HomeMy WebLinkAboutResolution No. R2022-24RESOLUTION NO. R2022-24
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF FRIENDSWOOD,
TEXAS, APPROVING THE PUBLIC FUNDS MANAGEMENT AND INVESTMENT
POLICY IN ACCORDANCE WITH THE PUBLIC FUNDS INVESTMENT ACT; AND
PROVIDING FOR AN EFFECTIVE DATE.
WHEREAS, the Public Funds Investment Act (the "Act") provides that the City of Friendswood
may purchase, sell, and invest funds under its control in investments authorized by the Act in compliance
with investment policies approved by the City Council; and
WHEREAS, pursuant to the Act, the City Council is required to adopt both (i) a written
investment policy regarding the investment of its funds and funds under its control and (ii) a separate
written investment strategy, describing the investment objectives, for each of the funds or group of funds
under its control; and
WHEREAS, the City Council, pursuant to the Act, is also required to review the policy and
strategies not less than annually; and
WHEREAS, the City Council last reviewed and approved the City's Public Funds Management
and Investment Policy, containing both the written policy and strategies required pursuant to the Act,
(the "Policy") on August 2, 2021; and
WHEREAS, the City Council, after reviewing the Policy, desires to approve the same; NOW
THEREFORE,
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF FRIENDSWOOD, STATE
OF TEXAS:
Section 1. That the facts and matters set forth in the recitals of this resolution are hereby found
to be true and correct.
Section 2. That the City Council of the City of Friendswood, Texas, has reviewed the City's
Public Funds Management and Investment Policy (the "Policy"). The Policy approved in Section 3 hereof
records any changes made by the City Council.
Section 3. That the City Council of the City of Friendswood, Texas, hereby approves the
Public Funds Management and Investment Policy of the City of Friendswood, which is attached hereto as
Exhibit "A" and incorporated herein for all intents and purposes.
Section 4. That this resolution shall be effective immediately upon its passage and approval.
PASSED, APPROVED and ADOPTED by the affirmativ-0<1e of the City Council of the City of
Friendswood on this the I" day of August, 2022. 11 .1 / ' -
F010EMAN, 19ayor
ATi 1)S '
L V 9,1E Z)
L TICIA BRYSCH, City ,c °tart'
APPROVED AS TO FORM:KXR tj
N—TTbRNER, City Attorney 9 01�-�
EXHIBIT "A"
CITY OF FRIENDSWOOD, TEXAS INVESTMENT POLICY
August 1, 2022
I. Policy - It is the policy of the City of Friendswood that, giving due regard to the safety and risk
of investment, all available funds shall be invested in conformance with these legal and
administrative guidelines. The City's portfolio shall be designed and managed in a manner
responsive to the highest public trust and consistent with this policy. Investments shall be made
in a manner which will provide the maximum security of principal invested through limitations
and diversification while meeting the daily cash flow needs of the City. The receipt of a market
rate of return will be secondary to the requirements for safety and liquidity. This policy will adopt
passive investment strategies designed to minimize administrative expenses while obtaining
market -average rates of return and incurring minimal risks. It is the intent of the City to be in
complete compliance with local law and the Texas Public Funds Investment Act.
II. Scope - This investment policy applies to all financial assets and funds placed for investment by
the City. The City commingles its funds for investment purposes for efficiency and investment
opportunity. These funds are defined in the City's Annual Comprehensive Financial Report and
include:
General Fund
Special Revenue
Funds Debt Service
Funds Enterprise
Funds
Trust and Agency Funds
And any new funds created by the City, unless specifically exempted by the City Council and
this policy.
Investment income will be allocated to the various funds based on their respective participation
and in accordance with generally accepted accounting principles. This Investment Policy shall
apply to all transactions involving the financial assets and related activity for all the foregoing
funds. However, this policy does not apply to the assets administered for the benefit of the City
by outside agencies under deferred compensation.
III. Objectives - The investment policy of the City shall be governed by these primary objectives:
safety, liquidity, and yield. The suitability of each investment decision will be made on the basis
of these objectives.
A. Safety - The foremost objective of the investment program shall be to assure the safety
of the invested funds. Investments shall be undertaken in a manner that seeks to ensure
the preservation of capital while minimizing credit rate and interest rate risk. Investment
for speculation purposes is prohibited.
1. Credit Risk and Concentration of Credit Risk — The City will minimize credit
risk, the risk of loss due to the failure of the issuer or backer of the investment,
and concentration of credit risk, the risk of loss attributed to the magnitude of
investment in a single issuer.
2 Interest Rate Risk — The city will manage the risk that the interest earnings and
the market value of investments in the portfolio will fall due to changes in general
interest rates.
3. Collateralization — The City requires collateralization of all uninsured collected
balances of invested funds and any accrued interest on funds invested;
acceptance, substitution, release, and valuation of collateral for City investments
shall be in accordance with the Public Funds Collateral Act, Chapter 2257, Texas
Government Code.
B. Liquidity - Funds will be invested with maturities necessary to maintain sufficient
liquidity to provide adequate and timely working funds.
C. Yield — Return on investment is of least importance compared to the.safety and liquidity
objectives described above.
IV. Legal Limitations, Responsibilities, and Investment Authority - Authority and parameters for
the investment of public funds in Texas are found in the Public Funds Investment Act, Chapter
2256, Texas Government Code (the "Act").
The Interlocal Cooperation Act, Chapter 791, Texas Government Code, authorizes local
governments in Texas to participate in investment pools established thereunder. That statute
and reference.to authorized investment in investment pools in the Act, is primary authority
for use of investment pools by political subdivisions of the State of Texas.
V. Delegation of Investment Authority - The Director of Administrative Services is designated
as the Investment Officer of the City and is responsible for the implementation of these
policies, and for assuring that investment management decisions and activities fully comply
herewith. The Investment Officer shall develop and maintain administrative procedures for
the operation of the investment program, which are in strict accordance with this investment
policy, as approved by the City Council. The Investment Officer and Liaison/Deputy
Investment Officer shall comply with training requirements of the Public Funds Investment
Act ("PFIA"). Investment Officer(s) must obtain 10 hours of PFIA training within 12 months
of assuming investment responsibilities and 8 hours of PFIA training every two years
thereafter. The investment training session shall be provided by an independent source
approved by the City Council or Investment Committee. An "independent source" from which
investment training shall be obtained shall include a professional organization, an institute of
higher learning or any other sponsor, other than a Business Organization with whom the City
may engage in an investment transaction. The Deputy Director of Administrative Services —
Finance shall serve as designated liaison/deputy investment officer in the event circumstances
require timely action and the Investment Officer is not available. However, no officer or
designee may engage in an investment transaction except as provided under the terms of this
policy and the procedures established by the Investment Officer and approved by the City
Manager.
VI. Standards of Care - To be observed.
As fiduciaries of the City's assets, City Council retains ultimate responsibility of the
investment portfolio.
A. Prudence - The standard of prudence used by the City of Friendswood shall be the
"Prudent Person Rule" and shall be applied in the context of managing the overall
portfolio. This standard states: "the person designated as Investment Officer shall
exercise the judgment and care, under prevailing circumstances, that a prudent person
would exercise in the management of the person's own affairs." In determining
whether the Investment Officer has exercised prudence with respect to an investment
decision, the determination shall be made taking into consideration:
1. The investment of all funds under the City's control; over which the officer
had responsibility; and
2- Whether the investment decision was consistent with the written investment
policy of the City.
B. Ethics - Officers and employees involved in the investment process shall refrain from
personal business activity that could conflict with the proper execution and
management of the investment program, or that could impair their ability to make
impartial decisions. Employees and investment officials shall disclose, in writing, to
the Texas Ethics Commission and the City's governing body, any material interests,
including personal business relationships, with any financial institution with which it
is proposed that the City conduct business. For the purposes of this section, an
investment officer has a personal business relationship with a business organization
if. (1) the investment officer owns 10 percent or more of the voting stock or shares of
the business organization or owns $5,000 or more of the fair market value of the
business organization; (2) funds received by the investment officer from the business
organization exceed 10 percent of the investment officer's gross income for the
previous year; or (3) the investment officer has acquired from the business
organization during the previous year investments with a book value of $2,500 or
more for the personal account of the investment officer. In accordance with Texas
Government Code 573 and for the purposes of this section, if Investment Officer(s)
is related within the second degree by affinity or consanguinity to an individual
seeking to transact investment business with the City, the Investment Officer(s) will
file a disclosure statement of this fact in writing with the Texas Ethics Commission
and the City's governing body.
C. Liquidity - To meet the investment objectives of the City, the maturity of investments
shall be targeted to coincide with the cash flow needs of the City. Funds of the City
shall be invested in instruments whose maturities do not exceed approved periods as
determined by their policy. Unless matched to a specific requirement, the Investment
Officer may not invest more than 30% of the portfolio for a period greater than two
(2) years. The Investment Officer may not invest in any portion of the portfolio for a
period greater than three (3) years.
D. Diversification - The investment portfolio shall be diversified to minimize the risk
of loss resulting from over -concentration of assets in a specific maturity, specific
issuer, or specific class, of securities. Nevertheless, the City recognizes that in a
diversified portfolio, occasional measured interest losses are inevitable, and must be
considered within the context of the overall portfolio's investment return. At a
minimum, diversification standards by security type and issuer shall be:
Security Type
U.S. Treasuries && securities with the
U.S. Government's guarantee
U.S. Government Agencies and
Instrumentalities
Certificates of Deposit
Money Market Funds
Maximum % of Portfolio
Not To Exceed 75%
Not To Exceed 75%
Not To Exceed 75%
Not To Exceed 30%
Local Government Investment Pools Not To Exceed 75%*
*(No more than 50% shall be invested in any single pool.)
E. Yield - The core of investments shall be limited to relatively low risk securities in
anticipation of earning a fair return relative to the risk being assumed. The earnings
from investments shall be used in a manner that best serves the public trust and
interests of the City in compliance with applicable covenants or other legal
restrictions.
F. Safekeeping and Custody - To protect .against potential fraud and embezzlement,
the cash and investments of the City of Friendswood shall be secured by the City, or
through third party custody and safekeeping procedures as herein designated. The
third -party custodian shall be required to issue safekeeping receipts to the City listing
each specific security, description, maturity, CUSIP number, yield and/or coupon and
other pertinent information. Each safekeeping receipt shall clearly indicate that the
instrument is held for the City of Friendswood. All safekeeping arrangements shall
be documented by the Investment Officer.
All investment transactions shall be executed on "delivery vs. payment" basis to ensure
that securities are deposited in the eligible financial institutions prior to the release of
funds.
VII. Internal Controls - The City Council shall establish an annual process of independent review by
an external auditor. This review shall provide internal control by assuring compliance with
policies and procedures. Compliance and management controls of the City's investment policy
will be included in this annual review.
VIII. Investment Committee - Upon adoption of this policy an Investment Committee shall be
established. Members include three unpaid private sector financial professionals (example:
banker, broker, CPA) appointed by the City Council to serve staggered three-year terms. The
Investment Committee shall serve in an advisory capacity only. The Committee shall perform
such duties assigned to it by this Policy and such other duties as may, from time to time, be
assigned to it by the City Council.
The Investment Committee shall meet at least quarterly. It may meet more often as desired. Two
members may request a meeting. Two members constitute a quorum.
The Investment Committee is charged with the duty of determining general investment strategies
for the City and monitoring results. It shall include in its deliberations such topics as economic
outlook, investment strategies, portfolio diversification and maturity structure, potential risks to
City funds, the target rate of return on the investment portfolio and annual review and approval
of authorized depositories, brokers/dealers.
IX. Authorized Investments - Specific security instruments are authorized under the provisions of
the Public Funds Investment Act. The conservative philosophy employed by the City is to choose
investments in a manner which ensures safety, while promoting diversity of market sector and
maturity. The choice of high-grade government instruments is designed to provide for the safety
of principal, return an acceptable yield and assure marketability. City funds may be invested only
in the following:
A. Obligations of the U.S. Government, its agencies and instrumentalities and government
sponsoring enterprises ("GSEs"), not to exceed three (3) years to stated maturities,
excluding collateralized mortgage obligations ("CMOs").
B. Certificates of deposit or other financial institution deposits issued by a depository
institution that has its main office or a branch office in Texas, guaranteed or insured by
the Federal Deposit Insurance Corporation (or its successor); or collateralized, in
accordance with Section 2256.010, the Texas Government Code and Chapter 2257 the
Public Funds Collateral Act, and not to exceed three (3) years to stated maturity. Both
principal and interest earned on the investment will be guaranteed, insured, or
collateralized as stated.
C. No-load money market mutual funds that are registered and regulated by the Securities
and Exchange Commission subject to the limitations contained in Section 2256.014,
Texas Government Code.
D. Local Government Investment Pools, such as TexPool Investment Pool (Texpool), Lone
Star Investment Pool ("LSIP") and Texas CLASS investment pool, provided such pools
comply with Chapter 2256, Sections .016, .017, .018,.019 and .0204, Texas Government
Code.
E. Commercial Paper in accordance with Section 2256.013, of the Local Government Code.
The stated maturity must be 365 days or fewer from the date of its issuance, rated not less
than A-1 or P-1 or an equivalent rating by'at least two nationally recognized credit rating
agencies or one national recognized credit rating agency and is fully secured by an
irrevocable letter of credit issued by a bank organized and existing under the laws of the
United State or any state.
X. Loss of Required Minimum Rating — Rating status of investments of the City's portfolio will be
reviewed quarterly by the Investment Officer(s). All prudent measures, consistent with the City's
investment policy, will be exercised to liquidate investments downgraded below the A-1 or P-1
required by this policy.
XI. Existing Investment Exemption — The City is not required to liquidate an investment which was
an authorized investment type at the time of purchase.
XII. Authorized Financial Dealers and Institutions - The Investment Officer shall maintain a list of
financial institutions authorized to provide investment services. In addition, a list shall also be
maintained of approved security broker/dealers selected by credit worthiness who are authorized
to provide investment services in the State of Texas. These may include primary dealers or
regional dealers that qualify under Securities & Exchange Commission Rule 150-1 (uniform net
capital rule).
All financial institutions and broker/dealers who desire to become qualified bidders for investment
transactions must supply the Investment Officer with the following: audited financial statements,
proof of registration with Financial Industry Regulatory Authority (FINRA) and proof of state
registration.
A written copy of the investment policy shall be presented to any person offering to engage in an
investment transaction with the City. For purposes of this subsection, "a business organization
includes investment pools. The qualified representative of the business organization offering to
engage in an investment transaction with" the City "shall execute a written instrument" (Exhibit
"A") "to the effect that the business organization has: (1) received and reviewed the investment
policy of the City; and (2) acknowledged that the business organization has implemented
reasonable procedures and controls in an effort to preclude investment transactions conducted
between" the City "and the organization that are not authorized by" the City's "investment policy,
except to the extent that this authorization is dependent on an analysis of the makeup of the City's
"entire portfolio or requires an interpretation of subjective investment standards."
XIII. Competitive Bidding Requirement - Securities and certificates of deposits may be purchased or
sold only after a reasonable review of the offers/bids, to verify that the City is receiving fair market
value/price for the investment. At least three (3) competitive offers/bids must be obtained prior to
purchase or sell of securities and certificates of deposits. Comparison of investment pools will
occur to confirm that the City receives fair market value/return on investments.
XIV. Methods to Monitor the Market Price of Investments - The market price of investments
acquired with public funds will be monitored through one of the following methods: (1) accessing
financial information provided by the safekeeping custodian via communication software; (2)
obtaining pricing information as provided in financial publications, such as the Wall Street
Journal; and (3) obtaining pricing information from qualified broker/dealers or financial
institution representatives. Market value of the City's investments will be reviewed and calculated
on a monthly basis. The quarterly investment report will include the market value of the portfolio.
XV. Reporting - The Investment Officer shall prepare and submit to the City Manager and City
Council a quarterly report of investment transactions for all funds of the City. Quarterly
investment reports will be reviewed annually by an independent auditor. The report shall include
all information as required by Section 2256.023 of the Act.
XVI. Limitation of Personal Liability - The Investment Officer and those delegated with investment
authority under this policy, when acting in accordance with the written procedures and this policy
and in accord with the Prudent Person Rule, shall be relieved of personal responsibility and
liability in the management of the portfolio provided that deviations from expectations for a
specific security's credit risk or market price change or portfolio shifts are reported in a timely
manner and that appropriate action is taken to control adverse market effects.
XVII. Investment Strategy. - The City of Friendswood shall maintain a portfolio which involves
investment strategy considerations, designed to address the unique characteristics of the fund
groups represented in the portfolio. The objectives of each fund group must be considered in
context of the structure of the overall portfolio.
A. Operating Funds - Investment strategies for operating funds have as their primary
objective to assure that anticipated cash flows are matched with adequate investment
liquidity. The secondary objective is to create a portfolio structure which will experience
minimal volatility during economic cycles. This may be accomplished by purchasing high
quality, short to medium term securities which will complement each other.
B. Capital and Special Projects Funds -Primary strategy for these fund types is to assure
that anticipated cash requirements are matched to ensure adequate liquidity at the time of
payment. A portion of investments (at least 10%) should be highly liquid to allow for
flexibility and unanticipated project outlays. The stated final maturity date of any security
held should not exceed the estimated project completion date.
C. Debt Service Fund — In accordance with Section 2256.0208, investment strategies for
debt service funds will have as their primary objective the assurance of investment
liquidity adequate to cover the debt service obligation on the required payment date.
D. Overall Short-term Strategy - The City uses a consolidated cash system for cash and
investments where cash is commingled and ownership tracked by equity accounts. From
this a considerable amount is available for investment in highly liquid.local government
investment pools. Interest earnings are apportioned back based on equity in the pool. Use
of the pool enables short-term interfund borrowing during the course of the year using
"due-to/due-from" accounting methodology. This gives considerable flexibility to the
immediate cash needs of an individual fund. In addition, the City's portfolio will have a
maximum dollar -weighted average maturity of 3 years or less based on the stated maturity
date (if applicable) of each investment.
E. Bond Proceeds - Exclusive of all other City investments, up to 100% of the proceeds
from a bond sale may be invested in a separate pooled ("LGIP") account, and are not
subject to the liquidity and diversification limitations found elsewhere in this policy.
F. Performance Benchmarks — Comparative data such as coupon rates, market price,
market value, interest rates and rating agencies will be used to gauge performance of the
City's investment portfolio.
XVIII. Intent - It is the stated intent of this Policy to adhere by and to be in conformance with the statute
known as the Public Funds Investment Act, Chapter 2256, Texas Government Code, as amended
by House Bill 2799 enacted by the 75th Texas Legislature. Specific interpretation of a section
contrary to this intent shall not void the remaining Policy.
XIX. Adoption - This Investment Policy shall be formally adopted by Resolution of the City Council.
The Policy shall be reviewed on an annual basis by the City Manager and City Council.
Exhibit A
TEXAS PUBLIC FUNDS INVESTMENT ACT
CERTIFICATION BY BUSINESS ORGANIZATION
This certification is executed on behalf of the City of Friendswood (the Investor) and
(the "Business Organization") pursuant to the Public Funds Investment Act,
Chapter 2256, Texas Government Code (the "Act"), in connection with investment transactions conducted
between the Investor and the Business Organization.
The undersigned Qualified Representative of the Business Organization hereby certifies on behalf of the
Business Organization that:
The undersigned is a Qualified Representative of the Business Organization offering to enter in an
investment transaction with the Investor as such terms are used in the Public Funds Investment Act, Chapter
2256, Texas Government Code; and
The Qualified Representative of the Business Organization has received and reviewed the Investment
Policy furnished by the Investor; and
The Qualified Representative of the Business Organization has implemented reasonable procedures and
controls in an effort to preclude investment transactions conducted between the Business Organization and
the Investor that are not authorized by the City of Friendswood's Investment Policy, except to the extent
that this authorization is dependent on an analysis of the makeup of the City's entire portfolio or requires
an interpretation of subjective investment standards.
Qualified Representative of the Business Organization
Signature:
Name:
Title:
Date:
LIST OF AUTHORIZED DEPOSITORIES AND QUALIFIED BROKERS
AUTHORIZED TO ENGAGE IN INVESTMENT TRANSACTIONS WITH THE
CITY OF FRIENDSWOOD
BOK Financial Securities, Inc.
2. FHN Financial Capital Markets
3. Hilltop Securities
4. Wells Fargo Brokerage Services, LLC
5. Wells Fargo Bank
Lonestar Investment Pool
7. TexPool
8. Texas Class
Cantor Fitzgerald & Company
The above list of broker -dealers and financial institutions were approved by the Investment Committee
at a regular meeting, and are qualified to engage in investment transactions with the City of
Friendswood, as required by the Texas Public Funds Investment Act, Chapter 2256, Section 2256.025.
Name: Katina Hampton, Investment Officer
Date: August 1, 2022