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HomeMy WebLinkAboutR-2004-127 Investment Policy RESOLUTION NO. 2004-127 A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF DANIA BEACH, FLORIDA, ADOPTING AN INVESTMENT POLICY WHICH IS TO BE ESTABLISHED BY THE CITY IN ACCORDANCE WITH FLORIDA STATUTES, SECTION 218.415; PROVIDING FOR CONFLICTS; FURTHER, PROVIDING FOR AN EFFECTIVE DATE. WHEREAS, in accordance with Florida Statutes, Section 218.415, all local governments must adopt a written investment plan for any public funds in excess of the amounts needed for current expenses; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COMMISSION OF THE CITY OF DANIA BEACH, FLORIDA: Section 1. That the Investment Policy promulgated by the City, a copy of which is attached, marked Exhibit "A", and incorporated by this reference, is approved by the City Commission as the City Investment Policy. Section 2. That all resolutions or parts of resolutions in conflict with this resolution are repealed to the extent of such conflict. Section 3. That this resolution shall be in force and take effect immediately upon its passage and adoption. -PASSED AND ADOPTED on August 10, 2004. %ATTEST: C.K. MCELYF '--1 ntIA y. UXJ MAYOR—COMMISSIONER LOUISE STILSON CITY CLERK ROLL CALL: COMMISSIONER ANTON - YES COMMISSIONER CHUNN -YES COMMISSIONER FLURY - YES APPROVED AS TO FORM VICE-MAYOR MIKES - YES AND COR/R�ECTNES MAYOR MCELYEA- YES BY: ( THOM S J. A S CITY ATTORNEY RESOLUTION NO. 2004-127 City of Dania Beach Investment Policy PURPOSE The purpose of this statement is to set forth the policy and objectives governing the internal and external investment management of the City of Dania Beach cash reserves. The City recognizes that liquidity and preservation of principal are of primary importance in determining investment vehicles. SCOPE This policy applies to all the investment activity and cash balances of the city, with the exception of the Pension Funds, which are organized and administered separately. The funds included are as follows: - General Fund - Special Revenue Funds - Capital Projects Fund - Internal Service Fund - Enterprise Funds - Trust and Agency Funds - Any new fund created by the governing body, unless specifically exempt. OBJECTIVES • The primary objectives, in priority order, of investment activities shall be: 1. Safety Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk. a. Credit Risk Credit risk is the risk of loss due to the failure of the security issuer or backer. Credit risk may be mitigated by: • Limiting investments to the safest types of securities; • Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisors with which the City will do business; and • Diversifying the investment portfolio so that potential losses on individual securities will be minimized. Page 1 of 13 b. Interest Rate Risk Interest rate risk is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. Interest rate risk may be mitigated by: • Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations while avoiding the need to sell securities on the open market prior to maturity, and • Investing operating funds primarily in shorter-term securities, no longer than five years. 2. Liquidity The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This will be accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. Furthermore, since all possible cash demands cannot be anticipated, the portfolio will consist largely of securities with active secondary markets. 3. Yield The investment portfolio shall be designed with the objective of attaining a • market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment shall not have as much weight in comparison to safety and liquidity objectives. The core of investments will be limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities shall not be sold prior to maturity with the following exceptions: • Declining credit security could be sold early to minimize loss of principal; • A security swap that would improve the quality, yield or target duration in the portfolio; • Liquidity needs of the portfolio require that the security be sold. No transactions of this kind will be executed without the approval of the City Manager. STANDARD CARE 1. Prudence The standard prudence to be applied by the Director of Finance shall be the "Prudent Person Rule" which states: "Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their Page 2 of 13 capital as well as the probable income derived." The "Prudent Person Rule" shall be applied in the context of managing of overall portfolio. The Director of Finance performing the investment functions, acting in accordance with written policies and procedures, and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported immediately and that appropriate action is taken to control adverse developments. 2. Ethics and Conflicts of Interest Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of their entity. 3. Delegation of Authority The Director of Finance is designated as the investment officer for the city and is responsible for investment decisions and activities with the approval of the City Manager. The day-to-day administration of the cash management program is handled by the Director of Finance, who shall carry out established written procedures and internal controls for the operation of the investment program. Procedures should include references to: safekeeping, delivery vs. payment, investment accounting, repurchase agreements, wire transfer agreements, collateral/depository agreements, and banking services contracts. No person may engage in an investment transaction except as provided under the terms of this policy. Positions authorized as investment signatories are, Director of Finance and Assistant Finance Director. The persons holding these positions are also authorized to initiate wire transfers for the City. Investment transactions must be approved by the City Manager. SAFEKEEPING AND CUSTODY 1. Authorized Financial Dealers and Institutions: a. Banks The City shall purchase certificates of deposit only through qualified public depositories of the State of Florida as identified by the State Treasurer, in accordance with Chapter 20 of the Florida Statutes. Page 3 of 13 b. Brokers/Dealers The City may utilize dealers designated as "Primary Securities Dealers" by • the Federal Reserve Bank of New York, for purchases and sales of securities. The City may also utilize non-primary securities (regional) dealers doing business from offices located in Broward, Miami-Dade or Palm Beach County. Both the firm and the dealer for non-primary dealers must have been engaged in the business of effecting transactions in U.S. government and agency obligations for at least five (5) consecutive years. The firm must have a minimum of $500 million in annual underwriting of U.S. Government Agency Securities or Instrumentalities for the previous calendar year. The firm must have capital of no less than $10,000,000. Both primary and non-primary dealers must qualify under Securities and Exchange Commission Rule 15C3-1 (uniform net capital rule). The firms must provide the following information prior to executing investment trades with the City: 1. Audited annual financial statement. 2. Regulatory history, through either the Office of the Comptroller or the Currency for dealer banks, or the NASD (CRD) for securities firms. 3. Statement of any pending lawsuits materially affecting the firm's business. 4. Proof of state registration. 5. Each Dealer's representative will be required to complete the City's Broker/Dealer Certification Form (Attachment "C") prior to the City conducting any business with the Dealer or its representative. Before engaging in investment transactions with an institution, the Director of Finance shall receive a signed certification form attesting that the individual responsible for the City's account with that firm has reviewed the City's investment policy and that they agree to undertake necessary and appropriate efforts to preclude imprudent transactions involving City funds. 2. Internal Controls The Director of Finance or designee shall maintain a system of internal controls, which shall be documented in writing. The external auditor shall review the internal controls annually. The controls shall be designed to prevent and control losses of public funds arising from fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers. The internal controls should address the followings: a. Control of Collusion: a situation where two or more employees are working in conjunction to defraud the City. b. Separation of transaction authority from accounting and record keeping: The person who is authorized to perform the transactions should not Page 4 of 13 record the transaction; another employee should be designated to record all transactions. • C. Custodial safekeeping: Securities purchased by any bank or dealer including appropriate collateral shall be placed with an independent third party for custodial safekeeping. d. Book entry securities: This kind of securities must be held for the credit of the governing body by a depository chartered by the Federal Government, the state, or any other state or territory of the United States which has a branch or principal place of business in this state or by a national association organized and existing under the laws of the United States which is authorized to accept and execute trusts and which is doing business in this state, and must be kept by the depository in an account separate and apart from the assets of the financial institution. e. Prohibition of bearer-form securities: This form of securities is much easier to convert to personal use than securities registered in the name of the City. f. Written confirmation or telephone transactions for investments and wire transfers: Due to the potential for error and improprieties arising from telephone transactions, all telephone transactions should be supported by written communications and approved by the appropriate person. Written communications may be via fax if on the letterhead with authorized • signatures. g. Development of wire transfer agreement with the lead bank or third party custodian: The agreement should outline the various controls, security provisions, and delineate responsibilities of each party making and receiving wire transfers. 3. Delivery vs. Payment All transactions where applicable will be executed by delivery vs. payment (DVP). This ensures securities are deposited in the eligible financial institution prior to the release of funds. A third party custodian as evidenced by safekeeping receipts will hold securities. AUTHORIZED AND SUITABLE INVESTMENTS 1. Investment Types The following are the authorized investments and limits on security issues, issuers, and maturities as established within this policy. The Director of Finance shall have the option to further restrict investment in selected instruments, to conform to then-present market conditions. Page 5 of 13 a. The Florida Local Government Surplus Trust Fund (administered by the State Board of Administration) b. The Florida Municipal Investment Trust (administered by the Florida League of Cities) C. Interest bearing checking or savings accounts d. U.S. Government obligations, which include but are not limited by Treasury Bills, Treasury Notes, Treasury Bonds and Treasury Strips. e. Time deposits and savings accounts in bank and savings and loan institutions, under the laws of Florida and the United States. f. Federal Agencies and Instrumentalities. Including, but not limited to: i) Governmental National Mortgage Association (GNMA) ii) U.S. Dept of Housing and Urban Development, project notes and local authority bonds iii) Federal National Mortgage Association (FNMA) iv) Federal Home Long Mortgage (Freddie-Mac) v) Student Home Loan Marketing Association (Sallie-Mae) vi) Federal Home Loan Bank (FHLM) vii) Federal Farm Credit Bank (FFCB) g. Securities of, or interest in, any open-end and closed-end management-type investment company or investment trust registered under the Investment Company Act of 1940, 15 U.S.C. ss801-1 et seq. as amended from time to time. The portfolio should be limited to securities as listed in sections a and f above, and the company or trust takes delivery of such collateral either directly or through an authorized • custodian (i.e. mutual funds). Any investments not listed above are prohibited. 2. Collateral ization Certificates of deposit and overnight repurchase agreements must be collateralized. The collateral ization level will be 100% at a minimum with up to 102% being desired. 3. Compliance with City's Bond Covenants Whenever ordinances and/or resolutions adopted by the City Commission authorizing the issuance of bonded indebtedness contain specific provisions relative to the investment of funds the investment of such funds must comply with the provision of the applicable bond ordinance. INVESTMENT PARAMETERS 1. Diversification Assets held shall be diversified to control the risk of loss resulting from over concentration of assets in a specific maturity, a specific issuer, a specific . instrument, a class of instruments, and a dealer through whom these investments are bought and sold. Diversification strategies within the Page 6 of 13 established guidelines shall be reviewed and revised periodically as necessary. ® 2. Maximum Maturities To the extent possible, the City will attempt to match its investments with overall anticipated cash flow requirements. The City will not invest in long- term securities unless matched to a specific cash flow requirement. The basic criteria for consideration of the duration for investments are as follows: • Keep maturities short in a period of constantly rising interest rates based on treasury bill auctions or the daily Fed Funds rate. • Keep maturities short in a period of an inverted treasury yield curve (short term rates are higher than long term rates) • Maturities should be lengthened when the treasury yield curve is normal and expected to remain that way based on economic reports taken as a whole. The yield curve is normal when short-term rates are lower than long-term rates. • Maturities should be lengthened when interest rates are expected to fall based on economic reports taken as a whole. • Maximum Authorized Investments Maturity Range Maximum Percent 110 PRO Fl. Local Government Surplus Trust N/A 90% FI. Municipal Investment Trust N/A 50% U.S. Treasury Securities 10 years 75% Federal Agencies & Instrumentalities 5 years 60% Certificate of Deposits 3 years 30% 3. Security Selection When purchasing or selling securities, the Director of Finance shall select the security which provides the highest rate of return within the parameters of this policy. To achieve this objective the selection methods shall be one of the following: • Competitive bids, wherein the City solicits quotes from a minimum of three firms. • Comparison to the current market price as indicated by one of the market pricing resources, for example, the Wall Street Journal. • In most situations, the City shall utilize the competitive bid process to select the securities to be purchased or sold. Selection by comparison to a current Page 7 of 13 market price, as indicated above, shall be utilized when, in the judgment of the Director of Finance, competitive bidding would inhibit the process to • select the securities to be purchased or sold. MONITORING AND ADJUSTING THE PORTFOLIO The Director of Finance will routinely monitor the contents of the portfolio, the available markets and the relative values of competing instruments and will adjust the portfolio accordingly. REPORTING 1. Method The Director of Finance or designee shall prepare an investment report at least quarterly, including a succinct management summary that provides a clear picture of the status of the current investment portfolio and transactions made over the last quarter. The report shall include the following: • A listing of individual securities held at the end of the reporting period; • Unrealized gains or losses resulting from appreciation or depreciation by listing the costs and market value of securities over one-year duration that are not intended to be held until maturity; • Average weighted yield to maturity of portfolio; • Listing of investment by maturity date; • The percentage of the total portfolio which each type of investment • represents. 2. Performance Standards The investment portfolio will be managed in accordance with the parameters specified within this policy. The portfolio should obtain a market average rate of return during a market/economic environment of stable interest rates. Portfolio performance should be compared to appropriate benchmarks on a regular basis. CONTINUING EDUCATION The Director of Finance or other designated staff responsible for making investment decisions must complete annually eight (8) hours of continuing education in subjects or course of study related to investment practices and products in accordance with Chapter 218.415 (14) Laws of Florida. POLICY 1. Exemption Any investments currently held that do not meet the guidelines of the policy • shall be exempted from the requirements of this policy. At maturity or liquidation, such funds so invested shall be reinvested only as provided for in this policy. Page 8 of 13 The Director of Finance may take a sufficient period of time to adjust the existing portfolio to the provisions of the policy so as not to require the premature liquidation of any investment. 2. Annual Audit In accordance with Chapter 264, Laws of Florida, certified public accountants conducting audits of units of local government pursuant to Florida Statue 11.45 shall report, as part of the audit, whether the city has complied with this policy. 3. Amendment The policy shall be reviewed on an annual basis. The Director of Finance and the City Manager should recommend any material changes to the Investment Policy to the City Commission for approval. Page 9 of 13 GLOSSARY i BOOK ENTRY— Book entry are registered securities with ownership evidenced by the records of a registrar. Physical certificates evidencing ownership of the securities are not offered. CAPITAL PROJECTS FUND — Accounts for financial resources to be used for the acquisition or construction of major capital facilities. COMPETITIVE BID —A method of purchasing bonds or securities by which the bonds are awarded based upon the best bid subject to firm criteria set forth in a notice of sale. CONFIRMATION — A written summary of a transaction involving municipal securities which a broker or dealer provides to their customer, a confirmation contains information prescribed by the Municipal Securities Rulemaking Board. COVENANT —As an issuer's promise to do or to refrain from doing some act, covenants are generally described in a bond contract. Covenants commonly made include: to charge fees sufficient to provide required revenues, to maintain adequate insurance on a project, to not sell or encumber the project, to not issue parity bonds unless certain earnings tests are met, and to maintain and operate the project generating revenues to pay the bonds. . DEALER —A securities firm or commercial bank engaged in the underwriting, trading, or selling of municipal securities. DEBT SERVICE FUNDS —Accounts for the accumulation of resources for, and the payment of, general long-term debt principal and interest. DELIVERY versus PAYMENT — There are two methods of delivery of securities: delivery versus payment and delivery versus receipt (also called free). Delivery versus payment is delivery of securities which an exchange of money for the securities. Delivery versus receipt is delivery of securities with an exchange of a signed receipt for the securities. ENTERPRISE FUNDS — Accounts for operation that are financed and operated in a manner similar t private business enterprises, where the intent of the governing body is that the costs of providing goods or services to the general public on a continuing basis be financed or recovered through user charges. FEDERAL HOME LOAN MORTGAGE CORPORATION (FREDDIE MAC) —A federal corporation which helps to maintain credit for residential housing by supporting the conventional home mortgage market. FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA OR FANNIE MAE) — FNMA is a government sponsored private entity established to facilitate the orderly operation of a secondary market for home mortgages. FINANCIAL ADVISOR — Is a firm offering financial consulting services to a governmental entity. Page 10 of 13 GENERAL FUND —Accounts for all financial resources of a municipality except those ® required to be accounted for in another fund. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA OR GINNIE MAE) — Securities are issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. Security holder is protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed by FHA, VA, or FMHM mortgages. PRIMARY MARKET — The market for new municipal securities issues. REPURCHASE AGREEMENT OR REPO —The terms of two simultaneous transactions whereby an investor purchases securities from a dealer (or a bank) and the dealer commits to repurchase the securities from the investor at some future date at a fixed price. SAFEKEEPING — A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank's vaults for protection. SECONDARY MARKET —The general market for trading bonds which were previously offered or sold. SECURITIES — Evidence of a debt or equity investment in a specific enterprise, including a bond, note, mortgage, stock, limited partnership interest, and other negotiable or non- negotiable forms of investment participation. SPECIAL REVENUE FUNDS — accounts for the proceeds of specific revenue sources that are legally restricted to expenditure for specified purposes. TREASURY SECURITES — Debt obligations of the U.S. government sold by the Treasury Department in the following forms: Bills or T-Bills — Maturing in 1 year or less, T-Bills are sold at a discount in lieu of distributing periodic interest earnings. Notes or T-Notes — Interest bearing obligations which are issued to mature In 10 years or less. Bonds or T-Bonds — Interest bearing, long-term obligations issued to Mature in 10 years or more. TRUST AND AGENCY FUNDS — Accounts for assets held by a governmental unit in a trustee capacity or as an agent for individuals, private organizations, other governmental units, and/or trust funds. YIELD — The rate of annual income return on an investment, expressed as a percentage. • Page 11 of 13 YIELD TO MATURITY— It is the current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period • from the date of purchase to the date of maturity of the bond. Page 12 of 13 INVESTMENT INSTITUTION CERTIFICATION FORM As an authorized representative of the undersigned firm, I hereby certify that said firm has in place reasonable procedures to monitor the activities of employees of this firm engaged in transactions between our firm and the City of Dania Beach. All sales personnel of this firm have been informed and will be routinely informed of the City's investment objectives, policies, risk constraints and other pertinent factors whenever we are so informed. This firm further pledges due diligence in informing the City of foreseeable risks associated with financial transactions connected with this firm. Authorized Representative (Firm) (Date) (Signature) (Printed Name/Title) As account representative for the City of Dania Beach on behalf of the above referenced firm, I hereby certify that I have personal read and understand that investment policies, in such form as said policies were provided to me. I agree to use my best efforts to comply with the City's written policies and will not knowingly enter in any transaction with the City which appears to be in violation of the City's written policies. Account Representative (Signature) (Printed Name/Title) (Date) • Page 13 of 13 _ Agenda Request Form City of Dania Beach Agenda Item: Date of Commission meeting: 8/10/2004 Description of Agenda Item: Adopting an investment policy Commission action being requested: Adopt Resolution or Ordinance ® Expenditure ❑ Award BID/ RFP ❑ Presentation ❑ General approval of item ❑ Continued from meeting Ot er{Please ex"plain), z. .... Sumr , mary.:expla at�oriand background } As required by Florida Statute Chapter 218.415, each municipality is required to adopt a written investment plan which will provide allowable investment options and internal controls regarding the �`. investment of the City's surplus funds. A workshop was held in June to provide the Commission information regarding this plan. Attached exhibits and additional backup atenalsW(Pleas�list) Resolution Investment Policy For purchasing requests ONLY Department: Amount: Fund: General: ❑ Water: ❑ Sewer: ❑ Stormwater: ❑ Grants: ❑ Capital: ❑ Account Name: Account Number: Submitted by: pvarney Date: 7/29/2004 Department Director. Date: Admin. Services Director. Date: Finance Director. Patricia Varney Date: 7/29/2004 City Manager: Ivan Pato Date: 7/30/2004