safekeeping bank will immediately record and promptly issue and deliver a signed safekeeping receipt showing the receipt and the identification of the security, as well as the City's interest. The Director shall maintain a list of designated custodian banks and a copy of the Safekeeping Agreement executed with each custodian bank. The City must approve release of securities in writing prior to their removal from the custodial account. A telephone facsimile of a written authorization shall be sufficient if the custodian orally confirms receipt of the transmission and an exact copy of the document is retained in the City's files. In no event shall the custodial bank be an authorized depository bank, issuer of repurchase agreements in which the City invests or broker/dealer of securities on behalf of the City. City of Wylie Investment Policy (As Revised October 23, 1996) Page 13 All securities shall be confirmed in the name of the City and delivered to an approved custodial bank or carried at a Federal Reserve Bank in the name of the City. The Custodian shall not otherwise deposit purchased or pledged securities. All book entry securities owned by the City shall be evidenced by a safekeeping receipt issued to the City and signed by the appropriate officer at the custodian bank stating that the securities are held in the Federal Reserve system in a CUSTOMER ACCOUNT naming the City as the "customer." In addition, the custodian bank will, when requested, furnish a copy of the delivery advice received by the custodian bank from the Federal Reserve Bank. All certificated securities (those transferred by physical delivery) shall: I) be held by an approved custodian bank or any correspondent bank in New York City approved by the Director; and 2) the correspondent bank or the City's safekeeping bank shall issue a safekeeping receipt to the City evidencing that the securities are held by the correspondent bank for the City. The original safekeeping receipt for each transaction including purchased securities under a repurchase agreement and collateral securing deposits will be forwarded to the Director or his designee and held in a secured file by the City. XIII. RECORD KEEPING AND REPORTING A record shall be maintained of all bids and offerings for securities transactions in order to ensure that the City receives competitive pricing. All transactions shall be documented by the person authorizing the transaction in a form that shows that person's name, the party instructed to execute the transaction, the date, a description of the transaction and a brief statement of the reason(s) for the transaction. At least once each quarter, the Director shall verify that all securities purchased by or pledged to the City are on hand in appropriate form. The City, in conjunction with its annual financial audit, shall perform a compliance audit of management controls on investments and adherence to the City's established investment policies. City of Wylie Investment Policy (As Revised October 23, 1996) Page 14 Each depository of the City's funds shall maintain separate, accurate and complete records relating to all deposits of the City's funds, the securities pledged to secure such deposits and all transactions relating to the pledged securities. Each approved custodian shall maintain separate, accurate and complete records relating to all securities received on behalf of the City, whether pledged, purchased or subject to repurchase agreement, as well as all transactions related to such securities. In addition, each depository shall file all reports required by the Texas State Depository Board. Each depository and custodian shall agree to make all the records described in this paragraph available to the Director's designee and the City's auditors at any reasonable time. All broker/dealers, custodians, depositories and investment advisors shall maintain complete records of all transactions that they conducted on behalf of the City and shall make those records available for inspection by the Director or other representatives designated by the City Council or City Manager. All sales of securities for less than the book value of the security shall be approved by the Director and reported to the City Council at the next regular meeting. Sales of securities for less than 98 percent of the book value ofthe securities must be approved by both the City Manager and the Director. An investment report shall be prepared by the Director on a quarterly basis listing all of the investments held by the City, the current market valuation of the investments and transaction summaries, including a detailed list of the gains and losses recognized. The report shall explain the total investment return during the previous quarter and compare the portfolio's performance to other benchmarks of performance. Within 90 days after the end of the City's fiscal year, the Director shall prepare, sign and deliver to the City Manager and the City Council an annual report on the City's investment program and investment activity which has also been signed by each officer and employee of the City authorized to conduct any of the City's investment activity. The annual report shall include full year and separate monthly comparisons of investment return. Such annual report shall include an analysis of the compliance with this Policy as well as changes in the applicable laws and regulations during the previous year and may include any other items of significance related to the investment program. City of Wylie Investment Policy (As Revised October 23, 1996) Page 15 XIV. ETHICS AND CONFLICTS OF INTEREST Officers and employees of the City involved in the investment process shall refrain from personal business activity that involves any of the City's approved custodians, depositories, broker/dealers or investment advisors and shall refrain from investing in any security issue held by the City. Employees and officers shall not utilize investment advice concerning specific securities or classes of securities obtained in the transaction of the City's business for personal investment decisions, shall in all respects subordinate their personal investment transactions to those of the City, particularly with regard to the timing of purchases and sales and shall keep all investment advice obtained on behalf ofthe City and all transactions contemplated and completed by the City confidential, except when disclosure is required by law. An investment officer of the City 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 officer 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 governing body of the City. xv. POLICY REVISIONS This Investment Policy will be reviewed at least annually by the City Manager, Director ofPinance and designated investment officer and revised when necessary. All revisions shall be approved by the City Council. City of Wylie Investment Policy (As Revised October 23, I996) Page I6 Issue Discuss and consider a resolution amending the INVESTMENT POLICY RESOLUTION passed on May 23, 1995 as required by changes in the Texas Government Code, Chapter 2256, Public Funds Investment, Subchapter A - Authorized Investments for Governmental Entities and Subchapter B - Miscellaneous Provisions. Background On May 23, 1995, a resolution was adopted to establish an investment policy. At that time, the Public Funds Investment Act of 1995 was being drafted. The investment policy adopted by resolution was based upon the latest draft available. The original policy has been revised and this resolution is intended to amend the current investment policy to bring it into compliance with changes in State statutes. Executive Summary: No matter how small a municipality might be, if it has any investable cash, it needs to have a written investment policy. A formal policy protects not only the assets of the organization (which belongs to the public), but also the elected officials and the city staff. The investment policy creates the universe for an investment program by defining overall objectives, risk parameters, types of investments, and other necessary components of an investment management policy. A contrast of the differences between the investment universes of the private sector versus public sector will illustrate why many of the features of this policy are included. The private sector enjoys almost unlimited choices in investing from a legal perspective. Generally speaking, the constraints on investing in the private sector is not because of legal requirements, but the nature of the business. However, in the public sector the reverse is true, there are many legal constraints on the management of idle cash and investments. The municipal universe has been more narrowly defined by recent State legislation. Some of the highlights of the new legislation requirements are: written investment strategy by funds; designation of investment officers; mortgage-backed derivatives are not authorized investments; investment training; compliance audits of investment activity; and quarterly reporting to the City Council. Many of these legal constraints were already considered to be good financial practice and the Public Investment Act is now providing a legal outline to follow. What an investment policy does is to set standards and constraints on how to conduct our investment activity. The policy defines the major objectives, who is responsible, what investment types can be used, provides for record keeping and reporting, training of employees, selection of broker/dealers, safekeeping of cash and investments, ethics, etc. The heart of the City of Wylie's investment policy is the objectives of safety, liquidity, diversification, and yield. Safety is listed first because the primary goal of public investment officials must be the fiduciary responsibility of public monies. Yield is the last objective in order of priority for investing. While additional income (yield) from investments is important, it must never become the-prime consideration in the investment of public funds. In the universe of municipal investing, the safety of public funds and maintaining the confidence of our citizens (avoidance of reputational risk) must be the keystone of our investment program. New to this proposed investment policy is the addition of an Investment Committee. This committee will be composed of City Staff and an outside ex-officio member. The primary objective of the committee will be to review general strategies and polices and monitor investment program results. Legal Considerations Adoption of a formal investment policy is mandated by the Public Funds Investment Act, Chapter 2256.023 of the Government Code. Financial Considerations None Staff Recommendations The staff recommends the City Council adopt the amended resolution updating the investment policy. Attachments Attachment A - Authorized Investments for Municipalities Attachment B - Investment Policy ~k.J-'4We-b ffiL~~~ Prepared By f Review by Fi nce m~Cil~ City Manager Approval