Loading...
HomeMy WebLinkAbout02/16/2016 05C 4th Quarter 2015 Treasury Report v uu 01 00 BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. 5.C. For Meeting of: February 16, 2016 ITEM TITLE: 4th Quarter 2015 Treasury Report SUBMITTED BY: Cindy Epperson, Director of Finance and Budget Tara Lewis, Financial Services Manager SUMMARY EXPLANATION: The Treasury Report for the fourth quarter of 2015 is attached and consists of the following: 1. Memo: Summary and Narrative 2. Reports • Cash and Investment Summary • Investment Portfolio - Detailed Inventory by Agency • Investment Portfolio — Detail of Activity • Bonded Debt Schedule • Interfund Borrowing 3. A copy of the Investment Policy approved by R2011 -134 ITEM BUDGETED: NA STRATEGIC PRIORITY: Public Trust and Accountability APPROVED FOR SUBMITTAL: Interim City Manager STAFF RECOMMENDATION: Accept Report BOARD /COMMITTEE RECOMMENDATION: ATTACHMENTS: Description Upload Date Type D 41111 Quarter 2015 "Treasury IReport 2/9/2016 Omer Memo D 41111 Quarter Treasury Charts 2/9/2016 IBackup Materna° D Ilmestment Pd icy R201 1.1 i 2/9/2016 IBackup Materna° Memorandum To: The Honorable Mayor and Members of City Council From: Cindy Epperson, Director of Finance and Budget Tara Lewis, Financial Services Manager Date: February 16, 2016 Re: 2015 — 4 Quarter Treasury Report: Summary and Narrative The City's Investment Portfolio The City's investment activities are governed by State regulations and the City of Yakima's Investment Policy, as revised September 6, 2011. A copy of this Policy is attached. The City's Investment Portfolio can be divided into two general categories: 1) A Liquidity Portfolio of overnight investments. This category generally consists of funds invested in the Local Government Investment Pool (LGIP or "Pool ") managed by the State Treasurer, and currently, a savings account held by a local financial institution. 2) An Investment Portfolio of time deposits and various securities with maturities normally not to exceed five years except when conditions warrant, and then up to eight years. The City's Investment Portfolio has weathered the effects of the Recession fairly well. No losses on investments have been realized despite market volatility. It is the City's practice to hold investments to maturity if they are not called (refinanced) by the issuer. Interest rates have been extremely low over the past several years beginning when the Federal Reserve drastically lowered the federal funds rate over the course of 2008 from 4.25% to almost zero. An historic first for the Fed, the rate was held at nearly zero until December 16, 2015 when they raised it one quarter of one percent to 0.25 %. Despite the Fed's action, the economy has gained only tentative traction and the Recovery continues to flag, stall and then move cautiously forward again. The impact on the City's ability to earn income on reserves has been significantly detrimental. Prior to the Recession our Portfolio saw average investment returns of over $1 million. The 2015 budget was just half a million and even that is an increase from $0.3 and $0.4 million realized during the Recession. The City's Investment Portfolio was extremely active during 2008 and 2009 as bond issuers refinanced (refunded) their bonds to take advantage of falling rates. The City had as many as a dozen investments in federal agency bonds called within a single quarter during that timeframe. The only option was to invest those funds back at lower interest rates or to pay a premium in order to achieve a higher interest payment. Despite the bump up in rates by the Fed in December, economic instability, primarily in Asia caused investors to dump their stocks and turn back to the relative investment safety provided by bonds. Market uncertainty counteracted the Fed's effort to stimulate our tender economy and after a brief spike, market rates fell despite the Fed's well- intentioned move. The continued low interest rates enticed the Federal Home Loan Bank (FHLB) and the Federal National Mortgage Association (FNMA or Fannie Mae) this quarter to call several securities held by the City that were paying above market rates to their investors. One incentive for an issuer to call a bond is when they can refinance their debt at lower rates. These bond investments were paying the City from 0.85% to 1.30% with maturity dates of October, 2017 to July, 2018. Since market rates for those respective (remaining) debt terms are lower, the bonds were called early. The City can now reinvest those funds for longer terms to continue getting those rates or use them for current projects. Those funds were reinvested for 3 to 4 year terms at 0.84% to 1.46 %. The LGIP (Local Government Investment Pool) earnings rate spiked after the Fed's rate hike in December. After closing 2014 at 0.10 %, 2015 LGIP rates hovered around 0.13% - 0.14% all year until December which closed 2015 at 0.25 %. January 2016 saw a 4 year high of 0.39 %. That is still just $325 interest in a month on $1 million, but it is better than it has been for several years. The state pool definitely benefited from the brief rise in rates generated by the Fed's action in December. Unfortunately that is likely to fall back a bit during the market uncertainty we are seeing in early 2016. Longer term rates are generally higher than short term rates due to increased risk. Long term rates have risen more than short term, but the City does not generally purchase investments with maturities of more than 5 years due to risk and liquidity concerns. Even so, long term rates are still far below pre- recession levels. While this is good news for home buyers and agencies issuing new debt, the volatility adds extra risk to the debt marketplace. An issuer can get lucky on a downturn or find themselves with a higher rate than anticipated due to an upswing. The City's Bonded Debt Schedule The City's debt is typically structured with debt payments in the fourth quarter. The bulk of principal payments occur in November and December. Bond principal payments totaled just over $2.4 million during the quarter. Newly issued debt on the schedule includes part of the cost of relocation of the Communications Center financed by County- issued bonds in 2014. The City's portion, agreed to by Resolution 2014- 086 is listed as bonded debt on the schedule. The first principal payment was made in May, 2015. Further interfund financing will be necessary in 2016 to restore reserves used to fund the move. Other new debt in 2015 includes a taxable $5 million financing of the City's share of the SOZO Sports Complex and related land purchases. The City's share of the SOZO project is $4.1 million and additional land is expected to be purchased for another $900,000. This debt was issued as taxable (to the bond holder) so that the tricky rules of tax - exempt financing would not hinder the future management activities of the Sports Complex. The Fiscal Agent for the State of Washington changed in February 2015 from the Bank of New York Mellon to US Bank. The transition occurred smoothly and the City has received excellent service from the new agent. Interfund Borrowings and Investments REET continues to pay monthly payments to the Equipment Rental reserve fund for the Kiwanis Park interfund loan. 2 Refuse, Fund 471 has continued to be in a negative cash position off and on during much of 2014 and most of 2015. Despite the deteriorating cash position, the fund has managed to repay its short term loans in time to avoid triggering interest as per the City's policy. (The Interfund Loan policy states that a fund in a negative position for more than one calendar quarter will be subject to interest to be repaid to the fund making the loan.) The recently approved rate increase is anticipated to improve this situation during the next year. It will take some time for the fund to become stable again, but this first step combined with continued prudent management will alleviate the past pressure of keeping the fund operating within legal limits. Public Safety Communications, Fund 151 was in a negative cash position at year end as a result of their move to the new Communications Center. An interfund loan of up to $720,000 has been budgeted in 2015, but not yet drawn upon. Once the project has been finalized, a resolution enacting a longer term interfund loan will be presented to Council for consideration. 3 City of Yakima Cash and Investment Summary December 31, 2015 Percent of Average Average Description Qty Par Book Portfolio Yield Q3 '15 Yield Q4 '15 Cash Balances on Hand and in Banks NA $ 12,234,879 NA NA NA Local Government Investment Pool (LGIP) 1 $ 8,376,102 8,376,102 15% 0.16% 0.20% Federal Agency Coupon and Discount 19 45,351,000 43,893,240 79% 1.30% 1.31% Other Investments 2 2,743,125 3,030,252 5% 1.06% 1.04% Total Invested 22 $ 56,470,227 $ 55,299,594 100% 1.29% 1.13% Book Balance (180,261) Interest Maturities, Calls Book Balance Summary of Investment Activity 10/1/2015 & Deposits Reinvested & Withdrawals 12/31/2015 Local Government Investment Pool (LGIP) $ 1,543,582 $ 6,830,567 $ 1,953 $ - $ 8,376,102 Federal Agency Coupon and Discount 44,324,110 7,548,026 - 7,978,896 43,893,240 Other Investments 3,025,683 4,569 - 3,030,252 Totals $ 48,893,374 $ 14,378,594 $ 6,522 $ 7,978,896 $ 55,299,594 Page 1 of 5 Yakima.6641.1.TSO_Q4_2015.xlsx City of Yakima Investment Portfolio - Inventory by Agency December 31, 2015 Expected Call Most Agency Inv# Face Value Price Coupon Step Yield Maturity Settle Next Call Type Likely Call Federal Farm Credit Bank FFCB 1462 2,000,000 2,000,000 1.290 1.290 9/25/18 9/25/12 4/1/16 Amer 9/25/16 FFCB 1481 1,000,000 998,844 0.690 0.690 5/1/17 5/30/14 4/1/16 Amer 5/1/17 FFCB 1487 2,500,000 2,489,153 0.840 0.840 1/22/18 12/18/15 1/22/18 Amer 1/22/18 FFCB Totals and Avera€ 5,500,000 5,487,997 0.977 Federal Home Loan Mortgage Corporation FHLMC 1480 1,660,000 1,654,394 1.200 1.368 6/12/18 05/27/14 3/12/16 Qrty 6/12/16 FHLMC Totals and Ave 1,660,000 1,654,394 1.368 Federal National Management Association FNMA 1460 5,000,000 4,737,030 1.100 1.100 6/1/17 6/28/12 6/1/17 NC 6/1/17 FNMA 1469 3,000,000 2,991,678 1.000 1.063 12/20/18 5/20/13 2/20/16 Qrty 12/20/17 FNMA 1476 2,000,000 1,978,940 1.640 1.981 9/26/19 3/19/14 3/26/16 Qrty 3/26/16 FNMA 1477 2,400,000 2,394,468 1.200 1.479 2/22/18 3/19/14 2/22/16 Qrty 2/22/16 FNMA 1479 2,000,000 1,992,388 1.625 1.846 8/28/19 5/27/14 2/28/16 Qrty 2/28/16 FNMA 1484 2,000,000 1,997,730 1.625 1.721 8/28/19 12/19/14 2/28/16 Qrty 2/28/16 FNMA Totals and Aver, 16,400,000 16,092,234 1.427 Financing Corporation FICO 1454 722,000 678,045 1.200 1.200 5/2/17 2/2/12 5/2/17 NC 5/2/17 FICO 1455 2,356,000 2,199,953 1.348 1.348 4/6/17 2/29/12 4/6/17 NC 4/6/17 FICO 1457 2,146,000 1,995,422 1.340 1.340 10/6/17 4/25/12 10/6/17 NC 10/6/17 FICO 1464 3,630,000 3,435,105 1.049 1.049 2/8/18 10/31/12 2/8/18 NC 2/8/18 FICO 1478 1,366,000 1,297,155 1.320 1.320 5/2/18 5/27/14 5/2/18 NC 5/2/18 FICO 1482 2,100,000 1,998,482 1.373 1.373 8/3/18 12/19/14 8/3/18 NC 8/3/18 FICO 1483 4,160,000 3,995,580 1.290 1.290 2/8/18 12/19/14 2/8/18 NC 2/8/18 FICO 1485 2,119,000 1,999,702 1.460 1.460 9/26/19 10/2/15 9/26/19 NC 9/26/19 FICO 1486 3,192,000 3,059,171 1.410 1.410 12/27/18 12/17/15 12/27/18 NC 12/27/18 FICO Totals and Avera€ 21,791,000 20,658,615 1.302 Other Investments LGIP LGIP 8,376,102 8,376,102 0.204 0.204 NA NA NA NC NA YFED 1473 175,746 175,746 0.400 0.400 NA 7/1/13 NA NC NA CNTY 1471 2,295,000 2,582,127 5.000 1.000 9/1/16 6/24/13 9/1/16 NC 9/1/16 YF -CD 1447 272,379 272,379 1.600 1.800 8/31/18 2/28/15 8/31/18 NC 8/31/18 Other Totals and Avera; 11,119,227 11,406,354 0.425 (Grand Totals $ 56,470,227 $ 55,299,594 1.127 Average Expected Yield II Page 2 of 5 Yakima.6641.1.TSO_Q4_2015.xlsx City of Yakima Investment Portfolio - Detail of Activity Quarter Ending December 31, 2015 Beginning Additions and Calls and Ending Date of Agency Inv# Face Value Purchases Maturities Face Value Activity Federal Farm Credit Bureau FFCB 1462 2,000,000 2,000,000 FFCB 1481 1,000,000 1,000,000 FFCB 1487 - 2,500,000 2,500,000 12/18/15 FFCB Totals 3,000,000 - - 5,500,000 Federal Home Loan Bank FHLB 1466 2,000,000 (2,000,000) - 10/26/15 FHLB 1467 2,000,000 (180,261) 1,819,739 10/30/15 FHLB Totals 4,000,000 - (2,180,261) 1,819,739 Federal Home Loan Mortgage Corporation FHLMC 1480 1,660,000 1,660,000 FHLMC Totals 1,660,000 - - 1,660,000 Federal National Management Association FNMA 1460 5,000,000 5,000,000 FNMA 1468 2,000,000 (2,000,000) - 10/19/15 FNMA 1469 3,000,000 3,000,000 FNMA 1475 2,000,000 (2,000,000) - 10/30/15 FNMA 1476 2,000,000 2,000,000 FNMA 1477 2,400,000 2,400,000 FNMA 1479 2,000,000 2,000,000 FNMA 1484 2,000,000 2,000,000 FNMA Totals 20,400,000 - (4,000,000) 16,400,000 Financing Corporation FICO 1454 722,000 722,000 FICO 1455 2,356,000 2,356,000 FICO 1457 2,146,000 2,146,000 FICO 1464 3,630,000 3,630,000 FICO 1478 1,366,000 1,366,000 FICO 1482 2,100,000 2,100,000 FICO 1483 4,160,000 4,160,000 FICO 1485 - 2,119,000 2,119,000 FICO 1486 - 3,192,000 3,192,000 FICO Totals 16,480,000 5,311,000 - 21,791,000 Other Investments LGIP (State Pool) LGIP 1,543,582 6,832,520 - 8,376,102 Yakima Federal Savings 1473 175,570 175 175,746 Cowlitz County Bonds 1471 2,295,000 2,295,000 Yakima Federal CD 1447 267,985 4,394 272,379 Other Investment Totals 4,282,137 6,837,090 - 11,119,227 'Grand Totals $ 49,822,137 $ 12,148,090 $ (6,180,261) $ 58,289,966 II Page 3 of 5 Yakima.6641.1.TSO_Q4_2015.xlsx City of Yakima Bonded Debt Schedule - by Project Group Quarter Ending December 31, 2015 II Date Issued Maturity Description Note Amount of Issue Current Balance Payments General Obligation Bonds 9/7/2004 11/1/2019 PFD Convention Center II Refunded 1996 issue $ 4,175,000 $ 1,475,000 $ 355,000 5/8/2007 5/1/2026 PFD Convention Center III Partial refunding of 2002 issue 4,910,000 4,045,000 - 8/28/2009 12/1/2018 PFD Capitol Theatre Tax exempt portion 2,055,000 710,000 215,000 8/28/2009 12/1/2024 PFD Capitol Theatre Build America Bonds (Taxable) 1,755,000 1,755,000 - 8/28/2009 12/1/2032 PFD Capitol Theatre Build America Bonds (Taxable) 3,225,000 3,225,000 - 6/17/2003 12/1/2023 Sundome Expansion Deferred Interest - Maturity $2.5M 1,430,528 555,288 92,376 8/28/2008 12/1/2021 Fire Apparatus Ladder Truck 760,000 390,000 55,000 5/8/2007 5/1/2022 Fire Station Remodel Facility 815,000 445,000 - 12/1/2005 12/1/2015 Parks and Recreation Parks improvements 755,000 - 90,000 8/28/2008 12/1/2019 Infrastructure Projects Ped crossing, street, infrastructure 2,190,000 875,000 200,000 5/8/2007 5/1/2022 Downtown Futures Renovate downtown improvements 1,490,000 810,000 - 5/8/2007 5/1/2017 River Road River Road improvements 1,765,000 420,000 - 6/20/2013 6/20/2028 Street Project Demonstration Various City street improvements 5,000,000 4,253,078 76,338 6/9/2014 6/1/2024 Street Resurfacing Project Streets improvements 13,140,000 12,255,000 - 6/17/2014 12/1/2034 Comm Center Move City portion of County GO Bonds 1,716,500 1,665,000 - 12/22/2015 12/1/2035 Soccer Complex City portion of SOZO Sports Complex 5,000,000 5,000,000 - Subtotal General Obligation Bonds $ 50,182,028 $ 37,878,366 $ 1,083,714 Certificate of Participation - State of Washington 8/22/2013 6/1/2019 Police Vehicles 74 Take -home vehicles $ 4,173,190 $ 2,877,771 $ - 8/22/2013 6/1/2019 Fire Air Packs 70 Air Packs 459,602 316,935 - 6/1/2011 12/1/2020 Fire Apparatus Two trucks purchased 576,847 311,443 55,289 3/19/2013 7/1/2023 Fire Apparatus One truck 310,414 258,748 - Subtotal Certificates of Participation $ 5,520,054 $ 3,764,897 $ 55,289 Revenue Bonds 5/31/2012 11/1/2023 Wastewater Refunded 2003 $10,155,000 issue $ 9,400,000 $ 7,900,000 $ 865,000 6/5/2008 11/1/2027 Wastewater 5,440,000 3,855,000 240,000 6/5/2008 11/1/2018 Water Refunded 1998 issue 1,883,951 635,000 200,000 9/4/2004 9/1/2034 Irrigation 5,215,000 3,960,000 - Subtotal Revenue Bonds $ 21,938,951 $ 16,350,000 $ 1,305,000 IIGrand Total $ 77,641,033 $ 57,993,263 $ 2,444,004 Page 4 of 5 Yakima.6641.1.TSO_Q4_2015.xlsx City of Yakima Interfund Borrowing Quarter Ending December 31, 2015 Original Beginning Ending Description Balance Balance Issued Retired Balance Investment Held by: Local Improvement District Bonds /Notes $ 1,432,509 $ 281,902 $ 13,693 $ 268,209 Equipment Rental REET 1 - Upper Kiwanis Park 600,000 320,155 25,907 294,248 Equipment Rental Ending Cash Funds in Negative Cash Position at Quarter End Balance Cash Extended by: Fund 471 - Refuse (180,261) General Fund, Wastewater The Refuse Fund has continued to be in a negative cash position off and on during the much of 2014 and 2015. The cash situation has finally started to improve over the last several months. The Interfund Loan policy states that a fund in a negative position for more than one calendar quarter will be subject to interest to be repaid to the fund making the loan. To date the fund has managed to repay all loans within each calendar quarter and has not triggered the interest requirement. The most recent loan was repaid on January 21, 2016. Fund 151 - Public Safety Communications (91,907) General Fund The Public Safety Communications Fund has a negative cash position due to their move to the new Communications Center. It was budgeted to use an interfund loan up to $720,000 to cover excess costs for new equipment and furniture. The Fund has only needed to borrow $100,000 thus far under the Interfund Loan policy as of 12/31/2015. Once the project is finalized, a resolution to approve a longer term interfund borrowing will be presented to restore cash and reserve balances to appropriate operating levels. Page 5 of 5 Yakima.6641.1.TSO_Q4_2015.xlsx RESOLUTION NO. R-2011-134 A RESOLUTION revising the City of Yakima investment policy for public funds. WHEREAS, the City Council resolution number R-2009-50 (adopted March 24 2009) has previously served as the City's adopted investment policy for public funds; and WHEREAS, the City Council wishes to adopt a revised version of said policy in order to enhance the rate of return on the investment portfolio without compromising security or liquidity, and WHEREAS, the City of Yakima holds and invests significant amounts of public money each year through its Department of Finance and Budget; and WHEREAS, the City Council deems it to be in the best interest of the public to adopt a revised formal, internal investment policy for public funds for the purpose of providing a secure and orderly method of investment of such funds; now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAKIMA: The City Council hereby adopts the attached and incorporated City of Yakima investment policy. ADOPTED BY THE CITY COUNCIL this 6th day of September, 2011. COP - y Micah Cawley, ayor 11 • 11 0 ATTEST: _ SE A 1 'AL 'of 1 Otefi iv Clerk City of Yakima Administrative Policies Policy Number: FB- Department: Finance Authorized by: City Council Effective Date: 09/06/11 Supersedes: Policy Dated 03/24/09 Policy: Investment Policy Purpose To set forth a policy with regard to the investment of excess cash for the City of Yakima. Policy It is the policy at the City of Yakima to invest public funds in a manner which will provide the highest investment return consistent with maximum security; will meet the daily cash flow demands of the Treasury; and will conform to all State of Washington statutes governing the investment of public funds. Scope and Applicability The investment policy applies to all financial assets of the City of Yakima. These are 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 as the probable income to be derived. The Standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in 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. 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 of Authority Management responsibility for the investment program is hereby delegated to the Director of Finance and Technology, as specified in Sec. 1.18.080(2)(b) of that Municipal Code, who shall establish written procedures for the operation of the investment program consistent with this investment policy. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Director of Finance and Technology. The Director shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. Ethics and Conflicts of Interest Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the City Manager any material financial interests in the financial institutions to conduct 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. Consistent with general City Policy, officers and employees involved in the investment process may not accept any valuable gift, favor or gratuity which is made on the basis of his or her position in the City's service, Authorized Financial Dealers and Institutions The Director of Finance and Technology or his/her designee will maintain a list of broker/dealers, which are authorized to provide investment services. To be eligible to do business with Yakima, a broker/dealer must maintain an office within the State of Washington. Eligible broker/dealers may be Primary dealers or Regional Dealers. All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the Director of Finance and Technology, or his/her designee, with the following: audited financial statements, proof of state registration and certification of having read the City's investment policy. An annual review of the financial condition of qualified bidders will be conducted by the Director of Finance and Technology, or his/her designee. A current financial statement is required to be on file for each financial institution and broker/dealer with whom the City trades. Authorized investments Eligible investments are those securities and deposits authorized by statute RCW 35.39, 39.59, and 43.84.080, but are limited to the following: Non-Negotiable Certificates of deposit with financial institutions qualified by the Washington Public Deposit Protection Commission. > Certificates, Notes, or Bonds of the United States, or other obligations of the United States or its agencies, or any corporation wholly owned by the government of the United States (such as the Government National Mortgage Association). > Obligations of government - sponsored entities which are eligible as collateral for advances to member banks as determined by the Board of Governors of the Federal Reserve System. These include but are not limited to Federal Home Loan Bank notes and bonds, Federal Farm Credit Bank consolidated notes and bonds, Federal National Mortgage Association notes, debentures, and guaranteed certificates of participation.) > Bankers' acceptances purchased on the secondary market where the issuing bank's credit rating at the time of investment is not less than one of the three highest ratings as rated by a nationally recognized rating agency and a 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. > State of Washington Local Government Investment Pool (LGIP). > Commercial Paper purchased on the secondary market with maturities not exceeding 270 days, and with a short term credit rating at time of investment not less than A-1 by Standard & Poor's Rating Services and/or P-1 by Moody's Investors Service and/or F-1 by Fitch Rating Agency. Furthermore, the long-term credit ratings of the issuer at the time of investment shall not be less than one of the three highest ratings as rated by a nationally recognized rating agency. > Obligations of the State of Washington or local governments of the state of Washington which at the time of investment have one of the three highest credit ratings of a nationally recognized rating agency. > General obligation bonds of a state other than the state of Washington and general obligation bonds of a local governmeht of a state other than the state of Washington, which bonds have at the time of investment one of the three highest credit ratings of a nationally recognized rating agency Note: Repurchase and Reverse Repurchase Agreements are not eligible investments for the City. The Director Of Finance and Technology or his/her designee will maintain a list of specific Investment Instruments, of the type described above, that will constitute the only instruments authorized for the investment of funds of the City of Yakima. Investment Restrictions To provide for the safety and liquidity of City funds, the investment portfolio will be subject to the following restrictions: • The average maturity of the portfolio will not exceed 2.5 years. (For the purposes of this calculation, the maturity date of callable securities will be either the most likely date of call, as determined by the Finance Director or her designee, or the final maturity date, as appropriate based on market conditions.) • The expected and final maturity of any security will ordinarily not exceed 5-years; however, up to 10 % of the portfolio may be invested in securities with maturities of up to eight (8) years when rates and market conditions so warrant. )> Investments in securities shall not exceed the following percentages of the portfolio: Bankers Acceptances 15% Commercial Paper 15% Certificates of deposit 10% State/Municipal Securities 15% Treasury Securities 100% Government Sponsored Agency Securities 100% Washington State's Local Government Investment Pool 100% Collateral ization State law requires that all deposits of public funds over and above federally insured amounts (including Certificates Of Deposit) be collateralized in accordance with regulations of the Washington Public Deposit Protection Commission (RCW 39.58). All collateral is held by the Washington Public Deposit Protection Commission. The amount of collateral varies for different institutions, but is never to be less than 10% of public funds deposited in the institution. Safekeeping and Custody Security transactions entered into by the City of Yakima shall be conducted on a delivery- versus-payment (DVP) basis. Securities will be held by third party custodian designated by the Director of Finance and Technology, or his/her designee, and evidenced by safekeeping reports which will be reconciled monthly to the portfolio. Internal Control The Office of the State Auditor has described that in accordance with Revised Code of Washington 43.09.260, the City of Yakima must undergo annual financial examinations performed by State Examiners. As a part of these examinations, internal controls over investments are carefully scrutinized. These examinations may result in recommendations to change operating procedures to improve internal control 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 a quarterly report on investment activity and returns. Investment Policy Adoption The City of Yakima investment policy shall be adopted by resolution of the City Council. The policy shall be reviewed on a regular basis by the Director of Finance and Technology or his/her designee and any significant modifications made thereto must be approved by the City Council. Definitions Agencies — (See Government Sponsored Entities) Asked The price at which 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. 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 official annual report for the City of Yakima. It includes entity-wide financial statements as well as financial statements for major funds and fund types, notes to the financial statements and required schedules. Certificates of Deposit (CD) — A time deposit with specific maturity and interest rate evidenced by a certificate. Commercial Paper— Unsecured short-term corporate obligations with maturities less than 270 days. Coupon — (a) The annual rate of interest that a bond's issuer promises to pay the bondholder as a percentage of the bond's face value. Dealer— A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for their 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 of securities with an exchange of a signed receipt for the securities.) Debenture — A bond secured only by the general credit of the issuer. Discount — The difference between the cost price of a security and its value at maturity when quoted at lower than its face value. A security selling below original offering price shortly after sale is also considered to be at a discount, Discount Securities — Non-interest bearing money market instruments that are issued at a discount and redeemed at maturity for full face value, i.e., U.S. Treasury and Agency bills. Diversification — Dividing investment funds among a variety of securities offering independent returns and credit quality. Federal Credit Agencies — Agencies of the Federal government and guaranteed by the full faith and credit of the US Government set up to supply credit to various classes of institutions and individuals, e.g., Ginnie Mae, Sallie Mae, Tennessee Valley Authority. Federal Funds Rate — The target rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Open Market Committee. Federal Open Market Committee (FOMC) — Consists of seven members of the Federal Reserve Board and five of the 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. Federal Reserve System — The central bank of the United States created by Congress and consisting of a seven member Board of Governors in Washington, DC. There are 12 Region Banks and about 5700 commercial banks that are members of the system. Federal Deposit Insurance Corporation (FDIC) — A Federal Agency that insures bank deposits, currently capped at $250,000 dollars per deposit. Government Sponsored Entities — ("Agencies") Entities chartered by Congress, such as: Fannie Mae (FNMA) Freddie Mac (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 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 — 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.