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106091 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 RESOLUTION NO. 10, 609 A RESOLUTION ADOPTING A NEW INVESTMENT POLICY FOR THE CITY OF LITTLE ROCK, ARKANSAS; REPEALING RESOLUTION NO. 9,404; AND FOR OTHER PURPOSES. 440 WHEREAS, the Board of Directors of the City of Little Rock, Arkansas last adopted an official investment policy on June 6, 1995; and WHEREAS, the funds available for investment by the City are substantial and are vital to the ability of the City to deliver services to its citizens; and WHEREAS, conditions in the financial markets have changed since the existing policy was adopted; and WHEREAS, new state legislation (Act 1341 of 1999) allows cities of the first class with assessed valuations of $400,000,000 to invest as does the State of Arkansas; and WHEREAS, the new investment policy is consistent with the investment recommendations of the Government Finance Officers Association of the United States and Canada. NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE CITY OF LITTLE ROCK, ARKANSAS: SECTION 1. The Board of Directors of the City of Little Rock, Arkansas hereby adopt as its investment policy statement attached hereto as Exhibits A and B, which are hereby made a part of this Resolution. SECTION 2. This Resolution repeals Resolution No. 9,404 and all other Resolutions or policy statements which are inconsistent with this Resolution. SECTION 3. This new Investment Policy shall become effective on August 1, 1999, in adherence to state statutes. ADOPTED: July 27, 1999 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 23 22 23 24 25 -26 27 28 -29 30 31 .32 33 34 35 36 0 f ATTEST: ROBBIE HANCOCK CITY CLERK APPROVED AS TO FORM: THOMAS M. CARPENTER CITY ATTORNEY APPROVED: �� a 0 0 44 Investment Policy Guidelines July 8, 1999 3:30 p.m. CITY OF LITTLE ROCK, ARKANSAS POOLED CASH PORTFOLIO INVESTMENT POLICY GUIDELINES JULY, 1999 I. Policy 44 In accordance with and under authority granted by Arkansas State Statutes and by the Little Rock City Board of Directors, the Finance Director and 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 $400,000,000 is set forth in Arkansas House Bill 1793, Act 1341 of 1999. Investment of City funds will be made only in compliance with Arkansas statutes. Investment of the funds of the City of Little Rock shall be governed by the primary objective of safety of principal; the secondary objective shall be compliance with all legal restrictions and liquidity needs; and the final objective shall be yield. H. Scope This policy applies to the investments of all monies held in City accounts, under the control of the City's Board of Directors, that are not needed for the near term payment of obligations, including (but not limited to) the funds listed below. This policy shall also apply to any entity that receives a majority of its funding from City appropriations. General Fund Street Fund Special Projects Fund Economic Development Fund Prevention, Intervention and Treatment Fund Infrastructure Fund Emergency 911 Fund 1988 Capital Improvement Fund 1995 Capital Improvement Fund 1998 Parks & Recreation Bond Issue Revenue Sharing Fund Library Bond Retirement Fund 1995 Bond Retirement Fund Waste Disposal Revenue Fund Debt Service Funds This policy does not apply to the Police, Fire, Municipal Judges, Police and Fire Trust Fund, and Non - Uniformed Employees Retirement Funds. Longer -term funds, including 0 0 investments of Employees' Deferred Compensation Fund and proceeds from certain bond issues, are covered by a separate policy. Pooling of Funds 4 ti Ct" The City will consolidate cash balances from all funds to maximize investment earnings. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. M. General Objectives The primary objectives, in priority order, of investment activities shall be safety, legal requirements, liquidity, and yield. 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, 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. 0 0 2. Liquidity 4 4 v 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 account the investment risk constraints and liquidity needs. Return on investment is of secondary importance compared to the safety, legal requirements, and liquidity objectives described above. The core of investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. The City shall maximize interest yields while ensuring that the maturity dates coincide with projected expenditure requirements. Furthermore, the City shall purchase investments through competitive bidding, placing the investment with the bid providing the highest interest yield for the maturity required. Securities shall not be sold prior to maturity with the following exceptions: I. A security with declining credit may be sold early to minimize loss of principal. 2. A security swap would improve the quality, yield, or target duration in the portfolio. 3. Liquidity needs of the portfolio require that the security be sold. IV. Standards of Care Prudence The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and this investment policy 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 in a timely fashion and the liquidity and the sale of securities are carried out in accordance with the terms of this policy. 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 capital as well as the probable income to be derived. 0 0 2. Ethics and Conflicts of Interest Officers and employees involved in the investment process shall refrain From personal business activities that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. In other words, no employee shall have a direct or indirect financial interest with the broker or corporation with whom they are conducting business. Employees and investment officials shall disclose any material financial interests that could be related to the performance of the City's investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the City of Little Rock. Delegation of Authority Authority to manage the investment program is granted by the Board of Directors to the City's Finance Director and Treasurer and derived from Arkansas state laws. The Finance Director and 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 established written procedures and internal controls for the operation of the investment program consistent with this investment policy. 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. V. Safekeeping and Custody Authorized Financial Dealers and Institutions A list will be maintained of financial institutions authorized to provide investment services. The Treasury Analyst shall annually send a copy of the City's current investment policy to all dealers approved to do business with the City. These broker /dealers will be selected by creditworthiness (e.g. a minimum capital requirement of $10,000,000 and at least five years of operation). 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 • 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. 0 0 An annual review of the financial condition and registration of qualified financial institutions and broker /dealers will be conducted by the investment officer. Internal Controls 4 417 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 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 Director of Finance 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 Director of Finance 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 • Development of a wire transfer agreement with the lead bank and third -party custodian 3. 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 -party 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. 0 0 VI. Suitable and Authorized Investments Investment Types /� (a) The following investments will be permitted by this policy and are thosezd�rled by Arkansas statutes and The City of Little Rock. 1. U.S. government obligations, U.S. government agency obligations, and U.S. government instrumentality obligations, which have a liquid market with a readily determinable market value;. 2. Certificates of deposit and other evidences of deposit at financial institutions, and commercial paper, rated in the highest tier (e. g., A -1, P -1, F -1, or D -1 or higher) by a nationally recognized rating agency; 3. Investment -grade obligations of state, provincial and local governments and public authorities; 4. Money market mutual funds regulated by the Securities and Exchange Commission and whose portfolios consist only of dollar- denominated securities. State legislative action that further provides for allowable investment vehicles may be incorporated into the City's investment policy. The City of Little Rock shall not invest in derivative products, common stocks, or long -term bonds used for speculation. 2. Collateralization a. The safety of public funds should be the foremost objective in managing public funds. Collateralization of public deposits through pledging of appropriate securities by depositories is the only way to fully guarantee the safety of such deposits. Collateralization is required for investments not placed in U.S. government securities. To reduce market risk, the collateralization level will be at a minimum of 104% of the market value of the certificate of deposit and accrued interest. A three party collateral agreement between the City, the financial institution, the Federal Reserve Bank and/or the Arkansas Banker's Bank with acceptance by the City and the financial institution, will be executed prior to the purchase or delivery of the certificate of deposit. b. State and local government depositors shall take al] possible actions to comply with federal requirements in order to ensure that their security interests in collateral pledged to secure deposits are enforceable against the receiver of a failed financial institution. 0 0 VII. Investment Parameters Diversification t'19 The investments shall be diversified by: • limiting investments to avoid overconcentration in securities from a specific issuer or business sector (excluding U.S. Treasury securities), • limiting investment in securities that have higher credit risks, • investing in securities with varying maturities, and • continuously investing a portion of the portfolio in readily available funds such as money market funds to ensure that appropriate liquidity is maintained in order to meet ongoing obligations. 2. Maximum Maturities To the extent possible, the City of Little Rock shall attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the City will not directly invest in securities maturing more than five (5) years from the date of purchase or in accordance with state and local statutes and ordinances. The City shall adopt weighted average maturity limitations (which often range from 90 days to 3 years), consistent with the investment objectives. Reserve funds and other funds with longer -term investment horizons may be invested in securities exceeding five (5) years if the maturity of such investments are made to coincide as nearly as practicable with the expected use of funds. However, exceptions for extraordinary circumstances for funds clearly not needed within the normal term limitations may be approved by the Director of Finance and Treasurer. The intent of this policy is to guide the City's investments to short or medium term instruments and away from long term securities. Because of inherent difficulties in accurately forecasting cash flow requirements, a portion of the portfolio should be continuously invested in readily available funds such as money market funds to ensure that appropriate liquidity is maintained to meet ongoing obligations. VIII. Reporting Methods The investment officer shall prepare an investment report at least quarterly, including a management summary that provides an analysis of the status of the current investment portfolio and transactions made over the last quarter. This management summary will be prepared in a manner which will allow the City to ascertain whether investment activities during the reporting period have conformed 0 n u to the investment policy. The report should be provided to the Director of Finance and Treasurer, the City Manager, the Board of Directors, and any concerned citizen. The report will include the following: 450 a. Listing of individual securities held at the end of the reporting period. b. Realized and unrealized gains or losses resulting from appreciation or depreciation. C. Average weighted yield to maturity of portfolio on investments as compared to applicable benchmarks. d. Listing of investment by maturity date e. Percentage of the total portfolio which each type of investment represents. 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. 3. Marking to Markel 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. IX. Policy Considerations 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. 0 ATTACHMENT A 0 Authorized Personnel 451 Arkansas state laws and the authority granted by the Board of Directors assign the responsibility of investing unexpended cash to the City's Finance Director and Treasurer. He shall establish written procedures for the investment operations consistent with the investment policy. These procedures shall include delegation of authority to persons responsible for executing investment transactions including the purchase and sale of securities and an adequate system of internal controls. Director of Finance and Treasurer Harold E. Boldt Treasury Manager Dwight Goodwin Treasury Analyst Scott E. Massanelli Office Assistant III Donna Facen ATTACHMENT B 452 Divestment Statutes and Ordinances Handbook For Arkansas Municipal Officials (1998 Edition) Subchapter 5- Investment of Public Funds Arkansas House Bill 1793, Act 1341 of 1999 "An act to prescribe the authority of first class cities with real property valuation in excess of $400,000,000 to invest cash funds pursuant to state laws governing permissible investments by the State of Arkansas: and for other purposes."