HomeMy WebLinkAbout10B - P.L. Investment Policy
DISCUSSION:
DECEMBER 2, 2002
10 B
RALPH TESCHNER, FINANCE DIRECTOR
CONSIDER APPROVAL OF A RESOLUTION ESTABLISHING
CITY OF PRIOR LAKE INVESTMENT POLICY
Introduction
The 2020 Vision and Strategic Plan provide that the City is to
"exercise fiscal prudence in budgeting and fiscal management." The
purpose for this agenda item is to consider for adoption an
investment policy that would establish certain procedures and
guidelines for the investment of city funds to help fulfill strategic
plan objectives.
Current Circumstances
The basic goal of investing is to invest in accordance with state
statutes at the highest rate of return available subject to preservation
of principal and consistent with the cash flow needs of the city. In
order to achieve these desired results a written investment policy is
important to protect the city's monetary resources.
An investment policy has several purposes. First it promotes the
acquisition of safe investments by providing specific criteria by
which the City may invest its cash, thereby limiting the risk to
public funds. Second, it establishes a relationship between the City
Council and staff whereby the Council provides direction through
the policy regarding investment criteria and decisions. Third, an
investment policy establishes communication and reporting
functions.
The Council has adopted a resolution designating investment
authority on behalf of the City of Prior Lake with the City Manager
and Finance Director. Each is "designated with the full power and
authority to open investment accounts in the name of the City of
Prior Lake, invest such funds of the City as deemed necessary and to
execute all purchases and withdrawals associated with such
investments". An investment policy is much more specific as to
objectives, diversification, duration, safekeeping provisions and so
forth.
Of additional importance, a written investment policy provides the
City Council a level of understanding and comfort as to what
investment practices the city exercises. For the most part the
practical application of the attached investment policy has been put
H :\INVESTlAgendainvestpolicy .doc
16200 Eagle Creek Ave. S.E., Prior Lake. Minnesota 55372-1714 / Ph. (952) 447-4230 / Fax (952) 447-4245
AN EQUAL OPPORTUNITY EMPLOYER
AL TERNA TIVES:
RECOMMENDED
MOTION:
REVIEWED BY:
Attachments:
H: IINVESTlAgendainvestpolicy .doc
in place by staff and has been followed for years. Also of value is
the fact that each investment advisor will be provided a copy of the
investment policy and must agree to handle the City of Prior Lake's
account in accordance with the restrictions and requirements of this
Investment Policy. The bottom line is the taxpayer's money is
safeguarded.
The following alternatives are available to the City Council:
1. Approve Resolution Establishing City of Prior Lake Investment
Policy.
2. Modify the resolution to incorporate changes as desired by the
City Council.
Alternative #1. A motion and a second to adopt A Resolution
Establishing City of Prior Lake Investment Policy. Our auditing firm
in the person of Steve McDonald has reviewed the policy and
recommends its adopti
lu . n Esta lishing City of Prior Lake Investment Policy
Prior Lake Investment Policy and Procedure Manual
MOTION BY:
WHEREAS,
WHEREAS,
WHEREAS,
WHEREAS,
WHEREAS,
/CJf
RESOLUTION 02~,
RESOLUTION ESTABLISHING
CITY OF PRIOR LAKE INVESTMENT POLICY
CL
J-p
SECOND BY:
The ultimate purpose of a formal investment policy is to safeguard the City of Prior
Lake's monetary resources; and
An Investment Policy promotes the acquisition of safe investments, preservation of
principal and maximum return on investments consistent with the cash flow needs of
the city and state statutes; and
The establishment of an Investment Policy will provide written criteria to manage
the City of Prior Lake's investment portfolio; and
The City Council intends that the City Manager and Finance Director are to be the
principals responsible for administering all city investment purchases consistent
with the provisions of the Investment Policy; and
The City Council has carefully reviewed the City of Prior Lake Investment Policy
and Procedure Manual.
NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, that:
1. The recitals set forth above are incorporated herein.
2. The City of Prior Lake Investment Policy and Procedure Manual is hereby approved.
Passed and adopted this 2nd day of December 2002.
{Seal}
YES
NO
Haugen
LeMair
Petersen
Zieska
Vacant
Haugen
LeMair
Petersen
Zieska
Vacant
City Manager
City of Prior Lake
H: \INVEST\lnvcstmentResolution.DOC
16200 Eagle Creek Ave. S.E., Prior Lake. Minnesota 55372-1714 / Ph. (952) 447-4230 / Fax (952) 447-4245
AN EQUAL OPPORTUNITY EMPLOYER
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\~~ty of Prior Lake
Investment Policy
and Procedure Manual
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if::1eted December 2, 2002)
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City of Prior Lake
INVESTMENT OF CITY FUNDS
The City shall maintain a set of procedures for the investment of City funds and the policy
shall address the following elements:
1. A listing of authorized investments.
2. Investment and diversification guidelines that are appropriate to the nature of the funds,
the purpose for the funds, and the amount of the public funds within the investment
portfolio.
3. Investment portfolio duration as to maximum term with respect to time of investment.
4. Guidelines regarding collateral requirements, if any, for the deposit of public funds in a
financial institution made pursuant to State Statute, and, if applicable, guidelines for
contractual arrangements for the custody and safekeeping of that collateral.
5. A system of internal controls and operational procedures designed to prevent losses of
funds that might arise from fraud, employee error, misrepresentation by third parties, or
imprudent actions by employees of the city.
6. Appropriate periodic review of the investment portfolio, its effectiveness in meeting the
city's needs for safety, liquidity, rate ofretum, and diversification, and its general
performance.
7. Ethics and conflicts of interest provision.
8. The standard of care that must be maintained by the persons investing the public funds.
9. Procedure for selection of investment advisors.
10. At least quarterly written reports of investment activities by the Finance Director for
submission to the City Council.
The Finance Director shall establish such procedures as included within the investment policy
for the Council's approval and shall periodically review and propose needed amendments. Such
procedures and this policy shall be kept available at all times for public review at the City's
administrative offices.
A. Scope
This investment procedure applies to all funds of the City. These funds are accounted for in
the City's annual financial report and includes all current funds, and any other funds that may
be created from time to time. The portion of idle funds invested shall have a target percentage
of 98%. All transactions involving the funds and related activity of any funds shall be
administered in accordance with the provisions of this procedure.
B. Ob1ectives
i.
1. Safety of Principal- Safety of principal is the foremost objective of the investment
program Investments shall be undertaken in a manner that seeks to ensure the
preservation of principal in the overall portfolio. To attain this objective only appropriate
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investment instruments 'Will be purchased and insurance or collateral may be required to
ensure the return of principal.
2. Liquidity - The City's investment portfolio shall be structured in such manner as to
provide sufficient liquidity to pay obligations as they come due.
3. Return on Investments - The investment portfolio shall be designed to attain a market-
average rate of return throughout budgetary and economic cycles, taking into account the
risk constraints, the cash flow characteristics of the portfolio and legal restrictions for
return on investments.
4. Maintaining the Public's Trust - The investment officers shall seek to act responsibly as
custodians of the public trust and shall avoid any transaction that might impair public
confidence in the City and oversight as executed by its investment officers.
C. Investment Instruments
The City may invest in any type of security allowed by Minnesota Statutes as may be
amended from time to time. The City has chosen to limit its allowable investments to those
instruments listed below:
1. Bonds, notes, certificates of indebtedness, treasury bills or other securities now or
hereafter issued by the United States of America, its agencies and allowable
instrumentalities;
2. Interest bearing checking and savings accounts, or any other investments constituting
direct obligations of any bank;
3. Certificates of deposit with federally insured institutions that are collateralized or insured
in excess of the $100,000 provided by the Federal Deposit Insurance Corporation
coverage limit;
4. Money market accounts that are invested in above referenced government securities.
5. Connnercial paper meeting the following requirements
a) The corporation must be organized in the United States.
b) The corporation's assets must exceed $500,000,000.
c) The obligations at the time of purchase must be rated at the highest classifications
by at least two of the four standard rating services (Standard and Poor's, Duff and
Phelp's, Moody's and Fitch Investors Service).
d) The obligations cannot have a maturity longer than 270 days.
e) The total investment in anyone corporation cannot exceed 10% of that
corporation's outstanding obligations.
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.
.
t) The total investment in anyone corporation cannot be more than $2 million.
6. Investments may be made only in those savings banks or savings and loan associations the
shares, or investment certificates of which are insured by the Federal Deposit Insurance
Corporation.
7. Investment products that are considered as derivatives are specifically excluded from
approved investments.
D. Diversification
It is the policy of the City to diversify its investment portfolio. Investments shall be diversified to
eliminate the risk ofloss resulting in Over concentration in a specific maturity, issuer, or class of
securities. Diversification strategies shall be determined and revised periodically by the City
Finance Director. The diversification shall be as follows:
a) Up to 100% of c.!., but not less than 10%.
b) Up to 90% ofC.2. and C.3.
c) Up to 20% of CA.
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d) Up to 10% ofC.5.
E. Duration
It is the policy of the City to require that all investment maturities shall not extend beyond ten
(10) years in length. Subject to market conditions and cash flow requirements, it is desirable
for the city's investments to be laddered over time in an effort to reduce interest rate market
risk.
F. Collatera1ization
I. It is the policy of the City to require that time deposits in excess of FDIC insurable limits
be secured by collateral or private insurance to protect public deposits in a single fmancial
institution if it were to default. Collateralization rrrnst be equal to 110% of the uninsured
portion when pledging government securities or agencies.
2. EligIble collateral instruments are any investment instruments acceptable under 118A.03.
The collateral rrrnst be placed in safekeeping at or before the time the City buys the
investments so that it is evident that the purchase of the investment is predicated on the
securing of collateral.
3. Safekeeping of Collateral
a) Safekeeping is required for all collateral. To accomplish this, the securities rrrnst
be held at one or more of the following locations:
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1) at a Federal Reserve Bank or its branch office;
2) at another custodial facility in a trust or safekeeping department through
book-entry at the Federal Reserve;
3) by an escrow agent of the pledging institution; or
4) by the trust department of the issuing bank
b) Safekeeping will be docmnented by an approved written agreement between the
City and the governing counsel of the bank that complies with FDIC regulations.
This may be in the form of a safekeeping agreement.
c) Substitution or exchange of securities held in safekeeping for the City can be
approved exclusively by the Finance Director, subject to the amount of the
investment.
G. Safekeeping of Securities
1. Safekeeping is required for all securities and corrnnercia1 paper. To accomplish this, the
securities must be held only at the following locations:
a) at a Federal Reserve Bank or its branch office;
b) at another custodial facility, which shall be a trust or safekeeping department
through book-entry at the Federal Reserve, unless physical securities are
involved; or
c) Investments held in safekeeping by a broker dealer must provide asset protection
of $500,000 thru Securities Investor Protection Corporation (SIPC) and at least
an additional $49.5 million dollars of supplemental insurance protection.
2. Safekeeping will be docmnented by an approved written agreement between the City and
the holder of the securities. This may be in the form of a safekeeping agreement, trust
agreement, escrow agreement or custody agreement.
3. Written confirmations of investment transactions shall be required indicating purchase
price, type of security, settlement date, interest rate, call provisions etc.
4. Original certificates of deposits will be held by the originating bank except with brokered
c.d programs whereby a master certificate is held in safekeeping at the broker designated
depository. A safekeeping receipt will be acceptable documentation.
H. Oua1ified Financial Institutions and Intermediaries
1. Depositories - Demand Deposits (Checking Accounts)
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a) Any financial institution selected by the City shall provide normal banking
services, including, but not limited to: checking accounts, wire transfers and
safekeeping services.
b) The City will not maintain funds in any financial institution that is not a member
of the FDIC system. In addition, the City will not maintain funds in any
institution that does not first agree to post required collateral for funds or
purchase private insurance in excess of FDIC insurable limits and in amounts
acceptable to the City.
d) Fees for banking services shall be mutually agreed to by an authorized representative
of the depository bank and the City Finance Director on an annual basis. Fees for
services shall be substantiated by a monthly accoWlt analysis.
e) All financial institutions acting as a depository for the City must enter into a
"Depository Agreement."
2. Banks and Savings and Loans - Certificates of Deposit
Any financial institution utilized by the city to purchase certificate of deposits must:
a) provide wire transfer and certificate of deposit safekeeping services;
.....
b) be a member of FDIC system and be willing and capable of posting required
collateral or private insurance for funds in excess of FDIC insurable limits and in
amoWlts required by the City; and
c) meet at all times the financial criteria as established in the investment procedures
of the City.
3. Brokerage Dealers
Any financial brokerage dealer selected by the city to handle investments must:
a) provide wire transfer and deposit safekeeping services;
b) be a member of a recognized U.S. Securities and Exchange Conmission Self
Regulatory Organization such as the New York Stock Exchange, National
Association of Securities Dealers, Municipal Securities Rule Making Counsel,
etc;
c) provide an annual audit upon request;
d) maintain an office within the State of Minnesota and be licensed to conduct
business in this State; and
e) be familiar with the City's policy and accept financial responsibility for any
investment not appropriate according to the policy.
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I. Management of Program
1. The following individuals are authorized to purchase and sell investments, authorize wire
transfers, authorize the release of pledged collateral, and to execute any documents
required under this procedure:
a) City Manager
b) Finance Director
These documents include:
1) Wire Transfer Agreement
2) Depository Agreement
3) Safekeeping Agreement
4) Custody Agreement
2. Management responsibility for the investment program is hereby delegated to the Finance
Director, who shall establish operational procedures designed to prevent losses offunds
that might arise from fraud, employee error, misrepresentation by third parties, or
imprudent actions by employees of the entity. Such procedures shall include explicit
delegation of authority to persons responsible for the execution under the direction of the
Finance Director of specific financial transactions, including: investment transactions;
check signing, check reconcilement, deposits, bond payments, report preparation and wire
transfers. No person may engage in any investment transaction except as provided for
under the tenns of this policy. The Finance Director shall be responsible for all
transactions undertaken and shall establish a system of controls to regulate the activities
of subordinates.
1. Performance
The Finance Director will seek to earn a rate of return appropriate for the type of investments
being managed given the portfolio objectives defined in Section B of this document for all
funds. In general, the Finance Director will strive to earn an average rate of return equal to or
greater than the ninety (90) day U.S. Treasury Bill rate.
K. Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from personal
business activity that could conflict with the proper execution of the investment program, or
which could impair their ability to make impartial investment decisions. Further, no officer
involved in the investment process shall have any interest in, or receive any compensation
from, any investments in which the City is authorized to invest, or the sellers, sponsors or
managers of those investments.
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L. Indemnification
Investment officers and employees of the City acting in accordance with this Investment
Policy who exercise due diligence and act with reasonable prudence, shall be relieved of
personal liability for an individual security's credit risk or market changes. [118.02 sub. 2]
M. Investment Advisor Selection
1. The Finance Director is hereby authorized to determine those investment brokers that
would serve the best interests of the city in providing investment advice and services
consistent with the requirements of this Investment Policy.
2. For purposes of administering the city's investments on an efficient and timely basis, the
number shall be limited to no more than three (3) investment advisors.
3. Participation in the League 4M FWld is hereby endorsed by the city cOWlcil for the
investment of the city's available money market funds.
4, All brokers must acknowledge annually receipt of the city's statement of investment
restrictions in writing (Broker Certification pursuant to Minn. Statute J J 8A. 04 Subd. 9)
and agree to handle the City of Prior Lake's account in accordance with these restrictions
and requirements of this Investment Policy.
N. Reporting
The Finance Director shall submit to the City COWlci1 a quarterly investment report that shall
include information regarding securities in the portfolio by type, advisor affiliation, principal
amount and aggregate rate of return as of the report date. A council approved listing of
authorized investments for information purposes shall accompany the report.
O. Amendment
This policy shall be reviewed from time to time by the Finance Director with regards to the
Investment Policy's effectiveness in meeting the City's needs for safety, liquidity, rate of
return, diversification, and general performance. Any substantive changes will be reported to
the City COWlcil.
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