HomeMy WebLinkAbout3241 RESOLUTION NO. 3241
A RESOLUTION of the City Council of the City of
Bremerton, Washington, adopting a Policy for the Investment
of City Funds.
WHEREAS, the present investment policy of the City was adopted in
1997 pursuant to Resolution No. 2618; and
WHEREAS, the investment policy adopted by Resolution No. 2618 was
amended by Resolution No. 3035 on October 3, 2007; and
WHEREAS, the current policy has been reviewed and updates have been
identified to clarify the existing policy and to reflect current best practices; and
WHEREAS, the City Council is desirous of replacing the policy in its entirety
with a new investment policy to meet changing local needs and to provide for sound
management of its financial assets; NOW THEREFORE,
THE CITY COUNCIL OF THE CITY OF BREMERTON, WASHINGTON,
DOES HEREBY RESOLVE AS FOLLOWS:
SECTION 1. Resolution No. 2618 and Resolution No. 3035 are hereby repealed.
SECTION Z The Bremerton City Council does hereby adopt the City of
Bremerton Investment Policy providing for the management of its financial assets to read as set
forth in Exhibit A, attached hereto and incorporated herein by reference.
SECTION 3. Severability. If any one or more sections, subsections, or
sentences of this Resolution are held to be unconstitutional or invalid, such decision shall not
affect the validity of the remaining portion of this Resolution and the same shall remain in full
force and effect.
SECTION 4. Effective Date. This Resolution shall take effect and be in force
immediately upon its passage
PASSED by the City Council of the City of Bremerton, Washington this
day of 2015.
GREG ESLER, Council President
APP &S TO FORM: S
ROGER A. LUBOVICH, City SHANNON CORIN, City Clerk
R:\Legal\Legal\Resolutions\Finance\20
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Investment Policy
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Exhibit A
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Policy Statement
It is the policy of the City of Bremerton ("the City") to invest public funds in a
manner, which will provide the maximum security with a market rate of
investment return, while meeting daily cash flow requirements, and conforming
to all state statutes governing the investing of funds under control of the City.
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TABLE OF CONTENTS
1.0 INTRODUCTION......................................................................................................................................3
2.0 GOVERNING AUTHORITY........................................................................................................................3
3.0 SCOPE.......................................................................................................................................3
4.0 OBJECTIVES...............................................................................................................................3
Safety
Liquidity
Return
5.0 STANDARDS OF CARE ..................................................................................................................4
5.1: Delegation of Authority
5.2: Prudence
5.3: Ethics
6.0 SAFEKEEPING,CUSTODY AND CONTROLS........................................................................................5
6.1: Delivery vs. Payment
6.2:Third Party Safekeeping
6.3: Internal Controls
7.0 AUTHORIZED FINANCIAL DEALERS..................................................................................................6
7.1: Broker/Dealers
7.2: Investment Advisers
7.3: Bank Institutions
7.4 Competitive Transactions
8.0 AUTHORIZED AND SUITABLE INVESTMENTS.....................................................................................7
8.1:Authorized Investments
8.2:Suitable Investments
8.3: Bank Collateralization
8:4: Repurchase Agreement Collateralization
9.0 INVESTMENT PARAMETERS...........................................................................................................9
9.1: Diversification
9.2: Investment Maturity
9.3: Prohibited Investments
10.0 REPORTING REQUIREMENTS.......................................................................................................10
10.1: Reporting
10.2: Performance Standards
11.0 INVESTMENT POLICY ADOPTION..................................................................................................11
12.0 GLOSSARY OF TERMS.................................................................................................................11
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1.0 INTRODUCTION
The intent of this Investment Policy is to define the parameters within which funds are to be managed.
In methods, procedures and practices, the policy formalizes the framework for the City's investment
activities that must be exercised to ensure effective and judicious fiscal and investment management of
the City's funds. The guidelines are intended to be broad enough to allow the investment officer to
function properly within the parameters of responsibility and authority, yet specific enough to
adequately safeguard the investment assets.
2.0 GOVERNING AUTHORITY
The investment program shall be operated in conformance with federal, state, and other legal
requirements, including RCW.
3.0 SCOPE
This investment policy applies to all financial assets of the City. These funds are accounted for in the
City's Annual Financial Report and include:
Funds:
General Fund
Special Revenue Funds
Debt Service Fund
Capital Project Funds
Enterprise Funds
Internal Service Funds
Trust and Agency Funds
Any new fund created by Council
Pooling of Funds
Except where prohibited by statute, trust indenture, or other controlling authority, the Authority will
consolidate cash and reserve balances from all funds to maximize investment earnings and to increase
efficiencies with regard to investment pricing, safekeeping and administration. Investment income will
be allocated to the various funds based on their respective participation and in accordance with
generally accepted accounting principles.
Each group of funds will be classified based on the objectives and requirements of the designated
assets.
Liquidity Investment Component
• Liquid Operating Cash Funds • Ongoing Operating Funds
• Liquid Project Funds • Project Funds over three year life
• Liquid Reserves • Reserves
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4.0 OBJECTIVES
All funds will be invested in a manner that is in conformance with federal, state and other legal
requirements. In addition, the objectives, in order of priority, of the investment activities will be as
follows:
Safety: Safety of principal is the primary objective of the City. Investments shall be undertaken
in a manner that seeks to ensure preservation of capital in the overall portfolio. To obtain this
objective, funds will be diversified, utilizing highly rated securities, by investing among a variety
of securities and financial institutions offering independent returns.
Liquidity: The investment portfolio will remain liquid to enable the City to meet all cash
requirements that might reasonably be anticipated. Therefore, the investments shall be
managed to maintain a balance to meet daily obligations.
Return on Investment: The investment portfolio will be structured with the objective of
attaining a market rate of return throughout budgetary and economic cycles, commensurate
with the investment risk parameters and the cash flow characteristics of the portfolio.
5.0 STANDARDS OF CARE
5.1 Delegation of Authority:
Governing Body: The ultimate responsibility and authority for the investment of City
funds resides with the City Council who has the authority to direct the management the
City investment program
Finance Committee: The finance committee will directly oversee the investment
program. The committee will be responsible for updating the investment policy
and reviewing the investment portfolio.
Authority: Management responsibility for the investment program is hereby
delegated to the City Treasurer, who shall establish written procedures for the
operation of the investment program, consistent with this investment policy.
The City Treasurer shall be responsible for all transactions undertaken and shall
establish a system of controls to regulate the activities of subordinate officials.
Investment Adviser. The City may engage the services of an external investment
adviser to assist with the management of the City's investment portfolio in a
manner that is consistent with the City's objectives. Such advisers may be
granted the authority to purchase and sell investments in accordance with this
Investment Policy. Such Advisers, must be registered under the Investment
Advisers Act of 1940.
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5.2 Prudence:
The standard of prudence to be used by the Treasurer and any designees in the context
of managing the overall portfolio is the prudent person rule which states: Investments
will 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 in regard to speculation but in regard to the permanent disposition of
the funds considering the probable income as well as the probable safety of the capital.
5.3 Ethics:
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 Mayor any material financial interests in
financial institutions that conduct business within 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 transactions to those of the City of Bremerton, particularly with
regard to the time of purchases and sales.
6.0 SAFEKEEPING,CUSTODY AND CONTROLS
6.1 Delivery vs. Payment:
All trades of marketable securities will be executed (cleared and settled) on a delivery
vs. payment (DVP) basis to ensure that securities are deposited in the City's safekeeping
institution prior to the release of funds.
6.2 Third Party Safekeeping:
The laws of the state and prudent treasury management require that all purchased
securities be bought on a delivery versus payment (DVP) basis and be held in
safekeeping by the City, an independent third-party financial institution, or the City's
designated depository.
The City's Treasurer shall designate all safekeeping arrangements and an agreement of
the terms executed in writing. The third-party custodian shall be required to provide a
statement to the City listing at a minimum each specific security, book yield,description,
maturity date, market value, par value, purchase date,and cusip number.
All securities pledged to the City for certificates of deposit or demand deposits shall be
held in a segregated account at the issuing financial institution that is reporting to the
State's public depository commission.
6.3 Internal Controls:
The Treasurer is responsible for establishing and maintaining an internal control
structure designed to ensure that the assets of the City are protected from loss, theft or
misuse. Specifics for the internal controls shall be documented in an investment
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procedures manual that shall be reviewed and updated periodically by the Investment
Officers.
The internal control structure shall be designed to provide reasonable assurance that
these objectives are met. The concept of reasonable assurance recognizes that the cost
of a control should not exceed the benefits likely to be derived and the valuation of
costs and benefits requires estimates and judgments by management. The internal
controls shall address the following points at a minimum:
• Control of collusion
• Separation of transaction authority from accounting and recordkeeping
• Custodial safekeeping
• Avoidance of physical delivery securities
• Clear delegation of authority to subordinate staff members
• Written confirmation of transactions for investments and wire transfers
• Dual authorizations of wire transfers
• Staff training and
• Review, maintenance and monitoring of security procedures both manual and
automated.
7.0 Au iORI1ED FINANCIAL DEALERS
7.1 Broker/Dealers:
The Treasurer shall maintain a list of all authorized financial institutions and
broker/dealers that are approved to transact with the City for investment purposes.
Any firm is eligible to make an application to the City and upon due consideration and
approval,will be added to the list. Additions and deletions to the list will be made at the
City's discretion. Authorized broker/dealers and financial institutions will be limited to
those that meet one or more of the following: 1) financial institutions approved by the
Washington PDPC(RCW 39.58) and meet all regulatory capital requirements, 2) primary
dealers recognized by the Federal Reserve Bank, 3) non-primary dealers qualified under
SEC rule 150-1 and a certified member of FINRA.This responsibility can be placed with
the investment adviser and the approved list should be provided to the City as updates
occur.
7.2 Investment Advisers:
The investment adviser firm must be registered with the Securities and Exchange
Commission (SEC) and licensed by the State of Washington. All investment adviser firm
representatives conducting investment transactions on behalf of the City must be
registered representatives with the Financial Industry Regulatory Authority (FINRA).
The advisory contract must include authority to transact business with the adviser's
approved broker/dealer list. The adviser may only provide non-discretionary
management services, which requires prior authorization from the City on all
transactions.
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7.3 Bank Institutions:
The City will only place funds, exceeding the current FDIC insurance limits, with banks
who are currently participating in the Washington State PDPC program.
Compliance/listing with the PDPC will be verified by the Treasurer or designated
investment officer utilizing the Washington State Treasurer's website
(http://www.tre.wa.goy/government/pdpc.shtmi).
7.4 Competitive Transactions:
Each transaction must be executed on a competitive basis and documented.
Competitive prices should be provided from at least three separate brokers or through a
nationally online line trading platform. When purchasing original issue instrumentality
securities, no competitive offerings will be required as all dealers in the selling group
offer those securities as the same original issue price. If an Adviser handles all trade
executions then they must provide the competitive documentation as requested.
8.0 AUTHORIZED AND SUITABLE INVESTMENTS
8.1 Authorized Investments:
All investments of the City are limited by RCW, principally RCW 35.39.030, 39.59.020
and 36.29.020
Among the authorized investments are U.S. Treasury and agency securities (i.e.,
obligations of any government sponsored enterprise eligible for collateral purposes at
the Federal Reserve), repurchase and for collateral otherwise authorized for investment,
municipal bonds of this state with one of the three highest ratings of a national rating
agency at the time of investment, certificates of deposit with qualified public
depositories within statutory limits as promulgated by the Public Deposit Protection
Commission at the time of investment, foreign and domestic bankers acceptances and
the Washington State Local Government Investment Pool and Bank Deposits.
The State of Washington Local Government Investment Pool is the only government-
sponsored pool approved for investment of funds.
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8.2 Suitable Investments:
The City is empowered to invest in the following types of securities:
TYPE DEFINITION
U.S Treasury Obligation Direct obligations of the United States Treasury
GSE-Agency Obligations 11 Government Sponsored Enterprises (GSEs) - Federal
Instrumentality Securities include, but are not limited to
Federal National Mortgage Association (FNMA), the Federal
Home Loan Mortgage Corporation (FHLMC), Federal Home
j !! Loan Banks(FHLB), and the Federal Farm Credit Bureau (FFCB).
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Bank Deposit Notes The RCW provides for the ability to buy Bank Deposit notes.
The President will only buy full faith and credit supported
bonds under this category.
— —-— — --- ------------ - -...- ----------
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-- -- -- — --- - - --- ----
Commercial Paper Unsecured debt obligations of corporate issuers that are rated
at least Al+ by Moody's and Pi by Standard and Poor's.
{! Commercial paper holdings may not have maturities exceeding
I! 180 days. Any commercial paper purchased with a maturity
i longer than 100 days must also have an underlying long-term
credit rating at the time of purchase must have a minimum
rating of AA-by S&P and Aa3 by Moody's RCW 39.59.020.
Bankers Acceptance Bankers Acceptances generally are created based on a letter of
credit issued in a foreign trade transaction. They are used to
finance the shipment of some specific goods within the United
States. They are Issued by qualified financial institutions
eligible for discount by the Federal Reserve System and by a
qualified institution whose long-term letter of credit rating is
rated in the highest category AAA.
Local Government Investment Pool ^Investment Pool managed by the Washington State Treasury
office.
Time deposits and Savings accounts Deposits in PDPC approved banks.
issued by banks
Certificates of Deposit i Non-negotiable Certificates of Deposit of financial institutions
which are qualified public depositories as defined by RCW
`. 39.58.010(2)and in accordance with the restrictions therein.
is
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Municipal Debt Obligations Bonds of the State of Washington and any local government in
the State of Washington, which bonds have at the time of
investment have one of the following ratings: S&P AA-,
Moody's Aa3 or Fitch AA-.
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8.3 Bank Collateralization:
The PDPC makes and enforces regulations and administers a program to ensure public
funds deposited in banks and thrifts are protected if a financial institution becomes
insolvent. The PDPC approves which banks and thrifts can hold state and local
government deposits and monitors collateral pledged to secure uninsured public
deposits. Under the act, all public treasurers and other custodians of public funds are
relieved of the responsibility of executing tri-party agreements, reviewing pledged
securities,and authorizing additions,withdrawals,and exchanges of collateral.
8.4 Repurchase Agreement Collateralization:
Collateral will be required on Repurchase Agreements, and will be limited to the suitable
investments listed in this policy under 5.2. Collateral shall be delivered to the City's
safekeeping agent, or through a tri-party arrangement in which the proper documents
delineating the responsibilities of the parties have been executed. A clearly marked
evidence of ownership(safekeeping receipt) must be supplied to the City and retained.
Any required overcollateralization (the amount by which the market value of the
securities collateralizing the transaction exceeds the transaction value) will be
determined at the time of the transaction, as specified in the Master Repurchase
Agreement. Any such overcollateralization shall not be less than 102% of the current
market value of the collateral. Such collateral shall be revalued on a periodic basis, but
not less than weekly, in order to maintain market protection.
The final maturity of the collateral for repurchase agreements may not exceed three
years.
9.0 INVESTMENT PARAMETERS
9.1 Diversification:
The City will diversify the investment of all funds in accordance with the following table:
Table of Constraints on the Portfolio
%of Total Per Issuer
ISSUER TYPE Portfolio Constraints
U.S Treasury Obligation 100% 100%
GSE-Agency Obligations 100% 35%
Commercial Paper 15% 5%
Bankers Acceptance 20% 5%
Local Government Investment Pool 100%
Certificate of Deposits 20% 10%
Municipal Debt Obligations 15% 5%
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9.2 Investment Maturity:
9.2.1 Liquidity Funds—Tier 1
Liquidity funds will be defined as those funds that are in the State LGIP pool, bank
deposits, bank certificates of deposits or money market instruments and will be
available for immediate use.
9.2.2 Investment Funds—Tier 2
Investment funds will be the defined as the funds in excess of liquidity requirements and
invested in authorized investments. The investments in this portion of the portfolio will
have maturities out to 5 Years and will be only invested in higher quality and liquid
(marketable) securities.
Total Portfolio Maturity Constraints:
ConstraintsMaturity , • • Portfolio
Under 30 days 10%
Under 5 years 100%
Total Weighted Average Maturity 2 years
9.3 Prohibited Investments:
9.3.1 The City shall not lend securities nor directly participate in a securities lending or
reverse repurchase program.
9.3.2 The City shall not invest in mortgage-backed securities.
10.0 REPORTING REQUIREMENTS
10.1 Reporting:
The City's Treasurer will retain fund reporting that will be available to provide the Finance
Committee with comprehensive investment reports. The reports also will be available upon
request. Securities holdings, cash balances, and market values in the investment portfolio
will be provided to the Mayor and City Council on the month-end reports.
Specific Requirements:
• Book Yield
• Holdings Report including mark to market and security description
• Transactions Report
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• Weighted Average Maturity or Duration
10.2 Performance Standards:
The investment portfolio will be designed to obtain a market average rate of return
during budgetary and economic cycles, taking into account investment risk constraints
and cash flow needs. A market benchmark will be established to compare risk and
return of the investment portfolio
The earnings benchmark will be the Local Government Investment Pool and an
appropriate yield comparison
11.0 INVESTMENT POLICY ADOPTION
The City's Investment Committee shall submit any proposed revisions to the City's investment
policies,which the committee shall find advisable,for adoption by the City Council by resolution.
12.0 GLOSSARY OF TERMS
Agency Securities: Government sponsored enterprises of the US Government.
Bankers Acceptances: A time draft accepted (endorsed) by a bank or trust company. The accepting
institution guarantees payment of the bill,as well as the issuer. BAs are short-term non-interest-bearing
notes sold at a discount and redeemed by the accepting bank at maturity for full face value.
Bond: An interest-bearing security issued by a corporation, government,governmental agency, or other
body. It is a form of debt with an interest rate, maturity, and face value, and specific assets sometimes
secure it. Most bonds have a maturity of greater than one year and generally pay interest semiannually.
See Debenture.
Broker: An intermediary who brings buyers and sellers together and handles their orders, generally
charging a commission for this service. In contrast to a principal or a dealer,the broker does not own or
take a position in securities.
Collateral: Securities or other property that a borrower pledges as security for the repayment of a loan.
Also refers to securities pledged by a bank to secure deposits of public monies.
Commercial Paper: Short-term, unsecured, negotiable promissory notes issued by corporations.
Current Maturity: The amount of time left until an obligation matures. For example, a one-year bill
issued nine months ago has a current maturity of three months.
CUSIP: A CUSIP number identifies securities. CUSIP stands for Committee on Uniform Security
Identification Procedures, which was established under the auspices of the American Bankers
Association to develop a uniform method of identifying municipal, U.S. government, and corporate
securities.
Dealer: An individual or firm that ordinarily acts as a principal in security transactions. Typically, dealers
buy for their own account and sell to a customer from their inventory. The dealer's profit is determined
by the difference between the price paid and the price received.
Debenture: Unsecured debt backed only by the integrity of the borrower, not by collateral, and
documented by an agreement called an indenture.
Delivery: Either of two methods of delivering securities: delivery vs. payment and delivery vs. receipt
(also called "free"). Delivery vs. payment is delivery of securities with an exchange of money for the
securities.
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Duration: A measure used to calculate the price sensitivity of a bond or portfolio of bonds to changes in
interest rates. This equals the sum of the present value of future cash flows.
Full Faith and Credit: Indicator that the unconditional guarantee of the United States government backs
the repayment of a debt.
General Obligation Bonds (GOs): Bonds secured by the pledge of the municipal issuer's full faith and
credit,which usually includes unlimited taxing power.
Government Bonds: Securities issued by the federal government; they are obligations of the U.S.
Treasury; also known as"governments."
Interest: Compensation paid or to be paid for the use of money. The rate of interest is generally
expressed as an annual percentage.
Investment Funds: Core funds are defined as operating fund balance, which exceeds the City's daily
liquidity needs. Core funds are invested out the yield curve to diversify maturity structure in the overall
portfolio. Having longer term investments in a portfolio will stabilize the overall portfolio interest
earnings over interest rate cycles.
Investment Securities: Securities purchased for an investment portfolio, as opposed to those purchased
for resale to customers.
Liquidity: The ease at which a security can be bought or sold (converted to cash) in the market. A large
number of buyers and sellers and a high volume of trading activity are important components of
liquidity.
Liquidity Component: A percentage of the total portfolio that is dedicated to providing liquidity needs
for the District.
Mark to Market: Adjustment of an account or portfolio to reflect actual market price rather than book
price, purchase price or some other valuation.
Municipals: Securities, usually bonds, issued by a state, its agencies, by cities or other municipal
entities. The interest on "munis" is usually exempt from federal income taxes and state and local
income taxes in the state of issuance. Municipal securities may or may not be backed by the issuing
agency's taxation powers.
Par Value: The value of a security expressed as a specific dollar amount marked on the face of the
security or the amount of money due at maturity. Par value should not be confused with market value.
Portfolio: A collection of securities held by an individual or institution.
Prudent Person Rule: A long-standing common-law rule that requires a trustee who is investing for
another to behave in the same way as a prudent individual of reasonable discretion and intelligence
who is seeking a reasonable income and preservation of capital.
Quotation or Quote: A bid to buy or the lowest offer to sell a security in any market at a particular time.
See Bid and Ask.
Repurchase Agreement: Range in maturity from overnight to fixed time to open end. Repos involve a
simultaneous sale of securities by a bank or government securities dealer to an investor with an
agreement for the bank or government securities dealer to repurchase the securities at a fixed date at a
specified rate of interest.
TLGP -Temporary Liquidity Guarantee Program: Program created by the FDIC, in 2008, to strengthen
the confidence and encourage liquidity in the banking system by guaranteeing newly issued senior
unsecured debt of banks, thrifts and certain holding companies, and by providing full FDIC coverage of
no-interest bearing deposit transaction accounts, regardless of dollar amount.
Treasury Bill (T-Bill): An obligation of the U.S. government with a maturity of one year or less. T-bills
bear no interest but are sold at a discount.
Treasury Bonds and Notes: Obligations of the U.S. government that bear interest. Notes have
maturities of one to ten years; bonds have longer maturities.
Yield: The annual rate of return on an investment, expressed as a percentage of the investment.
Income yield is obtained by dividing the current dollar income by the current market price for the
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security. Net yield, or yield to maturity, is the current income yield minus any premium above par or
plus any discount from par in the purchase price, with the adjustment spread over the period from the
date of purchase to the date of maturity of the bond.
Yield to Maturity: The average annual yield on a security, assuming it is held to maturity; equals to the
rate at which all principal and interest payments would be discounted to produce a present value equal
to the purchase price of the bond.
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