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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. STDFXI M 6128191 1 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 STDFXI M 6/28191 -- 2 -- 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 STDFXI M 6128191 -- 3 -- 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. STDFXI M 6/28191 -- 4 -- 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. STDFXI M 6128191 5 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. STDFXI N 6128191 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. STDFXI N 6!28191 2 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. STDFXP N 6128/91 3 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. SIDFXI N 6128191 -- 4 -- 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. S¶DFXI N 6/28/91 5