R2004-150 09-13-04 RESOLUTION NO. R2004-150
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PEARLAND,
TEXAS, ADOPTING AN AMENDED INVESTMENT POLICY IN
ACCORDANCE WITH CHAPTER 2256 OF THE GOVERNMENT CODE
("PUBLIC FUNDS INVESTMENT ACT").
WHEREAS,the Public Funds Investment Act codified in Government Code Chapter
2256 governs local government investment; and
WHEREAS, the Public Fund Investment Act (Section 2256.005a), as amended,
requires the City to adopt an investment policy and investment strategies by rule, order,
ordinance or resolution governing the investment of funds under its control; and
WHEREAS, the Public Fund Investment Act (Section 2256.005e), requires the
governing body to review and adopt that investment policy and investment strategies by
rule, order, ordinance or resolution not less than annually, recording any changes made
thereto; and,
WHEREAS, the City Council has chosen to adopt a change to Section 1.04 of the
Investment Policy modifying the membership of the internal Investment Committee, as
follows;
The City shall establish an Investment Committee for the purpose of
reviewing investment policies and procedures, investment strategies, and
investment performance. The members of the Committee shall consists
of the City Manager, Assistant City Manager, Director of Finance, and in
the Director's absence, their designee. The City Manager shall be the
Chairman of the Committee.
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS:
Section 1. That the City has complied with the requirements of the Public Funds
Investment Act and the Investment Policy, as amended, attached hereto as Exhibit"A", is
hereby adopted as the Investment Policy of the City. Approved changes to the Policy are
marked on the Exhibit.
RESOLUTION NO. R2004-150
PASSED, APPROVED, AND ADOPTED this 13th day of September
A.D., 2004.
TO REID
MAYOR
ATTEST:
NGL• 'F G, RM C®
C Y SE& ETARY
APPROVED AS TO FORM:
DARRIN M. COKER
CITY ATTORNEY
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INVESTMENT POLICY
CITY OF PEARLAND, TEXAS
Adopted Sept. 13,2004
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City of Pearland
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Investment Policy September 2003
TABLE OF CONTENTS
1.0 INVESTMENT AUTHORITY AND SCOPE OF POLICY
1.01 Purpose
1.02 Scope of Policy
1.03 Delegation of Responsibility
1.04 Investment Committee
2.0 INVESTMENT OBJECTIVES
2.01 Objective
2.02 Safety of Principal
2.03 Liquidity
2.04 Diversification
2.05 Yield
2.06 Maturity
2.07 Quality and Capability of Investment Management
2.08 Investment Strategy
3.0 AUTHORIZED INVESTMENT •
3.01 Authorized Investments
3.02 Unauthorized Investments
4.0 INVESTMENT CONTROLS
4.01 Financial Intermediaries
4.02 Delivery vs.Payment
4.03 Audit Control
4.04 Standard of Care
4.05 Competitive Bidding
5.0 INVESTMENT REPORTING
5.0 Quarterly Reporting
6.0 INVESTMENT COLLATERAL AND SAFEKEEPING
6.01 Collateral or Insurance
6.02 Safekeeping of City Securities
7.0 INVESTMENT POLICY ADOPTION
ATTACHMENT A—Broker/Dealer Certification
ATTACHMENT B—Public Funds Investment Act(Texas Government Code 2256)
City of Pearland
Investment Policy-September 2003
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CITY OF PEARLAND
INVESTMENT POLICY
1.0 INVESTMENT AUTHORITY AND SCOPE OF POLICY
1.01 Purpose
It is the policy of the City of Pearland (the"City")to invest public funds in a manner which will
provide the highest reasonable market return with the maximum security while meeting the daily
cash flow demands of the City and conforming to all state and local statutes governing the
investment of public funds.
This policy satisfies the requirement of the Public Funds Investment Act (the "Act"), Texas
Government Code 2256 which requires the creation and annual adoption of a written investment
policy. The City Council shall no less than annually review and adopt the Investment Policy and
its incorporated strategies. Any changes to the Policy will be detailed in the adopting resolution.
1.02 Scope of Policy
This Investment Policy shall apply to all the funds and investments of the City as well as any other
funds held in custody by the City, unless expressly prohibited by law or so designated by City
Council.
1.03 Delegation of Investment Authority
The Director of Finance and Assistant Finance Director are hereby designated as Investment
Officers for the City. The Director of Finance may designate, in writing, individuals who may
assist in the Investment Officer's absence to deposit, withdraw, invest, transfer or manage in any
other manner the funds of the City. Otherwise no individual has the authority to perform such
duties.The City may designate a registered investment advisor to invest for the_City and act as an
additional Investment Officer. The Investment Officers shall be responsible for all transactions
undertaken and shall establish a system of controls to regulate the activities of subordinate
officials.
Any personal or business relationship between investment officers and a financial entity seeking to
do business with the City must be disclosed to the Texas Ethics Commission and City Council.
(2256.005(I)).
1.04 Investment Committee
The City shall establish an Investment Committee for the purpose of reviewing investment
policies and procedures, investment strategies, and investment performance. The members of the
Committee shall consist of the City Manager, Assistant City Manager,Director of Finance,and in
the Director's absence,their designee. The City Manager shall be the Chairman of the Committee.
The Investment Committee shall review quarterly investment reports and annually review the list
of brokers authorized to engage in investment transactions with the City.
City of Pearland
Investment Policy—September 2003
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2.0 INVESTMENT OBJECTIVES AND STRATEGY
2.01 Objective
City investments shall be made in accordance with federal and state laws, this Investment Policy
and ordinances of the City. The City's investment portfolio shall be designed with the objective of
attaining a market rate of return in accordance with its designated benchmark based on the City's
cash flow requirements throughout budgetary and economic cycles,commensurate with the City's
investment risk constraints and the cash flow characteristics of the portfolio.
2.02 Safety of Principal
The primary objective of the City's investment program is to ensure the safety of all funds and to
avoid speculative investing.
2.03 Liquidity
The City's investment must be based on a cash flow analysis which provides the liquidity
necessary to pay all expected and unexpected obligations.
2.04 Diversification
The City of Pearland shall diversify its portfolio to eliminate the risk of loss resulting from over
concentration of assets in a specific maturity, a specific issuer or a specific class of investments.
Investment shall always be selected that provide for stability of income and reasonable liquidity.
2.05 Yield
It will be the objective of the City to earn a reasonable market yield within the parameters imposed
by its safety and liquidity objectives, investment strategies, and state and federal law. The yield
and level of risk for the portfolio will be benchmarked against the yield of the one-year Treasury
obligation during the comparable period.
2.06 Maturity
The portfolio shall be structured primarily to meet City obligations and secondly to achieve a
reasonable return of interest. The maximum allowable stated maturity of any individual
investment owned by the City shall be three (3) years. The maximum dollar weighted average
maturity of the overall portfolio shall be one year.
2.07 Quality and Capability of Investment Management
The City shall provide investment training as required by the Act through courses and seminars
offered by professional organizations and associations and approved by the City. The Investment
Officers shall receive not less than 10 hours of investment training every two years. (2256.008).
2.08 Investment Strategy
In accordance with the Act (2256.005(d)) a written investment strategy shall be developed for
each portfolio under the City's control. The City commingles its funds for investment purposes.
The overall strategy of the commingled portfolio shall incorporate the objectives of the funds then
represented in the portfolio. In accordance with the City's objectives, the City shall invest
primarily in high credit quality securities and liquid investment alternatives to assure safety and
liquidity. The City will utilize cash flow analysis to identify expected liabilities for longer term
investments.
The structure and management of the overall portfolio will address the varying needs, goals and
objectives of each fund. Investment strategies for operating funds are designed to assure that
anticipated cash flows are matched with adequate liquidity. This may be accomplished by
purchasing high quality, short-to-medium term securities that will complement each other in a
laddered maturity structure and assure the marketability of those investments should liquidity
needs arise. Investments are to be chosen in a manner that promotes diversity by market sector,
credit and Jnaturity.
City of Pearland
Investment Policy—September 2003
Investment strategies for Debt Service Funds will primarily assure investment liquidity adequate
to cover the debt service obligation for each consecutive debt service payment. Investments shall
progressively fund each succeeding debt service.
Effective cash management is recognized as essential to good fiscal management. Cash
management is defined as the process of managing monies in order to ensure maximum cash
availability to the City for investment use. The City shall maintain a comprehensive cash
management program that includes collection of accounts receivable, prudent investment of its
available cash, disbursement of payments in accordance with invoice terms and the management
of banking services.
3.0 AUTHORIZED INVESTMENTS
3.01 Authorized Investments
Authorized investments under this policy shall be limited to the instruments listed below as
authorized and defined by the Public Funds Investment Act.
A. Obligations of the United States or its agencies and instrumentalities,excluding mortgage
backed securities, with a stated maturity not to exceed three years.
B. Collateralized certificates of deposit of banks or savings banks doing business in Texas ,
collateralized to 102%, with a stated maturity not to exceed one year, and
1. guaranteed or insured by the Federal Deposit Insurance Corporation or its
successor; or
2. secured by obligations of the United State Government, including mortgage
backed securities which pass the bank test,but excluding those mortgage backed
securities defined in Section 2256.009(b)of the Act.
C. Constant dollar local government investment pools as defined by the Act (2256.016 and
2256.019)and approved by City Council resolution.
D. SEC registered money market mutual funds.
E. Collateralized repurchase agreements as defined by the Public Funds Investment Act
placed through a primary government securities dealer or a financial institution doing
business in this state with a maturity date not to exceed one year. Flex repurchase
agreements used for bond funds may extend beyond one year but be limited by the
expenditure plan of the bond funds.
3.02 Unauthorized Investments
Specifically prohibited investments are collateralized mortgage obligations as defined by the Act
(2256.009(b)).
4.0 INVESTMENT CONTROLS
4.01 Financial Intermediaries
A written copy of this Investment Policy shall be presented to any firm seeking to engage in a
financial transaction with the City. The authorized representative of the firm shall execute a
written instrument substantially in the form of Attachment A of this Policy and to the effect that
the representative has:
1. received and thoroughly reviewed the investment policy of the City; and
City of Pearland
Investment Policy—September 2003
2. acknowledged that the organization has implemented reasonable procedures and controls
in effort to preclude investment transactions that are not authorized by the City's
Investment Policy except to the extent that the authorization is dependent on an analysis
of the makeup of the City's entire portfolio or requires interpretation of subjective
investment standards..
The investment officer may not transact business with any firm that has not executed and returned
this certification. (2256.005(1). A list of broker/dealers shall be maintained by the Investment
Committee.
The City will solicit proposals for bank depository services at least every five years.
The City may contract with a registered investment advisor for the management of the City's
portfolio. The advisor shall review the Policy and execute all transactions in accordance with the •
provisions and controls of the Policy.
4.02 Delivery vs.Payment Settlement
It shall be the policy of the City that all securities shall be purchased on a"Delivery vs. Payment"
(DVP)basis. By so doing,City funds are not released until the City or its approved custodian has
received the securities purchased or pledged.
4.03 Audit Control
There will be an annual compliance audit of management controls on investments and the City's
adherence to this Investment Policy as well as an annual review by the external auditor of
quarterly investment reports. (2256.005(m)and 2256.023(d)).
4.04 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.
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 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 City's Investment
Policy.
4.05 Competitive Bidding
All investment transactions will made on a competitive basis to assure that the City obtains fair
market values.
5.0 INVESTMENT REPORTING
The Investment Officers shall report to City Council on no less than a quarterly basis in
accordance with the Act (2256.023). The report shall include a detailed listing of all purchases,
sales, and payments and a description of each security held as well as management summary
information.
The report must be prepared and signed by the Investment Officers and contain a statement of
compliance with regard to the City's Investment Policy and the Act(2256.023).
Market prices used to determine market value in the investment reports shall be obtained from an
independent source.
City of Pearland
Investment Policy—September 2003
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6.0 INVESTMENT COLLATERAL AND SAFEKEEPING
6.01 Collateral
The Investment Officer or Investment Advisor shall ensure that all City funds in time and demand
deposits and/or repurchase agreements are insured or collateralized consistent with the Public
Funds Collateral Act (Texas Government Code 2257) and federal law as well as the then current
bank depository contract. The authorized insurance or collateral types are restricted to:
1. FDIC insurance coverage or its successor; or
2. Obligations of the United States, its agencies or instrumentalities including mortgage-
backed securities which pass the bank test. (2257.021)
Collateral will equal 102% of time and demand deposits and be held by an independent party
outside the bank's or counter-parties' holding company. Pledged collateral will be evidenced by
original safekeeping receipts. The bank and/or counter-party will be responsible for the
monitoring and maintaining of margin levels at all times.
6.02 Safekeeping
All City securities shall be held in independent safekeeping by the City,the City's depository bank
or a City approved custodian in a third party financial institution. All safekeeping will be
evidenced by original safekeeping receipts.
7.0 INVESTMENT POLICY ADOPTION
The City's investment policy shall be adopted annually by the City Council. A written
resolution approving that review and changes to the policy from the review will be passed
and recorded by the Council.
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City of Pearland
Investment Policy—September 2003
ATTACHMENT A
CERTIFICATION FORM
As required by Texas Government Code 2256.005 (k)
City of Pearland,Texas(the"City")
(the"Firm")
I, as an authorized representative of this Firm, do hereby certify that I have received and thoroughly
reviewed the Investment Policy of the City of Pearland.
I acknowledge that the Firm, has implemented reasonable internal procedures and controls in an effort to
preclude investment transactions conducted between the City and the Firm that are not authorized by the
City's Investment Policy except to the extent that this authorization is dependent on an analysis of the
makeup of the City's entire portfolio or requires an interpretation of subjective investment standards.
Signature
Name
Title
Date
City of Pearland
Investment Policy—September 2003