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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. �TE�i # �` 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� ' � CJ� 1��. � w,1 -��''�� � �'��'� , � 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 �"�'` + o+�� 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. . Page 4 - Policy F-4 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.