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03/05/2019 10 Consideration of Revised Investment Policy for the City of Yakima BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEM ENT Item No. 10. For Meeting of: March 5, 2019 ITEM TITLE: Consideration of revised investment policy for the City of Yakima SUBMITTED BY: Steve Groom, Finance Director SUMMARY EXPLANATION: The attached memo provides an explanation why Council should consider changing the current investment policy. Also attached for Council's review is the current policy, revised policy with track changes, and a clean copy of the proposed policy. ITEM BUDGETED: STRATEGIC PRIORITY: Public Trust and Accountability APPROVED FOR SUBMITTAL: City Manager STAFF RECOMMENDATION: BOARD/COMMITTEE RECOMMENDATION: ATTACHMENTS: Description Upload Date Type D Imestment policy ppt 1/31/2019 Omer Memo MEMO-Finance Investment Policy update 01-16-2019- 1/28/2019 Corer Memo Copy O Imestment Policy 09-06-2011 1/28/2019 Omer Memo D 11-24-18 Updated Investment Policy-redlined 1/28/2019 Omer Memo O 11-24-18 Updated Investment Policy-clean 1/28/2019 Coker Memo f r 4 x{.Viy,ytt ixx ,+tom i f�x' iiJx... fZ55f 5Q' t ik +ttiJ `J. InvestmentPolicy Update Last Council Review / Approval Sept 6, 2011 Investments — Best Practices 5( 55 55.. 55 o Track and forecast cash o Limit checking account balances o Diversify — by issuer o Diversify — by maturity o Determine City-specific suitability o Transparency and accountability o Trained and experienced staff f r :$:.iyytt yxx Current Policy w k� / t Q' Adopted in 2011, not updated since, missing key elements ti o Investment Committee oversight o Diversification limits o Increased broker/institutional o Benchmark accountability o Downgraded securities o Improved monthly reporting o Plain language, for governance, for requirements administration, for citizens, and for o Enabling and limiting Legislation future staff on what we do, how we ( RCWs and Yakima Municipal do it and why Code) 3 .4+Y''aTn 5h%�5t5 When Investing Public Funds {{ f{f� Yield is NOT the Top Priorityk^vkinrKttg 1 . Safety preserve principal 2 . Liquidity enough cash on hand - avoid having to sell ( at a loss) ONLY WHEN SAFETY AND LIQUIDITY ARE ASSURED 3 . Yield steward cash on hand to earn interest 4 f r � :$:.iyttt ixx ,+tom i fx' iiJx... t f�} / t Where the CityMoney's Is �k f rtti`.wk%J S1e `J. t% 1 . Safety State Investment Pool ( 1-day access) 2 . Liquidity adequate Checking Account balances 3 . Yield diversified, laddered portfolio 5 f r xkiyttt ixx ,+tom i F, i fx' iiJx... IncorporatingBest Practices into � Q ti, Proposed Investment Policy rttiJ i o Enhances diversification by Issuer ( reducing credit risk) o Enhances diversification by Maturity Date ( reducing interest- rate risk) o Fills in key elements ( increasing transparency) o Requires more detailed reporting ( increasing accountability) 6 f r �t x F t�om wx tytt i ixx ii f J t �k.A t d � 1. . 'ik +ttiJ `J. i �e Questions . Staff recommends Council's approval 7 9 MEMORANDUM TO: The Honorable Mayor and Members of City Council Cliff Moore, City Manager FROM: Steve Groom, Finance Director DATE: January 28, 2019 RE: Proposed Investment Policy Update The most recent City investment policy was last approved in 2011. Having 15 years' municipal investing experience and having been an investment policy reviewer for other cities for many years, this policy update is simply applying best-practice experience. The intent is also to add clear language to position the city well for future possibly less-experienced staff, as well as improving our transparency and accountability to citizens. The main reasons for the update are: 1. Improving weaknesses and fixing omissions: a. Current policy only mentioned City Manager/Investment Committee (MC §1.73.010) in the glossary; this committee now meets to review and document all purchases; b. Adding in-line RCW citations for non-financial, non-legal readers; c. Correcting misstated RCW-authorizing language for Authorized Investments d. Adding per-issuer diversification limits(in October the portfolio had 40% ($21 M out of$54M) by one issuer); e. Adding a benchmark by which to measure our performance; f. Adding a policy for handling downgraded securities; g. Adding the articulation of an intended investment strategy (active/passive, tiers). This could also be helpful guidance for future inexperienced Finance staff; h. Adding definition of required reporting (cost, market value, maturity distribution, credit quality, issuer limits, etc.). 2. Removing conflict with RCW — our current policy requires reporting of investments to council quarterly; RCW(§35.39.032) requires reporting monthly. 3. Requiring our financial dealers and institutions to complete a Broker/Dealer Questionnaire that requires them to document to us their SEC, FINRA standing, their licensing, and such and to certify that they've read our current investment policy. Staff recommends that it be a policy requirement as a component of council governance. 4. Adding RCW and Municipal Code text excerpts as an addendum no longer makes readers go look them up separately. One minor change that staff could add, but probably requires quite a bit of explanation, is that the current policy allows maximum maturities of 8 years, which is not typical for municipalities. The typical maximum maturity is 5 years, which staff has no intention of exceeding. Staff is in favor of reducing this policy limit from 8 to 5 and can explain this verbally if council wishes to consider. Nevertheless, the policy will be very much improved and should pass certification with all other changes proposed. 1^ CITY OF J�x&uu4� ADMINISTRATIVE POLICIES POLICY NUMBER: FB ¢00 DEPARTMENT: Finance AUTHORIZED BY: City Council Adopted hy Resolution No. R,2011434 � ' EFFECTIVE DATE: O9'06'2011 SUPERSEDES: 03'24'2009 POI ICY. 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 accounted 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 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 an the probable income tobederived. 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 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. 11 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 all 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 ofAuthority Management responsibility for the investment program is hereby delegated to the Director of Finance and Technology, as specified in Sec. l.l8.O8O(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 ofInterest 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 business with in this jurisdiction, and they shall further disclose any large personal financialfinvestment 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 Citv'oservice. 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 12 business with Yakima, a broker/dealer must maintain an office within the State of Washington. Eligible broker/doa|oro 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. Acurrent financial statement in required tubeun 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 4384.U8O. but are limited 1u 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 ou the Government National Mortgage Anuoniadon). �~ 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 tu 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 bya nationally recognized rating agency and ashort term credit rating atthe time of investment is not less than P-1 as rated by Moody's and/or A-1 by Standard 8Pnnr'n and/or F'1 by Fitch Rating Agency. State nf Washington Local Government Investment Pool (LG|P). Commercial Paper purchased un the secondary market with maturities not exceeding 270 days, and with a short term credit rating at time of investment not less than /\'l by Standard & Poor'n Rating Services and/or P'l byK4oudy'nInvestors 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 bya nationally recognized rating agency. �^ Obligations uf the State of Washington or local governments of the state of Washington which at the time of investment have one of the three highest credit ratings ufu 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, 13 which bonds have ut the time uf 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 uf funds of the City uf 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 un market cundiduns] �^ 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 uptn eight (8) years when rates and market conditions oowarrant. Investments in securities shall not exceed the following percentages of the portfolio: Bankers Acceptances l5% Commercial Paper 15% Certificates uf deposit lO% State/Municipal Securities 15% Treasury Securities lUO96 Government Sponsored Agency Securities lUO% Washington Stato's Local Government Investment Pool 100% CoUatera|iaadon 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 uf Yakima shall bo conducted unado/ivery' verous'poynnent ([VP) bonio. SonuritiosvviUbohe|dbythirdpadycuotodiandosignotodbytho Director of Finance and Technology, or his/her designee, and evidenced by safekeeping reports which will bo reconciled monthly tn the portfolio. Internal Control 1* 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. 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. Reporting The Director of Finance and Technology is charged with the responsibility of providing City Council with including aquarterly 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 AQenciem— (SeoQnvernmentSpononrodEndUen) Axked—Thopriceotvvhichsocuridosoroofforod. Bankers'Acceptance (BA) —A draft, or bin of goods, or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. Bid—Thoprineofforodfornecuritioo. 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 AnnualFinancial Report(CAFR) — 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 ofDeposit (CD) — Adme deposit with specific maturity and interest rate evidenced byacertificate. 1s 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 own 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 uf securities with an exchange of signed receipt for the securities.) Debenture—/\ bond secured only by the general credit uf 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 tnboatadiscount. 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 CreditAQennieo—Agonnion of the Federal government and guaranteed by the full faith and credit of the US Government set uptu supply credit to various classes uf institutions and individuals, o.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 uf the twelve Federal Reserve Bank Presidents. The President uf 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 on open market as o 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 570O commercial banks that are members of the system. Federal Deposit Insurance Corporation (FDIC) —A Federal Agency that insures bank deposits, currently capped at $25O'OOOdollars per deposit. Government Sponsored Entities — ("Agencies") Entities chartered by Congress, such as: Fannie Mae (FNMA) Freddie Mac (FHLMC), 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 16 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 1.73 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 Rule 15C3-1 — 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 bearing 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 Bonds— 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. 17 Ai *ttls,it Y oetit ill;X, • 14\ 14 4444444 d \ Issji 1;4. 14 14 coif * ro9gbot ATLI) Investment Policy of the City of Yakima Review by City Council Proposed for January 2019 Adopted: City of Yakima Finance Department 2 North 2nd Street 1 ya9 kimawA 98901 18 City ufYakima Investment Policy Table OfContents |. Purpose 3 |>(. Diversification 8 U. Policy .............................................3 X. Maximum Maturities 8 |||. Governing Authority )(|. Safekeeping and Custody 9 s Enabling Legislation 3� >(U CnUatnra|izodnn 9 b. Delegation vf /\uthnrih/ ----.3 � >0U Performance Standards 9 |V� Scnpoand /\op|icabi|i�y 4 � V )<W. Reporting and Disclosure � `Objectives m. 4 a Monthly 10 Safety � b Quarterly 1O b. Liquidby ------------4 � u. Yield 4 >(V. Investment Strategy V1. m Buy and Hold 10 Prudence 6 � b. Segmented Portfolio 10 V|1 Authorized Financial Dealers � XV1 Internal Controls 11 Institutions G � X\/I� Review, Approval 11 V|U� Authorized Investments � ' —� m. Washington State Treasurer Local Gnvornnnnnt |nvoutnlontPnn| ---G b Federal � Addenda: enterprise obligations G o. Obligations of the U.S, agencies, X\/|U. Glossary 12 wholly-owned corporations, and >(|>(. Text ofVVauhingh`nStatues uupranatinna|u................................/ (RCVVs) 16 d. Corporate notes 7 o. Washington State/local government >CX. Text of City Municipal Code.......... l bonds 8--------------- ><X1. Breker/Dem|er (}ueshunnmire 26 [ (}ther'SXmte/|uum| gevernnoent bnndu ---------------G XXIL Approved Broker/DemlerList --'28 g. Same-county local government X}0||. Confirmation nf Policy Receipt 27 |ogixte|odwmrrantx G h. Bankers' acceptances 7 i Commercial paper 7 i Non-negotiable CDs 8 k� Prohibited investments. 8 P, 2nf27 19 City ufYakima Investment Policy City of Yakima Administrative Policies Policy Number: FB~ 800 Department: Finance Authorized by: City Council Adopted by Resolution No. Effective Date: 01/KK/19 Supersedes: Policy Dated 09/06/11 Policy: Investment Policy |. Purpose The purpose nf this Policy is: for thu City ufYukinnu. [vague] w To establish investment objectives and parameters necessary to safeguard public funds entrusted tv the City nfYakima, w To articulate City Council's intent for the governance over city investments • To communicate clear policy and strategy guidelines for city investment administration w To demonstrate to oihrens' taxpayers and voters m transparent and accountable stewardship plan. The Ci1y's manageable cash ranges from $78tu $85 million, uf which about $65is invested ina laddered portfolio, cyclical liquidity is kept in the Washington State Treasurer's Local Government Investment Pool and operating cash is maintained in depository bank accounts. U. Policy [was incomplete] It is the policy of the City of Yakima to invest public funds in a manner that, giving first regard to safety, suitability and liquidity, vvill maximize long-term yield in conformance with State Statutes and Federal Regulations, and City Charter. It is the policy at the City of Yakima to invest public seSHFity; Will rneet the daily sash flew demands ef the TFeaswyi and will senfeFFA to all Stat \8tas-hin8tun --tatutnsgnvcrning the invn--tnlontnf public fund--. |||. Governing Authority Enabling Legislation [was absent] All investments shall be managed in a manner responsive to the public trust, consistent with state and |nca| |aw, indudingthoRovixodCndenfVVaxhingh`n (RCV\0' theCityChadorandMunicipa| Code (R[XY 38.68020. IVIC 1.18.080). City Council retains governance-level fiduciary responsibility for the city investment portfolio, through the executive control of the City Manager. Delegation of Authority [was incvmp|ete| P, 5nf27 20 City ufYakima Investment Policy The City Council authorizes an Investment Committee (MC 0 173010) comprised of the City Manager or their designee, and Finance Director or their deuignee, to engage in investment- related transactions without prior approval. This policy provides for accountability and transparency to city council. Management responsibility for the investment program i» heocby delegated to the Finance Director afFinonco and Tuohno|ogy. as --pucifiodin (MC §. 1.1O.O0O)' who shall establish 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 to provide adequate redundancy by properly trained and informed staff. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Finance Director of Financc and Tcchnology . The Director shall be responsible for all transactions undertaken and shall establish a system uf controls tn regulate the activities nf subordinate officials. All staff engaging ininvestment transactions shall attend public investment training. Staff shall not engage in any policy-allowed investment transaction that they cannot articulate a rationale for. Contracted Management [was absent] Any external investment manager engaged to assist in the management of the city'xinvestment portfolio will be held to the prudent investor standard of care (RCVV 11 .100.020). IV. Scope and Applicability [was incomplete] The investment policy applies tu all financial assets of the City of Yakima. These are accounted 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 newfund created by Council, unless specifically exempted by Council. Investments ufCity Funds may be made on pooled basis across all funds, with principal and interest apportioned for the benefit of the various participating funds or for the benefit nfthe general fund. (RCVV35.38034) V. Objective [was incomplete orunclear] The prime objectives of this City's investment activities shall be the suitability of every investment to the financial requirements of the city, considering, in priority order: >� Safety: Safety of principal is the foremost objective of the investment program. Investments of the City of Yakima aho|| be undertaken in a manner that seeks to ensure the preservation of principal Gapital in the overall portfolio. Each investment transaction shall be conducted in a manner to avoid principal loss arising from security default, institution default, broker-dealer default, safekeeping fraud, or the avoidable loss on the premature sale of an investment To attain thic- objoctivo, clivors-ification ir, required co that the potential lo--s on individual --ccuritics do not cxcccd the incrmc generated f9F the remainder ef the p9p4glie. P 4nf27 21 City ufYakima Investment Policy >� Liquidity: The City's investment portfolio will be structured to meet all expected obligations in a timely mariner, to avoid premature sale of an investment at a loss of principal. This is to be achieved by comparing investment maturities with forecasted cash flows and maintaining sufficient liquidity for contingencies across all funds. A3- to 5-year historical liquidity trend history, combining the city's main checking accounts, LGIP, and the investment portfolio, will clearly indicate annual seasonal lowcashflows will remain sufficiently liquid to enable the City of Yakima to moot all operating noquirunoants which might buuruusunab!yanticipated. Yield, or Return on investment: The City's investment portfolio shall be designed with the objective of attaining as high a market rate of return as prudently possible having first satisfied the objectives nf Safety and Liquidity. throughout budgetary and economic cycles, taking into account the City's investment risk constraints and the aash flov.4 -- _ -- - of -the portfolio. V|. Prudence [was not the right standard] Investments; shall be made with jwdgmelnt and GaFa upde� &aumstapGes then prevailiRg— vvhichpurconsufprudunno. dicnrutiun and intu|!igonouoxorcisointhonn3nugonnuntufthuirown affairs, net f9F SpGGIAlatien, but feF investment, sensideFing the pFgbable safety 9f their Gapital as well ac the probable income tnbcderived. The standard of prudence to be used by investment officials shall be the "prudent investor stmndard." which, asenacted by State Statute (RCVV11 .1OU.O2O)' says: !) A trustee shall invest arid manage trust assets axo prudent investor would, by considering the purposes, terms, distribution requirements' and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution. 2) A trustee's investment and management decisions respecting individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole and as part ofan overall investment strategy having risk and return objectives reasonably suited tu the trusL" Investment officers acting in accordance 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 in taken to control adverse developments. Ethics and Conflicts ofInterest [don't prohibit staff from personal investing, just disclose] Officers and employees involved in the investment process shall refrain from, or disclose, personal business activity that could conflict with proper execution of the investment program, or which could impair theirability 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 business 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. P 5nf27 22 City ufYakima Investment Policy The intent of "disclosure:" an employee is unlikely to personally own a controlling interest in a security that becomes the best investment for the city such as a highly rated Microsoft or Coca- Cola medium-term note and should not have to sell their personal position in order to serve the city). Employees and officers shall refrain from, or disclose, any personal investment transactions With the same agents with vvhonl business is conducted on behalf nfthe city and shall avoid, or disclose, transactions that might impair public confidence. 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'sservice. VII. Authorized Financial Dealers and Institutions [wasn't as specific on basics] The Finance Director ofFinan u and Technology or his/her designee will maintain o list of broker/dealers, which are authorized to provide investment services. To be eligible to do business with Yakima, abnnkeddea|ermust brokor/doo|urs may be Primary dealers or Regional Dealers. All financial inctitutionx and the Director of Finance and Technology, or his/her dn:ignnc, with provide a B|nker;Dea|er Questionnaire that includes the following: audited financial statements, current securities-related licensing; proof of registration and licenses held with the Financial Industry Regulatory Authority (FINRA); proof of registration With the State of Washington Securities Division; provide current active municipal client references; and certification of having read the City's current investment policy. An annual review uf the financial condition uf qualified bidders will be conducted bythe Finance Director of FninanGe and Teshnelegy, or his/her designee. is required to be on file for each financial in--titution and brokeridealcr with whom the City trade-,. V||i Authorized Investments [to match KCVVuclearly] State statutes permit local governments in the state of Washington only the specific investments permitted by state law, limited to the following: A. The primary investment instruments expected to be utilized in the City of Yakima's Investment Portfolio are: )� State of Washington Local Government Investment Pool (LG|P). " the public funds investment account for investment and reinvestment by the state treasurer. ROY 43.250.040 Agencies. Federal hunoo loan bank notes and bonds, federal land bank bonds and federal national mortgage association notes, debentures and guaranteed certificates of pmhioipshun, or the obligations of any other government sponsored ourpurmhun vvhvue obligations are or may become eligible ax collateral for advances to member banks msdetermined by the board uf governors uf the federal reserve system; RCVV J9.59.O4O (5) {}b|igaUnn: nfgovernment :pnn:nrcdnntdin: which are eligible a: collateral far advances to mernber banks as determined by the Beard of Governors of P, 6nf27 23 City ufYakima Investment Policy Bunk nu1mc and bundc. Fudmrul Farm Crudit Bank nunru|idutmd rotor and bundr,. Federal National Mortgage Association notes, debentures, and guaranteed of participation.) Treasuries. Certificates, notes, or bonds of the United States, or other obligations of the United States or its agencies, or of any ourpurmdun xvhuUy owned by the government of the United States� or United States dollar denominated bonds, notes, or ether obligations that are issued or guaranteed by suprmnmtiunm| institutions, provided that, at the time of investment, the institution has the United States government as its largest shareholder; HCVV 59.59.040 (4) Cndificzto_-. Notes, or Bonds uf 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, C,overnnnent National Mortgage 8ssuciution). Corporate notes purchased on the secondary market; with a minimum credit quality rating uf upper medium investment grade ' at least Aby Standard and Puer's. A2by &1nndy'x. nrAby Fitch - nn the date nfpurchase. RCVV 39.59.040 (8) B. The following secondary investment instruments are riot expected to be routinely utilized in the City of Yakima's Investment Portfolio but are also authorized by State Statute and should be disclosed and explained un council quarterly reporting: 4+ Bonds uf the state uf Washington and any local government in the state of VVauhingtnn;" RCVV39.59.040 (1) Obligations nf the State of Washington nrlocal govornmonts of tho Ft3to of W3chington which at the timo of invostmont h3vo ono of >� 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 uf investment one uf the three highest credit ratings ofa nationally recognized rating agency RCVV38.58.U4U (2) � ''Registered warrants of |uum| government in the same county as the government making the inveutnnnnt;" RCVV39.59.O4O (3) [was absent] �+ "Bankers' acceptances purchased on the secondary market." Bonknru' acnnptonnns purchased on the secondary market where the issuing bonk'o credit rating at the time of investment is not less than one of the three highest ratings as rated by nationally recognized rating agency and a short 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'n and/or F'1by Fitch Rating Agency. RCVV59.59.O4O (G) �0- "Commercial paper purchased in the secondary market." purchased on the secondary market with maturities not exceeding 270 days, and with a short term credit rating at time uf investment not less than A'lby Standard & Puor's Rating Services and/or P-1 by Moody's Investors Service and/or F-1 by Fitch Rating Agency. Fudharnoura. the long-term credit ratings of the issuer at the time of investment nho|| not be |onn than one of the three highest ratings as rated by o nationally recognized rating agency. RCVV39.5S.U4U (7) P 7nf27 24 City ufYakima Investment Policy >� Non-Negotiable Certificates of deposit with financial institutions qualified by the Washington Public Deposit Protection Commission. (RCVV39.58.130) Prohibited Investments [adding specific examples) Note: Equities (stocks), Collateralized mortgage obligations, Money market mutual funds, Inverse Floaters, Negotiable Certificates of Deposit, Repurchase and Reverse Repurchase Agreements and any investment type not expressly permitted by City Council in this policy are not eligible investments for the City. ThuDiructorOfFinunca and Tachnu!ogyorhis/hardosignou will maintain u list of Fpocifio Investment instFuments, ef the type dessFibed abeve, that vAll aenFtitute the only instFument& outhuriznd for the invnstrnontnf funds uf the City of Yakima. Investment Restrictions [split up into ' Uiverxihcabnn' and "k8a1uriUeo"] |X. Diversification [needed Per-issuerUnoits] Investments in securities shall not exceed the following percentages of the portfolio at time of purchase: Washington Stote`o Local Government Investment Pool l0U% Government Sponsored Agency Securities 1OU%. (4O% per issuer) Treasury Securities lOUY& Corporate notes - 15%' (the lesser of2Y6nr $1 million per issuer) Bankers Acceptances l5V6 Commercial Paper l5%. (the lesser nfZ% nr $1 million per issuer) Sanoe'Stato/Looa| Securities 15Y6` (the lesser uf2% ur $l million per issuer) Certificates uf deposit lOY&' (the lesser uf2Y6ur $1 million per issuer) {)tho|-3tate/Local Securities 5%. (the lesser nf2% nr $1 million per issuer) Same-county local government issuer — only by city council resolution Staggered maturities are to be a component of the diversified investment strategy, employed to minimize reinvestment risk due to rate fluctuations building a reasonably laddered maturity schedule. X. Maximum Maturities [8 years is unusually long, 5 years is more typicaij To providc for the safcty and liquidity of City funds, the invc--tmcnt portfolio will be --ubjcct to tho 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 Directoror hordesignee, orthe final maturity date, as appropriate based nn market cnndidnns.) � 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 (0) years when rates and market conditions aowarrant. P 8nf27 25 City ufYakima Investment Policy XI. Safekeeping and Custody Security transactions entered into by the City of Yakima shall bo conducted onodelivery-versus- payment (DVP) buuis. Securities will be held bythird party custodian designated by the Finance Director of Finance and TeGhRoloqy, monthly to the portfolio. Third-party custodial reports shall be required monthly, tu list, mtm noininouno, each individual soourity. CUS|P, purchase date, oust' market value, par value, and maturity date. X||. Collateral izotion [Washington handles inan interesting way] State statute (RCVV 39.58) requires that all deposits of public funds be made with qualified public depositarles, protected through the actions of the Public Deposit Protection Commission (PDPC), comprised of the State Treasurer, Governor and Lieutenant Governor. 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 PDPC Washington Public Deposit Protection CommisFion (RCW 39.58). All collateral is held by the Wachington Public Doposit PDPC. never to bu /u:: thun1QY4of public fund-- dnpo--kndin the in:titubon. The PDPC ensures public funds deposited in banks are protected should a financial institution become insolvent. The names nf authorized public depositaries may be found at: httpx:0l|e.vva.qnv/pdVc-bankx/ X|||. Performance Standards The City of Yakima investment portfolio will be designed to obtain a m3rkct average rate of return during budgeting and o onomic cycles, taking into account the City's investment risk constraints ondou.h flow needs. [this was nearly meaningless] Benchmark. [was missing] The City's cash management portfolio shall be managed using a comparison object of the yield of LGIP, the Washington State Treasurer-administered local governmental investment pool which is typically the next investment choice for available cash if not invested for lunge, The City portfolio will have a longer average maturity than the GU- to 90-day average portfolio of the benchmark so it will be less volatile. This means it can be expected that the city purtfu[u's average yield will betrail the benchmark's yield in times uf rising interest rates and lead the benchmark's yield in times nf failing interest rates. Downgraded Securities. [was missing. This io really important when itarises] The city may, from time to time, be invested in a security whose rating is downgraded. In the event a rating drops below the minimum allowed by this policy, the Finance Director will review and recommend an appropriate plan of action to the City Manager and City Council. If the city utilizes an Investment Advisor, that Investment Advisor shall notify the city and recommend a plan of action within one month. The city may continue to hold a downgraded investment to maturity if a probable outcome is the eventual realization of full value, rather than a realized loss if divested prior h` maturity. P 9nf27 26 City ufYakima Investment Policy }(|V. Reporting Tho Di,nnto, of Finoncu and Tochno|ogy is cho,gnd Wth the rnspon:ibi/itv of providing City Council with including 3 quartorly roport on invostmont 3ctivity and roturns. [this conflicts with RCN0 Monthly Reports The Finance Director shall make a monthly report nf all investment transactions tn the city council. (RCVV36.3S.O32) [agrees toRCV\O Quarterly Reports. [necessary elements were missing] The Finance Director shall prepare a quarterly investment report te City Manager and City Council that provides a summary of the current investment portfolio and the individual transactions executed to show holdings and activities during the reporting period conform to the investment policy. The report should include the following: )� An asset listing showing par value, cost and market value, type of investment, issuer, days to maturity and interest rate of each security; >� Average days tu maturity uf the portfolio; }� Maturity distribution nf the portfolio and distribution by type nfinvestment. Credit quality nf portfolio holdings; and, )� Average weighted yield tu maturity of portfolio uninvestments Performance comparison tnbenchmark XV. INVESTMENT STRATEGY [was absent] Buy and Hold. [because city has no staff dedicated to credit analysis] As a strategy,the City of Yakima's investments will not be actively traded, meaning that no attempt to "buy low and sell high" or "time the market" will bemade. Investments purchased with the intent of providing investment income shall be intended to be held to maturity, relying on following a prudent course of action for income rather than predicting market direction. Securities may be sold before they mature if market conditions present an opportunity forthe City to capture a benefit or to avoid a risk but the strategy vvil| bo primarily buy'mnd'huld. Portfolio Segmenting. [this is just fundamentals made clear to guide future staff] |n keeping with the priorities nf Safety, Liquidity then Yield, the first Considerations nfinvesting will be the immediate operational needs and scheduled disbursements of capital expenditures and debt service payments. >� The Safety Segment of the Portfolio is held primarily in the State LCIP. This will allow for seasonal fluctuations, primarily the April/October inflows of Property Tax and outflows of capital projects. The Liquidity Segment of the portfolio iu held primarily in the City'u depositary bank, and will bo maintained at adequate levels tn ensure availability. >� This Yield Segment of the portfolio is the portion of the city's cash reserves which, based on historical analysis, long-term budgetary planning or council-approved reserve policy, will not bosubject tu seasonal spending and can be invested oundohmbly |ong'terrn. This segment is invested in a laddered portfolio comprised of Agencies, Treasuries and other authorized investments. p 1Uof27 27 City ufYakima Investment Policy XVi Internal Controls The Office of the State Auditor requires has dc--cribed that in accordance with Revised Code of Washington 43.09.260,the City of Yakima must undergo annual financial examinations performed by State Examiners. Investment management is tube included ms part uf the annual independent audit h` assure compliance with this investment policy. As a part of these examinations, into controls ovor invactmon0s unu curofu|!y ccrutinizad. Thucu axunninobons May rosuk in XVIL Investment Policy Review, Approval and Adoption [Council RevieWapproval] The City of Yakima investment policy shall be adopted by resolution of the City Council. The policy shall be reviewed annually en a FegulaF basis by the Finance Director or hisiher designee and any significant modifications-made therotG must be approved by the City Council. 28 City ufYakima Investment Policy Addendum: Glossary Accrued Interest— Interest earned but not yet received. Active Investment Management — the active trading of securities, selling prior to maturity and purchasing secondary issues, in an effort to earn higher portfolio yield by the continual monitoring of financial nomrkots, spreads and pricing opportunities of individual securities. Requires substantially more staff time than passive investing. (see also Passive Investment Management) Agencies — (See Government Sponsored Entities) Entities chartered by Congress, such as: Fannie &1oo (FNMA) Freddie Mon (FHL&1C). Federal Home Loan Bonk (FHLE). Federal Farm Credit Bank (FFCB). These entities carry an implicit guaranty of the federal government. Amortization— a mathematical calculation that pays off a balance evenly while at the same time adding interest for every period. Asked— The price at which securities are offered. Bankers'Acceptance (BA) — A draft, or bin of goods, or exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer. Bid—Thopricoofforedforoonuritioo. 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. BLillet(Non-callable Bond) — a bond issue in which all of its outstanding principal amount may not be redeemed before maturity by the issuer, therefore assuring interest earnings through tn the end maturity date. Callable Bond — a bond issue in which all or part of its outstanding principal amount may be redeemed before maturity by the issuer Certificate nf Deposit(CC) —a deposit nf funds for a specified period of time that earns interest at a specific interest rate. Collateral — Securities, evidenced by a deposit or other property which a borrower pledges to secure repayment ufa loan. Also refers to securities pledged by u bank to secure deposits of public moneys. Comprehensive Annual Financial /7*pn,ƒ ({A/97) — The official independently-audited 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 acertifinate. p 12of27 29 City ufYakima Investment Policy 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 uf the bond's face value. Custody- (Safekeeping) A service to customers rendered by banks for a fee Mereby securities are held byanindependent third party for protection from fraud nrtheft. Dealer - A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for their own account. Delivery versus Payment/DVP) - puynncnt and dc|ivory vcr:us rocoipt (al-co cal|cd fron dolivnry). Dn|ivory vnr-cuc pzynnont is z Delivery of securities with a simultaneous exchange of money for the securities used in conjunction with a third-party custodian to assure integrity of the exchange and to prevent fraud or misdirection, similar to an escrow process in real estate. (Delivery versus receipt is a delivery nf securities with an exchange nfo signed receipt for the oecuritioo.) 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. This can be the normal mathematically equalizing of the stated rate ofan investment with prevailing market rates. Discount Securities - Non-interest bearing money market instruments that are issued at a discount and redeemed at maturity for full face value, i.n.' U.S. T, osu,y and Agnncybi||--. 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 ofthe US Government set up to supply credit to various c|annon of institutions and individuals, e.Q.' Ginnie Mae, Sallie Mae, Tennessee Valley Authority. Fannie Mae - The trade name for the Fede/a/ k/ar/ona/ Mortgage Association (F/V$A)' aV.S. G3E(gnveovn7ent-opnnonreUentdx. Farmer Mac-The trade name for the Federal Agricultural Mortgage Corporation (FAMC), a GSE (guvernnoent'spunsuredentity). 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 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 funds target rate and guidelines p 1Jof27 m City ufYakima Investment Policy 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 seven nnonnbor Board ofGovernors inVVanhington' DC. There are 12 Region Banks and about 57UO commercial banks that are members of the system. Federal Deposit Insurance Corporation (FDIC) — A Federal Agency that insures bank deposits, currently capped ot $25U'O0Odollars per deposit. finano/a/ /nduonyRegu/afnryAuo7oritK /no. (F//VRA) ' mprivmteourpurmtionthataotsmsaself- regulatory organization (SRO). FINRA is the successor to the National Association of Securities Dealers, Inc. (NASD) and the member regulation, enforcement and arbitration operations of the New York Stock Exchange. Freddie Mac — The trade name for the Federal Home Loan Mortgage Corporation (FHLMC), a GSE (governnnent-xpnnsnrodentity). Ginnie Mae—the tradenannefv|theGvve|nnlentNadnna| K3vdgage /\xunciatinn (GNK3/A' aGSE (gevernnoent'spunsuredentity). Government Sponsored Entities (GSEs) — ("Agencies") Entities chartered by Congress, such as: Fannie &1oo (FNMA) Freddie Mon (FHL&1C). Federal Home Loan Bonk (FHLB). Federal Farm Credit Bunk (FFCB). These entities carry an implicit guaranty of the federal government. Interest Rate Risk — the risk associated with declines or rises in interest rate that cause an investment in a fixed-income security to increase or decrease in market value. Investment Committee—Cc rnprised of the City Manager and Finance Directo r or their designees. The committee is authorized to make investments of city funds, as authorized by law, and, at any time, to liquidate investments, and to engage in all such transactions without prior consent nfcity council, but subject to investment policy reporting requirements. Leverage - Increasing the output compared to the input. In investments, a negative application would be multiplying the yield on investable funds by investing using borrowed funds in addition tu cash unhand; the risk is that when a loss is experienced, the borrowed funds must be repaid in full, multiplying the loss tu the investor. Liquidity — A liquid asset is one that can be converted easily and rapidly into ouuh Without o --ub--tantiz| |nasnfva|un. And the money rnarkot' a --ocurityis --aid tobn |iquidthatthc --proad L/ouid/g/ Rirk — theriskthatanentity (i.e. the city) may be unable te meet short term financial demands due to the inability to convert investments to cash without a loss of principal and/or interest income. Market Risk — the risk that the value of a security will rise or decline as a result of changes in market conditions, typically interest rates. Market Value — The price at which a security is trading and could presumably be purchased or sold. pl4of27 31 City ufYakima Investment Policy Maturity—the date upon which the principal of an investment is due and paid. New Issue — An investment available at the time of issuance, and therefore not subject tothe secondary market that would involve competitive bidding nr price uncertainty. Non-callable Bond(Bullet) — a bond issue in which all of its outstanding principal amount may riot be redeemed before maturity by the issuer' therefore assuring interest earnings through tuthe end maturity date. Par Value— (face value) the amount of principal that must be paid at maturity. Passive Investment Management- investing methodically, managing primarily diversification and maturities, with the intention of holding to maturity rather than seeking to make gains through market price fluctuations. Pfincipal- the original sum of money put into an investment at time of purchase. Reinvestment Risk - the risk that the proceeds from the payment of principal and interest would have to be reinvested at a lower rate than the original investment. This is a risk of all investments regardless of maturity date or call feature because of the uncertainty of future interest rates. Call features increase reinvestment risk because of the added uncertainty; issuers typically call their bonds ina declining interest rate environment. Safekeeping — A service to customers rendered by banks for o 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 Rule /5C3'1 —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 bearing 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 lU years. Treasury /Vnten — 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. p 15of27 32 City ufYakima Investment Policy Addendum — Text uf Washington Statutes (BCVV) Governing Investments of Public Funds by Local Governments RCVV1l.1O0820 Management nf trust assets byfiduciary. 1) Atrustee shall invest and manage trust assets ms a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution. 2) /\ trustee's investment and management decisions respecting individual assets must be evaluated not in ixn|abnn but inthe context of the trust portfolio auawhole and axa part of an overall investment strategy having risk and return objectives reasonably suited to the trust. 3> Among the circumstances that a trustee shall consider in investing and managing trust assets are such uf the following ssare relevant tu the trust ur its beneficiaries: a) General economic condidvnx� b) The possible effect uf inflation urdeflation; c) The expected tax consequences nf investment decisions nrstrategies; d) The role that each investment or course of action plays within the overall portfolio, which may include financial assets, interests in closely held enterprises, tangible and intangible personal property, and real prvpedy� e) The expected total return from income and the appreciation of capital; h Other ' g) Needs for liquidity, regularity of income, and preservation or appreciation of capital; and h) An asset's special relationship or special value, if any, to the purposes of the trust nrh` one or more of the beneficiaries. 4) A trustee shall make a reasonable effort to verify facts relevant to the investment and management nf trust assets. 5) Atrustee may invest in any kind of property ortype of investment consistent with the standards of this section. G) A trustee who has special skills or expertise, or is named trustee in reliance upon the trustee's representation that the trustee has special skills er expertise, has m duty tu use those special skills n| expertise. RCVVJ5.59.O5O Excess ur inactive funds--|nvestnoont. Every city and town may invest any portion of the moneys in its inactive funds or in other funds in excess uf current needs in: (1) United States bonds; ZC ) Uni�ed3�ate� cedi�ica�eunfindebtednoxx�'` ' E8 Bonds ur warrants uf this state; (4) General obligation or utility revenue bonds or warrants of its own or of any other city ur town in the stste� . (5) Its own bonds or warrants of a local improvement district wthich are within the protection uf the local improvement guaranty fund law; and (G) In any other investments authorized by lawfor any other taxing districts. RCVV36.3S.O32 Approval vf legislative authority—Delegation ofauthnrih/--Repndu. Nu investment shall be made Without the approval uf the legislative authority uf the city ur town expressed by ordinance: PROVIDED, That except as otherwise provided by law, the legislative authority may by ordinance authorize a city official or a committee composed of several city officials to determine the amount of money available in each fund for p� 10of27 o City ufYakima Investment Policy investment purposes and make the investments authorized as indicated in RCVV 35.39.030 as now or hereafter amended and the provisions of RCVV 35.39.034, without the consent of the legislative authority for each investment. The responsible official or committee shall make a monthly report of all investment transactions to the city legislative authority. The legislative authority of a city or town or city official or committee authorized to invest city or town funds may at any time convert any of its investment securities, or any part thereof, into cash. RCVV55.59.054 Investment by individual fund n|commingling nf funds—investment in United States xocuriUes-- \/m[dmhon. Moneys thus determined available for this purpose may be invested nnan individual fund basis or may, unless otherwise restricted by |mxv be commingled within one ounonoun investment portfolio for investment. All income derived from such investment shall be apportioned and used for the benefit of the various participating funds or for the benefit of the general or current expense fund as the governing body of the city of [or] town shall determine by ordinance or |eun|udnn: PROVIDED, That funds derived from the sale of general ub[gmhun bonds or revenue bonds ur similar instruments ufindebtedness shall be invested, or used in such manner as the initiating ordinances, |oxn|utinnu, or bond covenants may lawfully prescribe. Any excess or inactive funds on hand in the city treasury not otherwise invested, or required to be invested by this section, as now nr hereafter anlended, may be invested by the city treasurer in United States government bunds, nodes, bil|s, certificates of indebtedness, or interim financing warrants of a local improvement district w1hich is within the protection of the local improvement guaranty fund law for the benefit of the general or current expense fund. All previous or outstanding investments of city or town f unds for the benefit of the cih/'unr town's general or current expense fund which have been or could be made in accordance with the provisions of this section, as now or hereafter amended, are declared valid. RCVV59.58.02O Public funds—Protection against loss. All public funds deposited in public depositaries, including investment deposits and accrued interest thereon, shall be protected against loss, as provided in this chapter. RCVV38.58.03O Public deposit protection commission—State finance committee constitutes—Proceedings. The Washington public deposit protection cnnlnniuuinn shall be the state finance uunonoiMee. The record of the proceedings of the public deposit protection commission shall be kept in the office nf the commission and a duly certified copy thereof, nr any part thereof, shall be admissible in evidence in any action or proceedings in any court of this state. RCVV3S.58.U5O Collateral for deposits Segregation—Eligible securities. (1) Every public depositary shall complete m depositary pledge agreement with the commission and a trustee, and shall at all times maintain, segregated from its other assets, eligible collateral having m value st least equal tu its maximum liability and msotherwise prescribed in this chapter. Eligible securities used as collateral shall be segregated by p 17of27 34 City ufYakima Investment Policy deposit with the depositary's trustee and shall be clearly designated as security for the benefit of public depositors under this chapter. (2) Securities eligible as collateral shall be valued at market value, and the total market value of securities pledged in accordance with this chapter shall not be reduced by withdrawal or substitution nf securities except by prior authorization, in wriUng, by the commission. (3) The public depositary shall have the right tn make substitutions nfan equal nrgreater amount uf eligible securities at any time. (4) The income from the securities which have been segregated as collateral shall belong tn the public depositary without restriction. (5) Each of the following enumerated classes of securities, providing there has been no default in the payment of principal or interest thereon, shall be eligible to qualify as collateral: (x) Certificates, notes or bonds of the United States, v| other obligations of the United States or its agencies, or of any corporation wholly owned bythe government of the United States; (b) State, county, municipal, or school district bonds or wurrants of taxing districts of the state uf Washington ur any other state ufthe United States, provided that such bonds and warrants shall be only those found to be within the limit vfindebtedness prescribed by |avv for the taxing district issuing them and tube general obligations; (c) The obligations of any United States government-sponsored cn|pn|abnn vvhnue obligations are or may become eligible as collateral for advances to member banks as determined by the board nf governors nf the federal reserve system; (d) Bunds, nutes, or other securities or evidence of indebtedness constituting the direct and general obligation ufa federal home loan bank ur federal reserve bank; (n) Revenue bonds nf this state or any authority, board, commission, committee, or similar agency thereof, and any municipality ur taxing district uf this state; hU Direct and general obligation bonds and warrants nf any city, town, county, uchnn| district, port district, or other political subdivision of any state, having the power to levy general taxes, Mich are payable from general ad valorem taxes; (o) Bonds issued by public utility districts as authorized under the provisions of Title 54 RON. as now ur hereafter amended; (h) Bonds of any city of the state of VVashington for the payment of which the entire revenues of the city's water system, power and light system, or both, less maintenance and operating couts, are irrevocably pledged, even though such bonds are not general obligations uf such city. (6) In addition to the securities enumerated in this section, the commission may also accept as collateral a letter of credit from a federal home loan bank or a federal reserve bank on behalf of a public depositary, naming the commission as beneficiary. Such letters are not subject to a completed depositary pledge agreement. As such, the commission must act ss the safekeeping agent for letters ufcredit. (7) A public depositary may also segregate such bonds, securities, and other obligations as are designated to be authorized security for public deposits under the laws of this state. (8) The commission may determine by rule or resolution whether any security, whether or not enumerated in this section, is or shall remain eligible as collateral Men in the commission's judgment itis desirable ur necessary to du so. RCVV3S.58.l36 Limitations nndeposits. NutvvithstandingRCVV3S.68.138' (1) aggregate deposits received bya public depositary from all treasurers and the state treasurer shall not exceed at any time one hundred fifty p 1Uof27 35 City ufYakima Investment Policy percent of the value uf the depositary's net worth, nor (2) shall the aggregate deposits received by any public depositary exceed thirty percent of the total aggregate deposits of all public treasurers in all depositaries as determined by the cnnlnnixxinn. Hnvwevo|, o public depositary may receive deposits in excess of the Unohs provided in this section if eligible collateral, as prescribed in RCVV 39.58.050, are pledged in an amount equal to one hundred percent of the value of deposits received in excess of the limitations prescribed in this section. RCVVJ959.OlO Definitions. Unless the context clearly requires nthemviso, the definitions in this section apply throughout this chapter. (1) "Bond' means any agreement which may or may not be represented by physical instrument, including but not limited to bonds, notes, warrants, or certificates of indebtedness, that evidences on obligation under which the issuer agrees to pay o specified amount of money, with or without interest, at a designated time or times either tu registered owners urbearers. (2) "Local government" means any county, city, town, special purpose diubict, political subdivision, municipal corporation, or quasi-municipal corporation, including any public corporation, authority, or other instrumentality created by such an entity. (3) "State" includes any state in the United States, other than the state of Washington. RCVV38.5S.02O Authorized investments—Local government authority. (1) Local governments in the state of Washington are authorized to invest their funds arid money in their custody or possession, eligible for investment, in investments authorized by this chapter. (2) Nothing in this section is intended to limit or otherwise restrict a local government from investing in additional authorized investments if that |uom| government has specific authority tndnso. RCVV3S.5S.O4O Authorized investments—Bonds, warrants, certificates, and other investments. Any local government in the state nf Washington may invest in: (1) Bonds of the state of Washington a nd a ny local government in the state of Washington; (2) General obligation bonds of a state and ge ne ral obligation bonds of a local government of xtobe, which bonds have at the time of investment one of the three highest credit ratings ofa nationally recognized rating agency; (3) Subject to compliance with RCVV 39.56.030, registered warrants of a local government in the same county au the government making the investment; (4) 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; or United States dollar denominated bends, notes' or other obligations that are issued orguaranteed by supranational institutions, provided that, atthe time of investment, the institution has the United States government as its largest shareholder; p� 18of27 36 City of Yakima Investment Policy (5) Federal home loan bank notes and bonds, federal land bank bonds and federal national mortgage association notes, debentures and guaranteed certificates of participation, or the obligations of any other government sponsored corporation whose obligations are or may become eligible as collateral for advances to member banks as determined by the board of governors of the federal reserve system; (6) Bankers' acceptances purchased on the secondary market; (7) Commercial paper purchased in the secondary market, provided that any local government of the state of Washington that invests in such commercial paper must adhere to the investment policies and procedures adopted by the state investment board; and (8) Corporate notes purchased on the secondary market, provided that any local government of the state of Washington that invests in such notes must adhere to the investment policies and procedures adopted by the state investment board. RCW 43.250.040 Authority of official to place funds in the public funds investment account--Investment of funds by state treasurer--Degree of judgment and care required. If authorized by statute, local ordinance, resolution, or other appropriate official action, the state treasurer, a government finance official or financial officer or his or her designee, or authorized tribal official, may place funds into the public funds investment account for investment and reinvestment by the state treasurer in those securities and investments set forth in ROW 43.84.080 and chapter 39.58 RCW. The state treasurer shall invest the funds in such manner as to effectively maximize the yield to the investment pool. In investing and reinvesting moneys in the public funds investment account and in acquiring, retaining, managing, and disposing of investments of the investment pool, there shall be exercised the judgment and care under the circumstances then prevailing which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of the funds considering the probable income as well as the probable safety of the capital. p. 20 of 27 37 City ufYakima Investment Policy Addendunn — Textof City Municipal Code 1738l0 Investment committee created--Authurity. There iu created an investment committee composed nf the city manager and the cih/'xdirector of finance and his/her designees as may be assigned by the city manager and/or the director of finance from time to time. The committee is authorized to make investments nf city funds, as authorized by law, and, at any time, to convert investments, or any part thereof, into cash, and to engage in all such transactions without the consent nf the city council being first obtained for each such transaction. 1./3D20 Officers nf investment committee. The city manager is appointed as chairman of the investment committee to preside at all meetings thereof; provided, that the city manager shall designate some other member nf the investment committee as chairman thereof to preside at any meeting from which the city manager may be absent. The finance director, or her designee, is appointed as secretary of the investment committee, and shall maintain a record of the minutes vf each meeting nf the investment committee, together with m record uf all strategy decisions. 173830 Meetings uf investment committee. The investment committee shall meet at least uerni-annuaUy' atatime designated by the city manager. Additional meetings may be called by the city manager, from time to time, as he deems necessary or desirable for the best interests of the city; provided, the function of the investment committee is deemed to be continual so that the city manager may direct that any two nnnnnbo|u of the committee may perform functions of the investment committee at any time without a special meeting being called for that purpose. 1 .73.040Repurt tu city council. The finance director shall submit tn the city council o quarterly report nf all investment transactions uf the city ufYakima during the quarter. The report shall bein writing, and shall be submitted tu the city council ata regular city council meeting. 1 .18.U8U Department uf finance and budget. The department of finance and budget, under the general direction of the director of finance and budget, shall perform the responsibilities and duties generally described as follows: 1) Financial Services. Under the supervision of the financial services manager, this office shall: m) Compile estimates for the annual budget; b) Maintain m general accounting system for the city government and exercise budgetary control over all expenditures by offices and departments; c) Perform internal audits nf all city financial affairs; d) Prepare a monthly report of the fiscal activities of all funds for the preceding month and such other reports as may be required by the city manager; e) Determine the structure and operational characteristics of all accounting systems used in the city government; 38 City ufYakima Investment Policy O Maintain control and m running inventory of all fixed assets uf the city; g) Maintain a uniform utility accounting system for the water and sewer utilities as required by state law; h) Be responsible for the receipt, custody and disbursement of all city funds, all local improvement district funds, and other trust funds, keeping accurate accounts of all collections and disbursements for each fund� ' 8 Be the custodian ofallcity investments andbank collateral, investing idle funds asmay he prudent and /awfut ) Prepare and submit all financial statements and reports required by law; /d Prescribe the times at and manner in which monies received by the several offices and departments of the city sha0be paid into the treasury or deposited/nabankc 0 Make deposits of city funds ^9 banks "7 the manner prescribed bylaw,- m) Purchase and sell bonds for the benefit of local improvement district funds and the local improvement district guaranty fund; n) Maintain and supervise a risk management program covering city buildings, equipment and personnel; n) Maintain an office for the purpose of receiving all money paid as bail for nonmoving traffic violation citations; . p) Perform such other services au may be required by law nr by the director nf finance arid budget. p22of27 39 City ufYakima Investment Policy Addendum — Broker/Dealer Questionnaire The Central Washington city of Yakima, incorporated in 1886, provides a full range of municipal services, including general government, public safety (police and fire), streets, community development, planning and zoning, code enh/|conlonL airport, cemetery, parks and recreation, and municipal services such as water treatment, wastewater, refuse and public transit. Roughly 8O0 employees serve about93'U0O residents covering about /Osquare miles with an annual operating budget ufaround $250 noi|Uun. The Chy's manageable cash ranges from $70tu $85 million of which about $55 is invested principally in GSE medium term notes with remaining liquidity maintained in the VVashington State Treasurer's Local Governmental Investment Pool L[;IP. The City has adopted a xmiMon Investment Policy that regulates the standards and procedures used in its cash management activities. The most current policy is publicly available on the city website and should be reviewed prior to completing this form. Firm Name: Year Founded: Corporate office address: Te|ephnno4u: Principal, Managing Director nrPartner: Name Title Direct phone E-mail address |x your firm a broker (does not own securities being offered |s your firm m dealer (does own securities being Nffored)Y Local office address: Please attach ab^/ n/,esum6nf the primary and secondary representatives covering this a coo unt, including securities-related en7p/owmenf history, licensing, oe/tificarex complaints, disciplinary action, arbitration, litigation: Primary Representative: Name Title Direct phone E-mail address Secondary Representative: Name Title Direct phone E-mail address p2Jof27 40 City ufYakima Investment Policy Provide proof uf registration With State ufWashington F attached lNA Provide proof nf Financial Industry Regulatory Authority (FIN RA) F attached l N/\ Provide documentation that your firm ix qualified under SEC rule 15C3-1 (Uniform Net Capital Rule) ] attached ONA Provide most recent audited financials L attached JN/\ |s your firm ix examined by and subject to rules and regulations of: FDIC FYes No SEC Yes Na NYSE [ Yes O NO Comptroller ufCurrency [ Yes O No Federal Reserve System [ Y8SO NO List three current, active, comparable, municipal client references: Entity Name Contact Address Phone / E-mail Entity Name Contact Address Phone / E-mail Entity Name Contact Address Phone / E-mail What market sectors are you and your firm currently involved? (Please feel free to provide additional information regarding specialization in any of the following market sectors). Firm Involvement Broker Involvement US Treasuries US Agency Bonds Washington State Bonds Municipal Bonds Corporate Bonds CDARS Commercial Paper Other Please provide your normal custody and delivery process, including specific banking relationships. What was your firno's total volume in US Government and agency securities trading last year? p24of27 *1 City ufYakima Investment Policy Has this firm, urthe representatives assigned to this account, been subject toaregulatory agency, state or federal investigation for alleged improper, disreputable, unfair or fraudulent activities related to the sale of securities or money market instruments that resulted in a suspension urcensure? [ Yes (a(tached) [ No Is there outstanding litigation which would materially affect your financial stability? L Yes (attached) No Dn you provide any fixed income research and economic commentary? 11 Y8S (888nh9d) NO Describe the precautions taken by your firm to protect the interests of the public when dealing with a local public entity. O Attached ] N/\ Has any client sustained a loss on a securities transaction engendered from a misunderstanding or misrepresentation of the risk characteristic of a financial instrument by your firm? L Yes (attached) No Please confirm that you are: (1) familiar with the Revised Code of Washington (RCVV) Sections 39.59.010 et al. (2) have read, understand and agree to comply with the provisions of City of Yakima's current investment policy by signing below. Name: Signature: Title: Date: Name: Signature: Title: Date: Name: Signature: Title: Date: p25of27 42 City ufYakima Investment Policy Approved Bruker/Dea|erList (Pending) This revision nf the City's Investment Policy institutes a Broker/Dealer Questionnaire process. This page will list those that have submitted complete BDC}smnd are approved qualified firms. p� 20of27 43 City ufYakima Investment Policy Addendum — Acknowledgement ofReceiothAdherencetu Current Policy City of Yakima requires an annual certification from authorized Financial Dealers and Institutions of having read the current investment policy. It is the intent of the City of Yakima to pro-actively contact current existing financial institutions mnnua||y, urat any change in the ohy'sinvostnoent policy, and to maintain the current investment policy on the city's public website. This is to acknoWedge receipt of the City of Yakima's current Investment Policy adopted by City Cuunci| un / / Entity name: Name: Tide: Signature: Date: Please sign and submit via mail ur email to: City nfYakima 128 North 2nuStreet, Finance Department Yakinla' VVA 98901 Current staff contact information iu available nn the City V\ebuite: https:0\wwmv.yakimmxva.guv/services/finanoe/ 44 "14 Y.fri 11.7 tt t% tr5 f. AiNke 110 r}7 Aliv. if % 00.1 x.K7/ y Investment Policy of the City of Yakima Proposed for Review by City Council January , 2019 Adopted: City of Yakima Finance Department 129 North 2nd Street Yakima, WA 98901 45 City of Yakima Investment Policy Table of Contents I. Purpose 3 IX. Diversification 7 II. Policy 3 X. Maximum Maturities 8 III. Governing Authority Xl. Safekeeping and Custody 8 a. Enabling Legislation 3 XII. Collateralization 8 b. Delegation of Authority 3 IV. Scope and Applicability 4 XIII. Performance Standards 8 a. Downgraded Securities 8 V. Objectives XIV. Reporting and Disclosure a. Safety 4 a. Monthly 9 b. Liquidity 4 b. Quarterly 9 c. Yield 5 VI. Prudence 5 XV. Investment Strategy a. Ethics and Conflict of Interest 5 a. Buy and Hold 9 b. Segmented Portfolio 9 VII. Authorized Financial Dealers and XVI. Internal Controls 10 Institutions 6 VIII. Authorized Investments XVII. Review, Approval and Adoption....10 a. Washington State Treasurer Local Government Investment Pool 6 b. Agencies, Federal government- Addenda: sponsored enterprise obligations 6 c. Treasuries, Obligations of the U.S., XVIII. Glossary 11 agencies, wholly-owned XIX. Text of Washington Statutes corporations, and supranationals....6 (RCWs) 15 d. Corporate notes 6 e. Washington State/local government XX. Text of City Municipal Code 20 bonds 7 XXI. Broker/Dealer Questionnaire 22 f. Other-State/local government bonds 7 XXII. Approved Broker/Dealer List 25 g. Same-county local government XXIII. Confirmation of Policy Receipt 26 registered warrants 7 h. Bankers' acceptances 7 i. Commercial paper 7 j. Non-negotiable CDs 7 k. Prohibited investments 7 p. 2 of 26 46 City of Yakima Investment Policy City of Yakima Policy Number: FB- 800 ,f Department: Finance Authorized by: City Council It # t #' Adopted by Resolution No. Effective Date: 01/xx/19 Supersedes: Policy Dated 09/06/11 Policy: Investment Policy I. Purpose The purpose of this Policy is: • To establish investment objectives and parameters necessary to safeguard public funds entrusted to the City of Yakima, • To articulate City Council's intent for the governance over city investments • To communicate clear policy and strategy guidelines for city investment administration • To demonstrate to citizens, taxpayers and voters a transparent and accountable stewardship plan. The City's manageable cash ranges from $70 to $85 million, of which about $55 is invested in a laddered portfolio, cyclical liquidity is kept in the Washington State Treasurer's Local Government Investment Pool and operating cash is maintained in depository bank accounts. II. Policy It is the policy of the City of Yakima to invest public funds in a manner that, giving first regard to safety, suitability and liquidity, will maximize long-term yield in conformance with State Statutes and Federal Regulations, and City Charter. Ill. Governing Authority Enabling Legislation All investments shall be managed in a manner responsive to the public trust, consistent with state and local law, including the Revised Code of Washington (RCW), the City Charter and Municipal Code (RCW 39.59.020, MC 1.18.080). City Council retains governance-level fiduciary responsibility for the city investment portfolio, through the executive control of the City Manager. Delegation of Authority The City Council authorizes an Investment Committee (MC § 1.73.010) comprised of the City Manager or their designee, and Finance Director or their designee, to engage in investment- related transactions without prior approval. This policy provides for accountability and transparency to city council. Management responsibility for the investment program is delegated p. 3 of 26 47 City of Yakima Investment Policy to the Finance Director, (MC §. 1.18.080), who shall establish 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 to provide adequate redundancy by properly trained and informed staff. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Finance Director. The Director shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. All staff engaging in investment transactions shall attend public investment training. Staff shall not engage in any policy-allowed investment transaction that they cannot articulate a rationale for. Contracted Management Any external investment manager engaged to assist in the management of the city's investment portfolio will be held to the prudent investor standard of care (RCW 11.100.020). IV. Scope and Applicability The investment policy applies to all financial assets of the City of Yakima. These are accounted 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. Investments of City Funds may be made on a pooled basis across all funds, with principal and interest apportioned for the benefit of the various participating funds or for the benefit of the general fund. (RCW 35.39.034) V. Objective The prime objectives of this City's investment activities shall be the suitability of every investment to the financial requirements of the city, considering, in priority order: ➢ 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 principal in the overall portfolio. Each investment transaction shall be conducted in a manner to avoid principal loss arising from security default, institution default, broker-dealer default, safekeeping fraud, or the avoidable loss on the premature sale of an investment ➢ Liquidity: The City's investment portfolio will be structured to meet all expected obligations in a timely manner, to avoid premature sale of an investment at a loss of principal. This is to be achieved by comparing investment maturities with forecasted cash flows and maintaining sufficient liquidity for contingencies across all funds. A 3- to 5-year historical liquidity trend history, combining the city's main checking accounts, LGIP, and the investment portfolio, will clearly indicate annual seasonal low cashflows. p. 4 of 26 48 City of Yakima Investment Policy ➢ Yield, or Return on investment: The City's investment portfolio shall be designed with the objective of attaining as high a rate of return as prudently possible having first satisfied the objectives of Safety and Liquidity. VI. Prudence The standard of prudence to be used by investment officials shall be the "prudent investor standard,"which, as enacted by State Statute (RCW 11.100.020), says: 1) A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution. 2) A trustee's investment and management decisions respecting individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust." Investment officers acting in accordance 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. Ethics and Conflicts of Interest Officers and employees involved in the investment process shall refrain from, or disclose, 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 business 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. The intent of "disclosure:" an employee is unlikely to personally own a controlling interest in a security that becomes the best investment for the city such as a highly rated Microsoft or Coca- Cola medium-term note and should not have to sell their personal position in order to serve the city). Employees and officers shall refrain from, or disclose, any personal investment transactions with the same agents with whom business is conducted on behalf of the city and shall avoid, or disclose, transactions that might impair public confidence. 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. p. 5 of 26 49 City of Yakima Investment Policy VII. Authorized Financial Dealers and Institutions The Finance Director 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 provide a Broker/Dealer Questionnaire that includes the following: audited financial statements, current securities-related licensing; proof of registration and licenses held with the Financial Industry Regulatory Authority (FINRA); proof of registration with the State of Washington Securities Division; provide current active municipal client references; and certification of having read the City's current investment policy. An annual review of the financial condition of qualified bidders will be conducted by the Finance Director, or his/her designee. VIII. Authorized Investments State statutes permit local governments in the state of Washington only the specific investments permitted by state law, limited to the following: A. The primary investment instruments expected to be utilized in the City of Yakima's Investment Portfolio are: ➢ State of Washington Local Government Investment Pool (LGIP), the public funds investment account for investment and reinvestment by the state treasurer. RCW 43.250.040 *- Agencies. Federal home loan bank notes and bonds, federal land bank bonds and federal national mortgage association notes, debentures and guaranteed certificates of participation, or the obligations of any other government sponsored corporation whose obligations are or may become eligible as collateral for advances to member banks as determined by the board of governors of the federal reserve system; RCW 39.59.040 (5) • Treasuries. 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; or United States dollar denominated bonds, notes, or other obligations that are issued or guaranteed by supranational institutions, provided that, at the time of investment, the institution has the United States government as its largest shareholder; RCW 39.59.040 (4). • Corporate notes purchased on the secondary market; with a minimum credit quality rating of upper medium investment grade - at least A by Standard and Poor's, A2 by Moody's, or A by Fitch - on the date of purchase. RCW 39.59.040 (8) B. The following secondary investment instruments are not expected to be routinely utilized in the City of Yakima's Investment Portfolio but are also authorized by State Statute and should be disclosed and explained on council quarterly reporting: 3- Bonds of the state of Washington and any local government in the state of Washington;" RCW 39.59.040 (1) ➢ 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 RCW 39.59.040 (2) p. 6 of 26 50 City of Yakima Investment Policy ➢ Registered warrants of a local government in the same county as the government making the investment;" RCW 39.59.040 (3) *- 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 short 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. RCW 39.59.040 (6) *- Commercial paper purchased in 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. RCW 39.59.040 (7) ➢ Non-Negotiable Certificates of deposit with financial institutions qualified by the Washington Public Deposit Protection Commission. (RCW 39.58.130) Prohibited Investments Equities (stocks), Collateralized mortgage obligations, Money market mutual funds, Inverse Floaters, Negotiable Certificates of Deposit, Repurchase and Reverse Repurchase Agreements and any investment type not expressly permitted by City Council in this policy are not eligible investments for the City. IX. Diversification Investments in securities shall not exceed the following percentages of the portfolio at time of purchase: Washington State's Local Government Investment Pool 100% Government Sponsored Agency Securities 100%, (40% per issuer) Treasury Securities 100% Corporate notes - 15%, (the lesser of 2% or $1 million per issuer) Bankers Acceptances 15% Commercial Paper 15%, (the lesser of 2% or$1 million per issuer) Same-State/Local Securities 15%, (the lesser of 2% or $1 million per issuer) Certificates of deposit 10%, (the lesser of 2% or $1 million per issuer) Other-State/Local Securities 5%, (the lesser of 2% or $1 million per issuer) Same-county local government issuer— only by city council resolution Staggered maturities are to be a component of the diversified investment strategy, employed to minimize reinvestment risk due to rate fluctuations building a reasonably laddered maturity schedule. p. 7 of 26 51 City of Yakima Investment Policy X. Maximum Maturities ➢ 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. Xl. 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 Finance Director, or his/her designee, and evidenced by safekeeping reports which will be reconciled monthly to the portfolio. Third-party custodial reports shall be required monthly, to list, at a minimum, each individual security, CUSIP, purchase date, cost, market value, par value, and maturity date. XII. Collateralization State statute (RCW 39.58) requires that all deposits of public funds be made with qualified public depositaries, protected through the actions of the Public Deposit Protection Commission (PDPC), comprised of the State Treasurer, Governor and Lieutenant Governor. 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 PDPC. All collateral is held by the PDPC. The PDPC ensures public funds deposited in banks are protected should a financial institution become insolvent. The names of authorized public depositaries may be found at: https://tre.wa.q ov/pd pc-banks/ XIII. Performance Standards Benchmark. The City's cash management portfolio shall be managed using a comparison object of the yield of LGIP, the Washington State Treasurer-administered local governmental investment pool which is typically the next investment choice for available cash if not invested for longer. The City portfolio will have a longer average maturity than the 60- to 90-day average portfolio of the benchmark so it will be less volatile. This means it can be expected that the city portfolio's average yield will be trail the benchmark's yield in times of rising interest rates and lead the benchmark's yield in times of falling interest rates. Downgraded Securities. The city may, from time to time, be invested in a security whose rating is downgraded. In the event a rating drops below the minimum allowed by this policy, the Finance Director will review and recommend an appropriate plan of action to the City Manager and City Council. If the city utilizes an Investment Advisor, that Investment Advisor shall notify the city and recommend a plan of action within one month. The city may continue to hold a downgraded investment to maturity p. 8 of 26 52 City of Yakima Investment Policy if a probable outcome is the eventual realization of full value, rather than a realized loss if divested prior to maturity. XIV. Reporting Monthly Reports The Finance Director shall make a monthly report of all investment transactions to the city council. (RCW 35.39.032) Quarterly Reports. The Finance Director shall prepare a quarterly investment report to City Manager and City Council that provides a summary of the current investment portfolio and the individual transactions executed to show holdings and activities during the reporting period conform to the investment policy. The report should include the following: ➢ An asset listing showing par value, cost and market value,type of investment, issuer, days to maturity and interest rate of each security; ➢ Average days to maturity of the portfolio; ➢ Maturity distribution of the portfolio and distribution by type of investment. ➢ Credit quality of portfolio holdings; and, ➢ Average weighted yield to maturity of portfolio on investments ➢ Performance comparison to benchmark XV. INVESTMENT STRATEGY Buy and Hold. As a strategy,the City of Yakima's investments will not be actively traded, meaning that no attempt to "buy low and sell high" or "time the market" will be made. Investments purchased with the intent of providing investment income shall be intended to be held to maturity, relying on following a prudent course of action for income rather than predicting market direction. Securities may be sold before they mature if market conditions present an opportunity for the City to capture a benefit or to avoid a risk but the strategy will be primarily buy-and-hold. Portfolio Segmenting. In keeping with the priorities of Safety, Liquidity then Yield, the first considerations of investing will be the immediate operational needs and scheduled disbursements of capital expenditures and debt service payments. ➢ The Safety Segment of the Portfolio is held primarily in the State LGIP. This will allow for seasonal fluctuations, primarily the April/October inflows of Property Tax and outflows of capital projects. ➢ The Liquidity Segment of the portfolio is held primarily in the City's depository bank, and will be maintained at adequate levels to ensure availability. ➢ This Yield Segment of the portfolio is the portion of the city's cash reserves which, based on historical analysis, long-term budgetary planning or council-approved reserve policy, will not be subject to seasonal spending and can be invested comfortably long-term. This segment is invested in a laddered portfolio comprised of Agencies, Treasuries and other authorized investments. p. 9 of 26 53 City of Yakima Investment Policy XVI. Internal Controls The Office of the State Auditor requires that in accordance with Revised Code of Washington 43.09.260, the City of Yakima must undergo annual financial examinations performed by State Examiners. Investment management is to be included as part of the annual independent audit to assure compliance with this investment policy. XVII. Investment Policy Review, Approval and Adoption The City of Yakima investment policy shall be adopted by resolution of the City Council. The policy shall be reviewed annually by the Finance Director and any significant modifications must be approved by the City Council. p. 10of26 54 City of Yakima Investment Policy Addendum: Glossary Accrued Interest— Interest earned but not yet received. Active Investment Management — the active trading of securities, selling prior to maturity and purchasing secondary issues, in an effort to earn higher portfolio yield by the continual monitoring of financial markets, spreads and pricing opportunities of individual securities. Requires substantially more staff time than passive investing. (see also Passive Investment Management) Agencies — (See Government Sponsored Entities) Entities chartered by Congress, such as: Fannie Mae (FNMA) Freddie Mac (FHLMC), Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB). These entities carry an implicit guaranty of the federal government. Amortization— a mathematical calculation that pays off a balance evenly while at the same time adding interest for every period. Asked—The price at which securities are offered. Bankers'Acceptance (BA) — A draft, or bin of goods, 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 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. Bullet(Non-callable Bond) —a bond issue in which all of its outstanding principal amount may not be redeemed before maturity by the issuer, therefore assuring interest earnings through to the end maturity date. Callable Bond — a bond issue in which all or part of its outstanding principal amount may be redeemed before maturity by the issuer Certificate of Deposit(CD) —a deposit of funds for a specified period of time that earns interest at a specific interest rate. 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 (CAFR) — The independently-audited 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. p. 11 of 26 55 City of Yakima Investment Policy 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. Custody— (Safekeeping) A service to customers rendered by banks for a fee whereby securities are held by an independent third party for protection from fraud or theft. Dealer— A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for their own account. Delivery versus Payment(DVP) —Delivery of securities with a simultaneous exchange of money for the securities used in conjunction with a third-party custodian to assure integrity of the exchange and to prevent fraud or misdirection, similar to an escrow process in real estate. (Delivery versus receipt is a delivery of securities with an exchange of a signed receipt for the securities.) 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. This can be the normal mathematically equalizing of the stated rate of an investment with prevailing market rates. Discount Securities — Non-interest bearing money market instruments that are issued at a discount and redeemed at maturity for full face value, i.o., U.S. Troasury and Agoncy bill&. 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. Fannie Mae — The trade name for the Federal National Mortgage Association (FNMA), a U.S. GSE(government-sponsored entity). Farmer Mac—The trade name for the Federal Agricultural Mortgage Corporation (FAMC), a GSE (government-sponsored entity). 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 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 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. p. 12of26 56 City of Yakima Investment Policy 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. Financial Industry Regulatory Authority, Inc. (FINRA) - a private corporation that acts as a self- regulatory organization (SRO). FINRA is the successor to the National Association of Securities Dealers, Inc. (NASD) and the member regulation, enforcement and arbitration operations of the New York Stock Exchange. Freddie Mac — The trade name for the Federal Home Loan Mortgage Corporation (FHLMC), a GSE (government-sponsored entity). Ginnie Mae—the trade name for the Government National Mortgage Association (GNMA), a GSE (government-sponsored entity). Government Sponsored Entities (GSEs) — ("Agencies") Entities chartered by Congress, such as: Fannie Mae (FNMA) Freddie Mac (FHLMC), Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB). These entities carry an implicit guaranty of the federal government. Interest Rate Risk — the risk associated with declines or rises in interest rate that cause an investment in a fixed-income security to increase or decrease in market value. Investment Committee—Comprised of the City Manager and Finance Director or their designees. The committee is authorized to make investments of city funds, as authorized by law, and, at any time, to liquidate investments, and to engage in all such transactions without prior consent of city council, but subject to investment policy reporting requirements. Leverage - Increasing the output compared to the input. In investments, a negative application would be multiplying the yield on investable funds by investing using borrowed funds in addition to cash on hand; the risk is that when a loss is experienced, the borrowed funds must be repaid in full, multiplying the loss to the investor. Liquidity—A liquid asset is one that can be converted easily and rapidly into cash Liquidity Risk— the risk that an entity (i.e. the city) may be unable to meet short term financial demands due to the inability to convert investments to cash without a loss of principal and/or interest income. Market Risk— the risk that the value of a security will rise or decline as a result of changes in market conditions, typically interest rates. Market Value — The price at which a security is trading and could presumably be purchased or sold. Maturity—the date upon which the principal of an investment is due and paid. New Issue — An investment available at the time of issuance, and therefore not subject to the secondary market that would involve competitive bidding or price uncertainty. p. 13of26 57 City of Yakima Investment Policy Non-callable Bond(Bullet) —a bond issue in which all of its outstanding principal amount may not be redeemed before maturity by the issuer, therefore assuring interest earnings through to the end maturity date. Par Value— (face value) the amount of principal that must be paid at maturity. Passive Investment Management- investing methodically, managing primarily diversification and maturities, with the intention of holding to maturity rather than seeking to make gains through market price fluctuations. Principal- the original sum of money put into an investment at time of purchase. Reinvestment Risk- the risk that the proceeds from the payment of principal and interest would have to be reinvested at a lower rate than the original investment. This is a risk of all investments regardless of maturity date or call feature because of the uncertainty of future interest rates. Call features increase reinvestment risk because of the added uncertainty; issuers typically call their bonds in a declining interest rate environment. 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 Rule 15C3-1 —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 bearing 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. p. 14of26 58 City of Yakima Investment Policy Addendum — Text of Washington Statutes (RCW) Governing Investments of Public Funds by Local Governments RCW 11.100.020 Management of trust assets by fiduciary. 1) A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution. 2) A trustee's investment and management decisions respecting individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust. 3) Among the circumstances that a trustee shall consider in investing and managing trust assets are such of the following as are relevant to the trust or its beneficiaries: a) General economic conditions; b) The possible effect of inflation or deflation; c) The expected tax consequences of investment decisions or strategies; d) The role that each investment or course of action plays within the overall portfolio, which may include financial assets, interests in closely held enterprises, tangible and intangible personal property, and real property; e) The expected total return from income and the appreciation of capital; f) Other resources of the beneficiaries; g) Needs for liquidity, regularity of income, and preservation or appreciation of capital; and h) An asset's special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries. 4) A trustee shall make a reasonable effort to verify facts relevant to the investment and management of trust assets. 5) A trustee may invest in any kind of property or type of investment consistent with the standards of this section. 6) A trustee who has special skills or expertise, or is named trustee in reliance upon the trustee's representation that the trustee has special skills or expertise, has a duty to use those special skills or expertise. RCW 35.39.030 Excess or inactive funds—Investment. Every city and town may invest any portion of the moneys in its inactive funds or in other funds in excess of current needs in: (1) United States bonds; (2) United States certificates of indebtedness; (3) Bonds or warrants of this state; (4) General obligation or utility revenue bonds or warrants of its own or of any other city or town in the state; (5) Its own bonds or warrants of a local improvement district which are within the protection of the local improvement guaranty fund law; and (6) In any other investments authorized by law for any other taxing districts. RCW 35.39.032 Approval of legislative authority—Delegation of authority—Reports. No investment shall be made without the approval of the legislative authority of the city or town expressed by ordinance: PROVIDED, That except as otherwise provided by law, the legislative authority may by ordinance authorize a city official or a committee composed of several city officials to determine the amount of money available in each fund for p. 15of26 59 City of Yakima Investment Policy investment purposes and make the investments authorized as indicated in RCW 35.39.030 as now or hereafter amended and the provisions of RCW 35.39.034, without the consent of the legislative authority for each investment. The responsible official or committee shall make a monthly report of all investment transactions to the city legislative authority. The legislative authority of a city or town or city official or committee authorized to invest city or town funds may at any time convert any of its investment securities, or any part thereof, into cash. RCW 35.39.034 Investment by individual fund or commingling of funds—Investment in United States securities— Validation. Moneys thus determined available for this purpose may be invested on an individual fund basis or may, unless otherwise restricted by law be commingled within one common investment portfolio for investment. All income derived from such investment shall be apportioned and used for the benefit of the various participating funds or for the benefit of the general or current expense fund as the governing body of the city of [or] town shall determine by ordinance or resolution: PROVIDED, That funds derived from the sale of general obligation bonds or revenue bonds or similar instruments of indebtedness shall be invested, or used in such manner as the initiating ordinances, resolutions, or bond covenants may lawfully prescribe. Any excess or inactive funds on hand in the city treasury not otherwise invested, or required to be invested by this section, as now or hereafter amended, may be invested by the city treasurer in United States government bonds, notes, bills, certificates of indebtedness, or interim financing warrants of a local improvement district which is within the protection of the local improvement guaranty fund law for the benefit of the general or current expense fund. All previous or outstanding investments of city or town funds for the benefit of the city's or town's general or current expense fund which have been or could be made in accordance with the provisions of this section, as now or hereafter amended, are declared valid. RCW 39.58.020 Public funds—Protection against loss. All public funds deposited in public depositaries, including investment deposits and accrued interest thereon, shall be protected against loss, as provided in this chapter. RCW 39.58.030 Public deposit protection commission—State finance committee constitutes—Proceedings. The Washington public deposit protection commission shall be the state finance committee. The record of the proceedings of the public deposit protection commission shall be kept in the office of the commission and a duly certified copy thereof, or any part thereof, shall be admissible in evidence in any action or proceedings in any court of this state. RCW 39.58.050 Collateral for deposits—Segregation—Eligible securities. (1) Every public depositary shall complete a depositary pledge agreement with the commission and a trustee, and shall at all times maintain, segregated from its other assets, eligible collateral having a value at least equal to its maximum liability and as otherwise prescribed in this chapter. Eligible securities used as collateral shall be segregated by p. 16of26 60 City of Yakima Investment Policy deposit with the depositary's trustee and shall be clearly designated as security for the benefit of public depositors under this chapter. (2) Securities eligible as collateral shall be valued at market value, and the total market value of securities pledged in accordance with this chapter shall not be reduced by withdrawal or substitution of securities except by prior authorization, in writing, by the commission. (3) The public depositary shall have the right to make substitutions of an equal or greater amount of eligible securities at any time. (4) The income from the securities which have been segregated as collateral shall belong to the public depositary without restriction. (5) Each of the following enumerated classes of securities, providing there has been no default in the payment of principal or interest thereon, shall be eligible to qualify as collateral: (a) 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; (b) State, county, municipal, or school district bonds or warrants of taxing districts of the state of Washington or any other state of the United States, provided that such bonds and warrants shall be only those found to be within the limit of indebtedness prescribed by law for the taxing district issuing them and to be general obligations; (c) The obligations of any United States government-sponsored corporation whose obligations are or may become eligible as collateral for advances to member banks as determined by the board of governors of the federal reserve system; (d) Bonds, notes, or other securities or evidence of indebtedness constituting the direct and general obligation of a federal home loan bank or federal reserve bank; (e) Revenue bonds of this state or any authority, board, commission, committee, or similar agency thereof, and any municipality or taxing district of this state; (f) Direct and general obligation bonds and warrants of any city, town, county, school district, port district, or other political subdivision of any state, having the power to levy general taxes, which are payable from general ad valorem taxes; (g) Bonds issued by public utility districts as authorized under the provisions of Title 54 RCW, as now or hereafter amended; (h) Bonds of any city of the state of Washington for the payment of which the entire revenues of the city's water system, power and light system, or both, less maintenance and operating costs, are irrevocably pledged, even though such bonds are not general obligations of such city. (6) In addition to the securities enumerated in this section, the commission may also accept as collateral a letter of credit from a federal home loan bank or a federal reserve bank on behalf of a public depositary, naming the commission as beneficiary. Such letters are not subject to a completed depositary pledge agreement. As such, the commission must act as the safekeeping agent for letters of credit. (7) A public depositary may also segregate such bonds, securities, and other obligations as are designated to be authorized security for public deposits under the laws of this state. (8) The commission may determine by rule or resolution whether any security, whether or not enumerated in this section, is or shall remain eligible as collateral when in the commission's judgment it is desirable or necessary to do so. RCW 39.58.135 Limitations on deposits. Notwithstanding RCW 39.58.130, (1) aggregate deposits received by a public depositary from all treasurers and the state treasurer shall not exceed at any time one hundred fifty p. 17of26 61 City of Yakima Investment Policy percent of the value of the depositary's net worth, nor (2) shall the aggregate deposits received by any public depositary exceed thirty percent of the total aggregate deposits of all public treasurers in all depositaries as determined by the commission. However, a public depositary may receive deposits in excess of the limits provided in this section if eligible collateral, as prescribed in RCW 39.58.050, are pledged in an amount equal to one hundred percent of the value of deposits received in excess of the limitations prescribed in this section. RCW 39.59.010 Definitions. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter. (1) "Bond" means any agreement which may or may not be represented by a physical instrument, including but not limited to bonds, notes, warrants, or certificates of indebtedness, that evidences an obligation under which the issuer agrees to pay a specified amount of money, with or without interest, at a designated time or times either to registered owners or bearers. (2) "Local government" means any county, city, town, special purpose district, political subdivision, municipal corporation, or quasi-municipal corporation, including any public corporation, authority, or other instrumentality created by such an entity. (3) "State" includes any state in the United States, other than the state of Washington. RCW 39.59.020 Authorized investments—Local government authority. (1) Local governments in the state of Washington are authorized to invest their funds and money in their custody or possession, eligible for investment, in investments authorized by this chapter. (2) Nothing in this section is intended to limit or otherwise restrict a local government from investing in additional authorized investments if that local government has specific authority to do so. RCW 39.59.040 Authorized investments—Bonds, warrants, certificates, and other investments. Any local government in the state of Washington may invest in: (1) Bonds of the state of Washington and any local government in the state of Washington; (2) General obligation bonds of a state and general obligation bonds of a local government of a state, which bonds have at the time of investment one of the three highest credit ratings of a nationally recognized rating agency; (3) Subject to compliance with RCW 39.56.030, registered warrants of a local government in the same county as the government making the investment; (4) 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; or United States dollar denominated bonds, notes, or other obligations that are issued or guaranteed by supranational institutions, provided that, at the time of investment, the institution has the United States government as its largest shareholder; p. 18of26 62 City of Yakima Investment Policy (5) Federal home loan bank notes and bonds, federal land bank bonds and federal national mortgage association notes, debentures and guaranteed certificates of participation, or the obligations of any other government sponsored corporation whose obligations are or may become eligible as collateral for advances to member banks as determined by the board of governors of the federal reserve system; (6) Bankers' acceptances purchased on the secondary market; (7) Commercial paper purchased in the secondary market, provided that any local government of the state of Washington that invests in such commercial paper must adhere to the investment policies and procedures adopted by the state investment board; and (8) Corporate notes purchased on the secondary market, provided that any local government of the state of Washington that invests in such notes must adhere to the investment policies and procedures adopted by the state investment board. RCW 43.250.040 Authority of official to place funds in the public funds investment account--Investment of funds by state treasurer--Degree of judgment and care required. If authorized by statute, local ordinance, resolution, or other appropriate official action, the state treasurer, a government finance official or financial officer or his or her designee, or authorized tribal official, may place funds into the public funds investment account for investment and reinvestment by the state treasurer in those securities and investments set forth in RCW 43.84.080 and chapter 39.58 RCW. The state treasurer shall invest the funds in such manner as to effectively maximize the yield to the investment pool. In investing and reinvesting moneys in the public funds investment account and in acquiring, retaining, managing, and disposing of investments of the investment pool, there shall be exercised the judgment and care under the circumstances then prevailing which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of the funds considering the probable income as well as the probable safety of the capital. p. 19of26 63 City of Yakima Investment Policy Addendum — Text of City Municipal Code 1.73.010 Investment committee created—Authority. There is created an investment committee composed of the city manager and the city's director of finance and his/her designees as may be assigned by the city manager and/or the director of finance from time to time. The committee is authorized to make investments of city funds, as authorized by law, and, at any time, to convert investments, or any part thereof, into cash, and to engage in all such transactions without the consent of the city council being first obtained for each such transaction. 1.73.020 Officers of investment committee. The city manager is appointed as chairman of the investment committee to preside at all meetings thereof; provided, that the city manager shall designate some other member of the investment committee as chairman thereof to preside at any meeting from which the city manager may be absent. The finance director, or her designee, is appointed as secretary of the investment committee, and shall maintain a record of the minutes of each meeting of the investment committee, together with a record of all strategy decisions. 1.73.030 Meetings of investment committee. The investment committee shall meet at least semi-annually, at a time designated by the city manager. Additional meetings may be called by the city manager, from time to time, as he deems necessary or desirable for the best interests of the city; provided, the function of the investment committee is deemed to be continual so that the city manager may direct that any two members of the committee may perform functions of the investment committee at any time without a special meeting being called for that purpose. 1.73.040 Report to city council. The finance director shall submit to the city council a quarterly report of all investment transactions of the city of Yakima during the quarter. The report shall be in writing, and shall be submitted to the city council at a regular city council meeting. 1.18.080 Department of finance and budget. The department of finance and budget, under the general direction of the director of finance and budget, shall perform the responsibilities and duties generally described as follows: 1) Financial Services. Under the supervision of the financial services manager, this office shall: a) Compile estimates for the annual budget; b) Maintain a general accounting system for the city government and exercise budgetary control over all expenditures by offices and departments; c) Perform internal audits of all city financial affairs; d) Prepare a monthly report of the fiscal activities of all funds for the preceding month and such other reports as may be required by the city manager; e) Determine the structure and operational characteristics of all accounting systems used in the city government; p. 20 of 26 64 City of Yakima Investment Policy f) Maintain control and a running inventory of all fixed assets of the city; g) Maintain a uniform utility accounting system for the water and sewer utilities as required by state law; h) Be responsible for the receipt, custody and disbursement of all city funds, all local improvement district funds, and other trust funds, keeping accurate accounts of all collections and disbursements for each fund; i) Be the custodian of all city investments and bank collateral, investing idle funds as may be prudent and lawful, j) Prepare and submit all financial statements and reports required by law; k) Prescribe the times at and manner in which monies received by the several offices and departments of the city shall be paid into the treasury or deposited in a bank; I) Make deposits of city funds in banks in the manner prescribed by law,. m) Purchase and sell bonds for the benefit of local improvement district funds and the local improvement district guaranty fund; n) Maintain and supervise a risk management program covering city buildings, equipment and personnel; o) Maintain an office for the purpose of receiving all money paid as bail for nonmoving traffic violation citations; p) Perform such other services as may be required by law or by the director of finance and budget. p. 21 of 26 65 City of Yakima Investment Policy Addendum — Broker/Dealer Questionnaire The Central Washington city of Yakima, incorporated in 1886, provides a full range of municipal services, including general government, public safety (police and fire), streets, community development, planning and zoning, code enforcement, airport, cemetery, parks and recreation, and municipal services such as water treatment, wastewater, refuse and public transit. Roughly 800 employees serve about 93,000 residents covering about 70 square miles with an annual operating budget of around $250 million. The City's manageable cash ranges from $70 to $85 million of which about $55 is invested principally in GSE medium term notes with remaining liquidity maintained in the Washington State Treasurer's Local Governmental Investment Pool LGIP. The City has adopted a written Investment Policy that regulates the standards and procedures used in its cash management activities. The most current policy is publicly available on the city website and should be reviewed prior to completing this form. Firm Name: Year Founded: Corporate office address: Telephone #s: Principal, Managing Director or Partner: Name Title Direct phone E-mail address Is your firm a broker (does not own securities being offered Is your firm a dealer (does own securities being offered)? Local office address: Please attach a bio or resume of the primary and secondary representatives covering this account, including securities-related employment history, licensing, certificates, complaints, disciplinary action, arbitration, litigation: Primary Representative: Name Title Direct phone E-mail address Secondary Representative: Name Title Direct phone E-mail address p. 22 of 26 66 City of Yakima Investment Policy Provide proof of registration with State of Washington I— attached ° NA Provide proof of Financial Industry Regulatory Authority (FINRA) I— attached ° NA Provide documentation that your firm is qualified under SEC rule 15C3-1 (Uniform Net Capital Rule) I attached 0 NA Provide most recent audited financials L attached _I NA Is your firm is examined by and subject to rules and regulations of: FDIC I— Yes 0 No SEC r Yes n No NYSE E Yes 0 No Comptroller of Currency E Yes 0 No Federal Reserve System E Yes 0 No List three current, active, comparable, municipal client references: Entity Name Contact Address Phone / E-mail Entity Name Contact Address Phone / E-mail Entity Name Contact Address Phone / E-mail What market sectors are you and your firm currently involved? (Please feel free to provide additional information regarding specialization in any of the following market sectors). Firm Involvement Broker Involvement US Treasuries US Agency Bonds Washington State Bonds Municipal Bonds Corporate Bonds CDARS Commercial Paper Other Please provide your normal custody and delivery process, including specific banking relationships. What was your firm's total volume in US Government and agency securities trading last year? p. 23 of 26 67 City of Yakima Investment Policy Has this firm, or the representatives assigned to this account, been subject to a regulatory agency, state or federal investigation for alleged improper, disreputable, unfair or fraudulent activities related to the sale of securities or money market instruments that resulted in a suspension or censure? E Yes (attached) E No Is there outstanding litigation which would materially affect your financial stability? L Yes (attached) L No Do you provide any fixed income research and economic commentary? Yes (attached) P No Describe the precautions taken by your firm to protect the interests of the public when dealing with a local public entity. ❑ Attached 1 NA Has any client sustained a loss on a securities transaction engendered from a misunderstanding or misrepresentation of the risk characteristic of a financial instrument by your firm? L Yes (attached) L No Please confirm that you are: (1) familiar with the Revised Code of Washington (RCW) Sections 39.59.010 et al. (2) have read, understand and agree to comply with the provisions of City of Yakima's current investment policy by signing below. Name: Signature: Title: Date: Name: Signature: Title: Date: Name: Signature: Title: Date: p. 24 of 26 68 City of Yakima Investment Policy Approved Broker/Dealer List (Pending) This revision of the City's Investment Policy institutes a Broker/Dealer Questionnaire process. This page will list those that have submitted complete BDQs and are approved qualified firms. p. 25 of 26 69 City of Yakima Investment Policy Addendum —Acknowledgement of Receipt/Adherence to Current Policy City of Yakima requires an annual certification from authorized Financial Dealers and Institutions of having read the current investment policy. It is the intent of the City of Yakima to pro-actively contact current existing financial institutions annually, or at any change in the city's investment policy, and to maintain the current investment policy on the city's public website. This is to acknowledge receipt of the City of Yakima's current Investment Policy adopted by City Council on Entity name: Name: Title: Signature: Date: Please sign and submit via mail or email to: City of Yakima 129 North 2' Street, Finance Department Yakima, WA 98901 Current staff contact information is available on the City Website: https://www.yakimawa.gov/services/finance/ p. 26 of 26