HomeMy WebLinkAbout9B Amending City of Prior Lake Investment Policy Report e FRJ
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4646 Dakota Street SE
4F rNEsolls Prior Lake, MN 55372
CITY COUNCIL AGENDA REPORT
MEETING DATE: October 26, 2015
AGENDA#: 9B
PREPARED BY: DON URAM, FINANCE DIRECTOR
PRESENTED BY: DON URAM, FINANCE DIRECTOR
AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION AMENDING THE CITY OF
PRIOR LAKE INVESTMENT POLICY
DISCUSSION: Introduction
The purpose of this agenda item is to consider adoption of amendments to
the City's current Policy which was last adopted in December 2002.
Current Circumstances
I. Included in the changes to the City's Investment Policy under Section C.
Investment Instruments:
1. Reference to the FDIC insurance limit of$100,000. In 2008,
lawmakers temporarily increased the coverage from $100,000 to
$250,000. In 2010 the $250,000 coverage limit was made
permanent.
2. Add State and Local government securities as an investment
instrument. Investments in these types of securities are permitted
by state statute. Any investment in these securities would have one
of the three highest credit ratings by a nationally recognized rating
agency.
3. Eliminate Commercial Paper (CP) as an investment alternative.
Although it is permited by state statute, commercial paper in general
carries a higher risk and pays a lower interest rate when compared
to certificates of deposit or government securities. The City Staff
does not intend to purchase CP for the reasons mentioned above
so it is appropriate to eliminate this section from the policy.
II. Under Section D. Diversification, increase the percentage of State and
Local Government securities from 10% to 20%. This would give staff the
flexibility if needed to diversify (issuer, yield and maturity) the portfolio as
appropriate.
III. Under Section E. Duration, limit the amount of the portfolio maturing
between 5 and 10 years to 20% of the total. The purpose of this change is
to limit the City's exposure to interest rate risk.
CONCLUSION: The City Council should determine if these revisions are appropriate to
bring this policy up to date.
ISSUES: The investment policy is an important communication tool for the citizens of
Prior Lake but also for the investment community and city staff. It is
therefore appropriate that the the policy be maintained in an up to date
fashion.
ALTERNATIVES: 1. Approve the attached resolution approving the City of Prior Lake's
Investment Policy amendments dated October 26, 2015 as submitted.
2. Take no action and provide the staff with specific direction.
RECOMMENDED Alternative#1.
MOTION:
ATTACHMENTS: 1. Resolution
2. City of Prior Lake Investment Policy dated October 26, 2015
01 13R194U tri
4646 Dakota Street SE
4'nvxssdtt- Prior Lake,MN 55372
RESOLUTION 15-xxx
A RESOLUTION AMENDING THE CITY INVESTMENT POLICY
Motion By: Second By:
WHEREAS, An Investment Policy promotes the acquisition of safe investments and maximum return on
investments consistent with the cash flow needs of the City and state statutues; and
WHEREAS, Amendments to this policy are needed from time to time to take into account changing
market conditions.
NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE,
MINNESOTA AS FOLLOWS:
1. The recitals set forth above are incorporated herein.
2. The revised Investment Policy dated October 26, 2015 is hereby adopted.
PASSED AND ADOPTED THIS 26th DAY OF OCTOBER, 2015.
VOTE Hedberg Keeney McGuire Morton Thompso
Aye ❑ ❑ ❑ ❑ ❑
Nay ❑ ❑ ❑ ❑ ❑
Absent ❑ ❑ ❑ ❑ ❑ j
Abstain ❑ 0 ❑ El ❑
Frank Boyles, City Manager
rii City of Prior Lake
Investment Policy
and Procedure Manual
(Dated October 26, 2015December 2, 2002)
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 of return,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
p
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. Objectives
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
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appropriate 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 at state and with federally chartered insured institutions
that are limited to the amount of coverage 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. State and local securities which have at the time of investment one of the three
highest credit ratings by a nationally recognized rating agency. Commercial paper
meeting the following requirements
) The corporation must be organized in the United States.
) The corporation's assets must exceed $500,000,000.
Phelps, Moody's and Fitch Invest cT
. . .. . •. . . I°, . .
) The total investment in any one 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 of loss 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.1.,but not less than 10%.
b) Up to 90%of C.2. and C.3.
c) Up to 20%of C.4.
d) Up to-1-020% of C.5.
E. Duration
It is the policy of the City to require that all investment maturities shall not extend beyond
ten(10)years with no more than 20% maturing beyond five(5)years. in length. Subject to
market conditions and cash flow requirements, it isdesirable for the city's investments to be
laddered over time in an effort to reduce interest rate market risk.
F. Collateralization
1. 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 1
financial institution if it were to default. Collateralization must be equal to 110%of the
uninsured portion when pledging government securities or agencies.
2. Eligible collateral instruments are any investment instruments acceptable under MN
Statutes 118A.03. The collateral must 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
must be held at one or more of the following locations:
1) at a Federal Reserve Bank or its branch office;
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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 documented 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 commercial 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 documented 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. Qualified 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 account 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 amounts 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 Commission Self-
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
of funds 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 terms 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.
J. 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.
L. Indemnification
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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 Fund is hereby endorsed by the city council 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 118A.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 Council 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.
0. 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 Council.
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