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RES 1396 12/08/2009 OF C/�O C V r O rex �s RESOLUTION 1 3 9 6 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CIBOLO,TEXAS,AMENDING,REVIEWING,AND APPROVING THE INVESTMENT POLICY; PROVIDING A REPEALING CLAUSE; PROVIDING A SEVERABILITY CLAUSE; AND PROVIDING FOR AN EFFECTIVE DATE. WHEREAS, Chapter 2256 of the Texas Government Code, commonly known as the "Public Funds Investment Act"requires the City to adopt an investment policy by rule, order, ordinance or resolution annually; and WHEREAS, the Public Funds Investment Act requires the chief financial officer and investment officers of the City to attend investment training; and WHEREAS,the chief financial officer, investment officers and any official participating in the investment process have attended an investment training course as provided in the Investment Policy; and WHEREAS,the City of Cibolo Investment Policy also includes the Cibolo Economic Development Corporation to allow for the prudent investment of the CEDC's funds, as authorized by the Cibolo City Council and the Cibolo Economic Development Corporation Board of Directors; and WHEREAS, the attached Investment Policy and incorporated revisions comply with the Public Funds Investment Act, as amended, and authorize the investment of funds in safe and prudent investments; NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Cibolo , Texas has complied with the requirements of the Public Funds Investment Act and the Investment Policy, as amended, attached hereto, is hereby adopted as the Investment Policy of the City, effective December 81h, 2009. Section 1. That this Resolution and Investment Policy adopted hereby supersede all prior resolutions and Investment Policies in conflict with the provisions hereof, said conflicting resolutions and policies being hereby repealed to the extent of such conflict, and all other resolutions and policies not in conflict with the provisions of this Resolution shall remain in full force and effect. Section 2. That should any word, sentence,paragraph, subdivision, clause, phrase or section of this Resolution, or other resolutions, as amended hereby, be adjudged or held to be void or unconstitutional, the same shall not affect the validity of the remaining portions of said resolution or other resolution, as amended hereby, which shall remain in full force and effect. Section 3. This Resolution shall become effective immediately upon its passage APPROVED AND ADOPTED ON THIS STH DAY OF DECEMBER, 2009. APPROVED: t, J H man,Mayor t ATTEST: jjjjj I 1 / -�9y Peggy Cimics, City Secretary INTRODUCTION The purpose of this document is to set forth specific investment policy and strategy guidelines for the City of Cibolo (the "City") and the Cibolo Economic Development Corporation (the "EDC") in order to achieve the goals of safety, liquidity, yield, and public trust for all investment activity. The City Council and Board of Directors of the EDC ("the Board") shall review its investment strategies and policy not less than annually. This Policy serves to satisfy the statutory requirement (specifically the Public Funds Investment Act, Government Code Chapter 2256 (the "PFIA") to define, adopt and review a formal investment strategy and policy. Throughout this Investment Policy, the City and EDC shall be collectively referred to as (the "ENTITY"). INVESTMENT POLICY I. SCOPE This Investment Policy applies to all financial assets of the ENTITY. The funds are accounted for in the ENTITY'S Annual Financial Report (AFR). .and include .(but is not limited to): ■ General Fund ■ Special Revenue Funds ■ Debt Service Funds ■ Capital Projects Funds ■ Enterprise Funds ■ Economic Development Funds II. OBJECTIVES The ENTITY shall manage and invest its cash with the objectives (listed in order of priority): Safety, Liquidity, Public Trust, and Yield. The safety of the principal invested always remains the primary objective. All investments shall be designed and managed in a manner responsive to the public trust and consistent with State and Local law. Safety The primary objective of the ENTITY'S investment activity is the preservation of capital in the overall portfolio. Each investment transaction shall be conducted in a manner to avoid capital losses, whether they are from securities defaults or erosion of market value. 2 Liquidity The investment portfolio shall be structured such that the ENTITY is able to meet all obligations in a timely manner. This shall be achieved by matching investment maturities with forecasted cash flow requirements, maintaining adequate levels of highly liquid investments and by investing in securities with active secondary markets. Public Trust In addition to achieving the stated objectives, all participants in the ENTITY'S investment process shall seek to act responsibly as custodians of the public trust. Investment Officers shall avoid any transaction that might impair public confidence in the ENTITY'S ability to govern effectively. Yield The investment portfolio shall be designed with the objective of regularly exceeding the average "rate of return" on three-month U.S. Treasury Bills. The investment program shall seek to augment returns above this threshold consistent with risk limitations identified herein and prudent investment policies. To determine portfolio performance, this Policy established "weighted average yield to maturity" as the standard calculation. Investment Strategies The ENTITY maintains portfolios that utilize six specific investment strategy considerations designed to address the unique characteristics of the fund groups represented in the portfolios: A. It is the policy of the ENTITY to maintain a fund balance equal to a minimum of three months expenditures in the General Fund. Investment strategies for operating fund and commingled pools containing 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 that will experience minimal volatility during economic cycles. This may be accomplished by purchasing high quality, short to medium-term securities that will complement each other in a laddered or barbell maturity structure. The dollar weighted average maturity of 270 days or less will be calculated using the stated final maturity date of each security. Investments with operating funds shall have maturities that do not exceed 2 years. Funds shall be managed and invested with the objectives (listed in order of priority): Safety, Liquidity,.and Yield. 11J B. 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 next unfunded debt service payment date. Funds shall be managed and invested with the objectives (listed in order of priority): Safety, Liquidity, and Yield. C. Investment strategies for debt service reserve funds shall have as the primary objective the ability to generate a dependable revenue stream to the appropriate debt service fund from securities with a low degree of volatility. Securities should be of high quality and, except as may be required by the bond ordinance specific to an individual issue, of short to intermediate-term maturities that do not exceed the final debt service payment date or five years, whichever is shorter. Funds shall be managed and invested with the objectives (listed in order of priority): Safety, Liquidity, and Yield. D. 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. These portfolios should include at least 10% in financial institution deposits, constant dollar investment pools, or money market mutual funds investments to allow for flexibility and unanticipated project outlays. The stated final maturity dates of securities held shall not exceed the estimated project completion date. Funds shall be managed and invested with the objectives (listed in order of priority): Safety, Liquidity, and Yield. E. Investment strategies for enterprise funds shall 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 that will experience minimal volatility during economic cycles. This may be accomplished by purchasing high quality, short to medium-term securities that will complement each other in a laddered or barbell maturity structure. The dollar weighted average maturity of 270 days or less will be calculated using the stated final maturity date of each security. Investments with enterprise funds shall have maturities that do not exceed 2 years. Funds shall be managed and invested with the objectives (listed in order of priority): Safety, Liquidity, and Yield. F. Economic Development Funds shall maintain a fund balance in an amount to be determined by the Board. Investment strategies for Economic Development Funds will consider that these fund balances are designated for economic development projects and will be scheduled by the Cibolo Economic Development Corporation. In addition to considerations addressed in the balance of this Investment Policy, the maximum weighted average maturity of Economic Development Funds shall not exceed two years. The maximum maturity of an individual investment shall 4 not exceed three years. To ensure adequate liquidity for unanticipated cash needs, a portion of the fund balances shall be invested in financial institution deposits, constant dollar investment pools, or money market mutual funds. Any term- specific investments shall be matched with anticipated cash requirements. Funds shall be managed and invested with the objectives (listed in order of priority): Safety, Liquidity, and Yield. III. RESPONSIBILITY AND CONTROL Delegation of Authority and Training Authority to manage the ENTITY'S investment program is derived from adoption of this Investment Policy. The City Manager and the Finance Director are designated as Investment Officers of the ENTITY. The Investment Officers are authorized to give written and oral instructions to place orders for the purchase of investments. No other person may deposit, withdraw, invest, transfer or otherwise manage ENTITY funds eligible for investment without the express written authority of the City Manager. The Finance Director is responsible for day-to-day investment decisions and activities. The Finance Director shall establish procedures for the operation of the investment program, consistent with this Investment Policy. In order to ensure qualified and capable investment management, each Investment Officer shall attend at least one training session, from an independent training source and containing at least 10 hours of instruction relating to the Officer's responsibility under the PFIA within 12 months after assuming duties. Thereafter, each Investment Officer shall additionally attend at least one training session, from an independent training source, and containing at least 10 hours of instruction relating to the Officer's responsibility under the PFIA not less than once in a two-year period. The approved independent sources of training are: Government Finance Officers Association of Texas, Government Treasurers Organization of Texas, Alamo Area Council of Governments, University of North Texas, and the Texas Municipal League. Internal Controls The Finance Director is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the ENTITY are protected from loss, theft or misuse. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. 5 Accordingly, the Finance Director shall establish a process for annual independent review by an external auditor in conjunction with the annual audit to assure compliance with policies and procedures. The internal controls shall address the following points: A. Control of collusion. B. Separation of transaction authority from accounting and record keeping. C. Custodial safekeeping. D. Avoidance of physical delivery securities. E. Clear delegation of authority to subordinate staff members. F. Written confirmation for telephone (voice) transactions for investments and wire transfers. Prudence The standard of prudence to be applied to the Investment Officer shall be the "prudent person" rule, which states: "Investments shall be made with judgment and care under circumstances then -prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation but for investment, considering the probable safety of their capital as well as the probable income to be derived." In determining whether an Investment Officer has exercised prudence with respect to an investment decision, the determination shall be made taking into consideration: A. The investment of all funds, or funds under the ENTITY'S control, over which the Officer had responsibility rather than a consideration as to the prudence of a single investment. B. Whether the investment decision was consistent with the written Investment Policy. The Investment Officer, acting in accordance with written procedures and exercising due diligence, shall not be held personally responsible for a specific security's credit risk or market price changes, provided that these deviations are reported immediately to the City Manager and/or the Board and that appropriate action is taken to control adverse developments. 6 Ethics and Conflicts of Interest Investment Officers shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair the ability to make impartial investment decisions and shall disclose to the City Manager any material financial interests in financial institutions that conduct business with the ENTITY. They shall further disclose positions that could be related to the performance of the ENTITY'S portfolio. Investment Officers shall subordinate their personal financial transactions to those of the ENTITY, particularly with regard to timing of purchases and sales. An Investment Officer who has a personal business relationship with an organization seeking to sell an investment to the ENTITY 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 ENTITY shall file a statement disclosing that relationship. A statement required under this subsection must be filed with the Texas Ethics Commission and the governing bodies of the ENTITY. Quarterly Reporting The Finance Director shall submit a signed quarterly investment report, crafted in compliance with the PFIA, to .the City Manager_and each respective gover body. At the end of the fiscal year, the Investment Officers shall include information incorporating the full year's investment portfolio activity and performance. The quarterly investment report shall include a succinct management summary that provides a clear picture of the status of the current investment portfolio and transactions made over the last quarter. This management summary will be prepared in a manner that will allow the ENTITY to ascertain whether investment activities during the reporting period have conformed to the Investment Policy. The report will include the following: A. A listing of individual securities held at the end of the reporting period. B. Unrealized gains or losses resulting from appreciation or depreciation by listing the beginning and ending book and market value of securities for the period. C. Additions and changes to the market value during the period. D. Average weighted yield to maturity of portfolio on entity investments as compared to applicable benchmarks. E. Listings of investments by maturity date. 7 F. The percentage of the total portfolio that each type of investment represents. G. Statement of compliance of the ENTITY'S investment portfolio with State Law and the Investment Policy and strategies. Effect of Loss of Authorization or Rating The ENTITY is not required to liquidate investments that were authorized investments at the time of purchase but no longer meet one or more requirements of this Policy. An investment that requires a minimum rating does not qualify as an authorized investment if, during the period, the investment does not have the minimum required rating. The ENTITY shall take all prudent measures that are consistent with this Investment Policy to liquidate an investment that does not have the minimum rating. Investments Assets of the ENTITY may be invested in the following instruments. 1. Authorized A. Obligations of the United States of America, its agencies and instrumentalities. B. Certificates of deposit and other evidences of deposit at a financial institution that, a) has its main office or a branch office in Texas and is guaranteed or insured by the Federal Deposit Insurance Corporation or its successor, b) is secured by obligations described in Section V. SAFEKEEPING AND CUSTODY and in a manner and amount provided by law for deposits of the ENTITY, or c) is executed through a depository institution that has its main office or a branch office in Texas that participates in the Certificate of Deposit Account Registry Service (CDARS) and meets the requirements of the PF IA. C. Fully collateralized direct repurchase agreements with a defined termination date secured by obligations of the United States or its agencies and instrumentalities pledged with a third party, selected by the Finance Director, other than an agency for the pledger. Repurchase agreements must be purchased through a primary government securities dealer, as defined by the Federal Reserve, or a financial institution doing business in Texas. D. Eligible Investment Pools as defined by and in compliance with the Public Funds Investment Act, that have been authorized by the City Council and Board of Directors, maintain a rating of a least AAA or AAAm, or the equivalent, and whose investment philosophy and strategy qualify as "government security" investment 8 portfolios and seek to maintain a stable net asset value of $1.00 or provide fixed maturity/fixed rate investment. E. SEC registered, no load, government money market mutual funds that comply with the requirements of State law. 2. Not Authorized The ENTITY'S authorized investment options are more restrictive than those allowed by State law. State law specially prohibits investment in the following investment securities: A. Obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal. B. Obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security collateral and bears no interest. C. Collateralized mortgage obligations that have a stated final maturity date of greater than 10 years. D. Collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index. 3. Holding Period The EN71TY intends to match the holding periods of investment funds with liquidity needs of the ENTITY. The maximum final stated maturity of any investment shall not exceed five years. 4. Risk and Diversification The ENTITY recognizes that investment risks can result from issuer defaults, market price changes or various technical complications leading to temporary illiquidity. Risk is controlled through portfolio diversification that shall be achieved by the following general guidelines: A. Risk of issuer default is controlled by limiting investments to those instruments allowed by the PFI_A, which are described herein. B. Risk of market price changes shall be controlled by avoiding over- concentration of assets in a specific maturity sector, limitation of average maturity of operating 9 funds investments, and avoidance of over-concentration of assets in specific instruments. C. All investment funds shall be placed directly with qualified investment providers. The ENTITY will not deposit or invest funds through third parties or money brokers. IV. SELECTION OF QUALIFYING INSTITUTIONS Deyository In compliance with state legislation, a Depository shall be selected through the ENTITY'S banking services procurement process, which shall include a formal request for proposal (RFP). In selecting a depository, the credit worthiness of institutions shall be considered, and the Finance Director shall conduct a review of prospective depository's credit characteristics and financial history. It is the policy of the ENTITY to permit selection of a depository outside municipal boundaries. Securities Broker/Dealers For brokers/dealers of investment securities, the ENTITY may select any dealers reporting to the Market Reports Division of the Federal Reserve Board of New York, also known as the "Primary Government Security Dealers." Other non-primary firms may be utilized if analysis reveals that such firms are adequately financed to conduct public business. All broker/dealers who desire to become qualified for investment transactions must provide an investment provider certificate in compliance with the PFIA. Any broker/dealer must have been authorized by the City Council to execute transactions with the ENTITY prior to any such transaction. V. SAFEKEEPING AND CUSTODY Insurance and Collateral All depository deposits shall be insured or collateralized in compliance with applicable State law. The ENTITY reserves the right, in its sole discretion, to accept or reject any form of insurance or collateralization pledged towards depository deposits. Financial institutions serving as the ENTITY depositories must provide an investment provider certificate in compliance with the PFIA and will be required to sign a depository agreement with the ENTITY. The collateralized deposit portion of the agreement shall define the ENTITY'S rights to the collateral in case of default, bankruptcy, or closing and 10 shall establish a perfected security interest in compliance with federal and State regulations, including: • The agreement must be in writing; • The agreement has to be executed by the depository and the ENTITY contemporaneously with the acquisition of the asset; • The agreement must be approved by the Board of Directors or authorized Committee of the depository and a copy of the meeting minutes must be delivered to the ENTITY; and • The Agreement must be part of the depository's "official record" continuously since its execution. Insurance, Pledged Collateral or Purchased Securities - With the exception of deposits secured with irrevocable letters of credit at 100% of amount, all deposits of the ENTITY'S funds with eligible depositories shall be secured by pledged collateral with a market value equal to or greater than 102% of the deposits, less any amount insured by the FDIC. Repurchase agreements shall be documented by a specific agreement noting the "purchased securities" in each agreement. Collateral pledged and purchased securities shall be-held at an independent third party financial institution approved by the ENTITY and reports of said securities reviewed at least monthly to assure the market value equals or exceeds the related ENTITY investment. Evidence of the pledged collateral shall be maintained by the Finance Director or a third party financial institution. Custodial Agreement Collateral pledged to secure deposits of the ENTITY shall be held by a third party financial institution in accordance with a custodial agreement which clearly defines the procedural steps for gaining access to the collateral should the ENTITY determine that the ENTITY'S funds are in jeopardy. The custodial institution, or Custodian, shall be the Federal Reserve Bank, Federal Home Loan Bank, or an institution not affiliated with the firm pledging the collateral and that meets the requirements of State Law. The custodial agreement shall include the signatures of authorized representatives of the ENTITY, the firm pledging the collateral, and the Custodian. A custodial receipt shall be issued to the ENTITY listing the specific investment, rate, maturity, and other pertinent information. 11