14890I RESOLUTION NO. 14,890
2
3 A RESOLUTION ADOPTING A NEW INVESTMENT POLICY FOR THE
4 CITY OF LITTLE ROCK, ARKANSAS; REPEALING RESOLUTION NO.
5 12,520 (MAY 15,2007); AND FOR OTHER PURPOSES.
6
7 WHEREAS, the Board of Directors of the City of Little Rock, Arkansas last adopted an Official
8 Investment Policy on May 15, 2007, via Resolution No. 12,520; and,
9 WHEREAS, the funds available for investment by the City are substantial and are vital to the ability
10 of the City to deliver services to its citizens; and,
11 WHEREAS, the new Investment Policy is consistent with recommendations of the Government
12 Finance Officers Association of the United States and Canada (GFOA); and,
13 WHEREAS, it is prudent to update the Investment Policy periodically to conform to changes in
14 Arkansas State Statutes and changes in accounting standards.
15 NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE CITY
16 OF LITTLE ROCK, ARKANSAS:
17 Section 1. The Board of Directors of the City of Little Rock, Arkansas hereby adopts Exhibit A as its
18 Investment Policy Statement.
19 Section 2. This Resolution repeals Resolution No. 12,520 and all other resolutions or policy statements
20 which are inconsistent with this resolution.
21 Section 3. This new Investment Policy shall become effective upon adoption of this resolution.
22 Section 4. Severability. In the event any title, section, paragraph, item, sentence, clause, phrase, or
23 word of this resolution is declared or adjudged to be invalid or unconstitutional, such declaration or
24 adjudication shall not affect the remaining portions of the resolution which shall remain in full force and
25 effect as if the portion so declared or adjudged invalid or unconstitutional was not originally a part of the
26 resolution.
27 Section 5. Repealer. All laws, ordinances, resolutions, or parts of the same, that are inconsistent with
28 the provisions of this resolution, are hereby repealed to the extent of such inconsistency.
29
30
31
32
33
Mark Stodola, Mayor
[Page 1 of 101
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
APPROVED AS TO LEGAL FORM:
Thomas M. Carpenter, City Attey"
H �J
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
H
f Page 2 of 101
1
W
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
Exhibit A
CITY OF LITTLE ROCK, ARKANSAS
POOLED CASH PORTFOLIO
INVESTMENT POLICY GUIDELINES
NOVEMBER, 2018
I. Introduction
The intent of the Investment Policy of the City of Little Rock is to define the objectives
within which funds are to be managed. The guidelines are intended to be broad enough
to allow the Investment Officer to function properly within the parameters of
responsibility and authority, yet specific enough to adequately safeguard the
investment assets.
II. Governing Authority
The investment program shall be operated in conformance with Arkansas State Statues
and by the Little Rock City Board of Directors. The Finance Director/Treasurer is
responsible for investing the unexpended cash in the City Treasury.
The authority governing investments for municipal governments with property
valuations in excess of $300,000,000 is set forth in Arkansas State Statute §19-1-505.
Investment of City funds will be made only in compliance with Arkansas Statutes.
III. Scope
This Policy applies to the investments of all monies held by the City under the control
of the City's Board of Directors, that are not needed for the near term payment of
obligations. This Policy shall also apply to any entity that receives a majority of its
funding from City appropriations.
This Policy does not apply to the Police, Fire, and Non -Uniformed Employees
Retirement Funds. Longer-term funds, including investment of Employees' Deferred
Compensation Fund are covered by separate policies.
1. Pooling of Funds
The City will consolidate cash balances from all funds to maximize investment
earnings and to increase efficiencies with regard to investment pricing,
safekeeping and administration. Investment income will be allocated to the
various funds based on their respective participation and in accordance with
generally accepted accounting principles.
[Page 3 of 101
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
IV. General Objectives
The primary objectives, in priority order, of investment activities shall be safety,
liquidity, and yield.
1. Safety
Safety of principal is the foremost objective of the City of Little Rock's
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
The City of Little Rock will minimize credit risk, which is the risk of
loss due to the failure of the security issuer or backer, by:
• Limiting investments to the safest types of securities (no stocks,
no derivatives)
• Pre -qualifying the financial institutions, broker/dealers,
intermediaries, and advisers with which the City will do business
• Diversifying the investment portfolio so that potential losses on
individual securities will be minimized
b. Interest Rate Risk
The City of Little Rock will minimize the risk that the market value of
securities in the portfolio will fall due to changes in general interest
rates, by:
• Structuring the investment portfolio so that securities mature to
meet cash requirements for ongoing operations, thereby
avoiding the need to sell securities on the open market prior to
maturity
• Investing operating funds primarily in shorter -term securities,
money market mutual funds, or similar investment pools.
2. Liquidity
The City of Little Rock's investment portfolio shall remain sufficiently liquid
to meet all operating requirements that may be reasonably anticipated. This is
accomplished by structuring the portfolio so that securities mature concurrent
with cash needs to meet anticipated demands (static liquidity). Furthermore,
since all possible cash demands cannot be anticipated, the portfolio should
consist largely of securities with active secondary or resale markets (dynamic
liquidity). A portion of the portfolio also may be placed in money market
mutual funds or local government investment pools which offer same-day
liquidity for short-term funds.
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
[Page 4 of 101
I account the investment risk constraints and liquidity needs. Return on
2 investment is of secondary importance compared to the safety and liquidity
3 objectives described above. The core of investments is limited to relatively low
4 risk securities in anticipation of earning a fair return relative to the risk being
5 assumed. The City shall maximize interest yields while ensuring that the
6 maturity dates coincide with projected expenditure requirements. Furthermore,
7 the City shall purchase investments through competitive bidding, placing the
8 investment with the bid providing the highest interest yield for the maturity
9 required. Securities shall not be sold prior to maturity with the following
10 exceptions:
11 • A security with declining credit may be sold early to minimize
12 loss of principal.
13 • A security swap, which would improve the quality, yield, or
14 target duration in the portfolio.
15 • Liquidity needs require that the security be sold.
16
17 V. Standards of Care
18
19 1. Prudence
20 The standard of prudence to be used by Investment Officials shall be the
21 "prudent person" standard and shall be applied in the context of managing an
22 overall portfolio. Investment officers acting in accordance with written
23 procedures, this Investment Policy, and with due diligence shall be relieved of
24 personal responsibility for an individual security's credit risk or market price
25 changes, provided deviations from expectations are reported in a timely fashion
26 and the liquidity and the sale of securities are carried out in accordance with the
27 terms of this policy.
28
29 The "prudent person" standard states that, "Investments shall be made with
30 judgment and care, under circumstances then prevailing, which persons of
31 prudence, discretion, and intelligence exercise in the management of their own
32 affairs, not for speculation, but for investment, considering the probable safety
33 of their capital as well as the probable income to be derived."
34
35 2. Ethics and Conflicts of Interest
36 Officers and employees involved in the investment process shall refrain from
37 personal business activities that could conflict with the proper execution and
38 management of the investment program, or that could impair their ability to
39 make impartial decisions. No employee shall have a direct or indirect financial
40 interest with the broker or corporation with whom they are conducting business.
41 Employees and Investment Officials shall disclose any personal financial
42 interests that could be related to the performance of the City's investment
43 portfolio. Employees and officers shall refrain from undertaking personal
44 investment transactions with the same individual with whom business is
45 conducted on behalf of the City of Little Rock.
46
[Page 5 of 10]
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
3. Delegation of Authority
Authority to manage the investment program is granted by the Board of
Directors to the City's Finance Director/Treasurer. The Finance
Director/Treasurer shall designate up to two (2) Investment Officers who shall
have the responsibility for the operation of the investment program and shall
act in accordance with this Investment Policy and established written
procedures and internal controls for the operation of the investment program.
Procedures should include references to: safekeeping, delivery vs. payment,
investment accounting, wire transfer agreements, and collateral/depository
agreements. No person may engage in an investment transaction except as
provided by the Investment Officer. The Investment Officer shall be
responsible for all transactions undertaken and shall establish a system of
controls to regulate the activities of subordinate officials.
VI. Authorized Financial Institutions and Brokers/Dealers
A list will be maintained of financial institutions and broker/dealers authorized to
provide investment services. The Treasury Services Manager shall annually send a
copy of the City's current Investment Policy to all financial institutions and
broker/dealers approved to do business with the City. These financial institutions and
broker/dealers must be creditworthy (e.g. a minimum capital requirement of
$10,000,000), have been in operation at least five years, and have a physical presence
in the City of Little Rock, Arkansas. These may include "primary" dealers or regional
dealers that qualify under Securities and Exchange Commission (SEC) Rule 150-1
(uniform net capital rule).
All financial institutions and broker/dealers who desire to become qualified for
investment transactions must supply the following as appropriate:
• Audited financial statements demonstrating compliance with State and
Federal Capital Adequacy Guidelines
• Proof of National Association of Securities Dealers (NASD) Certification
• Proof of State Registration
• Completed broker/dealer questionnaire
• Certification of having read and understood and agreeing to comply with
the City's Investment Policy
• Evidence of adequate insurance coverage
An annual review of the financial condition and registration of qualified financial
institutions and broker/dealers will be conducted by the Investment Officer.
VII. Safekeeping and Custody
1. Internal Controls
The Investment Officer is responsible for establishing and maintaining an
internal control structure designed to ensure that the assets of the City are
protected from loss, theft, or misuse. The internal control structure shall be
[Page 6 of 10]
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
designed to provide reasonable assurance that these objectives are met.
Complete records of all investment transactions will be kept in the Little Rock
Finance Department. The Finance Director/Treasurer shall render a quarterly
report to the City Manager detailing the type of investment, amount of money
invested, maturity dates, and interest yields. The City's Audit Manager will
review this investment report for compliance of the City's Investment Policy to
State Statutes.
Accordingly, the Finance Director/Treasurer shall establish a process for an
annual independent review by an external auditor to assure compliance with
policies and procedures. The internal controls shall address the following
points:
• Control of collusion
• Separation of transaction authority from accounting and record
keeping
• Custodial safekeeping
• Avoidance of physical delivery securities
• Clear delegation of authority to subordinate staff members
• Written confirmation of transactions for investments and wire
transfers
• Dual authorizations of wire transfers
• Development of a wire transfer agreement with the lead bank and
third -party custodian
2. Delivery vs. Payment
All trades where applicable will be executed by delivery vs. payment (DVP) to
ensure that securities are deposited in an eligible financial institution prior to
the release of funds. Securities will be held by a third -parry custodian as
evidenced by safekeeping receipts. Bank certificates of deposit shall be held
either in trust with the issuing bank or in physical form in the City's Treasury
Management office.
3. Safekeeping
Securities will be held by a independent third -party custodian selected by the
city as evidenced by safekeeping receipts in the City of Little Rock's name.
The safekeeping institution shall annually provide a copy of its most recent
report on internal controls — Service Organization Control Reports (formerly
Statement of Auditing Standards No. 70, or SAS 70) prepared in accordance
with the Statement on Standards for Attestation Engagements (SSAE) No. 16.
VIII. Suitable and Authorized Investments
1. Investment Types
The following investments will be permitted by this policy and those defined
by Arkansas Statutes and the City of Little Rock:
[Page 7 of 101
I
2 • U.S. Treasury obligations which carry the full faith and credit
3 guarantee of the United States Government and are considered to be
4 the most secure instruments available;
5 • U.S. Government Agency obligations, and U.S. government
6 instrumentality obligations, which have a liquid market with a
7 readily determinable market value;
8 • Certificates of deposit and other evidences of deposit at financial
9 institutions;
10 • Commercial paper, rated in the highest tier (e.g., A-1, P-1, F-1, or
11 D-1 or higher) by a nationally recognized rating agency;
12 • Investment-grade obligations of State, provincial and local
13 governments and public authorities;
14 • Money market mutual funds regulated by the Securities and
15 Exchange Commission and whose portfolios consist only of dollar -
16 denominated securities;
17 • Local government investment pools either state -administered or
18 developed through Joint Powers Statutes and other
19 Intergovernmental Agreement Legislation.
20
21 State legislative action that further provides for allowable investment vehicles
22 may be incorporated into the City's investment policy. The City of Little Rock
23 shall not invest in derivative products, common stocks, or long-term bonds used
24 for speculation.
25
26 2. Collateralization
27 a. The safety of public funds should be the foremost objective in managing
28 public funds. Collateralization of public deposits through pledging of
29 appropriate securities by depositories is required for investments not
30 placed in U.S. government securities. To reduce market risk, the
31 collateralization level will be at a minimum of 104% of the market value
32 of the certificate of deposit plus accrued interest. A three -party
33 collateral agreement between the City, the financial institution, the
34 Federal Reserve Bank and/or the Arkansas Bankers' Bank with
35 acceptance by the City and the financial institution, will be executed
36 prior to the purchase or delivery of the certificate of deposit.
37 b. The Finance Director/Treasurer shall take all possible actions to comply
38 with Federal requirements in order to ensure that the City's security
39 interests in collateral pledged to secure deposits are enforceable against
40 the receiver of a failed financial institution.
41
42 IX. Investment Parameters
43
44 1. Diversification
45 The investments shall be diversified by:
46 • limiting investments to avoid overconcentration in securities
[Page 8 of 101
I from a specific issuer or business sector (excluding U.S.
2 Treasury securities),
3 • limiting investment in securities that have higher credit risks,
4 • investing in securities with varying maturities, and
5 • continuously investing a portion of the portfolio in readily
6 available funds such as money market funds to ensure that
7 appropriate liquidity is maintained to meet ongoing obligations.
8
9 2. Maximum Maturities
10 To the extent possible, the City of Little Rock shall attempt to match its investments
11 with anticipated cash flow requirements. Unless matched to a specific cash flow or
12 otherwise permitted by state statutes or local ordinances, the City will not directly
13 invest in securities maturing more than five (5) years from the date of purchase.
14 The City shall adopt weighted average maturity limitations (which often range from
15 ninety (90) days to three (3) years), consistent with the investment objectives.
16
17 Reserve funds and other funds with longer-term investment horizons may be
18 invested in securities exceeding five (5) years if the maturities of such investments
19 are made to coincide as nearly as practicable with the expected use of funds.
20 However, exceptions for extraordinary circumstances for funds clearly not needed
21 within the normal term limitations may be approved by the Finance
22 Director/Treasurer. The intent of this policy is to guide the City's investments to
23 short or medium term instruments and away from long-term securities.
24
25 Because of inherent difficulties in accurately forecasting cash flow requirements, a
26 portion of the portfolio should be continuously invested in readily available funds
27 such as money market funds to ensure that appropriate liquidity is maintained to
28 meet ongoing obligations.
29
30 3. Competitive Bids
31 The Investment Officer shall attempt to obtain competitive bids from at least three
32 brokers or financial institutions on all purchases of investment instruments
33 purchased on the secondary market. Brokers bidding on new issues in the primary
34 market at par will be selected based on an alternating schedule.
35
36 X. Reporting
37
38 1. Methods
39 The Investment Officer shall prepare an investment report at least quarterly, that
40 provides an analysis of the status of the current investment portfolio and
41 transactions made over the last quarter. This quarterly report will be prepared in a
42 manner which will allow the City to ascertain whether investment activities during
43 the reporting period have conformed to the Investment Policy. The report should
44 be provided to the Finance Director/Treasurer, the City Manager, the Board of
45 Directors, and any concerned citizen. The report will include the following:
46 • Listing of individual securities held at the end of the reporting
[Page 9 of 10]
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
period.
• Realized and unrealized gains or losses resulting from
appreciation or depreciation.
• Average weighted yield to maturity of portfolio on investments
as compared to applicable benchmarks.
• Listing of investment by maturity date
• 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. A series of
appropriate benchmarks shall be established against which portfolio performance
shall be compared on a regular basis. The benchmarks shall be reflective of the
actual securities being purchased and risks undertaken, and the benchmarks shall
have a similar weighted average maturity as the portfolio.
3. Marking to Market
The market value of the portfolio shall be calculated at least quarterly and a
statement of the market value of the portfolio shall be issued at least quarterly.
XI. Policy Considerations
1. Amendments
This Policy shall be reviewed on an annual basis. Any changes must be
recommended by the Finance Director and approved by the Board of Directors.
[Page 10 of 101