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R2006-003 01-09-06 RESOLUTION NO. R2006-3 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; now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: Section 1. That the City of Pearland has complied with the requirements of the Public Funds Investment Act and the Investment Policy. The modified Policy is attached hereto as Exhibit "A" and is hereby adopted as the Investment Policy of the City effective immediately. PASSED, APPROVED, AND ADOPTED this 9th A.D., 2006. day of January fo~~ MAYOR RESOLUTION NO. R2006-3 ATTEST: APPROVED AS TO FORM: ~a-L DARRIN M. COKER CITY ATTORNEY 2 City of Pearland Investment Policy - 2005 INVESTMENT POLICY CITY OF PEARLAND, TEXAS EXHIBIT ~ j 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 ofInvestment 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 A TT ACHMENT A - Broker/Dealer Certification A TT ACHMENT B - Public Funds Investment Act (Texas Government Code 2256) City of Pearland Investment Policy - 2005 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, Director of Finance, Assistant Director of Finance, and one (1) other member of City staff as designated by the City Manager. 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 Pearl and Investment Policy - 2005 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 maturity. City of Pearl and Investment Policy - 2005 Investment strategies for Debt Service Funds wi1\ 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. AAA-rated, 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 Pearl and Investment Policy - 2005 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 Pearl and Investment Policy - 2005 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. City of Pearl and Investment Policy - 2005 ATTACHMENT A CERTIFICATION FORM As required by Texas Government Code 2256.005 (k) City of Pearland, Texas (the "City") (the "Finn") I, as an authorized representative of this Finn, do hereby certify that I have received and thoroughly reviewed the Investment Policy of the City of Pearl and. I acknowledge that the Finn, has implemented reasonable internal procedures and controls in an effort to preclude investment transactions conducted between the City and the Finn 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 Pearl and Investment Policy ~ 2005 City of Pearland Authorized Broker/Dealer List December 2005 The authorized broker/dealer list for City of Pearland is shown below. Each of these firms, and the individual covering the account, are sent the current Investment Policy. In accordance with the Public Funds Investment Act (TX Gov't Code 2256.005(k)) before any broker/dealer transacts business with the City it will have had to certify in writing to a review of the Policy and have certified that procedures are in place to assure compliance with that Policy. Each have responded with written certification. The City's Policy establishes specific criteria for the brokers and requires that the list of broke/dealers be approved annually by the Board. Attachment A of the Policy is the certification form used for this_purpose. Patterson & Associates maintains the brokerage compliance files for the City. When any material changes are made to the Investment Policy the new Policy IS sent out for re- certification. Bank of America Citigroup (formerly Salomon Smith Barney) Merrill Lynch Mizuho Securities Raymond James RBC Dain Rauscher Wells Fargo