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HomeMy WebLinkAbout12520RESOLUTION NO. 129520 A RESOLUTION ADOPTING A NEW INVESTMENT POLICY FOR THE CITY OF LITTLE ROCK, ARKANSAS; REPEALING RESOLUTION NO. 10,609; AND FOR OTHER PURPOSES. WHEREAS, the Board of Directors of the City of Little Rock, Arkansas last adopted an official investment policy on July 27, 1999; 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, 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 adopts Exhibit A as its investment policy statement. SECTION 2. This Resolution repeals Resolution No. 10,609 and all other Resolutions or policy statements which are inconsistent with this Resolution. SECTION 3. This new Investment Policy shall become effective upon adoption of this Resolution. ADOPTED: May 15, 2007 ATTEST: NA CY WOOD., CITY CLERK APPR VEDAS TO FORM: THOMAS M. CARPENTYR CITY ATTORNEY APPROVED: MARK STODOLA, MAYOR CITY OF LITTLE ROCK,ARKANSAS POOLED CASH PORTFOLIO INVESTMENT POLICY GUIDELINES APRIL,2007 I. 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 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 State Statute §14-58-309. Investment of City funds will be made only in compliance with Arkansas statutes. II. 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. III. 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 account the investment risk constraints and liquidity needs. Return on investment is of secondary importance compared to the safety and liquidity objectives described above. The core of investments is 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 though 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: • A security with declining credit may be sold early to minimize loss of principal. • A security swap, which would improve the quality, yield, or target duration in the portfolio. • Liquidity needs require that the security be sold. IV. Standards of Care 1. 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,this investment policy, and with 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. The "prudent person" standard states that, "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." 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. 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 personal 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. 3. Delegation of Authority Authority to manage the investment program is granted by the Board of Directors to the City's Finance Director and Treasurer. 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 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. V. 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 15C3-1 (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. VI. 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 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 • 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-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. 3. Safekeeping Securities will be held by an 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 their most recent report on internal controls(Statement of Auditing Standards NO. 70, or SAS 70). VII. 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: • U.S. Treasury obligations which carry the full faith and credit guarantee of the United States government and are considered to be the most secure instruments available; • U.S. government agency obligations, and U.S. government instrumentality obligations,which have a liquid market with a readily determinable market value; • Certificates of deposit and other evidences of deposit at financial institutions; • 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; • Investment-grade obligations of state, provincial and local governments and public authorities; • Money market mutual funds regulated by the Securities and Exchange Commission and whose portfolios consist only of dollar- denominated securities; • Local government investment pools either state-administered or developed through joint powers statutes and other intergovernmental agreement legislation. 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 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 plus accrued interest. A three party collateral agreement between the City,the financial institution,the Federal Reserve Bank and/or the Arkansas Bankers' 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. The Director of Finance shall take all possible actions to comply with federal requirements in order to ensure that the City's security interests in collateral pledged to secure deposits are enforceable against the receiver of a failed financial institution. VIII. Investment Parameters 1. Diversification 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 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 or otherwise permitted by state statutes or local ordinances,the City will not directly invest in securities maturing more than five(5)years from the date of purchase. 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 maturities 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. 3. Competitive Bids The investment officer shall attempt to obtain competitive bids from at least three brokers or financial institutions on all purchases of investment instruments purchased on the secondary market.Brokers bidding on new issues in the primary market at par will be selected based on an alternating schedule. IX. Reporting 1. Methods The investment officer shall prepare an investment report at least quarterly, that provides an analysis of the status of the current investment portfolio and transactions made over the last quarter. This quarterly report will be prepared in a manner which will allow the City to ascertain whether investment activities during the reporting period have conformed 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: • Listing of individual securities held at the end of the reporting 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. X. 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.