HomeMy WebLinkAbout2016-05-02-Resolutions 16-158_Financial Policy - InvestmentTHE CITY OF WAUKEE,IOWA
RESOLUTION 16-158
APPROVING CITY OF WAUKKE FINANCIAL POLICY —INVESTMENT POLICY,
OF THE STANDARD ADMINISTRATIVE POLICY AND PROCEDURES MANUAL
IN THE NAME AND BY THE AUTHORITY OF THE CITY OF WA UKEE,108'A
WHEREAS,the City of Waukee,Iowa is a duly organized municipality within Dallas
County;AND,
WHEREAS,the Waukee City Council shall approve operating policies and procedures;
AND,
WHEREAS,City staff has presented the City Council with an Investment Policy,attached
hereto as Exhibit A,and recommends approval.
NOW THEREFORE BE IT RESOLVED by the City of Waukee City Council in session
this 2"day of May,2016,that the City of Waukee Financial Policy —Investment Policy,of
the Standard Administrative Policy and Procedures Manual is hereby approv d.
illiam F.Peard,Mayor
Attest:
Rebecca D.Schuett,City Clerk
ROLL CALL VOTE
Shane Blanchard
Brian Harrison
Shelly Hughes
Larry R.Lyon
Rick Peterson
AYK
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NAY ABSENT ABSTAIN
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Standard Administrative Policy
R.Procedures Manual
Title:FINANCIAL POLICY
Section:INVESTMENT POLICY
Date of Version:April 11,2016
Resolution No.:¹16-???
SECTION 1 —Policy
It is the policy of the City of Waukee to invest public funds in a manner that will provide the
highest investment return while maintaining maximum security and meeting cash flow needs.
This investment policy is intended to comply with Iowa Code Chapters 12B and 12C,which
govern the investment of public funds.The investment of bond funds or sinking funds shall
comply not only with this investment policy but also be consistent with any applicable bond
resolution.
The purpose of this investment policy is to set investment objectives,establish guidelines,and
define responsibilities for the investment of funds.Each investment made pursuant to this
policy must be authorized and invested in accordance with state law and this investment
policy.
SECTION 2 —Scope
This investment policy applies to all funds and investment transactions of the City of Waukee.
These funds are accounted for in the City's annual audit report,and include:
a.General Fund
b.Special Revenue Funds
c.Debt Service Fund
d.Capital Project Funds
e.Enterprise Funds
f.Trust and Agency Funds
g.Internal Service Funds
h.All new funds created by the City,unless specifically exempted
Except for cash in certain restricted and special funds,the City may consolidate cash balances
from funds to maximize investment earnings and to increase efficiencies with regard to
investment pricing,safekeeping and administration.Investment income will be allocated
annually to the various funds based on their respective participation and in accordance with
generally accepted accounting principles.
SECTION 3 —Delegation of Authority
In accordance with Section 12B.10 (1)of the Code of iowa,the responsibility for conducting
investment transactions resides with the Finance Director of the City of Waukee.For purposes
of this Investment Policy the Finance Director is designated as the Finance Director.Only the
Finance Director and those authorized by resolution may invest public funds.A copy of any
empowering resolution shall be attached to this Investment Policy.
The Finance Director shall be responsible for all transactions undertaken and shall establish a
system of controls to regulate the activities of subordinate officials and their procedures in the
absence of the Finance Director.The designee shall act in accordance with the established
policies and internal controls set forth in this Investment Policy.
All contracts or agreements with outside persons investing public funds,advising on the
investment of public funds,directing the deposit or investment of public funds or acting in a
fiduciary capacity for the City shall require the outside person to notify in writing the Finance
Director of the City within thirty (30)days of receipt of all communication from the Auditor of
the outside person or any regulatory authority of the existence of a material weakness in the
internal control structure of the outside person or regulatory orders or sanctions regarding the
type of services being provided to the City by the outside person.
The records of investment transactions made by or on behalf of the City are public records and
are the property of the City whether in the custody of the City or in the custody of a fiduciary or
other third party.
The Finance Director shall establish a written system of internal controls and investment
practices.The controls shall be designed to prevent the loss of public funds,to document those
officers and employees of the City responsible for elements of the investment process and to
address the capability of investment management.The controls shall provide for receipt and
review of the audited financial statement and related report of internal control structure of all
outside persons performing any of the following for the City.
1.Investment of public funds
2.Advising on the investment of public funds
3.Directing the deposit or investment of public funds
4.Acting in a fiduciary capacity for the City
The Finance Director of the City shall be bonded in the amount of $500,000.The amount of this
bond shall be reviewed annually to determine its appropriateness and will be amended by the
City Council if deemed necessary.
SECTION 4 —Objectives of Investment Policy
The primary
assets of the
objectives in order of priority,of all investment activities involving the financial
City of yyaukee shall be the following:
1.SAFETY —Safety and preservation of principal in the overall portfolio is the
foremost investment objective.The objective will be to mitigate credit risk and
interest rate risk by following the guidelines listed below.
a.Credit risk is the risk to an investor that an issuer will default in the payment
of interest and/or principal on a security.The City will mitigate credit risk by:
Limiting investment purchases to those in Section 6 of this policy.
Pre-qualifying the financial institutions,brokers,dealers,and
advisors with whom the City will do business.
Diversifying the investment portfolio by agency and issuer so that
potential losses on individual securities can be minimized.
b.Interest rate risk is the risk that the market value of securities in the portfolio
will fall due to the changes in market interest rates.The City will mitigate
interest rate risk by:
Structuring the investment portfolio so that securities mature to
meet cash requirements for operations,thereby avoiding the
need to sell securities in the open market prior to maturity.
Purchasing investments with the intent to hold until maturity.
Investing operating funds primarily in shorter-term securities,
money market mutual funds,or similar investment pools and
limiting the average maturity of the portfolio.
2.LIQUIDITY —Maintaining the necessary liquidity to match expected liabilities is
the second investment objective.This is accomplished by structuring the
portfolio so that securities mature concurrent with cash needs to meet
anticipated demands (static liquidity).Furthermore,since all possible cash
demands cannot be anticipated,the portfolio should consist largely of securities
with active secondary or resale markets (dynamic liquidity).Alternatively,a
portion of the portfolio may be placed in money market mutual funds or local
government investment pools which offer same-day liquidity for short-term
funds.
3.YIELD —Obtaining a reasonable rate of return is the third investment objective.
The portfolio shall be designed with the objective of attaining a reasonable rate
of return through budgetary and economic cycles.The return on investments is
to be accorded secondary importance compared to the safety and liquidity
objectives described above.The core of investments will focus on relatively low
risk securities with an expectation of earning a reasonable return relative to the
risk being assumed.Securities shall not be sold prior to maturity,with the
following exceptions:
a.A security with declining value may be sold early to minimize loss of
principal.
b.A security may be exchanged to improve the quality,yield,or target duration
in the portfolio
c.A security may be sold to satisfy cash flow demands.
SECTION 5 —Prudence
The Finance Director of the City of Waukee,when investing or depositing public funds,shall
exercise the care,skill,prudence and diligence under the circumstances then prevailing that a
person acting in a like capacity and familiar with such matters would use to attain the Section
4 investment objectives.This standard requires that when making investment decisions,the
Finance Director shall consider the role that the investment or deposit plays within the
portfolio of the assets of the City and the investment objectives stated in Section 4.
When investing assets of the City for a period longer than six (6)months or in an amount
greater than 5300,000 per investment,the Finance Director shall request competitive
investment proposals for comparable credit and term investments from a minimum of three
(3)investment providers.
SECTION 6 —Authorized and Suitable Investments
The City of Waukee is empowered by Section 12B.10(S),Code of iowa,to invest in the
following types of securities:
1.U.S.Treasury obligations which carry the full faith and credit guarantee of the
United States Government and are considered to be the most secure
instruments available.
2.U.S.Government agency and instrumentality obligations that have a liquid
market with a readily determinable market value.
3.Certificates of deposit and other evidences of deposit at federally insured
depository institutions approved pursuant to Chapter 12C,Code of iowa.
4.Money market funds registered under the Federal Investment Company Act of
1940,whose shares are registered under the Federal Securities Act of 1933,and
having a rating by Standard 5 Poor of AAAm-G,AAA-m,or AA-m,and if rated by
Moody's,rated Aaa,Aa1,or Aa2.
5.Savings accounts,deposit accounts or money market deposit accounts which are
insured by the FDIC and protected from losses by the State Sinking Fund.
a.Section 12C.25 of the Code of iowa created the state sinking fund to
protect public funds on deposit in Iowa banks,savings associations,and
credit unions.This is in addition to iowa Code,Chapter 12C.22(2)which
requires Iowa banks to pledge collateral for public deposits equal to or in
excess of the total amount by which the public funds deposits in the bank
exceeds the total capital of the bank.
b.Section 12C.23A of the Code of Iowa describes the procedures that the
State Treasurer of Iowa would implement if a bank were closed.
6.Repurchase agreements,provided that underlying collateral consists of
obligations of the United States Government,its agencies and instrumentalities
and the City takes delivery of the collateral either directly or through an
authorized custodian.
7.An open-end management investment company registered with the Securities gt
Exchange Commission under Federal Investment Company Act of 1940,15 U.S.C.
Section 80(a)and operated in accordance with 17 C.F.R.Section 270.2a-7,whose
portfolio investments are limited to those instruments authorized in Section 5 of
this investment policy.
The Finance Director is not required to invest in all of the investment options authorized in this
policy.Selection will be based on cash flow characteristics,exposure to market risk,rate of
return,the technical ability of the staff responsible for administering the program,and the
availability of time and tools for staff to engage in conservative but effective management.
Each financial institution shall be properly declared as a depository by the governing body of
the City.Deposits in any financial institution shall not exceed the depository resolution
maximum amount,approved by the City Council of the City of Waukee.
SECTION 7 —Prohibited Investments and Investment Practices
Prohibited investments for the City of Waukee,according to the Code of Iowa,Section
128.10(5)include reverse repurchase agreements,futures,and options contracts.
City prohibited investment practices include:
Trading of securities strictly for speculation of the realization of short-term
trading gains.
2.Pursuant to a contract providing for the compensation of an agent of fiduciary
based upon the performance of the invested assets.
3.If a fiduciary or other third party with custody of public investment transaction
records of the City fails to produce records within a reasonable time requested
by the City,the City shall make no new investment with or through the
fiduciary or third party,and shall not renew maturing investments with or
through the fiduciary or third party.
SECTION 8 —Investment Maturity Limitations
Investments of the City of Waukee must have maturities that are consistent with the needs and
use of the City.To the extent possible the City will attempt to match its investments with
anticipated cash flow requirements.
1.Operating funds are those funds that can be reasonably expended during a
current budget year or within fifteen (1S)months of receipt.These funds may
only be invested in instruments that mature within three hundred ninety-seven
(397)days or less and are authorized by this investment policy.Operating funds
must be identified and distinguished from all other funds available for
investment.(Section 12B.10A,Code of Iowa).
2.Non-operating funds are those funds that are not required for operations,such
as bond proceeds or reserves.These funds may be invested for longer than
three hundred ninety-seven (397)days (Section 12B.10A(3),Code of iowa).
These maturities shall coincide as nearly as possible with the expected use of the
funds.The City of Waukee will keep these investments to a duration not to
exceed seven (7)years.
SECTION 9 —Diversification
The purpose of diversification is to reduce overall portfolio risks while attaining benchmark
average rates of return.Where possible,it is the policy of the City of Waukee to diversify its
investment portfolio.Assets shall be diversified to eliminate the risk of loss resulting from
over concentration of assets in a specific maturity,a specific issuer,or a specific class of
securities.In establishing specific diversification strategies,the following general policies and
constraints shall apply:
1.Portfolio maturities shall be staggered in a way that avoids undue
concentration of assets in specific maturity sector.Maturities shall be selected
which provide stability of income and reasonable liquidity.
2.Liquidity practices to ensure that the next disbursement date and payroll date
are covered through maturing investments,marketable U.S.Treasury bill or
cash on hand shall be used at all times.
3.Risks of market price volatility shall be controlled through maturity
diversification so that aggregate prices losses on instruments with maturities
approaching one (1)year shall not be greater than coupon interest and
investment income received from the balance of the portfolio.
SECTION 10-Safekee in and Custod
All invested assets of the City of Waukee involving the use of public funds custodial
agreement,as defined in Section 128.10C,Code of iowa.All custodial agreements shall be in
writing and shall contain a provision that all custodial services be provided in accordance with
the laws of the State of iowa.
All trades of marketable securities,including collateral for repurchase agreements,will be
executed by delivery-versus-payment (DVP)to ensure that securities are deposited in an
eligible financial institution prior to the release of funds.A third party custodian will hold
securities,with evidence being safekeeping receipts.The Finance Director is responsible for
confirmation of transactions for investments and wire transfers.All investment officials shall
be bonded to protect loss of public funds against possible embezzlement and/or malfeasance.
SECTION 11 —Internal Control
The Finance Director is responsible for establishing and maintaining an internal control
structure to ensure that the assets of the City of Waukee are protected from loss,theft,or
misuse.An annual and independent review by an external auditor will be conducted to assure
compliance with policies and procedures.
SECTION 12-Ethics and Conflict of Interest
The Finance Director and all officers and employees of the City of Waukee 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.
SECTION 13 —Re ortin
The Finance Director shall prepare monthly bank reconciliation and investment reports that
summarize City of Waukee investments for the fiscal year.The investment report shall set out
the current portfolio in terms of maturity,rates of return and other features and summarize all
investment transactions that have occurred during the reporting period and compare the
investment results with the budgetary expectations.
SECTION 14-Investment Polic Ado tion and Deliver
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any modifications made thereto must be approved by the City Council.
This policy shall be delivered to all of the following:
1.The City Council and City of Waukee investment staff
2.All depository institutions or fiduciaries for public funds of the City
3.External auditors for the City
4.Brokers/dealers who conduct trades with the City
5.Financial advisors of the City
GLOSSARY
BENCHMARK —A comparative base for measuring the performance of risk tolerance of the
investment portfolio.A benchmark should represent a close correlation to the level of risk and
the average duration of the portfolio's investment.
BROKER —A broker brings buyers and sellers together for a commission.
CERTIFICATE OF DEPOSIT (CD)—A time deposit with a specific maturity evidenced by a
certificate.Large-denomination CDs are typically negotiable.
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.
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.
CREDIT RISK —The risk to an investor that an issuer will default on the payment of interest
and/or principal on a security.
CURRENT YIELD (CURRENT RETURN)—A yield calculation determined by dividing the annual
interest received on a security by the current market price of that security.
DELIVERY VERSUS PAYMENT-There are two methods of delivery of securities:delivery
versus payment and delivery versus receipt.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.
DIVERSIFICATION —Dividing investment funds among a variety of securities offering
independent returns.
DURATION —A measure of the timing of the cash flows,such as the interest payments and the
principal repayment,to be received from a given fixed-income security.This calculation is
based on three variables;term to maturity,coupon rate,and yield to maturity.The duration
of a security is a useful indicator of its price volatility for given changes in interest rates.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)—A federal agency that insures bank
deposits,currently up to 5250,000 per deposit.
FIDUCIARY-Person,company or association holding assets in trust of a beneficiary.
INVESTMENT POLICY —A concise and clear statement of the objectives and parameters
formulated by an investor or investment manager for a portfolio of investment securities.
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 ask prices is narrow and reasonable size can be done at those quotes.
LOCAL GOVERNIVIENT INVESTIYIENT POOL (LGIP)—The aggregate of all funds from political
subdivisions that are placed in the custody of the State Treasurer for investment and
reinvestment.
IVIARKET RISK-The risk that the value of a security will rise or decline as a result of changes in
market conditions.
MARKET VALUE-The price at which a security is trading and could presumably be purchased
or sold.
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 FOMS in order to
influence the volume of money and credit in the economy.Purchases 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.
OPTION —Right to buy or sell property that is granted in exchange for an agreed upon sum.If
the right is not exercised after a specified period,the option expires and the option buyer
forfeits the money.
PORTFOLIO —Collection of securities held by an investor.
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.
REPURCHASE AGREEMENT (RP or REPO)—A holder of securities sells these securities to an
investor with an agreement to repurchase them at a fixed price on a fixed date.The security
"buyer"in effect lends the "seller"money for the period of the agreement,and the terms of
the agreement are structured to compensate for this.Dealers use RP extensively to finance
their positions.Exception,when the Fed is said to be doing RP,it is lending money that is
increasing bank reserves.
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.
SECURITIES &EXCHANGE COMMISSION -Agency created by Congress to protect investors in
securities transactions by administering securities legislation.
SPECULATION —Assumption of risk in anticipation of gain but recognizing a higher than
average possibility of loss.
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 (3)months,six (6)months,
or one (1)year.
VOLATILITY —A degree of fluctuation in the price and valuation of securities.
YIELD-The rate of annual income return on an investment,expressed as a percentage.(a)
INCOME YIELD is obtained by dividing the current dollar 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.