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Resolution 2020-51RESOLUTION NO.2020-51(R) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WYLIE, TEXAS, APPROVING 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 INVESTMENT STRATEGIES BY POOLED FUND GROUPS, PROVIDING FOR STANDARD OF CARE, PROVIDING FOR OTHER INVESTMENT GUIDELINES, PROVIDING FOR INVESTMENTS AUTHORIZED BY PUBLIC FUNDS INVESTMENT ACT AND INVESTMENTS UNAUTHORIZED BY THE CITY,. PROVIDING FOR PORTFOLIO DIVERSIFICATION AND MATURITY LIMITS, PROVIDING FOR SELECTION OF BROKERS/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 Public Funds Investment Act, as amended, requires the City of Wylie to adopt the investment policy by rule, order, ordinance or resolution; and WHEREAS, the Investment Policy was originally approved December 12, 2006; and WHEREAS, the Investment Policy complies with the Texas Government Code, Chapter 2216, Public Funds Investment Act, Subchapter A — Authorized Investments for Governmental Entities and Subchapter B — Miscellaneous Provisions as amended, and authorizes the investment of City funds in safe and prudent investments. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF WYLIE, THAT the City of Wylie has complied with the requirements of the Public Funds Investment Act and the Investment Policy, attached hereto, is adopted as the investment policy of the City effective September 22, 2020. DULY PASSED AND ADOPTED by the City Council of the City of Wylie, Texas this 22nd day of September 2020. 51 ATTESTED BY: Stephanie Storm, City Secretary Resolution No. 2020-51(R) Amendment of Investment Policy 1 City ®f Wylie, Texas INVESTMENT POLICY CITY OF WYLIE, TEXAS INVESTMENT POLICY Submitted for Review September 22, 2020 Table of Contents I. INTRODUCTION........................................................................................................................................ 1 II. SCOPE..........................................................................................................................................................1 III. OBJECTIVES............................................................................................................................................... 1 Safety.....................................................................,......................................................................... 1 Liquidity.......................................................................................................................................... 1 Diversification.................................................:............................................................................... 1 Yield................................................................................................................................................ I IV. INVESTMENT COMMITTEE.....................................:.............................................................................. 2 V. DELEGATION OF AUTHORITY.............................................................................................................. 2 VI. INVESTMENT STRATEGY....................................................................................................................... 3 OperatingFunds............................................................................................................................... 3 DebtService Funds.......................................................................................................................... 3 DebtService Reserve Funds............................................................................................................ 3 Special Projects and Special Purpose Funds.................................................................................... 3 VII. STANDARD OF CARE............................................................................................................................... 3 VIII. INVESTMENTS AUTHORIZED BY THE CITY...................................................................................... 4 IX. OTHER INVESTMENT GUIDELINES...................................................................................................... 5 X. DIVERSIFICATION AND MATURITY LIMITS...................................................................................... 5 XI. SELECTION OF BROKER/DEALERS...................................................................................................... 6 XII. SAFEKEEPING AND CUSTODY.............................................................................................................. 6 XIII. RECORD KEEPING AND REPORTING................................................................................................... 7 XIV. ETHICS AND CONFLICTS OF INTEREST.............................................................................................. 8 XV. POLICY REVISIONS.................................................................................................................................. 9 APPENDIX A - BROKER/DEALER QUESTIONNAIRE APPENDIX B - CERTIFICATION BY DEALER III �J 1 CITY OF WYLIE, TEXAS INVESTMENT POLICY I. INTRODUCTION 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 written 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 deposits as provided under Chapter 105 of the Local Government Code. H. SCOPE This Policy shall apply to the investment and management of all funds of the 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 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 bank account will be maintained by pooled fund group for purposes of implementing pooled fund strategies and reporting. The income derived from this pooled investment account shall be distributed by fund in accordance with the City's internal procedures. III.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 the 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 higher than the above goal must be consistent with risk limitations identified in this policy and prudent investment principles. The City's investment portfolio shall be designed with the objective of attaining a rate of return which is consistent with the risk limitations and cash flow characteristics of the City's investments. IV. INVESTMENT COMMITTEE An investment committee consisting of the City Manager, the Director of Finance and the Assistant CITY OF WYLIE, TEXAS INVESTMENT POLICY Director of Finance will meet annually before the beginning of a new fiscal year. The Investment Committee shall be authorized to invite advisors to the meetings as needed. The investment officer will present a brief report of investment activities to the Investment Committee. The primary objectives of the committee will be to (1) make recommendations regarding investment strategies (2) approve a list of authorized brokers, dealers, banks, savings and loans, credit unions, and pools (3) recommend a list of authorized training sources for the state mandated investment training and (4) monitor program results. The committee shall include in its deliberations such topics as performance reports, economic outlook, portfolio diversification, maturity structure, potential risk to the city's funds, and the target rate of return on the investment portfolio. V. 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, and misrepresentation by third parties, or imprudent actions by employees and officers of the City. 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. At 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. VI. INVESTMENT STRATEGY The City of Wylie maintains a pooled investment portfolio. The pooled portfolio utilizes specific investment strategies designed to address the unique characteristics of the pooled investment portfolio. The pooled investment portfolio includes Operating Funds, Debt Service Funds, Debt Service Reserve Funds, Capital Projects and Special Purpose Funds. Investment strategies for these different groups are detailed below. (1) Investment strategies for operating, debt service, capital project, and special purpose funds have 1 1 1 1 CITY OF WYLIE, TEXAS INVESTMENT POLICY as their primary objective to assure that anticipated cash outflows are matched with adequate investment liquidity. The secondary objective is to create a portfolio structure which will experience minimal volatility during economic cycles. (2) The investment strategy for the debt service reserve funds 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. Except as may be required by a bond ordinance, securities should be of high quality with short to intermediate -term maturities. VII. STANDARD OF CARE 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: (1) preservation and safety of principal; (2) liquidity; and (3) diversification; and (4) yield. 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. 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. VIII. INVESTMENTS AUTHORIZED BY THE CITY OF WYLIE Authorized investments for municipal governments in the State of Texas are set forth in the Public Funds Investment Act, as amended (Section 2256.009- 2256.019, Government Code). However, suitable investments for the City of Wylie are limited to the following. (1) Direct obligations of the United States or its agents and instrumentalities with a stated maturity of 5 years or less. (2) Certificates of deposit issued in the State of Texas with a maximum maturity of 2 years or less and insured by the Federal Deposit Insurance Corporation. (3) Fully collateralized direct repurchase agreements with a defined termination date of 2 years or less which are secured by obligations of the United States or its agencies and instrumentalities and pledged with a third party in the City's name. The agreement must be placed through a primary government securities dealer, as defined by the Federal Reserve, or by a financial institution doing business in the State of Texas. Each issuer of repurchase agreements shall be required to sign a master repurchase agreement. (4) Approved investment pools as described in Section 2256.016 which are continuously rated no lower than AAA, AAAm or an equivalent rating by at CITY OF WYLIE, TEXAS INVESTMENT POLICY least one nationally recognized rating agency and have a weighted average maturity no greater than 90 days. IX. OTHER INVESTMENT GUIDELINES The City seeks active management of its _ portfolio assets. In order to meet 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 92% 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 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 simultaneously released to the purchaser). In this manner the City will always have possession of either its securities or its monies. X. 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. 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: Max. % of Max. Investment Category Portfolio Maturity Obligations of the United 100% 5 years States or its agencies and instrumentalities. Certificates of Deposit 25% 18 mon. Repurchase Agreements 100% 2 years NOT Reverse Repurchase Agreements The Director shall evaluate how each security purchased fits into the City's overall investment strategy. 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 2 years. M. SELECTION OF BROKERS/DEALERS The City shall maintain a list of broker/dealers and financial institutions which have been approved for investment purposes by the investment committee. (For the purpose of this investment policy, Broker/dealer will be used to refer to any brokerage firm, bank, investment pool, or financial institution with which the City does investment business). Securities may only be purchased from those E J 1 1 CITY OF WYLIE, TEXAS INVESTMENT POLICY authorized institutions and firms. The authorized broker/dealers will be reviewed at least annually. To be eligible, a broker/dealer must meet at least one of the following criteria: 1) be recognized as a Primary Dealer as defined by the New York Federal Reserve Market Reports Division; or 2) complies with Securities and Exchange Commission Rule 150-1, the Uniform Net Capital Requirement Rule. If the City's depository bank also provides custodial and safekeeping services for the City, the bank may not be included as an authorized broker/dealer for the City. However, non-negotiable Certificate of Deposits are exempt from this policy. Broker/dealers will be selected and recommended to the investment committee 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 that has been authorized by the City shall be required to submit and annually update a Broker/Dealer Information Request form which includes the firm's most recent financial statements. The Director shall maintain a file which includes the most recent Broker/Dealer Information Request forms submitted by each firm approved for investment purposes. A copy of the submitted Broker/Dealer Information Request forms as well as a list of those broker/dealers approved by the City shall be maintained by the Director (See Appendix A). 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 (See Appendix B). 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. Certification language should be mutually acceptable to both parties. An investment officer of the City may not buy any securities from a person 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. 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. 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, CITY OF WYLIE, TEXAS INVESTMENT POLICY issuer of repurchase agreements in which the City invests or broker/dealer of securities on behalf of the City. 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: 1) 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 annually, 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. 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 or 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. Sales of securities for less than 92 percent of the book value of the securities must be approved by both the City Manager and the Director. A monthly investment report shall be prepared by staff and signed by the Director, listing all of the investments held by the City, beginning and ending market value for period, the current market valuation of the investments and transaction summaries, including a detailed list of the gains and losses recognized. The market value will be determined by: (1) written reports such as the Wall Street Journal; (2) on-line services such as Bloomberg; or (3) through a 1 1 1 F-� 1 1 CITY OF WYLIE, TEXAS INVESTMENT POLICY primary dealer or national bank that is independent of the specific security being valued. The report must state the pooled fund group for each asset/security. The report shall list the total investment return for the month. If invested in securities, the City's audit firm must review the monthly reports annually and the result of the review shall be reported to the City Council by that auditor. 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 investment returns. 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. The annual investment report will be reviewed as a part of the annual audit. )(IV. 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. 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 of the 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 amity 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, the Director of Finance and the Assistant Director of Finance and revised when necessary. All revisions shall be approved by the City Council.