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HomeMy WebLinkAbout2010-02-03 PACKET 04.D.REQUEST OF CITY COUNCIL ACTION COUNCIL AGENDA MEETING ITEM # 1 DATE 2/3/2010 PREPARED BY Finance Robin Roland ORIGINATING DEPARTMENT DEPARTMENT HEAD COUNCIL ACTION REQUEST Approve (revised) Investment Policy STAFF RECOMMENDATION Council review and approval of the Investment Policy (as revised) which was presented at the Strategic Planning retreat on January 23, 2010. BUDGET IMPLICATION BUDGETED AMOUNT ACTUAL AMOUNT ADVISORY COMMISSION ACTION DATE ❑ PLANNING ❑ PUBLIC SAFETY ❑ PUBLIC WORKS ❑ PARKS AND RECREATION ❑ HUMAN SERVICES /RIGHTS ❑ ECONOMIC DEV. AUTHORITY REVIEWED APPROVED DENIED ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ SUPPORTING DOCUMENTS ® MEMO /LETTER: 1/27/10 ❑ RESOLUTION: ❑ ORDINANCE: ❑ ENGINEERING RECOMMENDATION: ❑ LEGAL RECOMMENDATION: ® OTHER: Investment Policy ADMINISTRATORS COMMENTS City Administrator Date COUNCIL ACTION TAKEN: APPROVED ❑ DENIED ❑ OTHER C: \Documents and Settings\rrolandWy Documents \City Council Action Form.doc _vim �.�=� • a To: Honorable Mayor and City Council Ryan Schroeder, City Administrator From: Robin Roland, Finance Director Date: January 27, 2010 Subject: Investment Policy INTRODUCTION The City's current investment policy has been in effect since 1998 and requires updating. DISCUSSION As part of the Strategic Planning retreat, Council was presented a revised Investment policy which addresses how City funds are invested. The policy addresses statutory requirements (Minnesota State Statute 118A), purpose, scope, objectives, authorized investments and authorized financial institutions /depositories /brokers. The policy also describes how reporting will be handled. Changes from the previously adopted policy include an increase in maximum maturity (from 5 to 10 years) and a listing of authorized and unauthorized investment instruments. These changes will direct staff in their efforts to maximize investment earnings while maintaining the safety of principal (capital) and assuring the appropriate cash flow for City operations. RECOMMENDATION Approve the Investment Policy as revised. Investment Po lic a. The purpose of this policy is to establish specific guidelines which the City of Cottage Grove will use in the investment of City funds. The fundamental objectives for the investment of City funds include protection of principal, liquidity for maintenance of adequate cash flow and an acceptable rate of return on all funds under the scope of this policy. b. This policy applies to the investment of all funds controlled by the City of Cottage Grove, excluding the investment of employees' retirement funds. c. Pooling of funds: Except for cash in certain restricted and special funds, the City 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. Each individual fund cash balance will continue to be reported separately in the general ledger system. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. B. Objectives a. The three main objectives of all investment activity are protection of principal (capital), maintenance of liquidity and optimization of return. Of all these, safety of capital is primary. Funds will be invested to gain the highest investment return with the lowest risk of capital loss, while meeting daily cash flow demands of the City and conforming to all federal state and local statutes governing the investment of public funds. b. Investments will be undertaken in a manner which seeks to ensure the preservation of capital in the overall portfolio. Both credit and interest rate risk will be mitigated. i. The City will minimize credit risk, which is the risk of loss due to the failure of the security issuer or backer, by limiting investments to those types outlined in this policy, pre - qualifying brokers /dealers which do business with the City and diversifying the portfolio to minimize the potential losses from any one type security or any one individual issuer. ii. The City will also minimize interest rate risk, which is the risk that the market value of securities in the portfolio will fall due to changing market rates, by structuring the portfolio to meet cash flow requirements. Extended maturities may be utilized to take advantage of higher yields; however no more than 25% of total investments should extend beyond 5 years and in no circumstance should any extend beyond 10 years. c. The City will practice a buy and hold investing philosophy. Once an investment is purchased, it will be held until maturity. In the unlikely circumstance that unanticipated cash demand may require it an investment may be sold to cover immediate cash needs. In order to facilitate such a transaction, the majority of securities within the portfolio should have active secondary or resale markets. a. Management of the City's investment portfolio is delegated by the City Council to the Finance Director. The Finance Director shall establish procedures for the operation of the investment program consistent with this policy, shall be responsible for all transactions undertaken and shall establish a system of internal controls designed to prevent loss from fraud and employee error. a. Investments shall be made with judgment and care under prevailing circumstances, 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 own capital as well as the probable income to be derived. This standard shall be applied in the context of managing the overall portfolio. b. Investment personnel acting in accordance with this policy and with Minnesota Statutes 118A.01 — 118A.06 and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes provided that reasonable action is taken to control adverse developments and unexpected deviations are reported in a timely manner. c. Employees involved in the investment process shall refrain from personal business activity which would conflict with the proper execution of the investment program or which could impair their ability to make impartial investment decisions. E. Authorized Investments a. Consistent with Minnesota Statutes Section 118A.04, the following is a listing of the instruments the City will be authorized to invest in: • 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 • U.S. government agencies which are created and supervised by the federal government • Certificates of Deposit (CD) which are negotiable or non - negotiable instruments issued by commercial banks and insured up to $250,000 each by the Federal Deposit Insurance Corporation (FDIC) • Commercial paper, rated in the highest tier (Al, P 1) by a nationally recognized rating agency and maturing in 270 days or less • General Obligations of the State of Minnesota or any of its municipalities. • Bankers Acceptances • Repurchase agreements whose underlying purchased securities consist of the aforementioned instruments • Money market mutual funds which invest in authorized instruments according to Minnesota Statutes 118A.05 • Local government investment pools developed through joint powers statutes or other intergovernmental agreement legislation (such as the 4M fund) b. The City will not invest in: • Reverse repurchase agreements; • Mortgage -Back securities • Future contracts • Options • Guaranteed investment contacts • Derivatives F. Authorized Financial Institutions, Depositories & Broker /Dealers a. The City of Cottage Grove will maintain a list of financial institutions, depositories and broker /dealers authorized to provide investment services to the City. Institutions will meet the following criteria: 1. Minimum capital requirement $10,000,000 and at least five years of operations and /or "primary" dealers or regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 15C3 -1 (uniform net capital rule) 2. Located in the State of Minnesota b. An annual review of the financial condition and registration of all qualified financial institutions and broker /dealers may be conducted by the Finance Director. Information requested may include the following: audited financial statements, proof of National Association of Securities Dealers (NASD) certification, and proof of state registration. c. All brokers will provide to the City of Cottage Grove annually a Broker /Dealer Certification form as required by law, outlining their intention to do business with the City in accordance with Minnesota Statutes and the City's investment policy. All financial institutions shall agree to undertake reasonable efforts to preclude imprudent transactions involving City funds. G. Diversification a. It is the policy of the City of Cottage Grove to diversify its investment portfolio by type and maturity of investment purchased. This will eliminate risk of loss resulting from over concentration of assets in a specific maturity, issuer or class of securities. b. Portfolio maturities will be staggered and maturities selected will provide for stability of income and liquidity. c. Primary guidance in the diversification will be the annual cash flow requirements of the City. =9 = 1 A a. The Finance Director will provide at a minimum a semi - annual report to the investment committee. In addition to the finance Director, the investment committee consists of the Mayor, a member of City council, the City Administrator and the City's financial advisor. This report includes the current status of the City's investment portfolio. The investment report includes the following information: i. Type of investment ii. Financial institution involved in the transaction iii. Yield iv. Purchase date and Maturity date v. Amount invested b. An annual report on the investment portfolio and its performance will be available within 30 days of fiscal year end. This report will reflect the annual activity of the portfolio, return on investment, gains or losses due to marking to market value and percentage breakdown of investments by type and maturity.