HomeMy WebLinkAboutR-1991-D5958 Investment Policy•• RESOLUTION NOP 5956
•
A RESOLUTION revising the City of Yakima investment policy for public
funds.
the City Council by Resolution No. D-5642 (adopted
September 19, 1989) has previously adopted an investment policy for City
funds; and
WHEREAS, the City Council wishes to adopt a revised version of said
policy which contains greater clarity and specificity; and
WHEREAS, the City of Yakima holds and invests significant
amounts of public money each year through its Department of Finance and
Budget; and
WHEREAS, the City Council deems it to be in the best interest of the
public to adopt a revised formal, internal investment policy for public funds
for the purpose of providing a secure and orderly method of investment of
such funds; now, therefore,
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
YAKIMA:
The City Council hereby adopts the attached and incorporated City of
Yakima investment policy.
ADOPTED BY TIIE CITY COUNCIL this day of
at h
991.
MAYOR
ATTEST:
1-{ ahQ._,.... c ►� �_
CITY CLERK
City of Yakima
Investment Policy
1.0 Policy
It is the policy of the City of Yakima to invest public funds in a manner which
will provide the highest investment return consistent with maximum security, will
meet the daily cash flow demands of the Treasury and will conform to all State of
Washington statutes governing the investment of public funds.
2.0 Scope:
This investment policy applies to all financial assets of the City of Yakima. These
are accounted for in the City of Yakima's Comprehensive Annual Financial
Report and include:
2.1 General Fund
2.2 Special Revenue Funds
2.3 Capital Project Funds
2.4 Enterprise Funds
2.5 Internal Service Funds
2.6 Trust and Agency Funds
2.7 Any new fund created by Council, unless specifically exempted by
Council.
3.0 Prudence
Investments shall be made with judgment and care -- under circumstances then
prevailing -- which persons of prudence, discretion and intelligence exercise in
the management of their own affairs, not for speculation, but for investment,
considering the probable safety of their capital as well as the probable income to
be derived.
3.1 The Standard of prudence to be used by investment officials shall be the
"prudent person" standard and shall be applied in the context of managing
an overall portfolio. Investment officers acting in accordance with written
procedures and exercising due diligence shall be relieved of personal
responsibility for an individual security's credit risk or market price changes,
provided deviations from expectations are reported in a timely fashion and
appropriate action is taken to control adverse developments.
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4.0 Objective:
The primary objectives, in priority order, of the City's investment activities shall
be:
4.1 Safety: Safety of principal is the foremost objective of the
investment program. Investments of the City of Yakima shall be
undertaken in a manner that seeks to ensure the preservation of capital in
the overall portfolio. To attain this objective, diversification is required
in order that potential losses on individual securities do not exceed the
income generated for the remainder of the portfolio.
4.2 Liquidity: The City's investment portfolio will remain sufficiently
liquid to enable the City to meet all operating requirements which might be
reasonably anticipated.
4.3 Return on investment: The City's investment portfolio shall be
designed with the objective of attaining a market rate of return throughout
budgetary and economic cycles, taking into account the City's investment
risk constraints and the cash flow characteristics of the portfolio.
5.0 Delegation_ j)f Authuilm
Management responsibility for the investment program is hereby delegated to the
Director of Finance and Budget, as specified in §1.18.080(b) of the Municipal
Code, who shall establish written procedures for the operation of the investment
program consistent with this investment policy. Such procedures shall include
explicit delegation of authority to persons responsible for investment transactions.
No person may engage in an investment transaction except as provided under the
terms of this policy and the procedures established by the Director of Finance and
Budget. The Director shall be responsible for all transactions undertaken and
shall establish a system of controls to regulate the activities of subordinate
officials.
6.0 Ethics and Conflicts of Interest:
Officers and employees involved in the investment process shall refrain from
personal business activity that could conflict with proper execution of the
investment program, or which could impair their ability to make impartial
investment decisions. Employees and investment officials shall disclose to the
City Manager any material financial interests in financial institutions that conduct
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business within this jurisdiction, and they shall further disclose any large personal
financial/investment positions that could be relate,! to the performance of the
City's portfolio. Employees and officers shall subordinate their personal
investment transactions to those of the City of Yakima, particularly with regard
to the time of purchases and sales.
Consistent with general City Policy (ADM. 500), officers and employees involved
in the investment process may not accept any valuable gift, favor or gratuity
which is made on the basis of his or her position in the City's service.
7.0 Authorized Financial Dealers and Institutions:
The Director of Finance and Budget will maintain a list of financial institutions,
as required by the Public Deposit Protection Commission, which are authorized
to provide investment services (R.C. W. 39.58.080). In addition, a list will also
be maintained of approved security broker/dealers selected by credit
worthiness, who maintain an office in the State of Washington. These may
include "primary" dealers who qualify under Securities and Exchange
Commission Rule 15C3-1 (uniform net capital rule). No public deposit
shall be made other than in a qualified public depository in the State of
Washington, as established by State Law and the Washington Public Deposit
Protection Commission.
All financial institutions and broker/dealers who desire to become qualified
bidders for investment transactions must supply the Treasurer with the following:
audited financial statements, proof of trading resolution, proof of state
registration and certification of having read the City's investment policy. An
annual review of the financial condition and registrations of qualified bidders will
be conducted by the Treasurer. A current financial statement is required to be on
file for each financial institution and broker/dealer with whom the City invests.
8.0 Authorized Investments:
Municipal corporations in Washington State are empowered by statute to invest in
the following types of securities: the enabling legislation is contained in RCW
36.29.020, as amended, and as limited by RCW 39.58.080, as amended.
8.1 Investment deposits, including certificates of deposit, with
qualified public depositories as defined in Chapter 39.58 RCW.
8.2 Certificates, Notes, or Bonds of the United States, or other
obligations of the United States or its agencies, or of any corporation
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wholly owned by the government of the United States (such as the
Government National Mortgage Association).
8.3 Obligations of government-sponsored corporations which are
eligible as collateral for advances to member banks as determined by the
Board of Governors of the Federal Reserve System. (These :include but are
not limited to Federal Home Loan Bank notes and bonds, Federal Farm
Credit Bank consolidated notes and bonds, Federal National Mortgage
Association notes, debentures, and guaranteed certificates of participation.)
8.4 Bankers' acceptances purchased on the secondary market where
the issuing bank's bond rating is not less than "A" as rated by Moody's and
Standard and Poor's Investor Services, and whose short teem credit rating
is not less than "P-1" as rated by Moody's and "A-1" by Standard and
Poor's.
8.6 State of Washington Local Government Investment Pool
8.7 Repurchase and Reverse Repurchase Agreements are Dat
eligible investments for the City.
The Director of :Finance and Budget shall maintain a list of specific investment
instruments, of the type described above, that will constitute the only instruments
authorized for the investment of funds of the City of Yakima.
9.0 Collateralization:
State law requires that all deposits of public funds (including Certificates of
Deposit) be collateralized in accordance with regulations of the Washington
Public Deposit Protection Commission. (RCW 39.58) All collateral is held by
the Washington Public Deposit Protection Commission. Amount of collateral
varies for different institutions, but is never to be less than 10% of public funds
deposited in the institution.
10.0 Safekeeping and CmItadiu
All security transactions entered into by the City of Yakima shall be conducted on
a delivery -versus -payment (DVP) basis. Securities will be held by a third
party custodian designated by the Director of Finance and Budget„ and evidenced
by safekeeping receipts.
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11.0 Diversification:
The City will diversify its investments by security type and institution. With the
exception of U.S. Treasury securities and the State of Washington Local
Government Investment Pool, no more than 50% of the City's total investment
portfolio will be invested in a single security type or with a single fmancial
institution.
12.0 Maturities:
To the extent possible, the City will attempt to match its investments with
anticipated cash flow requirements. Unless matched to a specific cash flow such
as a reserve or construction fund, the City will not invest in securities maturing
more than five years from the date of purchase.
13.0 Internal Control:
The Office of the State Auditor has prescribed that in accordance with Revised
Code of Washington 43.09.260, the City of Yakima must undergo annual
financial examinations performed by State Examiners. As a part of these
examinations, internal controls over investments are carefully scrutinized. These
examinations may result in recommendations to change operating procedures to
improve internal control.
14.0 Performance Standards:
The City of Yakima investment portfolio will be designed to obtain a market
average rate of return during budgetary and economic cycles, taking into account
the City's investment risk constraints and cash flow needs.
15.0 Reporting:
The Director of Finance and Budget is charged with the responsibility of
including a report on investment activity and returns in accordance with
Municipal Code provisions.
16.0 Investment Policy Adoption:
The City of Yakima investment policy shall be adopted by resolution of the City
Council. The policy shall be reviewed on an annual basis by the Investment
Committee and any modifications made thereto must be approved by the City
Council.
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Rev. 6/28/91
City of Yakima
Investment Policy
Glossary
Agencies: Federal agency securities.
Asked: The price at which securities are offered.
Bankers' Acceptance (BA): A draft or bill or exchange accepted by a
bank or tru:st company. The accepting institution guarantees payment of
the bill, as well as the issuer.
Bid: The price offered for securities.
Broker: A broker brings buyers and sellers together for a commission.
paid by the initiator of the transaction or by both sides; he does not
position. In the money market, brokers are active in markets in which
banks buy and sell money and in interdealer markets.
Collateral: Securities, evidence of deposit or other property which a
borrower 'pledges to secure repayment of a loan. Also refers to
securities pledged by a bank to secure deposits of public monies.
Comprehensive Annual Financial Report (CAFR): The official
annual report for the City of Yakima. It includes five combined[
statements and basic financial statements for each individual fund and
account group prepared in conformity with GAAP. It also includes
supporting schedules necessary to demonstrate compliance with finance -
related legal and contractual provisions, extensive introductory
material, and a detailed Statistical Section.
Certificate of Deposit (CD): A time deposit with a specific maturity
evidenced by a certificate. Large -denomination CD's are typically
negotiable.
Coupon: (a) The annual rate of interest that a bond's issuer promises to
pay the bondholder on the bond's face value. (b) A certificate attached
to a bond evidencing interest due on a payment date.
Dealer: A dealer, as opposed to a broker, acts as a principal in all
transactions, buying and selling for his own account.
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Delivery versus Payment: There are two methods of delivery of
securities: delivery versus payment and delivery versus receipt (also
called free). Delivery versus payment is delivery of securities with an
exchange of money for the securities. Delivery versus receipt is
delivery of securities with an exchange of a signed receipt for the
securities.
Debenture: A bond secured only by the general credit of the issuer.
Discount: The difference between the cost price of a security and its
value at maturity when quoted at lower that face value. A security
selling below original offering price shortly after sale is also considered
to be at a discount.
Discount Securities: Non-interest bearing money market instruments
that are issued at a discount and redeemed at maturity for full face
value, e.g.,U.S. Treasury bills.
Diversification: Dividing investment funds among a variety of securities
offering independent returns.
Federal Credit Agencies: Agencies of the Federal government set up
to supply credit to various classes of institutions and individuals, e.g.,
S&L's, small business firms, students, farmers, farm cooperatives, and
exporters.
Federal Funds Rate: The rate of interest at which Fed funds are traded.
This rate is currently pegged by the Federal Reserve through open -
market operations.
Federal Open Market Committee (FOMC): Consists of seven
members of the Federal Reserve Board and five of the twelve Federal
Reserve Bank Presidents. The President of the New York Federal
Reserve Bank is a permanent member while the other Presidents serve
on a rotating basis. The Committee periodically meets to set Federal
Reserve guidelines regarding purchases and sales of Government
Securities in the open market as a means of influencing the volume of
bank credit and money.
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Federal Reserve System: The central bank of the United States created
by Congress and consisting of a seven member Board of Governors in
Washington, D.C., 12 Region Banks and about 5,700 commercial banks
that are members of the system.
Federal Deposit Insurance Corporation (FDIC): A federal agency
that insures bank deposits, currently up to $100,000 per deposit.
Federal Horne Loan Banks (FHLB): The institutions that regulate and
lend to savings and loan associations. The Federal Home Loan Banks
play a role analogous to that played by the Federal Reserve Banks vis-a-
vis member commercial banks.
Federal National Mortgage Association (FNMA): FNMA, like
GNMA was charted under the Federal National Mortgage Association
Act in 1938. FNMA is a federal corporation working under the
auspices of the Department of Housing & Urban Development, H.U.D..
It is the largest single provider of residential mortgage funds in the
United States. Fanie Mae, as the corporation is called, :is a private
stockholder -owned corporation. The corporation's purchases include a
variety of adjustable mortgages and second loans in addition to fixed-
rate mortgages. FNMA's securities are also highly liquid and are
widely accepted. FNMA assumes and guarantees that all security
holders will receive timely payment of principal and interest.
Government National Mortgage Association (GNMA or Ginnie
Mae): Securities guaranteed by GNMA and issued by mortgage
bankers, commercial banks, savings and loan associations and other
institutions. Security holder is protected by full faith and credit of the
U.S. Government. Ginnie Mae securities are backed by FHA, VA, or
FMHM mortgages. The term pass-throughs is often used to describe
Ginnie Maes.
Liquidity: A liquid asset is one that can be converted easily and rapidly
into cash without a substantial loss of value. In the money market, a
security is said to be liquid if the spread between bid and asked prices is
narrow and reasonable size can be done at those quotes.
Market Value: The price at which a security is trading and could
presumably be purchased or sold.
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Maturity: The date upon which the principal or stated value of an
investment becomes due and payable.
Money Market: The market in which short-term debt instruments (bills,
commercial paper, bankers' acceptances, etc..) are issued and traded.
Open Market Operations: Purchases and sales of government and
certain other securities in the open market by the New York Federal
Reserve Bank as directed by the FOMC in order to influence the volume
of money and credit in the economy. Purchased inject reserves into the
bank system and stimulate growth of money and credit; sales have the
opposite effect. Open Market operations are the Federal Reserve's most
important and most flexible monetary policy tool.
Portfolio: Collection of securities held by an investor.
Prudent Person Rule: An investment standard. In some states,
including Washington, the law requires that a fiduciary, such as a
trustee, may invest money only in a list of securities selected by the
state --the so-called legal list. In other states the trustee may invest in a
security if it is one which would be bought by a prudent person of
discretion and intelligence who is seeking a reasonable income and
preservation of capital.
Primary Dealer: A group of government securities dealers that submit
daily reports of market activity and positions and monthly financial
statements to the Federal Reserve Bank of New York and are subject to
its informal oversight. Primary dealers include Securities and
Exchange commission (SEC) registered securities broker-dealers,
banks, and a few unregulated firms.
Rate of Return: The yield obtainable on a security based on its purchase
price or its current market price. This may be the amortized yield to
maturity on a bond or the current income return.
Qualified Public Depositories: A financial institution which does not
claim exemption from the payment of any sales or compensating use of
ad valorem taxes under the laws of this state, which has segregated for
the benefit of the commission eligible collateral having a value of not
less than its maximum liability and which has been approved by the
Public Deposit Protection Commission to hold public deposits.
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Safekeeping: A service to customers rendered by banks; for a fee
whereby securities and valuables of all 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 & Exchange Commission: Agency created by Congress to
protect investors in securities transactions by administering securities
legislation.r
Treasury Bills: A non-interest bearing discount security issued by the
U.S. Treasury to finance the national Debt. Most bills are issued to
mature in three months, six months, or one year,.
Treasury Bond: Long-term. U.S. Treasury securities having initial
maturities of more that ten years.
Treasury Notes: Intermediate term coupon bearing U.S. Treasury
securities having initial maturities of from one to ten years.
Yield: The rate of annual income return on an investment, expressed as a
percentage. (a) INCOME YIELD is obtained by dividing the current
collar income by the current market price for the security. (b) NET
YIELD or YIELD TO MATURITY is the current income yield minus
any premium above par or plus any discount; from par in purchase
price, with the adjustment spread over the period from the date of
purchase to the date of maturity of the bond.
Uniform Net Capital Rule: Securities and Exchange Commission
requirement that member firms as well as nonmember broker-dealers in
securities maintain a maximum ratio of indebtedness to liquid capital of
15 to 1; also called net capital rule and net capital ratio. Indebtedness
covers all money owed to a firm, including margin loans and
commitments to purchase securities, one reason new public issues are
spread among members of underwriting syndicates. Liquid capital
includes cash and assets easily converted into cash.
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