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HomeMy WebLinkAboutResolution No. 2018-15RESOLUTION NO. R2018-15 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF FRIENDSWOOD, TEXAS, APPROVING THE PUBLIC FUNDS MANAGEMENT AND INVESTMENT POLICY. BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF FRIENDSWOOD, TEXAS: Section 1. The City Council has reviewed the Public Funds Management and Investment Policy attached hereto and made a part hereof for all purposes be, and it is hereby, approved as the Official Public Funds Management and Investment Policy of the City of Friendswood, Texas. The Policy shall record any changes made to the Policy previously adopted. Section 2. The City Secretary is hereby directed to place on said Investment Policy an endorsement, which shall be signed by the City Secretary, which shall read as follows: "The Investment Policy of the City of Friendswood, Texas, approved by City Council the 6' day of August 2018" Such Investment Policy, as thus endorsed, shall be kept on file in the office of the City Secretary as a public record. PASSED, APPROVED, AND RESOLVED, this the 6" day of August 2018. 4 Mike Fo man Mayor ATTEST: 4r••••• • f .•oF,•,... Twos•.. Melinda Welsh, TRMC : i*j : O•% City Secretary * + . 0 : w CITY OF FRIENDSWOOD, TEXAS INVESTMENT POLICY August 6, 2018 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 Comprehensive Annual Financial Report (CAFR) 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. R2018-15 2 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 ofthe 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 R2018-15 3 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 R2018-15 4 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. R2018-15 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 R2018-15 6 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 and .019, Texas Government Code. E. Commercial Paper in accordance with Section 2256.013, of the Local Government Code. The stated maturity must be 270 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 an 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." R2018-15 7 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 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 R2018-15 8 final maturity date of any security held should not exceed the estimated project completion date. C. Debt Service Fund - 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. R2018-15 9 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: R2018-15 10 LIST OF AUTHORIZED DEPOSITORIES AND QUALIFIED BROKERS AUTHORIZED TO ENGAGE IN INVESTMENT TRANSACTIONS WITH THE CITY OF FRIENDSWOOD 1. BOSC, Inc. 2. Coastal Securities LTD 3. First Southwest Company 4. Wells Fargo Brokerage Services, LLC 5. Wells Fargo Bank 6. First Public — Lonestar Investment Pool 7. TexPool 8. Texas Class 9. 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 .025. Name: Katina Hampton, Investment Officer Date: August 6, 2018 Staff This form should be completed and forwarded to the City Manager's Office as soon as possible prior to the first date that the item is expected to be placed on the Friendswood City Council agenda. Date requested for City Council consideration:: 08/06/18 Date Submitted: 07/30/18 Dept. -Clearances: KRH Prepared by: Katina Hampton Subject: Investment Policy —Annual Review Originating Department: Administrative Services City Attorney Review: yes Proceeding: Resolutions Degree of importance: Critical 0 Significant ® Elective ❑ Expenditure Required: N/A , 'Amount Budgeted: N/A Appropriation Required,N/A Source of Funds: N/A _ FINANCE APPROVAL: krh mk` Morad Kabiri-. City Manager SUMMARY/ ORIGINATING CAUSE' The State of Texas Public Funds Investment Act requires that we review our Investment Policy annually and receive City Council approval.. The Investment Committee met on July 23, 2018 and reviewed the City's Investment Policy. The Committee and Investment Officers, proposed the following amendments based on State of Texas legislative changes to the Public Funds Investment Act 2256 effective upon City Council approval. Investment Committee members voted to accept the investment policy changes detailed below. Section V • revised language the specify. the Deputy Director of Administrative Services — Finance as the liaison/deputy investment officer - liaison/deputy investment officer in the event circumstances require timely investment action and the Investment Officer is not available - Section XII • changed "person" to "business organization" related to providing- a written copy of the investment policy to.firm(s). offering to engage -in an investment transaction with the City in accordance with PFIA 2256 update Section XVI • corrected "accord" to "accordance" for reading ease. List .of Authorized Depositories and Qualified Brokers Authorized to Engage in Investment Transactions with the City of Friendswood • changed BOSC, Inc. to BOK Financial Securities, Inc. to reflect current firm name changed Coastal Securities LTD to FTN Financial Securities Corporation to reflect the currentfirm name • changed First Southwest Company to HilltopSecurities to reflect the current firm_ name • changed First Public-Lonestar Investment Pool to Lonestar Investment Pool to reflect the current firm name IMMINENT CONSEQUENCES / BENEFIT TO COMMUNITY If the policy is not approved, the City will not be in compliance with the State of Texas Public Funds Investment Act. RECOMMENDATIONS Staff recommends approval of the Investment Policy. ATTACHMENTS _y Resolution Investment Policy red -lined version RESOLUTION NO. R2018-XX A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF FRIENDSWOOD, TEXAS, APPROVING THE PUBLIC . FUNDS MANAGEMENT AND INVESTMENT POLICY. BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF FRIENDSWOOD, TEXAS: Section 1. The City Council has reviewed the Public Funds Management and Investment Policy attached hereto and made apart hereof for all purposes be, and it is hereby, approved as the Official Public FundsManagement and Investment Policy of the City of Friendswood, Texas. The Policy shall record any changes made to the Policy previously adopted. Section 2. The City Secretary is hereby directed to place on said Investment Policy an endorsement, which shall be signed by the .City Secretary, which shall read as follows: "The Investment Policy of the. City of Friendswood, Texas, approved by City Council the 6th day of August 2018" Such Investment Policy, as thus endorsed, shall be kept on file in the office of the City Secretary as a public record. PASSED, APPROVED, AND RESOLVED, this the 6± day of August 2018.. ATTEST: Melinda Welsh, TRMC City Secretary Page 1 Mike Foreman Mayor CITY OF FRIENDSWOOD, TEXAS INVESTMENT POLICY August 6, 2018 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 Comprehensive Annual Financial Report (CAFR) 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 Page 2 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. Collateral ization — The City requires collateral ization 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 Page 3 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. c..eh the investment nfcc o„ shall designa4e a staff per-99RThe Deputy Director of Administrative Services — Finance shall serve as a designated liaison/deputy investment officer in the event circumstances require timely action and the Investment Officer is not available. The appointment shall be approved by City Gouneil 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 offcials 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 Page 4 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 Page 5 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 Page 6 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 and .019, Texas Government Code. E. Commercial Paper in accordance with Section 2256.013, of the Local Government Code. The stated maturity must be 270 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-I 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 business organization coffering to engage in an investment transaction with the City. For purposes of this Page 7 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 investment authority under this policy, when acting in accordance with the written procedures and this policy and in accordimcc 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 Page 8 .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 in 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 - Investment strategies for debt service funds will have as their primary objective theassurance 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 parnings 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. Page 9 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: Page 10