HomeMy WebLinkAboutResolution No. 2012-021
CITY OF THE COLONY
RESOLUTION NO. 2012- 09\ 1
A RESOLUTION APPROVING THE INVESTMENT POLICY AS
AMENDED, FOR THE CITY OF THE COLONY; AND PROVIDING AN
EFFECTIVE DATE.
WHEREAS, the City Staff must annually review and approve an Investment Policy; and
WHEREAS, the City Council has previously amended the Investment Policy by
Resolution 2011-058 on the 20th day of September, 2011; and
WHEREAS, the City Council desire to amend said Investment Policy;
NOW, THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF
THE CITY OF THE COLONY, TEXAS that:
SECTION l: The City Council of the City of The Colony hereby approves the
Investment Policy of the City of The Colony as amended, which is attached hereto and
incorporated by reference as if set forth in frill as Exhibit A.
SECTION 2: That the Investment Policy as adopted herein shall govern the investment
decisions and strategies for the City of The Colony.
SECTION 3: That this resolution shall become effective immediately from and after its
passage and approval.
PASSED AND APPROVED this 20th day of March, 2012.
Jo McCourry ayor
ATTEST: t=
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Christie Wilson, City Secretary `>'`X.
Attachment A
CITY OF THE COLONY
THE COLONY ECONOMIC DEVELOPMENT CORPORATION
THE COLONY COMMUNITY DEVELOPMENT CORPORATION
INVESTMENT POLICY
MARCH 2012
Prepared by the Finance Department
THE COLONY INVESTMENT POLICY
TABLE OF CONTENTS
PAGE
1. SCOPE OF POLICY I
A. Funds Included I
B. Funds Excluded I
C. Pooling of Funds 1
D. Additional Requirements I
II. PRUDENCE I
III. OBJECTIVES OF POLICY 2
A. Safety 2
B. Liquidity 2
C. Public Trust/Transparency 2
D. Yield 2
IV. RESPONSIBILITY AND CONTROL 3
A. Delegation 3
B. Investment Officers 3
C. Conflicts of Interest 3
D. Disclosure 3
E. Investment Training 3
V. AUTHORIZED INVESTMENTS 4
VI. INVESTMENT REPORTS 4
VII. PORTFOLIO AND INVESTMENT ASSET PARAMETERS 4
A. Bidding Process for Investments 4
B. Maximum Maturities 5
C. Maximum Dollar-Weighted Maturity 5
D. Diversification 5
E. Performance Standards 5
VIII. SELECTION OF DEPOSITORY, BROKER/DEALERS, AND
INVESTMENT ADVISORS 5
A. Depository Solicitation Process 6
B. Insurability 6
C. Investment Advisors 6
IX. COLLATERALIZATION 6
A. Insurance or Collateral Pledged 6
B. Collateral Defined 6
C. Audit of Pledged Collateral 6
PAGE
X. SAFEKEEPING AND CUSTODY OF INVESTMENT ASSETS 6
XI. MANAGEMENT AND INTERNAL CONTROLS 7
XII. INVESTMENT POLICY ADOPTION 8
XIII. INVESTMENT STRATEGY 8
A. Operating Funds 9
APPENDIX A Authorized Government Pools 9
THE COLONY INVESTMENT POLICY
1. SCOPE OF POLICY
This Investment Policy shall govern the investment activities of all funds of the City of The Colony, The
Colony Economic Development Corporation, and The Colony Community Development Corporation
(collectively herein referred to as "THE COLONY"), excluding any specific funds cited hereafter. This
Policy serves to satisfy the state statutory requirement to define and adopt a formal investment policy.
A. FUNDS INCLUDED:
All financial assets of all current funds of THE COLONY and any new funds created in the future, unless
specifically exempted, will be administered in accordance with this Policy. These funds are accounted for
in the City's Annual Financial Report and may include: General Fund, Enterprise Funds, Capital Project
Funds, Special Revenue Funds, Trust and Agency Funds.
B. FUNDS EXCLUDED:
This Policy excludes Employee Retirement and Pension Funds administered or sponsored by THE
COLONY and excludes bond funds held in trust escrow accounts. THE COLONY will maintain
responsibility for these funds as required by Federal and State law and Charters and Codes.
C. POOLING OF FUNDS:
Except for cash in certain restricted and special funds, THE COLONY will consolidate cash balances
from all funds to optimize potential investment earnings. Investment income will be allocated to the
various funds based on their respective percentage participation and in accordance with the generally
accepted accounting principles.
D. ADDITIONAL REQUIREMENTS:
In addition to this Policy, bond funds (to include capital project, debt service, and reserve funds) will be
managed by the governing debt ordinance and the provisions of the Internal Revenue Code applicable to
the issuance of tax-exempt obligations and the investment of debt proceeds.
II. PRUDENCE
Investments shall be made with judgment and care, under circumstances then prevailing, which persons of
prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation,
but for investment, considering the probable safety of the capital as well as the probable income to be
derived. The standard of prudence to be used by Investment Officers shall be the "prudent person"
standard and shall be applied in the context of managing an overall portfolio of funds, rather than a
consideration as to the prudence of a single investment. Investment Officers acting in accordance with
written procedures and this Investment Policy and exercising due diligence shall be relieved of personal
responsibility for an individual security's credit risk or market price changes, provided deviations from
expectations are reported in a timely fashion to the City Manager, and the City Council, and appropriate
action is taken by the Investment Officers and their oversight managers to control adverse developments
in accordance with the terms of this Policy.
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III. OBJECTIVES OF POLICY
The primary objectives of THE COLONY's investment program in order of priority shall be preservation
and safety of principal, liquidity, public trust, and yield.
A. SAFETY:
The foremost and primary objective of THE COLONY's investment program is the preservation and
safety of capital. Each investment transaction will 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. The objectives will
be to mitigate credit risk and interest rate risk. To control credit risk, investments should be limited to the
safest types of investments. Financial institutions, broker/dealers and advisors who serve as
intermediaries, shall be pre-qualified by THE COLONY. The credit ratings of investment pools and
individual securities will be monitored to assure compliance with this Policy and State law.
To control interest rate risk, THE COLONY will structure the investment portfolio so that investments
mature to meet cash requirements for ongoing operations and will regularly monitor marketable securities.
Should an issuer experience a downgrade of its credit rating by a nationally recognized credit rating
agency below the required minimum rating, all prudent measures will be taken to liquidate the
investment.
B. LIQUIDITY:
THE COLONY's investment portfolio will remain sufficiently liquid to enable THE COLONY to meet
operating requirements that might be reasonably anticipated. Liquidity will be achieved by maintaining
adequate cash equivalent balances, matching investment maturities with forecasted cash flow funding
requirements, and by diversifying maturities. Furthermore, since all possible cash demands cannot be
anticipated, the portfolio, or portions thereof may be placed in bank accounts, money market mutual funds
or local government investment pools, which offer same day liquidity.
C. PUBLIC TRUST/TRANSPARENCY:
Investment Officers shall seek to act responsibly as the custodians of public trust. Investment Officers
shall avoid any transaction that might impair public confidence in THE COLONY's ability to govern
effectively. To increase public trust and transparency, the Investment Policy will limit investments to
those easily understood. Investments are limited to money market accounts of the Depository Bank and
local governmental investment pools, and certificates of deposit of up to I year in maturity as described
below in section V. Authorized Investments.
D. YIELD:
THE COLONY's investment portfolio will be designed with the objective of regularly meeting or
exceeding the optimum rate of return of a reasonable benchmark considering the risk, liquidity, and
transparency constraints. Investment Officers will seek to preserve principal, maintain liquidity levels
needed, maintain as much transparency as possible and optimize the yield of these funds. However, it is
understood that if the yield achieved by THE COLONY is higher than the arbitrage yield, positive
arbitrage income will be rebated to the federal government as required by current federal regulations.
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it
IV. RESPONSIBILITY AND CONTROL
A. DELEGATION:
The Director of Finance has oversight management responsibility to establish written procedures and
controls for the operation of the investment program, consistent with this Investment Policy. Such
procedures shall include explicit delegation of authority to persons responsible for the daily cash
management operation, execution of investment transactions, overall portfolio management, and
investment reporting. The Director of Finance shall be responsible for all transactions undertaken, and
shall establish a system of controls to regulate the activities of the Investment Officers.
B. INVESTMENT OFFICERS:
The Director of Finance and Accounting Manager are the "Investment Officers" of THE COLONY. No
person shall engage in an investment transaction except as provided under the terms of this Policy and the
procedures established by the Director of Finance.
C. CONFLICTS OF INTEREST:
Investment Officers and employees involved in the investment process will refrain from personal business
activity that could conflict with proper execution and management of the investment program, or which
could impair their ability to make impartial investment decisions. Investment Officers and employees
involved in the investment process shall refrain from undertaking personal investment transactions with
the same individual with whom business is conducted on behalf of THE COLONY.
D. DISCLOSURE:
Investment Officers shall disclose to the City Manager, City Council, Boards of Directors, and the Texas
Ethics Commission any financial interests in financial institutions or any relationship within the second
degree by affinity or consanguinity to an individual that conducts business with THE COLONY. All
Investment Officers shall further disclose any large personal financial investment positions that could be
related to the performance of THE COLONY's portfolio. Investment Officers shall subordinate their
personal investment transactions to those of this jurisdiction, particularly with regard to the timing of
purchases and sales.
E. INVESTMENT TRAINING:
In order to ensure qualified and capable investment management, the Director of Finance, the Accounting
Manager, and any other Investment Officers shall have a finance, accounting, or related degree and
knowledge of treasury functions. Additionally, Investment Officers must attend investment training not
less than once in a two-year period that begins on the first day of the fiscal year and consists of two
consecutive fiscal years after that date and receive not less than 10 hours of instruction relating to
investment responsibilities. This investment training may be from educational seminars held by
Government Finance Officers Association (GFOA), Government Treasurers Organization of Texas
(GTOT), Government Finance Officers Association of Texas (GFOAT), American Institute of Certified
Public Accountants (AICPA), University of North Texas (UNT), North Central Texas Council of
Governments (NCTCOG), and Texas Municipal League (TML). All Investment Officers of THE
COLONY shall attend at least one training session relating to their cash management and investment
responsibilities within 12 months after assuming these duties for THE COLONY. Training must include
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education in investment controls, security risks, strategy risks, market risks, and compliance with state
investment statutes.
V. AUTHORIZED INVESTMENTS
Funds of THE COLONY may be invested in the following investments, as authorized by Chapter 2256 of
the Government Code of the State of Texas, known as the "Public Funds Investment Act", and as
authorized by this Investment Policy. Investments not specifically listed below are not authorized:
A. Money Market Mutual Funds of Local Government Joint Investment Pools established and
operating in compliance with the Public Funds Investment Act, and are continuously rated no
lower than AAA-m or an equivalent rating by at least one nationally recognized rating service,
have a dollar-weighted average maturity of 60 days or less, and invest only in obligations listed in
the Public Funds Investment Act.
B. Money Market Deposit accounts with bank depository.
C. Certificates of Deposits that are issued by a state or national bank that has its main office or branch
office in the State of Texas and that a) which are guaranteed or insured by the Federal Deposit
Insurance Corporation, b) are secured in compliance with Section IX Collateralization, or c) are
executed through a depository institution that has its main office or a branch office in this state
that participates in the Certificate of Deposit Account Registry Service (CDARS) and meet the
requirements of the Public Funds Investment Act;
Only those investments specifically listed in this Policy are authorized.
VI. INVESTMENT REPORTS
The Director of Finance shall submit quarterly an investment report in compliance with the Public Funds
Investment Act. This report will be prepared in a manner, which will allow THE COLONY to ascertain
whether investment activities during the reporting period have conformed to the Investment Policy. The
report should be provided to the City Council, Boards of Directors, and the City Manager. The reports
shall be formally reviewed at least annually by an independent auditor in conjunction with the annual
audit. The result of the review shall be reported to the City Council and Boards of Directors by that
auditor. The quarterly investment report must be presented within 90 days of the end of the quarter
reporting period.
The Director of Finance is responsible for the recording of investment transactions and the maintenance
of the investment records with reconciliation of the accounting records of investments carried out by the
Accounting Manager. Information to maintain the investment program and the reporting requirements is
derived from various sources such as broker/dealer research reports, newspapers, financial on-line market
quotes, communication with broker/dealers, government investment pools, and financial consulting
services.
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VII. PORTFOLIO AND INVESTMENT ASSET PARAMETERS
A. BIDDING PROCESS FOR INVESTMENTS:
Investment Officers for THE COLONY shall solicit bids or quotes for certificates of deposit, or other
financial institution deposit accounts either orally, in writing, electronically, or in any combination of
these methods. The Investment Officers will strive to create a competitive pricing environment for all
portfolio transactions.
B. MAXIMUM MATURITIES:
THE COLONY will manage its investments to meet anticipated cash flow requirements. THE COLONY
will not directly invest in certificate of deposits maturing more than one year from the date of purchase.
C. MAXIMUM DOLLAR-WEIGHTED AVERAGE MATURITY:
The maximum dollar-weighted average maturity based on the stated final maturity, authorized by this
Investment Policy for the composite portfolio of THE COLONY, shall be 9 months.
D. DIVERSIFICATION:
It is the Policy of THE COLONY to diversify its investment portfolios. Assets held in each investment
portfolio shall be diversified to eliminate the risk of loss resulting from concentration of assets in a
specific maturity or specific issuer.
In establishing specific diversification strategies, the following general policies and constraints shall
apply:
1) CD maturities and shall be staggered in a way that protects interest income from the volatility of
interest rates and that avoids undue concentration of assets in a specific maturity or Institution.
Investments shall be selected which provide for stability of income and adequate liquidity.
E. PERFORMANCE STANDARDS:
The investment portfolio will be managed in accordance with the objectives specified within this Policy.
VIII. SELECTION OF DEPOSITORY, BROKER/DEALERS, AND INVESTMENT ADVISORS
A. DEPOSITORY SOLICITATION PROCESS:
Primary depositories shall be selected through THE COLONY's banking services procurement process,
which shall include a formal request for proposal (RFP) issued not less than every five years. In selecting
primary depositories, the credit worthiness of institutions shall be considered. No public deposit shall be
made except in a qualified public depository as established by state depository laws.
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THE COLONY may also establish agreements with other financial institutions under separate contract for
additional services which are necessary in the administration, collection, investment, and transfer of
municipal funds. Such deposits will only be made after the financial institution has completed and
returned the required written instruments and depository pledge agreements.
B. INSURABILITY:
Banks seeking to establish eligibility for THE COLONY's deposits, shall submit financial statements,
evidence of federal insurance, and other information as required by the Investment Officers of THE
COLONY.
D. INVESTMENT ADVISORS:
Investment Advisors shall adhere to the spirit, philosophy and specific term of this Policy and shall advise
within the same "Standard of Care". Selected Investment Advisors must be registered under the
Investment Advisors Act of 1940 or with the State Securities Board. A contract with an Investment
Advisor may not be for a term longer than two years and must be approved by the City Council, including
any renewals or extensions.
IX. COLLATERALIZATION
A. INSURANCE OR COLLATERAL PLEDGED:
Collateralization shall be required on depository bank deposits and certificates of deposit, in accordance
with the "Public Funds Collateral Act" and depository laws. With the exception of deposits secured with
irrevocable letters of credit at 100% of amount, the collateralization level will not be less than 102% of
market value of principal and accrued interest, less any FDIC insurance. Evidence of the pledged
collateral shall be documented by a tri-party custodial or a master repurchase agreement with the eligible
collateral pledged clearly listed in the agreement. Collateral shall be monitored at least monthly to ensure
that the market value of the securities pledged equals or exceeds the related deposit or investment balance.
B. COLLATERAL DEFINED:
THE COLONY shall only accept, as depository or investment collateral, letters of credit issued bv_ the
FHLB less any FDIC insurance or CDARS.
C. AUDIT OF PLEDGED COLLATERAL:
All collateral shall be subject to verification and audit by the Director of Finance.
X. SAFEKEEPING AND CUSTODY OF INVESTMENT ASSETS
All security transactions, including collateral for repurchase agreements, entered into by THE COLONY
shall be conducted using the delivery vs. payment (DVP) basis. That is, funds shall not be wired or paid
until verification has been made that the correct security has been received by the safekeeping bank. The
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safekeeping bank is responsible for matching up instructions from THE COLONY's Investment Officers
on an investment settlement with what is wired from the broker/dealer, prior to releasing THE
COLONY's designated funds for a given purchase. The security shall be held in the name of THE
COLONY or held on behalf of THE COLONY in a bank nominee name. Securities will be held by a third
party custodian designated by the Director of Finance and evidenced by safekeeping receipts. The
safekeeping bank's records shall assure the notation of THE COLONY's ownership of or explicit claim
on the securities. The original copy of all safekeeping receipts shall be delivered to THE COLONY. A
safekeeping agreement must be in place, which clearly defines the responsibilities of the safekeeping
bank. Wires or ACH transactions to and from government investment pools, financial institution deposits,
and money market mutual funds are the only exceptions to the DVP method of settlement.
XI. MANAGEMENT AND INTERNAL CONTROLS
The Director of Finance shall establish a system of internal controls which shall be designed to prevent
losses of public funds arising from fraud, employee error, misrepresentation by third parties, unanticipated
changes in financial markets, or imprudent actions by employees or Investment Officers of THE
COLONY.
Controls and managerial emphasis deemed most important that shall be employed where practical are:
A. Control of collusion.
B. Separation of duties.
C. Separation of transaction authority from accounting and record keeping.
D. Custodian safekeeping receipts records management.
E. Avoidance of bearer-form securities.
F. Clear delegation of authority.
G. Documentation of investment bidding events.
H. Written confirmations from broker/dealers and financial institutions.
1. Reconcilements and comparisons of security receipts with the investment records.
J. Compliance with investment policies.
K. Accurate and timely investment reports as required by law and this Policy.
L. Validation of investment maturity decisions with supporting cash flow data.
M. Adequate training and development of Investment Officers.
N. Verification of all investment income and security purchase and sell computations.
0. Review of financial condition of all broker/dealers, and depository institutions.
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P. Information about market conditions, changes, and trends that require adjustments in investment
strategies.
The above list of internal controls represents only a partial list of a system of internal controls. In
conjunction with the annual audit, a process of independent review by an external auditor shall be
established.
XII. INVESTMENT POLICY ADOPTION
THE COLONY's Investment Policy shall be adopted by resolution of the City Council and Boards of
Directors. The Policy and general investment strategy statements shall be reviewed on an annual basis by
the City Council and Boards of Directors, and any modifications made thereto must be approved by them.
XIII. INVESTMENT STRATEGY
Effective investment strategy development coordinates the primary objectives of THE COLONY's
Investment Policy and cash management procedures. Cash management to increase the available
"investment period" will be employed when necessary to enhance the ability of THE COLONY to earn
interest income. Maturity selections shall be based on cash flow and market conditions to take advantage
of interest rate cycles. THE COLONY's portfolio shall be designed and managed in a manner responsive
to the public trust and consistent with the Investment Policy.
Each major fund type has varying cash flow requirements and liquidity needs. Therefore specific
strategies shall be implemented considering the Fund's unique requirements. THE COLONY funds shall
be analyzed and invested according to the following major fund types:
A. Operating Fund
B. Capital Project Funds and Special Purpose Funds
C. Debt Service Funds
D. Bond Reserve Funds
OVERALL STRATEGY:
THE COLONY's basic investment strategy is to utilize investment options that represent suitable
risk/return alternatives for excess operating reserves which are easily understood by the public. Therefore,
investment of excess operating funds shall seek to preserve principal and promote transparency by
restricting authorized investment instruments to those investments which are easily understood with
suitable and limited credit and market risk.
Liquidity will be maintained by utilizing projected cash flow needs to limit investment maturities and
targeting minimum cash balances. Investment marketability will be maintained based on the fund-type
strategies to sufficiently and reasonably assure that investments could be liquidated prior to the maturity,
if cash needs dictate.
THE COLONY shall also diversify its investment portfolio. Whenever practical, assets held in the
investment portfolio shall minimize the risk of loss resulting from concentration of assets in a specific
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maturity or specific issuer. THE COLONY will group investment instruments into "fund-type investment
groups." These groups will reflect similar needs as to maturity limits, diversity, and liquidity.
THE COLONY funds shall seek to achieve a competitive yield appropriate for each strategy. Yield
objectives shall at all times be subordinate to the objectives of safety, liquidity and transparency. Tax-
exempt debt proceeds shall be invested to optimize the interest earnings retained by THE COLONY,
while at the same time fully complying with all applicable State laws and federal regulations, including
the arbitrage rebate regulations.
A. OPERATING FUNDS:
Operating Funds shall have as their primary objective to assure safety of principal. The secondary
objective is 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
changing economic cycles. Objectives may be accomplished by investing in money market accounts of
the depository bank or government investment pools or bank certificates of deposits.
APPENDIX A
AUTHORIZED LOCAL GOVERNMENT INVESTMENT POOLS
TEXPOOL/TEXPOOL PRIME (Texas Local Government Investment Pools)
LOGIC (Local Government Investment Cooperative)
TEXASTERM/TEXASDAILY (Local Government Investment Pools)
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