HomeMy WebLinkAboutR-1998-007 Finance / Investment PolicyRESOLUTION NO. R-98- 07
A RESOLUTION revising the City of Yakima investment policy for public
funds.
WHEREAS, the City Council by Resolution No. D-5958 (adopted
July 2, 1991) has previously adopted an investment policy for City funds; and
WHEREAS, the City Council wishes to adopt a revised version of said
policy which contains greater clarity and specificity; and
WHEREAS, the City of Yakima holds and invests significant amounts
of public money each year through its Department of Finance and Budget;
and
WHEREAS, the City Council deems it to be in the best interest of the
public to adopt a revised formal, internal investment policy for public funds
for the purpose of providing a secure and orderly method of investment of
such funds; now, therefore,
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAKIMA:
The City Council hereby adopts the attached and incorporated City of Yakima
investment policy.
ADOPTED BY THE CITY COUNCIL this /) day of _.. AMA,
ATTEST:
City Clerk
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.1998.
9"/ I ,-ec
Mayor
CITY OF YAKIMA
INVESTMENT POLICY
1.0 Policy
It is the policy of the City of Yakima to invest public funds in a manner which
will provide the highest investment return consistent with maximum
security, will meet the daily cash flow demands of the Treasury and will
conform to all State of Washington statutes governing the investment of
public funds.
2.0 Scope
This investment policy applies to all financial assets of the City of Yakima.
These are accounted for in the City of Yakima's Comprehensive Annual
Financial Report and include:
2.1 General Fund
2.2 Special Revenue Funds
2.3 Capital Project Funds
2.4 Enterprise Funds
2.5 Internal Service Funds
2.6 Trust and Agency Funds
2.7 Any new fund created by Council, unless specifically exempted by
Council.
3.0 Prudence
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.
3.1 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 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
appropriate action is taken to control adverse developments.
4.0 Objective
The primary objectives, in priority order, of the City's investment activities
shall be:
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4.1 Safety: Safety of principal is the foremost objective of the
investment program. Investments of the City of Yakima shall be
undertaken in a manner that seeks to ensure the preservation of
capital in the overall portfolio. Tn attain this objective, diversification
is required in order that potential losses on individual securities do not
exceed the income generated for the remainder of the portfolio.
4.2 Liquidity: The City's investment portfolio will remain sufficiently
liquid to enable the City to meet all operating requirements which
might be reasonably anticipated.
4.3 Return on investment: The City's investment portfolio shall be
designed with the objective of attaining a market rate of return
throughout budgetary and economic cycles, taking into account the
City's investment risk constraints and the cash flow characteristics of
the portfolio.
5.0 Delegation of Authority
Management responsibility for the investment program is hereby delegated to
the Director of Finance and Budget, as specified in §1.18.080(b) of the
Municipal Code, who shall establish written procedures for the operation of
the investment program consistent with this investment policy. Such
procedures shall include explicit delegation of authority to persons
responsible for investment transactions. No person may engage in an
investment transaction except as provided under the terms of this policy and
the procedures established by the Director of Finance and Budget. The
Director shall be responsible for all transactions undertaken and shall
establish a system of controls to regulate the activities of subordinate officials.
6.0 Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from
personal business activity that could conflict with proper execution of the
investment program, or which could impair their ability to make impartial
investment decisions. Employees and investment officials shall disclose to
the City Manager any material financial interests in financial institutions that
conduct business within this jurisdiction, and they shall further disclose any
large personal financial/investment positions that could be related to the
performance of the City's portfolio. Employees and officers shall subordinate
their personal investment transactions to those of the City of Yakima,
particularly with regard to the time of purchases and sales.
Consistent with general City Policy (ADM. 500), officers and employees
involved in the investment process may not accept any valuable gift, favor or
gratuity which is made on the basis of his or her position in the City's service.
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7.0 Authorized Financial Dealers and Institutions
The Director of Finance and Budget will maintain a list of financial
institutions, as required by the Public Deposit Protection Commission, which
are authorized to provide investment services (R.C.W. 39.58.080). In
addition, a list will also be maintained of approved security broker/dealers
selected by credit worthiness, who maintain an office in the State of
Washington. These may include "primary" dealers who qualify under
Securities and Exchange Commission Rule 15(C)3-1 (uniform net capital rule).
No public deposit shall be made other than in a qualified public depositing in
the State of Washington, as established by State Law and the Washington
Public Deposit Protection Commission.
All financial institutions and broker/dealers who desire to become qualified
bidders for investment transactions must supply the Treasurer with the
following: audited financial statements, proof of trading resolution, proof of
state registration and certification of having read the City's investment policy.
An annual review of the financial condition and registrations of qualified
bidders will be conducted by the Treasurer. A current financial statement is
required to be on file for each financial institution and broker/dealer with
whom the City invests.
8.0 Authorized Investments
Eligible investments are only those securities and deposits authorized by
statute. (RCW 39.58, 39.59, and 43.84.080)
8.1 Certificates of deposit with financial institutions qualified by the
Washington Public Deposit Protection Commission.
8.2 Certificates, Notes, or Bonds of the United States, or other
obligations of the United States or its agencies, or of any corporation
wholly owned by the government of the United States (such as the
Government National Mortgage Association).
8.3 Obligations of government-sponsored corporations which are
eligible as collateral for advances to member banks as determined by
the Board of Governors of the Federal Reserve System. (These include
but are not limited to Federal Home Loan Bank notes and bonds,
Federal Farm Credit Bank consolidated notes and bonds, Federal
National Mortgage Association notes, debentures, and guaranteed
certificates of participation.)
8.4 Bankers' acceptances purchased on the secondary market where the
issuing bank's credit rating is not less than A as rated by Moody's and
Standard and Poor's Investor Services, and whose short term credit
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rating is not less than P-1 as rated by Moody's and A-1 by Standard and
Poor's.
8.6 State of Washington Local Government investment Pool
8.7 Repurchase and Reverse Repurchase Agreements are not eligible
investments for the City.
8.8 Commercial Paper purchased on the secondary market with
maturities not exceeding 270 days, and with a short term credit rating
A-1 by Standard and Poor's Rating Services and P-1 by Moody's
Investor Service. Furthermore, the long term credit ratings of the
issuer shall not be less than A as rated by both Moody's Investor
Service and Standard and Poor's Ratings Services.
8.9 Obligations of the State of Washington or its political subdivisions
with a long-term credit rating not less than A as rated by Moody's
Investor Services or Standard and Poor's Rating Services.
The Director of Finance and Budget shall maintain a list of specific
investment instruments, of the type described above, that will constitute the
only instruments authorized for the investment of funds of the City of
Yakima.
9.0 Investment Restrictions
To provide for the safety and liquidity of the City's funds, the investment
portfolio will be subject to the following restrictions:
• The average maturity of the portfolio will not exceed 3 -years (for the
purposes of this calculation, the maturity date of callable securities will be
the next call date).
• The expected maturity of any security will not exceed 5 -years.
• Investments in non-government
percentages of the portfolio:
• Banker's Acceptances
• Commercial Paper
• Certificates of deposit
• State/Municipal Securities
securities will not exceed the following
15%
15%
10%
15%
• Callable government securities will not exceed 20%.
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10.0 Collateralization
State law requires that all deposits of public funds (including Certificates of
Deposit) be collateralized in accordance with regulations of the Washington
Public Deposit Protection Commission. (RCW 39.58) All collateral is held by
the Washington Public Deposit Protection Commission. Amount of
collateral varies for different institutions, but is never to be less than 10% of
public funds deposited in the institution.
11.0 Safekeeping and Custody
Security transactions entered into by the City of Yakima shall be conducted on
a delivery -versus -payment (DVP) basis. Securities will be held by a third party
custodian designated by the Director of Finance and Budget, and evidenced by
safekeeping receipts.
12.0 Internal Control
The Office of the State Auditor has prescribed that in accordance with Revised
Code of Washington 43.09.260, the City of Yakima must undergo annual
financial examinations performed by State Examiners. As a part of these
examinations, internal controls over investments are carefully scrutinized.
These examinations may result in recommendations to change operating
procedures to improve internal control.
13.0 Performance Standards
The City of Yakima investment portfolio will be designed to obtain a market
average rate of return during budgeting and economic cycles, taking into
account the City's investment risk constraints and cash flow needs.
14.0 Reporting
The Director of Finance and Budget is charged with the responsibility of
including a report on investment activity and returns in accordance with
Municipal Code provisions.
15.0 Investment Policy Adoption
The City of Yakima investment policy shall be adopted by resolution of the
City Council. The policy shall be reviewed on an annual basis by the
Investment Committee and any modifications made thereto must be
approved by the City Council.
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C !TY OF YAKIMA
INVESTMENT POLICY
GLOSSARY
Agencies: Federal agency securities.
Asked: The price at which securities are offered.
Bankers' Acceptance (BA): A draft or bin or exchange accepted by a bank or
trust company. The accepting institution guarantees payment of the bill, as
well as the issuer.
Bid: The price offered for securities.
Broker: A broker brings buyers and sellers together for a commission paid by
the initiator of the transaction or by both sides; he does not position. In the
money market, brokers are active in markets in which banks buy and sell
money and in interdealer markets.
Collateral: Securities, evidence of deposit or other property which a borrower
pledges to secure repayment of a loan. Also refers to securities pledged by a
bank to secure deposits of public moneys.
Comprehensive Annual Financial Report (CAFR): The official annual
report for the City of Yakima. It includes five combined statements and basic
financial statements for each individual fund and account group prepared in
conformity with GAAP. It also includes supporting schedules necessary to
demonstrate compliance with finance -related legal and contractual
provisions, extensive introductory material, and a detailed Statistical Section.
Certificate of Deposit (CD): A time deposit with a specific maturity evidenced
by a certificate. Large -denomination CD's are typically negotiable.
Commercial Paper: Unsecured short-term corporate obligation with
maturities less than 270 days.
Coupon: (a) The annual rate of interest that a bond's issuer promises to pay
the bondholder on the bond's face value. (b) A certificate attached to a bond
evidencing interest due on a payment date.
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Dealer: A dealer, as opposed to a broker, acts as a principal in all transactions,
buying and selling for his own account.
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 with an exchange of money
for the securities. Delivery versus receipt is delivery of securities with an
exchange of a signed receipt for the securities.
Debenture: A bond secured only by the general credit of the issuer.
Discount: The difference between the cost price of a security and its value at
maturity when quoted at lower than face value. A security selling below
original offering price shortly after sale is also considered to be at a discount.
Discount Securities: Non-interest bearing money market instruments that
are issued at a discount and redeemed at maturity for full face value, e.g., U.S.
Treasury bills.
Diversification: Dividing investment funds among a variety of securities
offering independent returns.
Federal Credit Agencies: Agencies of the Federal government set up to
supply credit to various classes of institutions and individuals, e.g., S & L's,
small business firms, students, farmers, farm cooperatives, and exporters.
Federal Funds Rate: The rate of interest at which Fed funds are traded. This
rate is currently pegged by the Federal Reserve through open -market
operations.
Federal Open Market Committee (FOMC): Consists of seven members of the
Federal Reserve Board and five of the twelve Federal Reserve Bank
Presidents. The President of the New York Federal Reserve Bank is a
permanent member while the other Presidents serve on a rotating basis. The
Committee periodically meets to set Federal Reserve guidelines regarding
purchases and sales of Government Securities in the open market as a means
of influencing the volume of bank credit and money.
Federal Reserve System: The central bank of the United States created by
Congress and consisting of a seven member Board of Governors in
Washington, D.C., 12 Region Banks and about 5,700 commercial banks that
are members of the system.
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Federal Deposit Insurance
nsurance Curputativb (FDIC): n federal agency that ins».rnc
bank deposits, currently up to $100,000 per deposit.
Federal
eaerai Tiome 'Loan Banks (FHLB): The. itwetatutanns reed1l nte� and lend fn
savings and loan associations. The Federal Home Loan Banks play a role
analogous to that played by the Federal Reserve Banks vis-a-vis member
commercial banks.
Federal National Mortgage Association (FNMA): FNMA, like GNMA was
charted under the Federal National Mortgage Association Act in 1938. FNMA
is a federal corporation working under the auspices of the Department of
Housing & Urban Development, H.U.D. It is the largest single provider of
residential mortgage funds in the United States. Fanie Mae, as the
corporation is called, is a private stockholder -owned corporation. The
corporation's purchases include a variety of adjustable mortgages and second
loans in addition to fixed-rate mortgages. FNMA's securities are also highly
liquid and are widely accepted. FNMA assumes and guarantees that all
security holders will receive timely payment of principal and interest.
Government National Mortgage Association (GNMA or Ginnie Mae):
Securities guaranteed by GNMA and 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. The term "pass-
throughs" is often used to describe Ginnie Maes.
Investment Committee: The investment committee was created under § 1.73
of the City Code and and is comprised of the City Manager, Finance Director
and Treasurer. Currently the Finance Director also serves as Treasurer.
Liquidity: A liquid asset is one that can be converted easily and rapidly into
cash without a substantial loss of value. In the money market, a security is
said to be liquid if the spread between bid and asked prices is narrow and
reasonable size can be done at those quotes.
Market Value: The price at which a security is trading and could presumably
be purchased or sold.
Safekeeping: A service to customers rendered by banks for a fee whereby
securities and valuables of an types and descriptions are held in the bank's
vaults for protection.
Secondary Market: A market made for the purchase and sale of outstanding
issues following the initial distribution.
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SEC Rule 15C3-1: See uniform net capital rule.
Securities & Exchange Commission: Agency created by Congress to protect
investors in securities transactions by administering securities legislation.
Treasury Bills: A non-interest bearing discount security issued by the U.S.
Treasury to finance the National Debt. Most bills are issued to mature in
three months, six months, or one year.
Treasury Bond: Long-term U.S. Treasury securities having initial maturities
of more than ten years.
Treasury Notes: Intermediate term coupon bearing U.S. Treasury securities
having initial maturities of from one to ten years. •
Yield: The rate of annual income return on an investment, expressed as a
percentage. (a) INCOME YIELD is obtained by dividing the current collar
income by the current market price for the security. (b) NET YIELD or YIELD
TO MATURITY 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.
Uniform Net Capital Rule: Securities and Exchange Commission
requirement that member firms as well as non member broker-dealers in
securities maintain a maximum ratio of indebtedness to liquid capital of 15 to
1; also called net capital rule and net capital ratio. Indebtedness covers all
money owed to a firm, including margin loans and commitments to
purchase securities, one reason new public issues are spread among members
of underwriting syndicates. Liquid capital includes cash and assets easily
converted into cash.
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BUSINESS OF THE CITY COUNCIL
YAKIMA, WASHINGTON
AGENDA STATEMENT
Item No. 1 7
For Meeting Of 1/13/98
ITEM TITLE: Resolution Amending the City's Investment Policy to Include
Commercial Paper as an Acceptable Invesi.-nt for City Funds
Under Certain Conditions
SUBMITTED BY: Department of Finance and Budget
CONTACT PERSON/TELEPHONE: John Hanson, Direc • e mance and Budget/575-6070
Tim Jen ccount. • t, 576-6639
SUMMARY EXPLANATION:
In April, 1993, The State Attorney General, issued a Legal Opinion determining there is no
constitutional or administrative prohibition against the State or its local government
jurisdictions using commercial paper purchased on the secondary market as investment
vehicles for public funds. (Commercial paper is understood to be a short term, unsecured
obligation issued by commercial, agricultural, or industrial concerns -- see Encyclopedia of
Banking and Finance 194-195 G. Munn, F.L. Garcia and C. Woelfel 9th Edition.). This
opinion resolved years of uncertainty among investors of public funds in the State
regarding commercial paper.
In the years since this opinion was rendered the State Local Government Investment Pool
and General Purpose State Portfolios have both incorporated commercial paper in their
investment policies. Also, several Washington cities including Seattle have accepted
commercial paper under circumstances similar to what the Department of Finance and
Budget is proposing, with no adverse consequences to safety or liquidity.
Resolution X Ordinance Contract Other (Specify)
Funding Source
APPROVED FOR SUBMITTAL:
Manager
STAFF RECOMMENDATION: Adopt Resolution.
BOARD/COMMISSION RECOMMENDATION:
COUNCIL ACTION:
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