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HomeMy WebLinkAbout03/07/2017 06B 4th Quarter 2016 Treasury Report xs .1 �5 •tet s n. 70, Yrt BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. 6.B. For Meeting of: March 7, 2017 ITEM TITLE: 4th Quarter 2016 Treasury Report SUBMITTED BY: Tara Lewis, Interim Director of Finance & Budget SUMMARY EXPLANATION: The Treasury Report for the fourth quarter of 2016 is attached and consists of the following: 1. Memo: Summary and Narrative 2. Reports Cash and Investment Summary • Investment Portfolio -Detailed Inventory by Agency • Investment Portfolio— Detail of Activity • Bonded Debt Schedule • Interfund Borrowing 3. A copy of the Investment Policy approved by R2011-134 ITEM BUDGETED: NA STRATEGIC PRIORITY: Public Trust and Accountability APPROVED l < FOR 1 City SUBMITTAL: J► Manager APPROVED FOR SUBMITTAL: STAFF RECOMMENDATION: Accept Report BOARD/COMMITTEE RECOMMENDATION: ATTACHMENTS: Description Upload Date Type D 4th Qtr 2016 Treasury Report 2/6/2017 Co r Memo D 4th Qtr 2016 Treasury Charts 2/6/2017 Exhibit D Investment Policy R2011-134 2!912016 Backup Material Memorandum To: The Honorable Mayor and Members of City Council From: Tara Lewis, Interim Director of Finance and Budget Date: March 7, 2017 Re: 2016—4th Quarter Treasury Report: Summary and Narrative The City's Investment Portfolio The City's investment activities are governed by State regulations and the City of Yakima's Investment Policy, as revised September 6, 2011. The City's Investment Portfolio can be divided into two general categories: 1) A Liquidity Portfolio of overnight investments. This category generally consists of funds invested in the Local Government Investment Pool (LGIP or"Pool") managed by the State Treasurer, and currently, a savings account held by a local financial institution. 2) An Investment Portfolio of time deposits and various securities with maturities normally not to exceed five years except when conditions warrant, and then up to eight years. The City's Investment Portfolio increased by several new acquisitions to replace investments that had recently matured and to invest excess cash balances on hand. Interest rates have begun to rise noticeably in recent months which will reduce the likelihood that current investments in the City's portfolio will be called ahead of their stated maturities. It is the City's practice to hold investments to maturity if they are not called (refinanced) by the issuer. Interest rates have been extremely low over the past several years beginning when the Federal Reserve drastically lowered the federal funds rate over the course of 2008 from 4.25% to almost zero. An historic first for the Fed, the rate was held at nearly zero until December 16, 2015 when they raised it one quarter of one percent to 0.25%. There has been notable discussion by the Fed in recent months and in December 2016 they again raised the rate by another 0.25% to 0.50%. Further small increases are anticipated throughout 2017. During the quarter no investments were called or matured. Funds not reinvested in previous quarters were used to acquire three new investments bringing the total portfolio to customary levels. The LGIP (Local Government Investment Pool) earnings rate has improved significantly due to the Fed's rate hikes. After closing 2014 at 0.10%, 2015 LGIP rates hovered around 0.13% - 0.14% all year until December which closed 2015 at 0.25%. The yield averaged 0.50% in the third quarter of 2016 and dipped slightly in the fourth quarter to 0.48%. Rates in the LGIP tend to be lower due to the short term nature of the investments. The City can access these funds overnight without penalty. This feature means that the State Treasurer must keep a significant amount of the LGIP portfolio in lower paying, short term investments. Longer term rates are generally higher than short term rates due to increased risk. Long term rates have risen more than short term, but the City does not generally purchase investments with maturities of more than 5 years due to risk and liquidity concerns. Even so, long term rates are still far below pre-recession levels. While this is good news for home buyers and agencies issuing new debt, the volatility adds extra risk to the debt marketplace. An issuer can get lucky on a downturn or find themselves with a higher rate than anticipated due to an upswing. The City's Bonded Debt Schedule The City's debt is typically structured with debt principal payments in the second and fourth quarter. A number of debt payments were made during the quarter and the payments reducing the debts are reflected on the schedule. Interfund Borrowings and Investments Ordinance 2013-011 authorizes the Director of Finance and Budget to execute Interfund loans when appropriate. Interfund borrowing is financially advantageous in some situations where cash is needed but a formal financing is cost-prohibitive due to a relatively short term need or small amount. Funds having excess cash balances in reserve (such as the Equipment Replacement and Reserve Fund (ER&R) or a Utility fund that has reserves for future plant improvements) can earn a higher rate of interest from another fund than with an investment made under the City's investment policy, yet the borrowing fund has a lower interest and debt cost than would be imposed in an external financing. The biggest obstacle to Interfund loans is the impact on a fund balance. External financing allows the borrowing fund to record revenue for the amount of the loan to offset the cost of whatever project is being financed. This practice keeps the borrowing fund's Fund Balance whole. Internal borrowing does not allow this recording of revenue and therefore the fund balance is depleted by the project cost even though the fund has sufficient working capital due to the borrowed cash. This rule does not properly reflect the financial solvency of the borrowing fund in financial reports. Unfortunately, this idiosyncrasy in the accounting rules prevents the City from taking better advantage of interfund cash capacity. At the end of 2015 the Interfund Loan established in 2012 to pay for improvements at Kiwanis Park was paid off. This loan had been established between the REET and ER&R funds. REET paid approximately $21,000 in interest costs. It is estimated that using external financing would have cost $32,000 in interest through the City's former Line of Credit with a local bank. A private placement bond or bank loan would have required attorney fees of approximately $7,000 to $9,000 in addition to the higher interest costs. Public Safety Communications, Fund 151 was budgeted to borrow$720,000 in 2015 as a result of their move to the new Communications Center. That loan was drawn upon in 2016 in the amount of $300,000 in March and an additional $150,000 in June. Fire Capital, Fund 332 borrowed $640,000 toward equipment and apparatus costs during 2016. The major apparatus are in the process of being built. The payments made represent just the chassis. Although formal financing can be obtained in advance of taking delivery and making final payment on the apparatus, there is added risk in doing so. Accordingly, an interfund loan reduces the risk associated with advanced borrowing and keeps the costs lower in the long run. A LOCAL (Lease Option Capital Asset Lending) financing through the State of Washington is projected for 2017 and will repay this interfund loan at such time as the financing is completed. 2 City of Yakima Cash and Investment Summary December 31, 2016 Percent of Average Average Description Qty Par Book Portfolio Yield Q3 '16 Yield Q4 '16 Cash Balances on Hand in Banks NA $ 13,511,377 NA NA NA Local Government Investment Pool (LGIP) 1 $ 7,125,857 $ 7,125,857 13% 0.50% 0.48% Federal Agency Coupon and Discount 19 49,534,000 47,854,688 86% 1.29% 1.35% Other Investments 2 453,069 453,069 0% 1.10% 1.10% Total Invested 22 $ 57,112,926 $ 55,433,615 100% 1.19% 1.24% Book Balance Purchases Interest Maturities, Calls Book Balance Summary of Investment Activity 10/1/2016 &Deposits Reinvested &Withdrawals 12/31/2016 Local Government Investment Pool (LGIP) $ 7,117,188 $ - $ 8,669 $ 7,125,857 Federal Agency Coupon and Discount 40,865,637 6,989,052 - 47,854,688 Other Investments 451,821 - 1,248 453,069 Totals $ 48,434,646 $ 6,989,052 $ 9,917 $ - $ 55,433,615 Page 1 of 5 Yakima.8289.1.TSO_Q4_2016.xlsx City of Yakima Investment Portfolio-Inventory by Agency December 31,2016 Expected Call Most Agency Inv# Face Value Price Coupon Step Yield Maturity Settle Next Call Type Likely Call Federal Farm Credit Bank FFCB 1487 2,500,000 2,489,153 0.840 1.050 1/22/18 12/18/15 1/22/18 NC 1/22/18 FFCB 1489 3,000,000 2,996,247 1.250 1.290 8/19/19 6/3/16 11/1/16 Amer 8/19/18 FFCB Totals and Average Yield 5,500,000 5,485,400 1.181 Federal Home Loan Bank FHLB 1492 2,030,000 1,994,020 1.500 1.880 11/9/21 12/14/16 2/9/17 Amer 11/9/20 FHLB Totals and Average Yield 2,030,000 1,994,020 1.880 Resolution Funding Corporation RFCSP 1493 3,203,000 2,999,859 1.716 1.716 10/15/20 12/14/16 10/15/20 NC 10/15/20 RFCSP Totals and Average Yield 3,203,000 2,999,859 1.716 Federal National Management Association FNMA 1460 5,000,000 4,737,030 1.100 1.100 6/1/17 6/28/12 6/1/17 NC 6/1/17 FNMA 1469 3,000,000 2,991,678 1.000 1.051 12/20/18 5/20/13 8/20/16 Qrty 12/20/18 FNMA 1488 3,000,000 2,999,970 1.500 1.500 5/22/20 6/3/16 11/22/16 Qrty 5/22/19 FNMA 1490 2,000,000 1,995,048 1.500 1.585 6/30/21 6/30/16 12/30/16 Qrty 6/30/19 FNMA 1491 2,000,000 1,997,896 1.500 1.531 12/30/21 6/30/16 12/30/16 Qrty 12/30/19 FNMA 1494 2,010,000 1,995,172 1.350 1.639 7/28/20 12/14/16 4/28/17 Qrty 7/28/19 FNMA Totals and Average Yield 17,010,000 16,716,794 1.337 Financing Corporation FICO 1454 722,000 678,045 1.200 1.200 5/2/17 2/2/12 5/2/17 NC 5/2/17 FICO 1455 2,356,000 2,199,953 1.348 1.348 4/6/17 2/29/12 4/6/17 NC 4/6/17 FICO 1457 2,146,000 1,995,422 1.340 1.340 10/6/17 4/25/12 10/6/17 NC 10/6/17 FICO 1464 3,630,000 3,435,105 1.049 1.049 2/8/18 10/31/12 2/8/18 NC 2/8/18 FICO 1478 1,366,000 1,297,155 1.320 1.320 5/2/18 5/27/14 5/2/18 NC 5/2/18 FICO 1482 2,100,000 1,998,482 1.373 1.373 8/3/18 12/19/14 8/3/18 NC 8/3/18 FICO 1483 4,160,000 3,995,580 1.290 1.290 2/8/18 12/19/14 2/8/18 NC 2/8/18 FICO 1485 2,119,000 1,999,702 1.460 1.460 9/26/19 10/2/15 9/26/19 NC 9/26/19 FICO 1486 3,192,000 3,059,171 1.410 1.410 12/27/18 12/17/15 12/27/18 NC 12/27/18 FICO Totals and Average Yield 21,791,000 20,658,615 1.302 Other Investments LGIP LGIP 7,125,857 7,125,857 0.483 0.483 NA NA NA NC NA YFED 1473 176,448 176,448 0.400 0.400 NA 7/1/13 NA NC NA YF-CD 1447 276,621 276,621 1.520 1.550 8/28/18 2/28/15 8/28/18 NC 8/28/18 Other Totals and Average Yield 7,578,926 7,578,926 0.520 Grand Totals $ 57,112,926 $ 55,433,615 1.237 Average Expected Yield Page 2 of 5 Yakima.8289.1.TSO_Q4_2016.xlsx City of Yakima Investment Portfolio - Detail of Activity Quarter Ending December 31, 2016 Beginning Additions and Calls and Ending Date of Agency Inv# Face Value Purchases Maturities Face Value Activity Federal Farm Credit Bureau FFCB 1487 2,500,000 2,500,000 FFCB 1489 3,000,000 3,000,000 FFCB Totals 5,500,000 - - 5,500,000 Federal Home Loan Bank FHLB 1492 2,030,000 2,030,000 12/14/16 FHLB Totals - 2,030,000 - 2,030,000 Resolution Funding Corporation RFCSP 1493 3,203,000 3,203,000 12/14/16 FHLMC Totals - 3,203,000 - 3,203,000 Federal National Management Association FNMA 1460 5,000,000 5,000,000 FNMA 1469 3,000,000 3,000,000 FNMA 1488 3,000,000 3,000,000 FNMA 1490 2,000,000 2,000,000 FNMA 1491 2,000,000 2,000,000 FNMA 1494 2,010,000 2,010,000 12/14/16 FNMA Totals 15,000,000 2,010,000 - 17,010,000 Financing Corporation FICO 1454 722,000 722,000 FICO 1455 2,356,000 2,356,000 FICO 1457 2,146,000 2,146,000 FICO 1464 3,630,000 3,630,000 FICO 1478 1,366,000 1,366,000 FICO 1482 2,100,000 2,100,000 FICO 1483 4,160,000 4,160,000 FICO 1485 2,119,000 2,119,000 FICO 1486 3,192,000 3,192,000 FICO Totals 21,791,000 - - 21,791,000 Other Investments LGIP(State Pool) LGIP 7,117,188 8,669 - 7,125,857 Yakima Federal Savings 1473 176,272 176 176,448 Yakima Federal CD 1447 275,549 1,072 276,621 Other Investment Totals 7,569,009 9,917 - 7,578,926 Grand Totals $ 49,860,009 $ 7,252,917 $ - $ 57,112,926 Page 3 of 5 Yakima.8289.1.TSO_Q4_2016.xlsx City of Yakima Bonded Debt Schedule-by Project Group Quarter Ending December 31,2016 Date Issued Maturity Description Note Amount of Issue Current Balance Payments General Obligation Bonds 9/7/2004 11/1/2019 PFD Convention Center II Refunded 1996 issue $ 4,175,000 $ 1,110,000 $ 365,000 5/8/2007 5/1/2026 PFD Convention Center III Partial refunding of 2002 issue 4,910,000 3,750,000 - 8/28/2009 12/1/2018 PFD Capitol Theatre Tax exempt portion 2,055,000 485,000 225,000 8/28/2009 12/1/2032 PFD Capitol Theatre Build America Bonds(Taxable) 4,980,000 4,980,000 - 6/17/2003 12/1/2023 Sundome Expansion Deferred Interest-Maturity$2.5M 1,430,528 472,092 83,196 8/28/2008 12/1/2021 Fire Apparatus Ladder Truck 760,000 330,000 60,000 5/8/2007 5/1/2022 Fire Station Remodel Facility 815,000 390,000 - 8/28/2008 12/1/2019 Infrastructure Projects Ped crossing,street,infrastructure 2,190,000 670,000 205,000 5/8/2007 5/1/2022 Downtown Futures Renovate downtown improvements 1,490,000 710,000 - 5/8/2007 5/1/2017 River Road River Road improvements 1,765,000 215,000 - 6/20/2013 6/20/2028 Street Project Demonstration Various City street improvements 5,000,000 3,944,520 77,623 6/9/2014 6/1/2024 Street Resurfacing Project Streets improvements 13,140,000 11,090,000 - 6/17/2014 12/1/2034 Comm Center Move City portion of County GO Bonds 1,716,500 1,600,000 - 12/22/2015 12/1/2035 Soccer Complex City portion of SOZO Sports Complex 5,000,000 4,755,618 118,361 Subtotal General Obligation Bonds $ 49,427,028 $ 34,502,230 $ 1,134,180 Certificate of Participation-State of Washington 8/22/2013 6/1/2019 Police Vehicles 74 Take-home vehicles $ 4,173,190 $ 2,201,970 $ - 8/22/2013 6/1/2019 Fire Air Packs 70 Air Packs 459,602 242,508 - 6/1/2011 12/1/2020 Fire Apparatus Two trucks purchased 576,847 253,942 57,501 3/19/2013 7/1/2023 Fire Apparatus One truck 310,414 231,657 - Subtotal Certificates of Participation $ 5,520,054 $ 2,930,077 $ 57,501 Revenue Bonds 5/31/2012 11/1/2023 Wastewater Refunded 2003$10,155,000 issue $ 9,400,000 $ 7,015,000 $ 885,000 6/5/2008 11/1/2027 Wastewater 5,440,000 3,605,000 250,000 6/5/2008 11/1/2018 Water Refunded 1998 issue 1,883,951 430,000 205,000 9/4/2004 9/1/2034 Irrigation 5,215,000 3,825,000 - Subtotal Revenue Bonds $ 21,938,951 $ 14,875,000 $ 1,340,000 Grand Total $ 76,886,033 $ 52,307,306 $ 2,531,681 Page 4 of 5 Yakima.8289.1.TSO_Q4_2016.xlsx City of Yakima Interfund Borrowing Quarter Ending December 31,2016 Original Beginning Ending Description Balance Balance Issued Retired Balance Investment Held by: Local Improvement District Bonds/Notes $ 1,432,509 $ 211,827 $ - $ 36,005 $ 175,822 Equipment Rental Reserve Public Safety Communications 450,000 450,000 - - 450,000 Equipment Rental Reserve Fire Capital 640,000 - 640,000 - 640,000 Equipment Rental Reserve Ending Cash Funds in Negative Cash Position at Quarter End Balance Cash Extended by: Fund 151 -Public Safety Communications-Interfund Loan The Public Safety Communications Fund borrowed from the Equipment Replacement and Reserve Fund to provide working capital while they recover from the excess cash outflow caused by the move to the new Communications Center last year.The original loan amount was budgeted at$720,000 but thus far the fund is surviving on just$450,000. Fund 332-Fire Capital The Fire Capital fund borrowed cash at year end to carry the fund over until the City can participate in LOCAL financing through the State of Washington.Several fire apparatus and other equipment have been acquired with this low cost form of financing in prior years.$640,000 covers 2016 expenditures that will be included in the 2017 financing. Page 5 of 5 Yakima.8289.1.TSO_Q4_2016.xlsx RESOLUTION NO. R-2011-134 A RESOLUTION revising the City of Yakima investment policy for public funds. WHEREAS, the City Council resolution number R-2009-50 (adopted March 24th 2009) has previously served as the City's adopted investment policy for public funds; and WHEREAS, the City Council wishes to adopt a revised version of said policy in order to enhance the rate of return on the investment portfolio without compromising security or liquidity, 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 rev * formai, 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 6th day of September, 2011. Micah Cawley, tJfavor - ATTEST. t SEA '• • 0.. - p , 16., MO 414,7 r .Z"*. Mn Clerk • City of Yakima Administrative Policies Policy Number: FB- Depa i ent: Finance Authorized by: City Council Effective Date: 09/06/11 Supersedes: Policy Dated 03/24/09 Policy: Investment Policy Purpose To set forth a policy with regard to the investment of excess cash for the City of Yakima Policy It is the policy at 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. Scope and Applicability The investment policy applies to all financial assets of the City of Yakima. These are a P. •unted for in the city at Yakima's Comprehensive Annual Financial Report and include: > General Fund > Special Revenue Funds > Capital Project Funds > Enterprise Funds • Internal Service Funds • Trust and Agency Funds • Any new fund created by Council, unless specifically exempted by Council, Prudence Investments shall be made with judgment and care — under circumstan - 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. 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 a •rdance with the written procedures and exercising due diligence shall be relieved of personal responsibility for individual security's credit risk or marketplace changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. Objective The prime objectives, in priority order, of this City's investment activities shall be ). 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 To attain this objective, diversification is required so that the potential loss on individual securities do not exceed the income generated for the remainder of the portfolio. Liquidity: The City's investment portfolio will remain sufficiently liquid to enable the City of Yakima to meet ail operating requirements which might be a reasonably anticipated. 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. Delegation of Authority Management responsibility for the investment program is hereby delegated to the Director of Finance and Technology, as specified in Sec. 1.18.080(2)(b)of that 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 Technology. The Director shall be responsible for all transactions undertaken and shall establish a;system of controls to regulate the activities of subordinate officials. 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 the financial institutions to conduct busin with in 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 transaction to those of the City of Yakima, particularly with regard to the time of purchases and sales. Consistent with general City Policy, 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. Authorized Financial Dealers and Institutions The Director of Finance and Technology or his/her designee will maintain a list of broker/dealers, which are authorized to provide investment services. To be eligible to do business with Yakima, a broker/dealer must maintain an office within the State of Washington. Eligible broker/dealers may be Primary dealers or Regional Dealers. All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the Director of Finance and Technology, or his/her designee, with the following: audited financial statements, proof of state registration and certification of having read the City's investment policy. An annual review of the financial condition of qualified bidders will be conducted by the Director of Finance and Technology, or his/her designee. A current financial statement is required to be on file for each financial institution and broker/dealer with whom the City trades. Authorized investments Eligible investments are those securities and deposits authorized by statute RCW 35.39, 39.59, and 43.84.080, but are limited to the following: • Non-Negotiable Certificates of deposit with financial institutions qualified by the Washington Public Deposit Protection Commission. • Certificates, Notes, or Bonds of the United States, or other obligations of the United States or its agencies, or any corporation wholly owned by the government of the United States (such as the Government National Mortgage Association). > Obligations of government- sponsored entities 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.) • Bankers' acceptances purchased on the secondary market where the issuing bank's credit rating at the time of investment is not less than one of the three highest ratings as rated by a nationally recognized rating agency and a s • term credit rating at the time of investment is not less than P-1 as rated by Moody's and/or A-1 by Standard & Poor's and/or F-1 by Fitch Rating Agency. > State of Washington Local Government Investment Pool (LGIP). • Commercial Paper purchased on the secondary market with maturities not exceeding 270 days, and with a short term credit rating at time of investment not less than A-1 by Standard & Poor's Rating Services and/or P-1 by Moody's Investors Service and/or F-1 by Fitch Rating Agency. Furthermore, the long-term credit ratings of the issuer at the time of investment shall not be less than one of the three highest ratings as rated by a nationally recognized rating agency. > Obligations of the State of Washington or I. .1 governments of the state of Washington which at the time of investment have one of the three highest credit ratings of a nationally recognized rating agency. • General obligation bonds of a state other than the state of Washington and general obligation bonds of a local government of a state other than the state of Washington, which bonds have at the time of investment one of the three highest credit ratings of a nationally recognized rating agency Note: Repurchase and Reverse Repurchase Agreements are not eligible investments for the City. The Director Of Finance and Technology or his/her designee will 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. Investment Restrictions To provide for the safety and liquidity of City funds, the investment portfolio will be subject to the following restrictions: > The average maturity of the portfolio will not exceed 2,5 years (For the purposes of this calculation, the maturity date of callable securities will be either the most likely date of call, as determined by the Finance Director or her designee, or the final maturity date, as appropriate based on market conditions.) • The expected and final maturity of any security will ordinarily not exceed 5-years; however, up to 10 % of the portfolio may be invested in securities with maturities of up to eight(8) years when rates and market conditions so warrant. > Investments in securities shall not exceed the following percentages of the portfolio: Bankers Acceptances 15% Commercial Paper 15% Certificates of deposit 10% State/Municipal Securities 15% Treasury Securities 100% Government Sponsored Agency Securities 100% Washington State's Local Government Investment Pool 100% Collateralization State law requires that all deposits of public funds over and above federally insured amounts (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. The amount of collateral varies for different institutions, but is never to be less than 10% of public funds deposited in the institution. 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 third party custodian designated by the Director of Finance and Technology, or his/her designee, and evidenced by safekeeping reports which will be r- •nciled monthly to the portfolio. Internal Control The Office of the State Auditor has described 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, Perfo ance 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. Reporting The Director of Finance and Technology is charged with the responsibility of providing City Council with including a quarterly report on investment activity and returns, Investment Policy Adoption The City of Yakima investment policy shall be adopted by resolution of the City Council; The policy shall be reviewed on a regular basis by the Director of Finance and Technology or his/her designee and any significant modifications made thereto must be approved by the,City Council. Definitions Agencies— (See Government Sponsored Entities) Asked The price at which securites,are offered. Bankers'Acceptance(BA) -A draft, or bin of goods, or exchange a pted by a bank or trust company, The a =pting 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 hold a position. In the money market, brokers are active in markets in which banks and institutional investors buy and sell bills, notes or bonds and in interdealer markets. Collateral— Securities,evidenced by a 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(CA FR)—The official annual report for the City of Yakima. It includes entity-wide financial statements as well as financial statements for major funds and fund types, notes to the financial statements and required schedules. Certificates of Deposit (CD) —A time deposit with specific maturity and interest rate evidenced by a certificate. Commercial Paper—Unsecured short-term corporate obligations with maturities less than 270 days. Coupon— (a)The annual rate of interest that a bond's issuer promises to pay the bondholder as a percentage of the bond's face value. Dealer A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for their n account. Delivery versus Payment-There are two methods for delivery of securities: delivery versus payment and delivery versus receipt(also called free delivery). Delivery versus payment is a delivery of securities with a simultaneous exchange of money for the securities. (Delivery versus receipt is a 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 its 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, i.e., U.S. Treasury and Agency bills. Diversification—Dividing investment funds among a variety of securities offering independent returns and credit quality. Federal Credit Agencies—Agencies of the Federal government and guaranteed by the full faith and credit of the US Government set up to supply credit to various classes of institutions and individuals, e.g., Ginnie Mae, Sallie Mae, Tennessee Valley Authority. Federal Funds Rate—The target rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Open Market Committee. Federal Open Market Committee (FOMC)—Consists of seven members of the Federal Reserve Board and five of the lye 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 funds target rate and guidelines regarding purchases and sales of Governments Securities in an open market as a means of the influencing the volume of bank credit and money supply in the economy. Federal Reserve System—The central bank of the United States created by Congress and consisting of a seven member Board of Governors in Washington, DC. There are 12 Region Banks and about 5700 commercial banks that are members of the system. Federal Deposit Insurance Corporation (FDIC)—A Federal Agency that insures bank deposits, currently capped at $250,000 dollars per deposit. Government Sponsored Entities—("Agencies") Entities chartered by Congress, such as: Fannie Mae (FNMA) Freddie Mac (FI-ILMC), Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB), and others, whose bonds and notes are eligible as collateral for inter-bank and discount,window loans, and that provide liquidity for various banks, S&L's and individuals through open market operations. These entities are not backed by the Full Faith and Credit of the US Government, but do carry an implicit guaranty of the Government. Investment Committee—The investment committee was created under 1773 of the City Code 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. And the money market, a security is said to be liquid that the spread between bid and asked prices is narrowed 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. SEC Rule15C34—See uniform net capital rule, Securities and Exchange Commission—Agency created by Congress to protect investors in securities transactions by administering securities legislation. Treasury Bills A non-interest beating discount security issued by the U.S. Treasury to finance the National Debt. The above 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 10 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 investment, expressed as a percentage. (A) income yield is obtained by dividing the current dollar income by the face value of 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.