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R2001-0086 07-09-01 RESOLUTION NO. R2001-86 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") FOR PURPOSES OF INVESTING CITY FUNDS IN STATE AUTHORIZED SECURITIES. WHEREAS, the legislature of the State of Texas amended Chapter 2256 of the Government Code ("Public Funds Investment Act") which requires the City to adopt an investment policy by which public funds may be invested in a safe and prudent manner to ensure the highest rate of return while limiting the risk of loss; and WHEREAS, City Council finds that said policy should be amended pursuant to recommendations made by the City's auditors; now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: Section 1. That the City of Pearland's Amended Investment Policy, attached hereto as Exhibit "A" and made a part hereof for all purposes, is hereby adopted as the invest- ment policy of the City of Pearland in accordance with the Public Funds Investment Act, as amended. PASSED, APPROVED, AND ADOPTED this ~ ~--~'day of~ A.D., 2001. TOM REID MAYOR ATTEST: TN G~F I1~ ~'/ ~/ SE,~RETAR~/ 1 RESOLUTION NO. R2001-86 APPROVED AS TO FORM: DARRIN M. COKER CITY ATTORNEY 2 INVESTMENT POLICY CITY OF PEARLAND, TEXAS Revised July 9, 2001 Investment Policy Page 1 of 16 TABLE OF CONTENTS Page 1.0 INVESTMENT AUTHORITY AND SCOPE OF POLICY 1.01 Purpose 3 1.02 Funds Included 3 1.03 Investment Officer 3 1.04 Investment Committee 3 2.0 INVESTMENT OBJECTIVES 2.01 General Statement 4 2.02 Safety and Maintenance of Adequate Liquidity 4 2.03 Diversification 4 2.04 Yield 4 2.05 Maturity 4 2.06 Quality and Capability of Investment Management 4 2.07 Investment Strategies 5 3.0 INVESTMENT TYPES 3.01 Authorized 5 3.02 Prohibited 6 4.0 INVESTMENT RESPONSIBILITY AND CONTROL 4.01 Investment Institutions Defined 6 4.02 Qualifications for Approval of Broker/Dealers 7 4.03 Delivery vs. Payment 7 4.04 Audit Control 7 4.05 Standard of Care 7 5.0 INVESTMENT REPORTING 5.01 Quarterly Reporting 8 5.02 Monitoring 8 6.0 INVESTMENT COLLATERAL AND SAFEKEEPING 6.01 Collateral of Insurance 8 6.02 Safekeeping 9 Attachments A-1 through A-6 10-15 Attachment B 16 Investment Policy Page 2 of 16 · ~ 1.0 INVESTMENT AUTHORITY AND SCOPE OF POLICY 1.01 Purpose The purpose of this policy is to satisfy the requirements of the laws of the Sate of Texas including, but not limited to, the Local Government Code Chapter 2256 requiring definition and adoption ora formal investment policy. In 1997, the 75th Texas Legislature passed House Bill 2799, further amending the Public Investment Act. The City Council shall take formal action stating that the Investment Policy and strategies have been reviewed. 1.02 Funds Included This policy shall apply to all the financial assets, i.e. monies, of all funds of the City of Pearland, Texas, whether currently existing or hereinafter created as well as any other funds held in custody by the Director of Finance, unless expressly prohibited by law. 1.03 Investment Officer The Director of Finance is hereby designated as the Investment Officer for the City of Pearland, Texas. The Investment Officer may invest city funds, under the direction of the City Manager or the Investment Committee, that are not immediately required to pay obligations of the City. If the Investment Officer has a personal business relationship with any entity or is related within the second degree by affinity or consanguinity to and individual--seeking to sell an investment to the City, the investment officer must file a statement disclosing that personal business interest--or relationship--with the Texas Ethics Commission and City Council of the City of Pearland. (Reference Government Code 2256.005 (I)). The Director of Finance, i.e. City Treasurer, may designate in writing individuals who may in the Investment Officer's absence, 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. 1.04 Investment Committee In addition to a City Investment Officer, the City of Pearland shall have 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, and Assistant Director of Finance. The City Manager shall be the Chairman of the Committee. The Investment Committee shall annually review, revise and adopt a list of qualified brokers that are authorized to engage in investment transactions with the City of Pearland. Investment Policy Page 3 of 16 2.0 INVESTMENT OBJECTIVES 2.01 General Statement City investments shall be made in accordance with federal and state laws, this investment policy and ordinances of the City Council of the City of Pearland, Texas. 2.02 Safety and Maintenance of Adequate Liquidity The primary objective of the City of Pearland is to ensure the safety of principal in all funds and to avoid speculative investing~ The City's investment must be structured in conformance with an asset/liability management plan, which provides for liquidity necessary to pay obligations as they become due. 2.03 Diversification The City of Pearland shall diversify its portfolio to eliminate the risk of loss resulting fi.om 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. 2.04 Yield It will be the objective of the City to earn the maximum rate of return allowed on its investments within the policies imposed by its safety and liquidity objectives, investment strategies for each fund, and state and federal law governing investment of public funds. 2.05 Maturity Portfolio maturities shall be structured to first meet City obligations and second to achieve the highest return of interest. The maximum allowable stated maturity of any individual investment owned by the City of Pearland shall be three (3) years. For pooled funds the maximum average dollar weighted maturity allowed is 90 days. 2.06 Quality and Capability of Investment Management The City of Pearland shall provide training as required by the public funds act and periodic training in investments for the City Investment Officer through courses and seminars offered by professional organizations and associations. The Investment Officer and designated individuals shall receive not less than 10 hours of investment training every 2 years approved by the City Council or Investment Committee. (Reference Government Code, Sec. 2256.008). Investment Policy Page 4 of 16 2.07 Investment Strategies In accordance with the Public Funds Investment Act, Section 2256.005(d), a separate written investment strategy shall be developed for each of the funds under the City ofPearland's - 5 - control. Each investment strategy must describe the investment objectives for the particular fund using the following priorities of importance: (1) understanding of the suitability of the investment to the financial requirements of the City; (2) preservation and safety of principal; O) liquidity; (4) marketability of the investment if the need arises to liquidate the investment before maturity; (5) yield. Attachments A-1 through A-6 include investment strategies for all funds. In accordance with the Public funds Investment Act, Section 2256.005(e), investment strategies will be reviewed by City Council at least annually. The investment strategies utilized for all of the City controlled funds are substantially the same because of the common characteristics, i.e. cash flow requirements, aversion to risk, etc. of all the funds. 3.0 INVESTMENT TYPES 3.01 Authorized The City of Pearland's Investment Officer shall use any or all of the following authorized investment instruments consistent with governing law (reference Government Code 2256): A. Except as provided by Government Code 2256.009(b), obligations of the United States or its agencies and instrumentalities are authorized investments. B. Certificate of deposit if issued by a state or national bank domiciled in this state or a savings and loan association domiciled in this state and is: I. guaranteed or insured by the Federal Deposit Insurance Corporation or its successor; Investment Policy Page 5 of 16 2. secured by obligations that are described by section 2256.009(a) of the Public Funds Investment Act, including mortgage backed securities directly issued by a federal agency or instrumentality that has a market value of not less than the principal amount of the certificates, but excluding those mortgage backed securities of the nature described by Section 2256.009(b) of the Public Funds Investment Act; or 3. secured in any other manner and amount provided by law for deposits of the City. C. Eligible investment pools, as defined by the Public Funds Investment Act, Sec. (2256.016-2256.019), if City Council and the Investment Committee by ordinance authorize investment in the particular pool. D. Repurchase Agreement - authorized investment that has a defined termination date; is secured by obligations; requires the securities being purchased by the City, to be pledged and held in the city's name, and deposited at the time the investment was made; and is placed through a primary government securities dealer; or a financial institution doing business in this state. 3.02 Prohibited The City of Pearland's Investment Officer has no authority to use any of the investment instruments that are not specifically authorized above. Specifically prohibited investments are collateralized mortgage obligations. 4.0 INVESTMENT RESPONSIBILITY AND CONTROL 4.01 Investment Institutions Defined The City of Pearland's Investment Officer shall invest City funds with any or all of the following institutions or groups consistent with federal and state law and the current depository bank contract: 1. Depository Bank; 2. Other state or national banks domiciled in Texas that are insured FDIC; 3. Public funds investment pools; or 4. Government securities brokers and dealers. Investment Policy Page 6 of 16 4.02 Qualifications for Approval of Broker/Dealers In accordance with 2256.005(k), a written copy of this investment policy shall be presented to any person seeking to sell to the City an authorized investment. The qualified representative of the business organization seek to sell authorized investmem shall execute a written instrumem substantially to the effort that the qualified representative has: 1. received and thoroughly reviewed the investment policy of the City; and 2. acknowledged that the organization has implemented reasonable procedures and controls in effort to preclude imprudent investment activities arising out of investment transactions conducted between the City and the organization. 3. a list of qualified brokers shall be maintained by the Investment Committee and shall include no more than 5 dealers. The investment officer may not buy any securities from a person who has not delivered to the City an instrument in substantially the form provided above according to Section 2256.005(1). 4.03 Delivery vs. Payment It shall be the policy of the City that all Treasury Bills, Notes and Bonds and Government Agencies' securities shall be purchased using the "Delivery vs. Payment" (DVP) method through the Federal Reserve System. By so doing, City funds are not released until the City has received, through the Federal Reserve wire, the securities purchased. 4.04 Audit Control In addition, City Council, at a minimum shall have an annual financial audit of all City funds by an independent auditing firm, as well as an annual compliance audit of management controls on investments and adherence to the entity's established investment policies in accordance with 2256.005(m). 4.05 Standard of Care In accordance with Government Code 2256.006, 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. Investment of funds shall be governed by the following investment objectives, in order of priority; preservation and safety of principal; liquidity; and yield. Investment Policy Page 7 of 16 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, or funds under the City's control, 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 written investment policy of the City. 5.0 INVESTMENT REPORTING 5.01 Quarterly Reporting In accordance with Texas Government Code, Sec. 2256.023, the Investment Officer shall report to City Council quarterly statistics, listing the type and description of investment in detail, the broker/dealer used for purchase, the yield to maturity, the stated maturity date, and the previous and current market value. In addition, the report shall include a detailed listing of all purchases, sales and payments, and description of each security held. The report must be prepared and signed by the Investment Officer and contain statement of compliance with regard to the City's investment strategy expressed in the City's policy and relevant provision of Chapter 2256 of the Texas Government Code. 5.02 Monitoring In accordance with Texas Government Code, Sec. 2256.05, the Investment Officer shall develop methods to monitor the market price of investments acquired with public funds. Such methods may include but not be limited, to the use of a third party or pricing in the Wall Street Journal. 6.0 INVESTMENT COLLATERAL AND SAFEKEEPING 6.01 Collateral or Insurance The Investment Officer shall ensure that all City funds are fully collateralized or insured consistent with federal and state law and the current bank depository contract in one or more of the following manners: 1. FDIC insurance coverage; 2. obligations of the United States or its agencies and instrumentalities. Investment Policy Page 8 of 16 6.02 Safekeeping All purchased securities shall be held in safekeeping by the City, or a City account in a third party financial institution, or with the Federal Reserve Bank. All certificates of deposit, insured by the FDIC, purchased outside the Depository Bank shall be held in safekeeping by either the City or a City account in a third party financial institution. All pledged securities by the Depository Bank shall be held in safekeeping by the City or a City account in a thffd party financial institution, or with a Federal Reserve Bank. Investment Policy Page 9 of 16 ATTACHMENT A-1 INVESTMENT STRATEGY - GENERAL FUND Taking into account the objectives in order of priority as discussed in section 2.07 of this policy, the City shall invest its monies in money market accounts, Texpool, Lone Star or other authorized investment pools. To the extent that cash flow requirements can be forecasted, the City will attempt to identify funds that can be invested for periods of greater than 90 days and upon identification of these funds will invest in fixed term investments such as certificates of deposit; Treasury notes or similar approved investments if the yield exceeds the amount being earned on liquid investments. Investment Policy Page 10 of 16 ATTACHMENT A-2 INVESTMENT STRATEGY - SPECIAL REVENUE FUNDS Taking into account the objectives in order of priority as discussed in section 2.07 of this policy, the City shall invest its monies in money market accounts, Texpool, Lone Star or other authorized investment pools. To the extent that cash flow requirements can be forecasted, the City will attempt to identify funds that can be invested for periods of greater than 90 days and upon identification of these funds will invest in fixed term investments such as certificates of deposit; Treasury notes or similar approved investments if the yield exceeds the amount being earned on liquid investments. Investment Policy Page t 1 of 16 ATTACHMENT INVESTMENT STRATEGY - DEBT SERVICE FUND Taking into account the objectives in order of priority as discussed in section 2.07 of this policy, the City shall invest its monies in money market accounts, Texpool, Lone Star or other authorized investment pools. To the extent that cash flow requirements can be forecasted, the City will attempt to identify funds that can be invested for periods of greater than 90 days and upon identification of these funds will invest in fixed term investments such as certificates of deposit; Treasury notes or similar approved investments if the yield exceeds the amount being earned on liquid investments. Investment Policy Page 12 of 16 ATTACHMENT A-4 INVESTMENT STRATEGY - CAPITAL PROJECTS FUNDS Taking into account the objectives in order of priority as discussed in section 2.07 of this policy, the City shall invest its monies in money market accounts, Texpool, Lone Star or other authorized investment pools. To the extent that cash flow requirements can be forecasted, the City will attempt to identify funds that can be invested for periods of greater than 90 days and upon identification of these funds will invest in fixed term investments such as certificates of deposit; Treasury notes or similar approved investments if the yield exceeds the amount being earned on liquid investments. Investment Policy Page 13 of 16 ATTACHMENT A-5 INVESTMENT STRATEGY - WATER & SEWER FUND Taking into account the objectives in order of priority as discussed in section 2.07 of this policy, the City shall invest its monies in money market accounts, Texpool, Lone Star or other authorized investment pools. To the extent that cash flow requirements can be forecasted, the City will attempt to identify funds that can be invested for periods of greater than 90 days and upon identification of these funds will invest in fixed term investments such as certificates of deposit; Treasury notes or similar approved investments if the yield exceeds the amount being earned on liquid investments. Investment Policy Page 14 of 16 ATTACHMENT A-6 INVESTMENT STRATEGY - BOND PROCEEDS FUND Taking into account the objectives in order of priority as discussed in section 2.07 of this policy, the City shall invest its monies in money market accounts, Texpool, Lone Star or other authorized investment pools. To the extent that cash flow requirements can be forecasted, the City will attempt to identify funds that can be invested for periods of greater than 90 days and upon identification of these funds will invest in fixed term investments such as certificates of deposit; Treasury notes or similar approved investments if the yield exceeds the amount being earned on liquid investments. The Bond Proceeds Fund includes bond proceeds from the General Fund, Water & Sewer Fund and the Pearland Economic Development Corporation. Investment Policy Page 15 of 16 ATTACHMENT B CERTIFICATION FORM As required by Texas Government Code 2256.005 (k) I, as qualified representative of , a business organization seeking to sell an authorized investment to the City of Pearland, Texas, (the "City"), do hereby certify that I have received and thoroughly reviewed the investment policy of the City. I acknowledge that , my business organization, has implemented reasonable internal procedures and controls in an effort to preclude imprudent investment activities arising out of transaction conducted between the City and the organization. Signature Name Title Date Investment Policy Page 16 of 16