HomeMy WebLinkAboutResolution No. 2017-19RESOLUTION NO. R2017-19
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 71h day of August 2017"
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 71h day of August 2017.
Kevin M. rfland
Mayor
ATTEST:
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Melinda Welsh, TRMC ' O
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City Secretary
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CITY OF FRIENDSWOOD, TEXAS
INVESTMENT POLICY
August 7, 2017
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 seeks to ensure the preservation of capital while minimizing credit
rate and interest rate risk. Investment for speculation purposes is prohibited.
R2017-19 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 of the
investment program, which are in strict accordance with this investment policy, as
approved by the City Council. The Investment Officer and 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
R2017-19 3
sponsor, other than a Business Organization with whom the City may engage in
an investment transaction. Each year, the Investment Officer shall designate a
staff person as a 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 Council. 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
R2017-19 4
R2017-19
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 parry 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
5
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
R2017-19 6
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 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
R2017-19 7
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 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.
R2017-19 8
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 - 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.
R2017-19 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:
R2017-19 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, Sec. 2256.025,
Texas Government Code.
Name: Katina Hampton, Investment Officer
Date: August 7, 2017
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: 08/07/17
Date Submitted: 07/25/17 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 ❑ Significant ® Elective ❑
Expenditure Required: N/A
Appropriation Required: N/A
FINANCE
Amount Budgeted: N/A,
Source of Funds: N/A
RCR
Roger C: Roecker
.City Manager
SUMMARYI 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 24, 2017 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 September 1, 2017.
Investment Committee members voted to accept the investment policy changes detailed below.
Section III (A)
• formatting change to begin sub -bullets 2 and 3 sentences with capital letters
Section VI(B)
• added disclosure requirement by Investment Officer(s) "In accordance with Texas Government Code 573 and for the purposes of this
section, if Investment Officer is related within the second degree by affinity or consanguinity to an individual seeking to transact
investment business with the City, the Investment Officer will file a disclosure statement of this fact in writing with the Texas Ethics
Commission and the City's governing body."
Section VI (F)
• corrected acronym CUSIP to reflect its most commonly used format ("cusip" to CUSIP)
Section IX (B)
• added language to indicate continued guarantee or insurance coverage of investments in certificates of deposit or other financial
institution deposits should the Federal Deposit Insurance Corporation (FDIC) be replaced by another agency ("Federal Deposit Insurance
Corporation (or its successor)")
List of Authorized Depositories and Qualified Brokers Authorized to Engage in Investment Transactions with the City of Friendswood
• added Cantor Fitzgerald & Company
' 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
Resolution
Investment Policy red -lined version
Investment Policy no red -line version
RESOLUTION NO. R2017-XX
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF FRIENDSWOOD, TEXAS, APPROVING THE PUBLIC
FUNDS MANAGEMENT AND INVESTMENT POLICY.
X X 7C X X X X �C
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 7th day of August 2017"
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 7th day of August 2017.
ATTEST:
Melinda Welsh, TRMC
City Secretary
Page 1
Kevin M. Holland
Mayor
CITY OF FRIENDSWOOD, TEXAS
INVESTMENT POLICY
'w,e 6,41 August 7, 2017
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.
II[. 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
Page 2
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 — tl—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 -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.
N. 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 Jnterlocal 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. T'he Investment Officer and 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
Page 3
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. Each year, the Investment Officer shall designate a
staff person as a 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 Council. 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.
V 1. 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
Page 4
573 and for the purposes of this section if Investment Officers 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 500/o 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
Page 5
security, description, maturity, eusip-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.
Vlll. 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.
Ih. 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 2256A10, the Texas
Government Code and Chapter 2257 the Public Funds Collateral Act, and not to
Page 6
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- oran 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)
Page 7
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 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.
Page 8
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 - 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.
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 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 I 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
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
9:9.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 7, 2017
RESOLUTION NO. R2017-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 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 7th day of August 2017"
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 7L day of August 2017.
ATTEST:
Melinda Welsh, TRMC
City Secretary
Page 1
Kevin M. Holland
Mayor
CITY OF FRIENDSWOOD, TEXAS
INVESTMENT POLICY.
August 7, 2017
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 seeks to ensure the preservation of capital while minimizing credit
Page 2
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 intereston 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 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
Page 3
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. Each year, the Investment Officer shall designate a
staff person as a 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 Council. 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
Page 4
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:
Secgji y 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
Page 5
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 mariner 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
Page 6
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 letterof 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 15C3-1 (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)
Page 7
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 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- securitys 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.
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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 - 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.
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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),, ni 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
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 7, 2017