HomeMy WebLinkAbout7.h. Investment Policy F-4 t � CITY OF ROSEMOUNT
` EXECUTIVE SUMMARY FOR ACTION
CITY COUNCIL MEETING DATE: June 7, 1994
AGENDA ITEM: Investment Policy F-4 AGENDA SECTION:
New Business
PREPARED BY: Jeff May, Finance Director AGENDA NO.
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ATTACHMENTS: Copy of Investment Policy F-4 APPROVED BY:
Attached for your consideration is a new policy regarding investment policies for the City of
Rosemount. The purpose of this policy is to establish guidelines for the investment of City
funds. Past practice has been to invest all City funds in Certificates of Deposit(CD's) with
mainly local banks. Council has been approached in the past about possible alternatives, that
have never been looked upon favorably. Also, it was felt that a formal policy should be
instituted addressing investments.
The attached policy addresses legal requirements and restrictions that must be followed when
investing City funds. It also establishes guidelines that staff can use when investing City funds.
The policy is fairly conservative in nature, but allows us to invest in cer#ain instruments that we
have not invested in the past, that can probably increase our interest earnings without placing
greater risks on the funds of the City.
RECOMMENDED ACTIQN: Motion to approve Investment Policy F-4. � N a� '
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COUNCIL ACTION:
CITY OF ROSEMOUNT
POLICY TITLE: INVESTMENT POLICY
POUCY NUMBER: F - 4
PROPOSED BY: FINANCE
DATE APPROVED
BY CITY COUNCIL: JUNE 7, 1994
� PURPOSE
The purpose of this policy is to establish specific guidelines the City of Rosemount will
use in the investment of City funds. It will be the City Treasurer's(Finance Director)
responsibility to invest City funds in order to attain a market rate of return while
preserving and protecting the capital of the overall portfolio. Investments will be
made, based on statutory constraints, in safe, low risk instruments.
SCOPE
The Finance Department is responsible for the investing of all funds in the custody of
the City, including, but not necessarily limited to, the General Fund, Special Revenue
Funds, Debt Service Funds, Capital Project Funds, Enterprise Funds(Water, Sewer,
Storm Water & Community Center) and Agency Funds.
PRUDENCE
Prudent Man Rule - "Investment shall be made with the exercise of that judgment and
care, under circumstances then prevailing, which men 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 capital as well as the probable
income to be derived.°
OBJECTIVE
There are three main objectives of all investment activities that are prioritized as
follows:
A. Safety - Safety of principal is the first priority in the investment activities of the
City of Rosemount. Avoiding capital losses shall be the primary objective of
each investment transaction that the City enters into.
B. Liquidity - The City's portfolio will contain instruments that contain a balance of
liquidity to provide the City the ability to meet all operating requirements which
might be reasonably anticipated.
Page 2 - Policy F-4
C. Rate of Return - An investment wili be purchased with the best rate of return
considering its safety.
DELEGATION OF AUTHORITY
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The Finance Director, or in that person's absence one of his/her staff, will be
responsible for making investment decisions on a daily basis and monitoring the
portfolio. Also, they will be responsible for ensuring the amounts of cash available for
investment and the time period for which the funds may be invested with a reasonable
level of confidence in relation to necessary cash flows for the City's operations.
CONFLICT OF INTEREST
Any employee 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.
DESIGNATED DEPOSITORIES
In accordance with Minnesota Statutes, Section 118.005, it shall be the policy of the
City to authorize the Finance Director the ability, by resolution, to designate all
depositories for all City checking and investrnent deposits.
AUTHORIZED AND SUITABLE INVESTMENTS
Minnesota Statutes, Section 475.66, Subdivision 3, lists alf permissible investments for
municipalities. This list establishes the maximum investment risk permitted for a
Minnesota municipality. The City of Rosemount will not authorize its employees to
invest in all of these investments, staying consistent with its number one priority of
safety of capital. The fallowing are investments the City will be authorized to invest in:
1. Govemmental Securities: Instruments such as bonds, notes, bills, mortgages and
other securities which are direct obligations of the federal govemment, with the
principal fully guaranteed by the U.S. govemment. The City will not invest in any
mortgage or mortgage related security unless a retum of principal is completely
guaranteed by a federal entity.
2. Certificate of Deposit: A negotiable or nonnegotiabte instrument issued by
commercial banks and insured up to $100,000 by the Federal Deposit Insurance
Corporation (FDIC). (See "Collateralization")
Page 3 - Policy F-4
3. Repurchase Agreement: An investment which consists of two simultaneous
transactions, where an investor purchases securities from a bank or dealer. At the
same time, the selling bank or dealer agrees to repurchase the securities at the same
price plus interest at some agreed-upon future date. The security purchased is the
collateral protecting the investment. (See "Collateralization")
4. Reverse Repurchase Agreement: Opposite of a repurchase agreement. The
investor owns the security and sells it to the bank or dealer.
5. Prime Commercial Paper: An investment used by corporations to finance
receivables. A short-term(matures in 270 days or less) unsecured promissory note is
issued for a maturity specified by the purchaser. Corporations market their paper
through dealers who in turn market the paper to investors.
6. Any security which is a general obligation of the State of Minnesota or any of its
municipalities.
7. Bankers acceptances of United States banks eligible for purchase by the Federal
Reserve System.
COLLATERALIZATION .
Collateralization will be required on two types of investments, Certificates of Deposit
and Repurchase Agreements. In order to anticipate market changes and provide a
level of security for all funds, the collateralization ievel will be 110 percent of the
market value of principal and accrued interest. Collateral shall be deposited in the
name of the City of Rosemount, Minnesota, subject to release by the City's Finance
Director or City Administrator. All investment securities purchased by the City shall be
held in third party safe keeping by an institution designated as primary agent. The
primary agent shall issue a safe keeping receipt to the City listing the specific
instrument rate maturity and other pertinent information. All deposits will be insured or
collateralized in accordance with Minnesota Statutes Chapter 118.
DIVERSIFICATION
The City will attempt to diversify its investments according to type and maturity. The
portfolio, as much as possible, will contain both short-term and long-term investments.
The long-term portion of the portfolio, meaning five years and beyond, will not exceed
ten percent of the total funds in the portfolio. This is done to reduce overall market
risk of rates changing.
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MAXIMUM MATURITIES
City operating funds are not to be invested for a term exceeding one year. Operating
funds include, but are not limited to, the General Fund, the Water Utility Fund, the
Sewer Utility Fund, the Storm Water Utility Fund and the Community Center Fund.
Funds that have a use that is other than for operation have no restrictions on length.
The City of Rosemount invests its funds with the assurance that it will meet its current
short-term cash flow needs.
INTERNAL CONTROL
The investment portfolio of the City is to be audited by an external auditor annually.
This review provides intemal controls by assuring compliance with policies and
procedures.
INVESTMENT REPORTING
The Finance Director will provide at minimum, a quarterly report to the City Council of
the City's investment portfolio. This report will list all investments held by the City at
the time of the report with all pertinent information associated with each of those
investments.
BROKER REPRESENTATIONS
Beginning January 1, 1994, municipalities must obtain from their brokers certain
representations regarding future investments. Minnesota Statutes, Section 475.66,
Subdivision 6, requires municipalities to provide each broker with information regarding
the municipality's investment restrictions. Before engaging in investment transactions
with the City of Rosemount, the supervising officer at the securities broker/dealer shalf
submit a certification. The document will state that the officer has reviewed the
investment policies and objectives, as well as applicable state law, and agrees to
disclose potential conflicts of interest or risk to public funds that might arise out of
business transactions between the firm and the City of Rosemount. All financial
institutions shall agree to undertake reasonable effors to preclude imprudent
transactions involving the City's funds.
CONCLUSION
The intent of this policy is to ensure the safety of all City funds. The main goal of the
City will be to achieve a market rate of return while maintaining the safety of its
principal. It is felt that this policy will ensure this.