RTIRZ-2011-04 - 2011-06-13ATTEST:
RESOLUTION NO. RTIRZ- 2011 -04
A RESOLUTION OF THE TAX INCREMENT REINVESTMENT ZONE NO. 2
(TIRZ), ADOPTING AN AMENDED INVESTMENT POLICY, INVESTMENT
STRATEGY AND APPROVED BROKERS 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 TIRZ to adopt an Investment Policy and Investment Strategy 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 Strategy by
rule, order, ordinance or resolution not less than annually, recording any changes made
thereto; now, therefore,
BE IT RESOLVED BY THE TIRZ BOARD OF DIRECTORS:
Section 1. That the TIRZ has complied with the requirements of the Public Funds
Investment Act and the Investment Policy. The modified Investment Policy, Invest Strategy
and approved Brokers are attached hereto as Exhibit "A Exhibit "B" and Exhibit "C" and
are hereby adopted effective immediately.
PASSED, APPROVED, AND ADOPTED this 1 .ay of J A.D., 2011.
ENNETH R. PHI r'S
TIRZ NO. 2 CHA r AN
MIKE PYBURI�
TIRZ NO. 2 SECRETARY
TAX INCREMENT REINVESTMENT ZONE NO. 2
PEARLAND, TEXAS
INVESTMENT POLICY
AND
INVESTMENT STRATEGY
ADOPTED FEBRUARY 12, 2007
Revised February 2008
Revised April 2009
Revised April 2011
Exhibit "A"
Resolution No. RTIRZ- 2011 -04
TABLE OF CONTENTS
1.0 INVESTMENT AUTHORITY AND SCOPE OF POLICY
1.01 Purpose
1.02 Policy
1.03 Scope
1.04 Delegation of Responsibility
1.05 Ethics Conflict of Interest
1.06 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 Investment Training
2.08 Quality and Capability of Investment Management
2.09 Investment Strategy
2.10 Cash Management
3.0 AUTHORIZED INVESTMENT
3.01 Authorized Investments
3.02 Certificates of Deposit
3.03 Unauthorized Investments
3.04 Investments with Required Ratings
4.0 INVESTMENT CONTROLS
4.01 Selection of Investment Broker /Dealers
4.02 Certification
4.03 Delivery vs. Payment
4.04 Internal Control and Annual Audit
4.05 Standard of Care
4.06 Competitive Bidding
4.07 Portfolio Diversification
4.08 Electronic Funds Transfer
4.09 Selling of Securities before Maturity
5.0 ARBITRAGE
6.0 INVESTMENT REPORTING
7.0 INVESTMENT COLLATERAL AND SAFEKEEPING
7.01 Collateral or Insurance
7.02 Safekeeping of TIRZ Securities
8.0 INVESTMENT POLICY ADOPTION
GLOSSARY
ATTACHMENT A Broker /Dealer Certification
ATTACHMENT B Approved List of Broker /Dealers
TAX INCREMENT REINVESTMENT ZONE NO. 2
INVESTMENT POLICY
1.0 INVESTMENT AUTHORITY AND SCOPE OF POLICY
1.01 Purpose
To establish and provide specific policy and guidelines for the conduct of
the investment program of the Tax Increment Reinvestment Zone No. 2.
1.02 Policy
It is the policy of the Tax Increment Reinvestment Zone No. 2 (the
"TIRZ to invest public funds in a manner, which will provide safety of
principal while earning the highest reasonable market return in meeting
the daily cash flow demands of the TIRZ. All funds will be invested in
compliance with all state and local statutes and all Governmental
Accounting Standards Board Statements, and related financial
accounting standards.
This policy satisfies the requirement of the Public Funds Investment Act
(PFIA), Texas Government Code 2256.
1.03 Scope
This Investment Policy shall apply to all the funds and investments of the
TIRZ as well as any other funds held in custody by the TIRZ, and include
the following funds:
1. Tax Increment Reinvestment Zone No. 2
2. Any other funds as created by the TIRZ.
These funds, as well as funds that may be created from time -to -time,
shall be administered in accordance with the provisions of this policy. All
funds invested under this policy shall be considered as a pooled group
for investment purposes.
Deferred compensation and the retirement system assets the TIRZ sets
aside or holds for its employees are not subject to this policy.
1.04 Delegation of Investment Authority
The Director of Finance, Assistant Director of Finance, and Senior
Accountant are hereby designated as Investment Officers for the TIRZ.
The TIRZ may use other employees or the services of a contractor to aid
the investment officer(s) in the execution of their duties. Otherwise,
unless authorized by law, no other individual(s) has the authority to
deposit, withdraw, transfer or manage the investments of the TIRZ. The
TIRZ may designate a registered investment advisor to invest for the
TIRZ and act as an additional Investment Officer. Authority granted to a
person(s) to deposit, withdraw, invest, transfer or manage the TIRZ's
investments is effective until rescinded by TIRZ board or until
termination of the person's employment or contract.
The Director of Finance is responsible for the management of the
investment program. The Investment Officers are responsible for the
daily operations of the investment function. The Director of Finance shall
be responsible for all transactions undertaken and shall establish a
system of controls to regulate the activities of subordinate officials.
1.05 Ethics and Conflict of Interest
Investment Officers shall refrain from personal business activities that
could conflict with the proper execution of the investment program, or
which could impair their ability to make impartial investment decisions.
Investment Officers who have a personal business relationship with a
business organization seeking to sell an investment to the TIRZ and who
have anyone related within the second degree by affinity or
consanguinity to an individual seeking to sell an investment to the TIRZ
shall file a statement disclosing that personal interest to the Director of
Finance, City Manager, the City Council and the Texas Ethics
Commission.
An Investment Officer has a personal business relationship with a
business organization if:
1) the investment officer owns 10% or more of the voting stock or
shares of the business organization or owns $5,000 or more of the
fair market value of the business organization;
2) funds received by the investment officer from the business
organization exceed 10% of the investment officer's gross income for
the previous year; or
3) the investment officer has acquired from the business organization
during the previous year investments with a book value of $2,500 or
more for the personal account of the investment officer.
1.06 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 as designated by the
City Manager, Director of Finance, and Assistant Director of Finance.
The City Manager shall be the Chairman of the Committee.
The Investment Committee shall review quarterly investment reports
and annually review the recommended changes to the Investment Policy
and Investment Strategy and review the list of brokers authorized to
engage in investment transactions with the TIRZ.
2.0 INVESTMENT OBJECTIVES AND STRATEGY
2.01 Objective
TIRZ investments shall be made in accordance with federal and state
laws, this Investment Policy and ordinances of the TIRZ. The TIRZ
investment portfolio shall be designed with the objective of attaining a
market rate of return in accordance with its designated benchmark
based on the TIRZ cash flow requirements throughout budgetary and
economic cycles, commensurate with the TIRZ investment risk
constraints and the cash flow characteristics of the portfolio.
2.02 Safety of Principal
The primary objective of the TIRZ investment program is to ensure the
safety of all funds. To attain this objective, it is the TIRZ intent to invest
in the safest types of securities, pre qualify broker /dealers, financial
institutions, and advisors and to hold all investments until maturity in
order to ensure the return of all invested principal unless as stipulated in
Section 4.09 of the policy.
2.03 Liquidity
The TIRZ investment must be based on a cash flow analysis, which will
provide the liquidity necessary to pay all expected and unexpected
obligations. Liquidity shall be achieved by matching investment
maturities with budgetary and economic cycles. A portion of the portfolio
will be maintained in liquid short -term investments that can be
converted to cash if necessary to meet disbursement requirements.
Investment pools and no -load money market mutual funds provide daily
liquidity and may be utilized as a competitive yield alternative to fixed
maturity investments.
2.04 Diversification
The Tax Increment Reinvestment Zone No. 2 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 TIRZ to earn a reasonable market yield
throughout budgetary and economic cycles within the parameters
imposed by its safety and liquidity objectives, investment strategies, and
state and federal law. Return on investment is of secondary importance
to safety and liquidity objectives. The yield and level of risk for the
portfolio will be benchmarked against the yield of the one -year Treasury
Bill during the comparable period as well as against an agency note with
approximately the same maturity as the weighted average maturity of
the portfolio.
2.06 Maturity
The portfolio shall be structured primarily to meet TIRZ obligations and
secondly to achieve a reasonable return of interest. The maximum
allowable stated maturity of any individual investment owned by the
TIRZ shall be three (3) years from date of purchase. The settlement
date is considered the date of purchase. However, the TIRZ may
collateralize its demand deposit accounts, certificates of deposits, and
repurchase agreements using longer -dated investments not to exceed
thirty (30) years.
The maximum weighted average maturity based on the overall portfolio
shall be 18 months, or 547.5 days.
2.07 Investment Training
Investment Officers shall take (a) 10 hours of training within 12 months
after taking office or assuming duties and (b) not less than 10 hours of
training in a two year period that begins on the first day of the fiscal
year and consists of the two consecutive fiscal years after that date.
Training shall include education in investment controls, security risks,
strategy risks, market risks, diversification, and compliance. Training
must be provided by an independent source approved by the governing
body or designated Investment Committee. For these purposes, courses
or seminars offered by the Government Finance Officers Association,
Government Finance Officers Association of Texas, Texas Municipal
League, Southwest School of Government Finance, University of North
Texas, Texas Association of Counties, Treasury Management Association,
or the Government Treasurers Organization of Texas will satisfy the
training requirements. An external auditor shall review documentation
of training hours annually.
2.08 Quality and Capability of Investment Management
Investment Officers shall at all times be cognizant of the standard of
care and the investment objectives as set forth in the Public Funds
Investment Act and the TIRZ Investment Policy.
The TIRZ shall provide investment training as required by the Act to
ensure the quality and capability of investment management. Staff sets
the standard of training required, which may be over the 10 hours as
required by the Act.
2.09 Investment Strategy
In accordance with the Act (2256.005(d)) a separate written investment
strategy shall be developed for each portfolio /fund or pooled group of
funds under the TIRZ control. The strategy shall be reviewed on an
annual basis with formal action by the TIRZ board stating that the
strategy has been reviewed and recording any changes made.
2.10 Cash Management
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 TIRZ for
investment use. The TIRZ 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.
B. Obligations of the State of Texas or its agencies and instrumentalities
C. Other obligations, the principal and interest of which are
unconditionally guaranteed or insured by, or backed by the full faith
and credit of the State of Texas or the United States or their
respective agencies and instrumentalities.
D. Collateralized certificates of deposit of banks or savings banks doing
business in Texas, collateralized to 102 and guaranteed or insured
by the Federal Deposit Insurance Corporation or its successor; or
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.
E. Constant dollar local government investment pools as defined by the
Act (2256.016 and 2256.019) and approved by TIRZ board
resolution.
F. AAA rated, SEC registered no -load money market mutual funds and
no -load mutual fund and as further defined in Section 2256.014 of
the Act.
G. 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
defined maturity date and as further defined in Section 2256.011 of
the Act.
H. Interest bearing checking accounts that are fully collateralized at
102% of the ledger balance.
I. Certificates of deposit through the Certificate of Deposit Account
Registry Service (CDARS) program.
3.02 Certificates of Deposit
A. Depository certificates of deposit (CD) may be purchased from any
depository institution located in the State of Texas.
It is not necessary for a Texas depository institution to be on the
City's approved broker /dealer list as CD's are considered depository in
nature. Prior to purchase, however, all agreements with the
depository institution must be completed prior to the purchase of a
CD from the depository institution.
B. All CD's, whether purchased from a brokerage firm or a depository
institution require three bids.
C. Amounts purchased over the FDIC limit whether from a depository
institution or brokerage firm must be collateralized.
3.03 Unauthorized Investments
Specifically prohibited investments are:
1. Collateralized mortgage obligations
2. Commercial Paper, including Pools which invest in Commercial Paper
3. All swaps including but not limited to even -basis swaps, interest rate
swaps
4. Forwards and futures
5. Options
6. Foreign Exchange
7. Planned amortization classes (PAC)
8. Regular floaters tied to government securities
9. Investments with various interest rate caps, floors, and collars
10. Investment pools in which the TIRZ would own more than 10% of
the market value of the pool
11. Any other investments that are not on the authorized investment list
3.04 Investments with Required Ratings
Investments with minimum required ratings such as investment pools
and no -load mutual funds do not qualify as authorized investments
during the period the investment does not have the minimum rating.
Investment ratings shall be checked monthly online to ensure that the
ratings have not been downgraded. The TIRZ shall take all prudent
measures that are consistent with its investment policy to liquidate
investments that do not have the minimum rating.
4.0 INVESTMENT CONTROLS
4.01 Selection of Investment Broker /Dealers
The Investment Officers will maintain a list of financial institutions,
primary broker /dealers, and local government investment pools
authorized by the TIRZ board to provide investment services to the City.
Annually, the TIRZ board will approve the list of financial institutions and
broker /dealers authorized to conduct business with the TIRZ.
Investment Officers shall not conduct business with any firm not
approved by the TIRZ board, except for the purchase of CD's from Texas
depository institutions.
The City will prepare a Request for Investment Services every two years
at a minimum and notice of said request will be published in the City's
official paper. All financial institutions and broker /dealers who desire to
become qualified bidders for investment services must fill out the
application and return it to the City by the stated day and time. After
review of all applicants, a list of selected financial institutions and
broker /dealers will be prepared by the Investment Officers and reviewed
by the Investment Committee. The following may be required with the
application: most recent audited financial statement, list of local
government clients, and statements of qualifications.
Criteria used in the selection of the authorized broker /dealers will
include, but are not limited to material litigation against the firm,
regulatory status of the dealer, completed packet, references from local
government clients, background and expertise in investment of public
funds.
The top six to seven firms shall be selected to appear on the TIRZ
approved list. If, after a firm is selected, they no longer qualify to
appear on the TIRZ approved dealer list, or provide services inconsistent
with acceptable levels, the Investment Officers may recommend TIRZ
board to remove the firm from the approved list and replace it with the
next qualified candidate based on the previous Request for Investment
Services ranking. Should an approved bank merge with or be acquired
by another bank while on the TIRZ approved list, the new bank must
agree to meet the same collateralization and certification requirements,
or the bank shall be removed from the approved list.
4.02 Certification
A written copy of this Investment Policy shall be presented to any firm
seeking to engage in a financial transaction with the TIRZ. 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 TIRZ;
and
2. acknowledged that the organization has implemented reasonable
procedures and controls in effort to preclude investment transactions
that are not authorized by the TIRZ Investment Policy except to the
extent that the authorization is dependent on an analysis of the
makeup of the TIRZ entire portfolio or requires interpretation of
subjective investment standards.
The Investment Officer(s) may not transact business with any firm that
has not executed and returned this certification. (2256.005(1)).
The TIRZ may contract with a registered investment advisor for the
management of the TIRZ portfolio. The advisor shall review the Policy
and execute all transactions in accordance with the provisions and
controls of the Policy.
4.03 Delivery vs. Payment Settlement
It shall be the policy of the TIRZ that all securities shall be purchased on
a "Delivery vs. Payment" (DVP) basis, except for investment pools and
mutual funds. By so doing, TIRZ funds are not released until the TIRZ
or its approved custodian has received the securities purchased or
pledged.
4.04 Internal Control and Annual Audit
The Director of Finance or designee shall establish a system of internal
controls. The controls shall be designed to prevent losses of public funds
arising from fraud, employee error, misrepresentation of third parties, or
imprudent actions by employees of Investment Officers of the TIRZ.
Controls and managerial emphasis deemed most important include the
following:
Imperative Controls:
A. Safekeeping receipts and record management
B. Documentation of investment bidding
C. Written confirmations
D. Reconciliation and comparisons of security receipts with
investments and bank records
E. Compliance with investment policies
F. Accurate and timely reporting
G. Adequate training and development of Investment Officers
Controls Where Practical
A. Control of collusion
B. Segregation of duties
C. Clear delegation of authority
D. Staying informed about market conditions, changes and trends
that require adjustments in investment strategies.
The TIRZ, in conjunction with its annual financial audit, shall perform a
compliance audit of management controls on investments and adherence
to the TIRZ established investment policies. This annual audit shall be
performed by an external auditor and will include formal review of the
quarterly reports.
4.05 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 TIRZ
Investment Policy.
The Director of Finance and the Investment Officers are not personally
responsible for changes in the market.
4.06 Competitive Bidding
All purchases of investments will be placed after receiving competitive
quotes from at least three financial institutions, broker /dealers,
investment pools or any combination thereof. Quotes will be accepted
either written or electronically, or a combination thereof. An exception
to this rule may be made when time limitations preclude the bidding
process.
The investment will be made with the broker /dealer offering the greatest
return and quality to the TIRZ. If three bids /offers are solicited but
three responses are not received within the time frame specified in the
solicitation of the bid /offer, the Investment Officer may act based on the
responses received as long as the solicitation of and failure to receive
the bids /offers is documented. Any investments purchased must have
the signature of at least two Investment Officers, when both are present.
4.07 Portfolio Diversification
The TIRZ will diversify its investments by security type, institution, and
broker /dealer. Requests for bids /offers from broker /dealers shall rotate
among approved broker /dealers to ensure that the same brokers are not
solicited for every bid /offer request, and to ensure competition among
broker /dealers.
With the exception of U.S Treasury Securities and interest bearing
checking accounts that are fully collateralized, no more than 75% of the
TIRZ total investment portfolio will be invested in a single security type.
If the TIRZ elects to participate in more than one investment pool, the
total percent invested in all pools shall not exceed the maximum percent
allowed.
Diversification requirements are as follows:
Investment Type
Repurchase Agreements
Certificates of Deposit
US Treasury Bills /Notes
Other US Government Securities
Authorized Investment Pools
Maximum Investment
Up to 50%
Up to 50%
Up to 100%
Up to 50%
Up to 75% in total
CDARS Program
No -Load MM Mutual Funds
No -Load Mutual Funds
Sweep Accounts /DDA
Fully collateralized at 102% of value
Up to 25%
Up to 50%
Per PFIA
Up to 100%
4.08 Electronic Funds Transfer
The TIRZ may use electronic means to transfer or invest all funds
collected or controlled by the TIRZ.
4.09 Selling Of Securities Before Maturity
While it is the TIRZ intent to hold securities to maturity to ensure safety
of principal, if the TIRZ needs to sell securities in order to meet
disbursement needs or to take advantage of interest rates, the City
Manager and the Director of Finance must both approve the sale of the
security.
5.0 Arbitrage
Arbitrage rebate provisions require that the TIRZ compute earnings on
investments from each issue of bonds on an annual basis to determine if
a rebate to the IRS is required. The TIRZ is required to perform specific
calculations relative to the actual yield earned on the investment of the
funds and the yield that could have been earned if the funds had been
invested at a rate equal to the yield on the bonds sold by the TIRZ. The
regulations require extreme precision in the monitoring and recording
facets of the investments as a whole, and particularly as it relates to
yields and computations to insure compliance. Failure to comply can
dictate that the bonds become taxable, retroactively from the date of
issuance, or subject the TIRZ to severe penalties.
The TIRZ investment position as it relates to arbitrage regulations is as
follows: Investments on bond proceeds will be made with safety of
principal and liquidity in mind, but with a competitive rate of return.
When project timing and cash flows allow, bond proceeds may be
invested in instruments allowed under Section 3.0, if the investment can
be purchased solely with the individual bond proceeds, and not
commingled with operating funds or multiple issues. All investments
purchased with bond funds shall be documented clearly and reported to
the TIRZ arbitrage consultant for tracking and review. Arbitrage rebate
calculations will be performed annually on all debt issues and funds set
aside annually for any positive arbitrage. Arbitrage will be rebated to
the IRS, as necessary.
6.0 Investment Reporting
The Investment Officers shall report to the TIRZ board 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 all Investment Officers and
contain a statement of compliance with regard to the TIRZ 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.
7.0 INVESTMENT COLLATERAL AND SAFEKEEPING
7.01 Collateral
The Investment Officer(s) or Investment Advisor shall ensure that all
TIRZ funds in time and demand deposits, certificates of 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 TIRZ
chooses to accept collateral based on the list of investments authorized
under the Public Funds Investment Act. The right of collateral
substitution is granted with the approval of the Director or Assistant
Director of Finance. The Director or Assistant Director of Finance may
approve and release pledged collateral. The TIRZ shall request
additional collateral in the event Investment Officer(s) deems that
deposits or investments are not sufficiently protected by the pledged
collateral.
Collateral will equal 102% of the ledger balance of time and demand
deposits, plus principal and accrued interest on certificates of deposit,
and repurchase agreements 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, which are
held at the Federal Reserve Bank and readily available to the TIRZ. The
bank and /or counter -party will be responsible for the monitoring and
maintaining of margin levels at all times.
7.02 Safekeeping
All TIRZ securities shall be held in independent safekeeping by the TIRZ,
the TIRZ depository bank or a TIRZ approved custodian in a third party
financial institution. All safekeeping will be evidenced by original
safekeeping receipts. Safekeeping receipts shall be maintained by the
Investment Officer(s), and shall be available for review upon request.
8.0 INVESTMENT POLICY ADOPTION
The TIRZ Investment Policy shall be adopted by resolution annually by
the TIRZ board. The policy shall be reviewed annually by the Investment
Committee. Any modifications made thereto must be approved by the
TIRZ and documented by formal action.
GLOSSARY
Accrued Interest: Term designating the interest due on a bond or other
fixed income security that must be paid by the buyer of a security to its seller.
Agency: A security, almost always debt, issued by a corporation sponsored
by the U.S. Government. Examples: bonds of the Tennessee Valley Authority.
Agency Notes: One to two year obligations offered at a discount from par by
U.S. Government Agencies, such as the Federal National Mortgage Association,
the Federal Home Administration, and the Farm Credit System.
Bid: The price offered by a buyer of securities when you are selling
securities, you ask for a bid.
Broker: A broker brings buyers and sellers together for a commission.
Certificate of Deposit (CD): A time deposit with a specific maturity
evidenced by a certificate.
Collateral: Evidence of deposit or other property, which a borrower pledges
to secure repayment of a loan. Also refers to securities pledged by a bank to
secure deposits of public monies.
Component Unit: Based on generally accepted account principles, the
Pearland Economic Development Corporation, TIRZ #2, and the Development
Authority of Pearland are considered component units of the City, and as such
are included in the City's annual financial reports.
Confirmation: Commonly called a "confirm." The confirmation is a notice to
a customer that payment is due on a purchase, or that net proceeds are
available on a sale of securities. Federal securities law requires that a
confirmation be sent promptly following each purchase and sale.
Conflict of Interest: Term used to describe a financial situation where a
person prejudicially places personal affairs before those of constituents that
the person is supposed to serve or represent.
Coupon: (a) The annual rate of interest that a bond's issuer promises to pay
the bondholder on the bond's face value. (b) A certificate attached to a bond
evidencing interest due on a payment date.
Current Maturity: Used to designate the remaining lifetime of an already
outstanding bond.
Dealer: A dealer, as opposed to a broker, acts as a principal in all
transactions, buying and selling for his own account.
Delivery versus Payment: Delivery of securities first, with an exchange of
money for the securities after delivery.
Derivatives: (a) Financial instruments whose return profile is linked to, or
derived from, the movement of one or more underlying indices or securities,
and may include a leveraging factor, or (2) financial contracts based upon
notional amounts whose value is derived from an underlying index or security.
Discount: The difference between the cost price of a security and its maturity
value when quoted at lower than face value. A security selling below original
offering price shortly after sale also is considered to be at a discount.
Discount Securities: Non interest bearing money market instruments that
are issued at a discount and redeemed at maturity for full face value.
Example: U.S. Treasury Bills.
Discount Yield: Measurement of return that computes interest on face value
of security rather than on the dollar amount invested. Used in figuring yield
on U.S. Treasury Bills.
Diversification: Dividing investment funds among a variety of securities
offering independent returns.
Equivalent Bond Yield: Used to compare the discount yield on money
market securities to the coupon yield on government bonds.
Face Value: The dollar amount that appears on the face of the bond
certificate. It is the dollar amount the issuer promises to pay to the holder at
maturity. Also called par value.
Federal Credit Agencies: Agencies of the Federal government set up to
supply credit to various classes of institutions and individuals. Examples:
S &L's, small business firms, students, farmers, farm cooperatives.
Federal Deposit Insurance Corporation (FDIC): A federal agency that
insures bank deposits, currently up to $100,000 per depositor.
Federal Funds Rate: The rate of interest at which Fed funds are traded.
This rate is currently pegged by the Federal Reserve through open- market
operations.
Federal Home Loan Bank (FHLB): Government sponsored wholesale banks
(currently 12 regional banks), which lend funds and provide correspondent
banking services to member commercial banks, thrift institutions, credit
unions, and insurance companies. The mission of the FHLB is to liquefy the
housing related assets of its members who must purchase stock in their
district Bank.
Federal National Mortgage Association (FNMA or Fannie Mae): FNMA is
a federal corporation working under the auspices of the Department of
Housing and Urban Development (HUD). It is the largest single provider of
residential mortgage funds in the United States. FNMA, is a private
stockholder -owned corporation. The corporation's purchases include a variety
of adjustable mortgages and second loans, in addition to fixed -rate mortgages.
FNMA's securities are also highly liquid and are widely accepted. FNMA
assumes and guarantees that all security holders will receive timely payment
of principal and interest.
Federal Open Market Committee (FOMC): Consists of the seven members
of the Federal Reserve Board and five of the twelve Federal Reserve Bank
Presidents. The Committee periodically meets to set Federal Reserve
guidelines regarding purchases and sales of Government Securities in the open
market as a means of influencing the volume of bank credit and money.
Federal Reserve System: The central bank of the United States created by
Congress and consisting of a seven member Board of Governors in Washington
D.C., 12 regional banks and about 5,700 commercial banks that are members
of the system.
Financial Assets: Cash and other assets that, in the normal course of
operations, will become cash.
Government National Mortgage Association (GNMA or Ginnie Mae): A
fixed income security that represents an undivided interest in a pool of
federally insured mortgages put together by GNMA. GNMA securities are
commonly backed by FHA or VA mortgages.
Liquidity: A liquid assets is one that can be converted easily and rapidly into
cash without a substantial loss of value. In the money market, a security is
said to be liquid if the spread between bid and asked prices is narrow and
reasonable sizes can be done at those quotes.
Local Government Investment Pool (LGIP): An entity created under the
public funds investment act to invest public funds jointly on behalf of the
entities that participate in the pool and whose investment objectives in order
of priority are 1) preservation and safety of principal, 2) liquidity, and 3) yield.
Market Value: The price at which a security is trading and could presumably
be purchased or sold.
Master Repurchase Agreement: A written contract covering all future
transactions between the parties to repurchase- reverse repurchase
agreements that establishes each party's rights in the transactions.
Maturity: The date upon which the principal or stated value of an investment
becomes due and payable.
Money Market: The market in which short -term debt instruments (bills,
commercial paper, etc.) with a one -year maturity or less, and often 30 -days or
less, are issued and traded.
Offer: The price asked by a seller of securities.
Overnight Repo: A repurchase agreement with expiration set for the
following business day.
Par Value: The dollar amount that appears on the face of the bond
certificate. It is the dollar amount the issuer promises to pay to the holder at
maturity. Also, called face value.
Portfolio: Collection of securities held by an investor.
Primary Dealer: A designation given by the Federal Reserve System to
commercial banks or broker /dealers who meet specific criteria, including
capital requirements and participation in Treasury auctions.
Principal: The face amount (par value) of a debt security.
Rate of Return: The yield obtainable on a security based on its purchase
price or its current market price. For bonds and notes, it is the coupon rate
divided by the price.
Repurchase Agreement (REPO): A holder of securities sells these
securities to an investor with an agreement to repurchase them at a fixed
price on a fixed date.
Safekeeping: A services to customers rendered by banks for a fee whereby
securities and valuables of all types and descriptions are held in the bank's
vault for protection.
Secondary Market: A market made for the purchase and sale of outstanding
issues following the initial distribution.
Securities and Exchange Commission: Agency created by Congress to
protect investors in security related transactions by administering securities
legislation.
Sell: To transfer ownership for a monetary consideration. The term is used in
conjunction with the disposition of stocks, bonds, or other financial assets.
Structured Notes: Notes issued by Government Sponsored Enterprises
(FHLB, FNMA, SLMA, etc.) and Corporations that have imbedded options (e.g.:
call features, step -up coupons, floating rate coupons, derivative based returns)
into their debt structure. Their market performance is impacted by the
fluctuation of interest rates, the volatility of the imbedded options and shifts in
the shape of the yield curve.
Treasury Bills: A non interest bearing discount security issued by the U.S.
Treasury to finance the national debt. Most bills are issued to mature in three
months, six months, or one year.
Treasury Bonds: Long -term coupon bearing U.S. Treasury Securities issued
as direct obligations of the U. S. Government and having initial maturities of
more than 10 years.
Treasury Notes: Medium -term coupon- bearing U.S. Treasury securities
issued as direct obligations of the U.S. Government and having initial
maturities from two to ten years.
Uniform Net Capital Rule: Securities and Exchange Commission
requirement that member firms as well as nonmember broker dealers in
securities maintain a maximum ratio of indebtedness to liquid capital of 15 to
1; also called net capital rule and net capital ratio.
ATTACHMENT A
CERTIFICATION BY BUSINESS ORGANIZATION
This certification is executed on behalf of Tax Increment Reinvestment Zone
No. 2 (the Investor) and (the Business
Organization) pursuant to the Public Funds Investment Act, Chapter 2256,
Texas Government Code (the Act) in connection with investment transactions
conducted between the Investor and the Business Organization.
The undersigned Qualified Representative of the Business Organization hereby
certifies on behalf of the Business Organization that:
1. The undersigned is a Qualified Representative of the Business
Organization offering to enter into an investment transaction with the
Investor as such terms are used in the Public Funds Investment Act,
Chapter 2256, Texas Government Code and
2. The Qualified Representative of the Business Organization has received
and reviewed the Investment Policy furnished by the Investor and
3. The Qualified Representative of the Business Organization has
implemented reasonable procedures and controls in an effort to preclude
imprudent investment transactions conducted between the Business
Organization and the Investor that are not authorized by the entity's
investment policy, except to the extent that this authorization is
dependent on an analysis of the makeup of the entity's entire portfolio or
required an interpretation of subjective investment standards.
4. The Business Organization will rely upon instructions from only the
persons authorized on behalf of the Tax Increment Reinvestment Zone
No. 2 as stated in the Investment Policy and City's resolution designating
investment officers.
Qualified Representative of the Business Organization
Signature:
Name:
Title:
Date:
ATTACHMENT B
APPROVED /AUTHORIZED LIST OF BROKER /DEALERS
Coastal Securities
Comerica Securities
Duncan Williams
First Southwest Company
Frost National Bank
SAMCO Capital Markets
Vining Sparks IBG, L.P.
Wells Fargo Bank
Certificates of deposit may be purchased from Texas depository institutions, which are not on the
approved broker /list, as they are considered depository in nature. Certificates of deposit purchased
from brokerage firms, however, must be on the approved broker /dealer list as they fall under the
Public Funds Investment Act. All deposits over the FDIC limit must be collateralized.
The Tax Increment Reinvestment Zone No. 2 ("TIRZ") shall adopt by
resolution a separate written investment strategy for each of the funds
under its control. For Investment purposes, the TIRZ shall use a
"Pooled Fund Group" which means that all funds under the TIRZ's
control shall be treated as one fund.
INVESTMENT STRATEGY
I. Suitability
Investments are to be purchased based on the financial requirements
of the TIRZ. The TIRZ shall strive to maintain the level of investment
of all fund balances, reserves and bond funds as close as possible to
100 Any investment eligible in the Investment Policy is suitable for
all TIRZ funds, including component units.
II. Safety of Principal
Investments of the TIRZ shall be undertaken in a manner that seeks to
ensure the preservation of capital in the overall portfolio. All
investments shall be of high quality with no perceived default risk. It
is the TIRZ's full intent, at the time of purchase, to hold all
investments until maturity in order to ensure the return of all invested
principal.
III. Liquidity
TAX INCREMENT REINVESTMENT ZONE NO. 2
INVESTMENT STRATEGY
Exhibit "B"
Resolution No. RTIRZ- 2011 -04
The TIRZ's investment portfolio will remain sufficiently liquid to enable
the TIRZ to meet all operating requirements that might be reasonably
anticipated. Liquidity shall be achieved by matching investment
maturities with budgetary and economic cycles, and forecasted cash
flow requirements. A portion of the portfolio will be maintained in
liquid short -term securities that can be converted to cash if necessary
to meet disbursement requirements. Investment pools and money
market mutual funds provide daily liquidity and may be utilized as a
competitive yield alternative to fixed maturity investments.
IV. Marketability
The TIRZ shall invest in securities that, if the need arises, can be
liquidated before maturity. Investments will never be prematurely
sold at less than book value plus accrued interest, without the
approval of the Director of Finance and the City Manager.
V. Diversification
The TIRZ will diversity its investments by security type and by
broker /dealer. With the exception of U.S. Treasury securities and fully
collateralized demand deposit accounts, no more than 75% of the
TIRZ's total investment portfolio will be invested in a single security
type.
VI. Yield
The investment portfolio shall obtain a competitive rate of return
throughout budgetary and economic cycles, commensurate with the
investment risk constraints and the cash flow needs. The TIRZ shall
attempt to obtain an acceptable return provided that the requirements
of safety and liquidity are first met. The yield of the one -year U.S.
Treasury Bill shall be a yield objective or benchmark as well as
benchmarked against an agency note with maturity, which
approximates the weighted average maturity of the portfolio.
ATTACHMENT B
APPROVED /AUTHORIZED LIST OF BROKER /DEALERS
Coastal Securities
Comerica Securities
Duncan Williams
First Southwest Company
Frost National Bank
SAMCO Capital Markets
Vining Sparks IBG, L.P.
Wells Fargo Bank
Exhibit "C"
Resolution No. RTIRZ- 2011 -04
Certificates of deposit may be purchased from Texas depository institutions, which are not on the
approved broker /list, as they are considered depository in nature. Certificates of deposit purchased
from brokerage firms, however, must be on the approved broker /dealer list as they fall under the
Public Funds Investment Act. All deposits over the FDIC limit must be collateralized.
Pursuant to the PFIA, the TIRZ must approve a list of broker/dealers with which the
TIRZ can do business. The Investment Officer can only do business with those
businesses as approved. The TIRZ investment policy states that "the TIRZ will prepare
a Request of Investments Services every two years at a minimum...." In March 2011,
the City sent out requests for proposals and updated its approved broker/dealers as
listed in Exhibit B of the policy. SAMCO Capital Markets and Vining Sparks IBG are two
new brokers that have been added to the approved broker/dealer list.
The Investment Committee met on June 6, 2011 to review the policy, strategy, and
brokers.
RECOMMENDED ACTION
Consideration and approval of the Resolution adopting the TIRZ Investment Policy,
Investment Strategy, and Approved Broker/Dealers.
Revised 2007-01-09
TAX INCREMENT REINVESTMENT ZONE NO. 2
PEARLAND, TEXAS
INVESTMENT POLICY
AND
INVESTMENT STRATEGY
ADOPTED FEBRUARY 12, 2007
Revised February 2008
Revised April 2009
Revised April 2011
TABLE OF CONTENTS
1.0 INVESTMENT AUTHORITY AND SCOPE OF POLICY
1.01
Purpose
1.02
Policy
1.03
Scope
1.04
Delegation of Responsibility
1.05
Ethics & Conflict of Interest
1.06
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
Investment Training
2.08
Quality and Capability of Investment Management
2.09
Investment Strategy
2.10
Cash Management
3.0 AUTHORIZED INVESTMENT
3.01 Authorized Investments
3.02 Certificates of Deposit
3.033 Unauthorized Investments
3.034 Investments with Required Ratings
4.0 INVESTMENT CONTROLS
4.01
Selection of Investment Broker/Dealers
4.02
Certification
4.03
Delivery vs. Payment
4.04
Internal Control and Annual Audit
4.05
Standard of Care
4.06
Competitive Bidding
4.07
Portfolio Diversification
4.08
Electronic Funds Transfer
4.09
Selling of Securities before Maturity
5.0 ARBITRAGE
6.0 INVESTMENT REPORTING
7.0 INVESTMENT COLLATERAL AND SAFEKEEPING
7.01 Collateral or Insurance
7.02 Safekeeping of TIRZ Securities
8.0 INVESTMENT POLICY ADOPTION
GLOSSARY
ATTACHMENT A - Broker/Dealer Certification
ATTACHMENT B - Approved List of Broker/Dealers
TAX INCREMENT REINVESTMENT ZONE NO. 2
INVESTMENT POLICY
1.0 INVESTMENT AUTHORITY AND SCOPE OF POLICY
1.01 Purpose
To establish and provide specific policy and guidelines for the conduct of
the investment program of the Tax Increment Reinvestment Zone No. 2.
1.02 Policy
It is the policy of the Tax Increment Reinvestment Zone No. 2 (the
"TIRZ") to invest public funds in a manner, which will provide safety of
principal while earning the highest reasonable market return in meeting
the daily cash flow demands of the TIRZ. All funds will be invested in
compliance with all state and local statutes and all Governmental
Accounting Standards Board Statements, and related financial
accounting standards.
This policy satisfies the requirement of the Public Funds Investment Act
(PFIA), Texas Government Code 2256.
1.03 Scope
This Investment Policy shall apply to all the funds and investments of the
TIRZ as well as any other funds held in custody by the TIRZ, and include
the following funds:
Tax Increment Reinvestment Zone No. 2
Any other funds as created by the TIRZ.
These funds, as well as funds that may be created from time -to -time,
shall be administered in accordance with the provisions of this policy. All
funds invested under this policy shall be considered as a pooled group
for investment purposes.
Deferred compensation and the retirement system assets the TIRZ sets
aside or holds for its employees are not subject to this policy.
1.04 Delegation of Investment Authority
The Director of Finance, Assistant Director of Finance, and Senior
Accountant are hereby designated as Investment Officers for the TIRZ.
The TIRZ may use other employees or the services of a contractor to aid
the investment officer(s) in the execution of their duties. Otherwise,
unless authorized by law, no other individual(s) has the authority to
deposit, withdraw, transfer or manage the investments of the TIRZ. The
TIRZ may designate a registered investment advisor to invest for the
TIRZ and act as an additional Investment Officer. Authority granted to a
person(s) to deposit, withdraw, invest, transfer or manage the TIRZ's
investments is effective until rescinded by TIRZ board or until
termination of the person's employment or contract.
The Director of Finance is responsible for the management of the
investment program. The Investment Officers are responsible for the
daily operations of the investment function. The Director of Finance shall
be responsible for all transactions undertaken and shall establish a
system of controls to regulate the activities of subordinate officials.
1.05 Ethics and Conflict of Interest
Investment Officers shall refrain from personal business activities that
could conflict with the proper execution of the investment program, or
which could impair their ability to make impartial investment decisions.
Investment Officers who have a personal business relationship with a
business organization seeking to sell an investment to the TIRZ and who
have anyone related within the second degree by affinity or
consanguinity to an individual seeking to sell an investment to the TIRZ
shall file a statement disclosing that personal interest to the Director of
Finance, City Manager, the City Council and the Texas Ethics
Commission.
An Investment Officer has a personal business relationship with a
business organization if:
1) the investment officer owns 10% or more of the voting stock or
shares of the business organization or owns $5,000 or more of the
fair market value of the business organization;
2) funds received by the investment officer from the business
organization exceed 10% of the investment officer's gross income for
the previous year; or
3) the investment officer has acquired from the business organization
during the previous year investments with a book value of $2,500 or
more for the personal account of the investment officer.
1.06 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 as designated by the
City Manager, Director of Finance, and Assistant Director of Finance.
The City Manager shall be the Chairman of the Committee.
The Investment Committee shall review quarterly investment reports
and annually review the recommended changes to the Investment Policy
and Investment Strategy and review the list of brokers authorized to
engage in investment transactions with the TIRZ.
2.0 INVESTMENT OBJECTIVES AND STRATEGY
2.01 Objective
TIRZ investments shall be made in accordance with federal and state
laws, this Investment Policy and ordinances of the TIRZ. The TIRZ
investment portfolio shall be designed with the objective of attaining a
market rate of return in accordance with its designated benchmark
based on the TIRZ cash flow requirements throughout budgetary and
economic cycles, commensurate with the TIRZ investment risk
constraints and the cash flow characteristics of the portfolio.
2.02 Safety of Principal
The primary objective of the TIRZ investment program is to ensure the
safety of all funds. To attain this objective, it is the TIRZ intent to invest
in the safest types of securities, pre -qualify broker/dealers, financial
institutions, and advisors and to hold all investments until maturity in
order to ensure the return of all invested principal unless as stipulated in
Section 4.09 of the policy.
2.03 Liquidity
The TIRZ investment must be based on a cash flow analysis, which will
provide the liquidity necessary to pay all expected and unexpected
obligations. Liquidity shall be achieved by matching investment
maturities with budgetary and economic cycles. A portion of the portfolio
will be maintained in liquid short-term investments that can be
converted to cash if necessary to meet disbursement requirements.
Investment pools and no-load money market mutual funds provide daily
liquidity and may be utilized as a competitive yield alternative to fixed
maturity investments.
2.04 Diversification
The Tax Increment Reinvestment Zone No. 2 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 TIRZ to earn a reasonable market yield
throughout budgetary and economic cycles within the parameters
imposed by its safety and liquidity objectives, investment strategies, and
state and federal law. Return on investment is of secondary importance
to safety and liquidity objectives. The yield and level of risk for the
portfolio will be benchmarked against the yield of the one-year Treasury
Bill during the comparable period as well as against an agency note with
approximately the same maturity as the weighted average maturity of
the portfolio.
2.06 Maturity
The portfolio shall be structured primarily to meet TIRZ obligations and
secondly to achieve a reasonable return of interest. The maximum
allowable stated maturity of any individual investment owned by the
TIRZ shall be three (3) years from date of purchase. The settlement
date is considered the date of purchase. However, the TIRZ may
collateralize its demand deposit accounts, certificates of deposits, and
repurchase agreements using longer -dated investments not to exceed
thirty (30) years.
The maximum weighted average maturity based on the overall portfolio
shall be 18 months, or 547.5 days.
2.07 Investment Training
Investment Officers shall take (a) 10 hours of training within 12 months
after taking office or assuming duties and (b) not less than 10 hours of
training in a two year period :: r-• T = ----that begins on the first day of
the fiscal year and consists of the two consecutive fiscal years after that
date. Training shall include education in investment controls, security
risks, strategy risks, market risks, diversification, and compliance.
Training must be provided by an independent source approved by the
governing body or designated Investment Committee. For these
purposes, courses or seminars offered by the Government Finance
Officers Association, Government Finance Officers Association of Texas,
Texas Municipal League, Southwest School of Government Finance,
University of North Texas, Texas Association of Counties, Treasury
Management Association, or the Government Treasurers Organization of
Texas will satisfy the training requirements. An external auditor shall
review documentation of training hours annually.
2.08 Quality and Capability of Investment Management
Investment Officers shall at all times be cognizant of the standard of
care and the investment objectives as set forth in the Public Funds
Investment Act and the TIRZ Investment Policy.
The TIRZ shall provide investment training as required by the Act to
ensure the quality and capability of investment management. Staff sets
the standard of training required, which may be over the 10 hours as
required by the Act.
2.09 Investment Strategy
In accordance with the Act (2256.005(d)) a separate written investment
strategy shall be developed for each portfolio/fund or pooled group of
funds under the TIRZ control. The strategy shall be reviewed on an
annual basis with formal action by the TIRZ board stating that the
strategy has been reviewed and recording any changes made.
2.10 Cash Management
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 TIRZ for
investment use. The TIRZ 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.
B. Obligations of the State of Texas or its agencies and instrumentalities
C. Other obligations, the principal and interest of which are
unconditionally guaranteed or insured by, or backed by the full faith
and credit of the State of Texas or the United States or their
respective agencies and instrumentalities.
D. Collateralized certificates of deposit of banks or savings banks doing
business in Texas, collateralized to 102%, and guaranteed or insured
by the Federal Deposit Insurance Corporation or its successor; or
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.
E. Constant dollar local government investment pools as defined by the
Act (2256.016 and 2256.019) and approved by TIRZ board
resolution.
F. AAA -rated, SEC registered no-load money market mutual funds and
no-load mutual fund and as further defined in Section 2256.014 of
the Act.
G. 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
defined maturity date and as further defined in Section 2256.011 of
the Act.
H. Interest bearing checking accounts that are fully collateralized at
102% of the ledger balance.
I. Certificates of deposit through the Certificate of Deposit Account
Registry Service (CDARS) program.
.3.02 Certificates of Deposit Formatted: Font: Bold
A. Depository certificates of deposit (CD) may be Durchased from any
depository institution located in the State of Texas.
It is not necessary for a Texas depository institution to be on the
City's approved broker/dealer list as CD's are considered depository in
nature. Prior to qurchase, however, all agreements with the
depository institution must be completed prior to the purchase of a
CD from the depository institution.
B. All CD's, whether purchased from a brokerage firm or a depository
institution require three bids.
C. Amounts purchased over the FDIC limit whether from a depository
institution or brokerage firm must be collateralized.
3.03-2 Unauthorized Investments
Specifically prohibited investments are:
1. Collateralized mortgage obligations
2. Commercial Paper, including Pools which invest in Commercial Paper
3. All swaps including but not limited to even -basis swaps, interest rate
swaps
4. Forwards and futures
5. Options
6. Foreign Exchange
7. Planned amortization classes (PAC)
8. Regular floaters tied to government securities
9. Investments with various interest rate caps, floors, and collars
10. Investment pools in which the TIRZ would own more than 10% of
the market value of the pool
11. Any other investments that are not on the authorized investment list
3.03 3.04 Investments with Required Ratings Formatted: No bullets or numbering
Investments with minimum required ratings such as investment pools
and no-load mutual funds do not qualify as authorized investments
during the period the investment does not have the minimum rating.
Investment ratings shall be checked monthly online to ensure that the
ratings have not been downgraded. The TIRZ shall take all prudent
measures that are consistent with its investment policy to liquidate
investments that do not have the minimum rating.
4.0 INVESTMENT CONTROLS
4.01 Selection of Investment Broker/Dealers
The Investment Officers will maintain a list of financial institutions,
primary broker/dealers, and local government investment pools
authorized by the TIRZ board to provide investment services to the City.
Annually, the TIRZ board will approve the list of financial institutions and
broker/dealers authorized to conduct business with the TIRZ.
Investment Officers shall not conduct business with any firm not
approved by the TIRZ board except for the purchase of CD's from Texas
depository institutions.
The City will prepare a Request for Investment Services every two years
at a minimum and notice of said request will be published in the City's
official paper. All financial institutions and broker/dealers who desire to
become qualified bidders for investment services must fill out the
application and return it to the City by the stated day and time. After
review of all applicants, a list of selected financial institutions and
broker/dealers will be prepared by the Investment Officers and reviewed
by the Investment Committee. The following may be required with the
application: most recent audited financial statement, list of local
government clients, and statements of qualifications.
Criteria used in the selection of the authorized broker/dealers will
include, but are not limited to material litigation against the firm,
regulatory status of the dealer, completed packet, references from local
government clients, background and expertise in investment of public
funds.
The top six to seven firms shall be selected to appear on the TIRZ
approved list. If, after a firm is selected, they no longer qualify to
appear on the TIRZ approved dealer list, or provide services inconsistent
with acceptable levels, the Investment Officers may recommend TIRZ
board to remove the firm from the approved list and replace it with the
next qualified candidate based on the previous Request for Investment
Services ranking. Should an approved bank merge with or be acquired
by another bank while on the TIRZ approved list, the new bank must
agree to meet the same collateralization and certification requirements,
or the bank shall be removed from the approved list.
4.02 -Certification
A written copy of this Investment Policy shall be presented to any firm
seeking to engage in a financial transaction with the TIRZ. 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:
received and thoroughly reviewed the investment policy of the TIRZ;
and
acknowledged that the organization has implemented reasonable
procedures and controls in effort to preclude investment transactions
that are not authorized by the TIRZ Investment Policy except to the
extent that the authorization is dependent on an analysis of the
makeup of the TIRZ entire portfolio or requires interpretation of
subjective investment standards.
The Investment Officer(s) may not transact business with any firm that
has not executed and returned this certification. (2256.005(1)�.
The TIRZ may contract with a registered investment advisor for the
management of the TIRZ portfolio. The advisor shall review the Policy
and execute all transactions in accordance with the provisions and
controls of the Policy.
4.03 Delivery vs. Payment Settlement
It shall be the policy of the TIRZ that all securities shall be purchased on
a "Delivery vs. Payment" (DVP) basis, except for investment pools and
mutual funds. By so doing, TIRZ funds are not released until the TIRZ
or its approved custodian has received the securities purchased or
pledged.
4.04 Internal Control and Annual Audit
The Director of Finance or designee shall establish a system of internal
controls. The controls shall be designed to prevent losses of public funds
arising from fraud, employee error, misrepresentation of third parties, or
imprudent actions by employees of Investment Officers of the TIRZ.
Controls and managerial emphasis deemed most important include the
following:
Imperative Controls:
A. Safekeeping receipts and record management
B. Documentation of investment bidding
C. Written confirmations
D. Reconciliation and comparisons of security receipts with
investments and bank records
E. Compliance with investment policies
F. Accurate and timely reporting
G. Adequate training and development of Investment Officers
Controls Where Practical
A. Control of collusion
B. Segregation of duties
C. Clear delegation of authority
D. Staying informed about market conditions, changes and trends
that require adjustments in investment strategies.
The TIRZ, in conjunction with its annual financial audit, shall perform a
compliance audit of management controls on investments and adherence
to the TIRZ established investment policies. This annual audit shall be
performed by an external auditor and will include formal review of the
quarterly reports.
4.05 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 TIRZ
Investment Policy.
The Director of Finance and the Investment Officers are not personally
responsible for changes in the market.
4.06 Competitive Bidding
All purchases of investments will be placed after receiving competitive
quotes from at least three financial institutions, broker/dealers,
investment pools or any combination thereof. Quotes will be accepted
either written or electronically, or a combination thereof. An exception
to this rule may be made when time limitations preclude the bidding
process.
The investment will be made with the broker/dealer offering the greatest
return and quality to the TIRZ. If three bids/offers are solicited but
three responses are not received within the time frame specified in the
solicitation of the bid/offer, the Investment Officer may act based on the
responses received as long as the solicitation of and failure to receive
the bids/offers is documented. Any investments purchased must have
the signature of at least two Investment Officers, when both are present.
4.07 Portfolio Diversification
The TIRZ will diversify its investments by security type, institution, and
broker/dealer. Requests for bids/offers from broker/dealers shall rotate
among approved broker/dealers to ensure that the same brokers are not
solicited for every bid/offer request, and to ensure competition among
broker/dealers.
With the exception of U.S Treasury Securities and interest bearing
checking accounts that are fully collateralized, no more than 75% of the
TIRZ total investment portfolio will be invested in a single security type.
If the TIRZ elects to participate in more than one investment pool, the
total percent invested in all pools shall not exceed the maximum percent
allowed.
Diversification requirements are as follows:
Investment Tvoe Maximum Investment %
Repurchase Agreements Up to 50%
Certificates of Deposit Up to 50%
US Treasury Bills/Notes Up to 100%
Other US Government Securities Up to 50-7-50/6
Authorized Investment Pools Up to 75% in total
CDARS Program Up to 25%
No -Load MM Mutual Funds Up to 50%
No -Load Mutual Funds Per PFIA
Sweep Accounts/DDA** Up to 100%
** Fully collateralized at 102% of value
4.08 Electronic Funds Transfer
The TIRZ may use electronic means to transfer or invest all funds
collected or controlled by the TIRZ.
4.09 Selling Of Securities Before Maturity
While it is the TIRZ intent to hold securities to maturity to ensure safety
of principal, if the TIRZ needs to sellsa+e securities in order to meet
disbursement needs or to take advantage of interest rates, the City
Manager and the Director of Finance must both approve the sale of the
security.
5.0 Arbitrage
Arbitrage rebate provisions require that the TIRZ compute earnings on
investments from each issue of bonds on an annual basis to determine if
a rebate to the IRS is required. The TIRZ is required to perform specific
calculations relative to the actual yield earned on the investment of the
funds and the yield that could have been earned if the funds had been
invested at a rate equal to the yield on the bonds sold by the TIRZ. The
regulations require extreme precision in the monitoring and recording
facets of the investments as a whole, and particularly as it relates to
yields and computations to insure compliance. Failure to comply can
dictate that the bonds become taxable, retroactively from the date of
issuance, or subject the TIRZ to severe penalties.
The TIRZ investment position as it relates to arbitrage regulations is as
follows: Investments on bond proceeds will be made with safety of
principal and liquidity in mind, but with a competitive rate of return.
When project timing and cash flows allow, bond proceeds may be
invested in instruments allowed under Section 3.0, if the investment can
be purchased solely with the individual bond proceeds, and not
commingled with operating funds or multiple issues. All investments
purchased with bond funds shall be documented clearly and reported to
the TIRZ arbitrage consultant for tracking and review. Arbitrage rebate
calculations will be performed annually on all debt issues and funds set
aside annually for any positive arbitrage. Arbitrage will be rebated to
the IRS, as necessary.
6.0 Investment Reporting
The Investment Officers shall report to the TIRZ board 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 all Investment Officers and
contain a statement of compliance with regard to the TIRZ 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.
7.0 INVESTMENT COLLATERAL AND SAFEKEEPING
7.01 Collateral
The Investment Officer(s) or Investment Advisor shall ensure that all
TIRZ funds in time and demand deposits, certificates of 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 TIRZ
chooses to accept collateral based on the list of investments authorized
under the Public Funds Investment Act. The right of collateral
substitution is granted with the approval of the Director or Assistant
Director of Finance. The Director or Assistant Director of Finance may
approve and release pledged collateral. The TIRZ shall request
additional collateral in the event Investment Officer(s) deems that
deposits or investments are not sufficiently protected by the pledged
collateral.
Collateral will equal 102% of the ledger balance of time and demand
deposits, plus principal and accrued interest on certificates of deposit,
and repurchase agreements 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, which are
held at the Federal Reserve Bank and readily available to the TIRZ. The
bank and/or counter -party will be responsible for the monitoring and
maintaining of margin levels at all times.
7.02 Safekeeping
All TIRZ securities shall be held in independent safekeeping by the TIRZ,
the TIRZ depository bank or a TIRZ approved custodian in a third party
financial institution. All safekeeping will be evidenced by original
safekeeping receipts. Safekeeping receipts shall be maintained by the
Investment Officer(s), and shall be available for review upon request.
8.0 INVESTMENT POLICY ADOPTION
The TIRZ Investment Policy shall be adopted by resolution annually by
the TIRZ board. The policy shall be reviewed annually by the Investment
Committee. Any modifications made thereto must be approved by the
TIRZ and documented by formal action.
GLOSSARY
Accrued Interest: Term designating the interest due on a bond or other
fixed income security that must be paid by the buyer of a security to its seller.
Agency: A security, almost always debt, issued by a corporation sponsored
by the U.S. Government. Examples: bonds of the Tennessee Valley Authority.
Agency Notes: One to two year obligations offered at a discount from par by
U.S. Government Agencies, such as the Federal National Mortgage Association,
the Federal Home Administration, and the Farm Credit System.
Bid: The price offered by a buyer of securities - when you are selling
securities, you ask for a bid.
Broker: A broker brings buyers and sellers together for a commission.
Certificate of Deposit (CD): A time deposit with a specific maturity
evidenced by a certificate.
Collateral: Evidence of deposit or other property, which a borrower pledges
to secure repayment of a loan. Also refers to securities pledged by a bank to
secure deposits of public monies.
Component Unit: Based on generally accepted account principles, the
Pearland Economic Development Corporation, TIRZ #2, and the Development
Authority of Pearland are considered component units of the City, and as such
are included in the City's annual financial reports.
Confirmation: Commonly called a "confirm." The confirmation is a notice to
a customer that payment is due on a purchase, or that net proceeds are
available on a sale of securities. Federal securities law requires that a
confirmation be sent promptly following each purchase and sale.
Conflict of Interest: Term used to describe a financial situation where a
person prejudicially places personal affairs before those of constituents that
the person is supposed to serve or represent.
Coupon: (a) The annual rate of interest that a bond's issuer promises to pay
the bondholder on the bond's face value. (b) A certificate attached to a bond
evidencing interest due on a payment date.
Current Maturity: Used to designate the remaining lifetime of an already
outstanding bond.
Dealer: A dealer, as opposed to a broker, acts as a principal in all
transactions, buying and selling for his own account.
Delivery versus Payment: Delivery of securities first, with an exchange of
money for the securities after delivery.
Derivatives: (a) Financial instruments whose return profile is linked to, or
derived from, the movement of one or more underlying indices or securities,
and may include a leveraging factor, or (2) financial contracts based upon
notional amounts whose value is derived from an underlying index or security.
Discount: The difference between the cost price of a security and its maturity
value when quoted at lower than face value. A security selling below original
offering price shortly after sale also is considered to be at a discount.
Discount Securities: Non -interest bearing money market instruments that
are issued at a discount and redeemed at maturity for full face value.
Example: U.S. Treasury Bills.
Discount Yield: Measurement of return that computes interest on face value
of security rather than on the dollar amount invested. Used in figuring yield
on U.S. Treasury Bills.
Diversification: Dividing investment funds among a variety of securities
offering independent returns.
Equivalent Bond Yield: Used to compare the discount yield on money
market securities to the coupon yield on government bonds.
Face Value: The dollar amount that appears on the face of the bond
certificate. It is the dollar amount the issuer promises to pay to the holder at
maturity. Also called par value.
Federal Credit Agencies: Agencies of the Federal government set up to
supply credit to various classes of institutions and individuals. Examples:
S&L's, small business firms, students, farmers, farm cooperatives.
Federal Deposit Insurance Corporation (FDIC): A federal agency that
insures bank deposits, currently up to $100,000 per depositor.
Federal Funds Rate: The rate of interest at which Fed funds are traded.
This rate is currently pegged by the Federal Reserve through open -market
operations.
Federal Home Loan Bank (FHLB): Government sponsored wholesale banks
(currently 12 regional banks), which lend funds and provide correspondent
banking services to member commercial banks, thrift institutions, credit
unions, and insurance companies. The mission of the FHLB is to liquefy the
housing related assets of its members who must purchase stock in their
district Bank.
Federal National Mortgage Association (FNMA or Fannie Mae): FNMA is
a federal corporation working under the auspices of the Department of
Housing and Urban Development (HUD). It is the largest single provider of
residential mortgage funds in the United States. FNMA, is a private
stockholder -owned corporation. The corporation's purchases include a variety
of adjustable mortgages and second loans, in addition to fixed-rate mortgages.
FNMA's securities are also highly liquid and are widely accepted, FNMA
assumes and guarantees that all security holders will receive timely payment
of principal and interest.
Federal Open Market Committee (FOMC): Consists of the seven members
of the Federal Reserve Board and five of the twelve Federal Reserve Bank
Presidents. The Committee periodically meets to set Federal Reserve
guidelines regarding purchases and sales of Government Securities in the open
market as a means of influencing the volume of bank credit and money.
Federal Reserve System: The central bank of the United States created by
Congress and consisting of a seven member Board of Governors in Washington
D.C., 12 regional banks and about 5,700 commercial banks that are members
of the system.
Financial Assets: Cash and other assets that, in the normal course of
operations, will become cash.
Government National Mortgage Association (GNMA or Ginnie Mae): A
fixed income security that represents an undivided interest in a pool of
federally insured mortgages put together by GNMA. GNMA securities are
commonly backed by FHA or VA mortgages.
Liquidity: A liquid assets is one that can be converted easily and rapidly into
cash without a substantial loss of value. In the money market, a security is
said to be liquid if the spread between bid and asked prices is narrow and
reasonable sizes can be done at those quotes.
Local Government Investment Pool (LGIP): An entity created under the
public funds investment act to invest public funds jointly on behalf of the
entities that participate in the pool and whose investment objectives in order
of priority are 1) preservation and safety of principal, 2) liquidity, and 3) yield.
Market Value: The price at which a security is trading and could presumably
be purchased or sold.
Master Repurchase Agreement: A written contract covering all future
transactions between the parties to repurchase -reverse repurchase
agreements that establishes each party's rights in the transactions.
Maturity: The date upon which the principal or stated value of an investment
becomes due and payable.
Money Market: The market in which short-term debt instruments (bills,
commercial paper, etc.) with a one-year maturity or less, and often 30-days or
less, are issued and traded.
Offer: The price asked by a seller of securities.
Overnight Repo: A repurchase agreement with expiration set for the
following business day.
Par Value: The dollar amount that appears on the face of the bond
certificate. It is the dollar amount the issuer promises to pay to the holder at
maturity. Also, called face value.
Portfolio: Collection of securities held by an investor.
Primary Dealer: A designation given by the Federal Reserve System to
commercial banks or broker/dealers who meet specific criteria, including
capital requirements and participation in Treasury auctions.
Principal: The face amount (par value) of a debt security.
Rate of Return: The yield obtainable on a security based on its purchase
price or its current market price. For bonds and notes, it is the coupon rate
divided by the price.
Repurchase Agreement (REPO): A holder of securities sells these
securities to an investor with an agreement to repurchase them at a fixed
price on a fixed date.
Safekeeping: A services to customers rendered by banks for a fee whereby
securities and valuables of all types and descriptions are held in the bank's
vault for protection.
Secondary Market: A market made for the purchase and sale of outstanding
issues following the initial distribution.
Securities and Exchange Commission: Agency created by Congress to
protect investors in security related transactions by administering securities
legislation.
Sell: To transfer ownership for a monetary consideration. The term is used in
conjunction with the disposition of stocks, bonds, or other financial assets.
Structured Notes: Notes issued by Government Sponsored Enterprises
(FHLB, FNMA, SLMA, etc.) and Corporations that have imbedded options (e.g.:
call features, step-up coupons, floating rate coupons, derivative based returns)
into their debt structure. Their market performance is impacted by the
fluctuation of interest rates, the volatility of the imbedded options and shifts in
the shape of the yield curve.
Treasury Bills: A non -interest bearing discount security issued by the U.S.
Treasury to finance the national debt. Most bills are issued to mature in three
months, six months, or one year.
Treasury Bonds: Long-term coupon bearing U.S. Treasury Securities issued
as direct obligations of the U. S. Government and having initial maturities of
more than 10 years.
Treasury Notes: Medium -term coupon -bearing U.S. Treasury securities
issued as direct obligations of the U.S. Government and having initial
maturities from two to ten years.
Uniform Net Capital Rule: Securities and Exchange Commission
requirement that member firms as well as nonmember broker -dealers in
securities maintain a maximum ratio of indebtedness to liquid capital of 15 to
1; also called net capital rule and net capital ratio.
ATTACHMENT A
CERTIFICATION BY BUSINESS ORGANIZATION
This certification is executed on behalf of Tax Increment Reinvestment Zone
No. 2 (the Investor) and (the Business
Organization) pursuant to the Public Funds Investment Act, Chapter 2256,
Texas Government Code (the Act) in connection with investment transactions
conducted between the Investor and the Business Organization.
The undersigned Qualified Representative of the Business Organization hereby
certifies on behalf of the Business Organization that:
1. The undersigned is a Qualified Representative of the Business
Organization offering to enter into an investment transaction with the
Investor as such terms are used in the Public Funds Investment Act,
Chapter 2256, Texas Government Code and
The Qualified Representative of the Business Organization has received
and reviewed the Investment Policy furnished by the Investor and
The Qualified Representative of the Business Organization has
implemented reasonable procedures and controls in an effort to preclude
imprudent investment transactions conducted between the Business
Organization and the Investor that are not authorized by the entity's
investment policy, except to the extent that this authorization is
dependent on an analysis of the makeup of the entity's entire portfolio or
required an interpretation of subjective investment standards.
4. The Business Organization will rely upon instructions from only the
persons authorized on behalf of the Tax Increment Reinvestment Zone
No. 2 as stated in the Investment Policy and City's resolution designating
investment officers.
Qualified Representative of the Business Organization
Signature:
Name:
Title:
Date:
ATTACHMENT B
APPROVED/AUTHORIZED LIST OF BROKER/DEALERS
Coastal Securities
Comerica Securities
Duncan Williams
First Southwest Company
Frost National Bank
SAMCO Capital Markets
Vining Sparks IBG, L.P.
Wells Fargo Bank
Certificates of deposit may be purchased from Texas depository institutions, which are not on the
approved broker/list, as they are considered depository in nature. Certificates of deposit purchased
from brokerage firms, however, must be on the approved broker/dealer list as they fall under the
Public Funds Investment Act. All deposits over the FDIC limit must be collateralized.
TAX INCREMENT REINVESTMENT ZONE NO. 2
INVESTMENT STRATEGY
The Tax Increment Reinvestment Zone No. 2 ("TIRZ") shall adopt by
resolution a separate written investment strategy for each of the funds
under its control. For Investment purposes, the TIRZ shall use a
"Pooled Fund Group" which means that all funds under the TIRZ's
control shall be treated as one fund.
INVESTMENT STRATEGY
I. Suitability
Investments are to be purchased based on the financial requirements
of the TIRZ. The TIRZ shall strive to maintain the level of investment
of all fund balances, reserves and bond funds as close as possible to
100%. Any investment eligible in the Investment Policy is suitable for
all TIRZ funds, including component units.
II. Safety of Principal
Investments of the TIRZ shall be undertaken in a manner that seeks to
ensure the preservation of capital in the overall portfolio. All
investments shall be of high quality with no perceived default risk. It
is the TIRZ's full intent, at the time of purchase, to hold all
investments until maturity in order to ensure the return of all invested
principal.
III. Liquidity
The TIRZ's investment portfolio will remain sufficiently liquid to enable
the TIRZ to meet all operating requirements that might be reasonably
anticipated. Liquidity shall be achieved by matching investment
maturities with budgetary and economic cycles, and forecasted cash
flow requirements. A portion of the portfolio will be maintained in
liquid short-term securities that can be converted to cash if necessary
to meet disbursement requirements. Investment pools and money
market mutual funds provide daily liquidity and may be utilized as a
competitive yield alternative to fixed maturity investments.
IV. Marketability
The TIRZ shall invest in securities that, if the need arises, can be
liquidated before maturity. Investments will never be prematurely
sold at less than book value plus accrued interest, without the
approval of the Director of Finance and the City Manager.
V. Diversification
The TIRZ will diversity its investments by security type and by
broker/dealer. With the exception of U.S. Treasury securities and fully
collateralized demand deposit accounts, no more than 75% of the
TIRZ's total investment portfolio will be invested in a single security
type.
VI. Yield
The investment portfolio shall obtain a competitive rate of return
throughout budgetary and economic cycles, commensurate with the
investment risk constraints and the cash flow needs. The TIRZ shall
attempt to obtain an acceptable return provided that the requirements
of safety and liquidity are first met. The yield of the one-year U.S.
Treasury Bill shall be a yield objective or benchmark as well as
benchmarked against an agency note with maturity, which
approximates the weighted average maturity of the portfolio.
ATTACHMENT B
APPROVED/AUTHORIZED LIST OF BROKER/DEALERS
Coastal Securities
Comerica Securities
Duncan Williams
First Southwest Company
Frost National Bank
SAMCO Capital Markets
Vining Sparks IBG, L.P.
Wells Fargo Bank
Certificates of deposit may be purchased from Texas depository institutions, which are not on the
approved broker/list, as they are considered depository in nature. Certificates of deposit purchased
from brokerage firms, however, must be on the approved broker/dealer list as they fall under the
Public Funds Investment Act. All deposits over the FDIC limit must be collateralized.