HomeMy WebLinkAbout2002-06-10 02-253 ORDERCOUNCILA=N
ILPJn NO 02-253
Oats: June 10, 2002
Item/Subject. ORDER -Adopting Investment Policy
Responsible Department: Finance
The CiNs investment policy was originally adopted by Council Order 85-326, as amended by Council
Order 89-15. Since its adaption the availability of Investment vehicles, the market conditions as well as
the City's fiscal environment have changed dramatically.
The attached Investment Policy will supersede any prior policy. The proposed policy contains appropriate
terminology, identifies the scope of Investments covered, allows a maximum investment term of three
years, and establishes maximum and minimum limits by investment type to ensure appropriate diversity
and liquidity.
As the City's employs an advisor for investment purposes, it is vital that our needs and wants are clearly
identified. The proposed policy net only addresses the City's investment options but it also contains
requirements to be met by entities providing investment services to the City.
In conclusion, the proposed policy represents a comprehensive review of and direction for the entire
investment process.
nt
Department Head
Managaes Comments:
Recommended for adoption by the France Committee of June 5, 2082.
City Manager
Associated Information:
Investment Policy
X passage
Firrt Reading page—of
Referral
AssigvlwC umilor Kemble dune TD, 20(12
�u u.
CITY OF BANGOR
(TITLE.) Order, Adopting Investment poliq
ORDERED, THAT One aletlredTnveshnent Polity is hereby adopted and super es Oe anent
InvesunaR polity.
IN cin COnNCII
Jose lo, zaoz 02-253
Marla,& Maae ami seroaaea
for Passage ORDER
Pass"
Title, moprivg i vestment Policy
ci
Assigned to
l® Councilor
02-253
City of Bangor
Investment Policy
The City of Bangor ('the City') is situated in eastern Maine in the south -cental section
of Fembscot County. It is the County seat and the third most populous of Maine's 22
cities. The City is the hub of an 11 municipality employment area, as well as the
commercial and cultural career for eastern and northern Maine; a region that contains
more than a third of the Maine's population. The City operates under a Council -Manager
form of government, with a nine -member Council elected Marge to staggered three
year terms, three of which lapse each year. Thai City Manager is the City's Chief
Operating Officer and is appointed by the Council.
The Finance Director is the City's Treasurer. Me 30-A, Sections 57N and 5711 of the
Maine Revised Statutes provide that the Treasurer shall invest municipal funds upon
direction of the municipal officers. Title 3M, Section 5718 provides that a municipality
has no authority to make any investments other than those permitted by statute.
Thus following Investment Policy addresses the methods, procedures and practices
which must be exercised to ensure effective and judicious fiscal and investment
management of the Citys funs. The purpose of this Investment Policy is to establish
the investment scope objectives, delegation of authority, standards of prudence,
reporting requirements, internal controls, eligible investments and transactions,
diversification requirements, risk tolerance, and safekeeping and custodial procedures
for the investment of the funs of the City of Bangor.
This Investment Policy has been adopted by the City Council of the City of Bangor by
resolution on June 10, 2002 and it replaces any previously dated investment policies,
guidelines or lists of a imcmeed investments.
SCOPE
This Policy shall apply to the imestri management of the following financial assets
under controi of the City: General Funds, Special Revenue Funds, Capital Project Funds
an Enterprise Funds. This Policy does not apply to Airport Investment Funds.
All cash, except for Airport Investment Funds an Bond proceeds, shall be pooled for
investment purposes. The investment income derivetl from the pooled investment
account shall be allocated to the contributing funds bases! upon the proportion of the
respective average balances relative to the total pooled balance. Interest earnings shall
be distributed to the individual funds on a monthly basis.
OBJECTIVES
The Citys prindpal investment objectives are:
• Preservation of capital and protection of investment principal.
• Maintenance of sufficient liqu'Mityto meet anticipated cash flows.
o2-253
Attainment of a market value rate of return.
Diversification to avoid inwmig unreasonable market risks.
Conformance with applicable Federal and State regulations and with the City
Coca.
PRUDENCE
The standard of prudence to be used for managing the Ciys assets shall be This 31 -&
Section 5718 of the Maine Revised Statutes which in general states that investments
shall be made with Me judgment and care that persons of prudence, discretion and
intelligence, under circumstances than prevailing, exercise in the management of their
own affairs, not for speculation but for investment, considering safety, income and
maintenanced liquidity.
The Ciys investment program shall be designed and managed with a degree of
professionalism that is worthy of the public trust The City recognizes that no
investment le totally riskless and that the investment activities of the City are a matter of
public record. Accmcingly, the City recognizes that occasional measured losses are
inevitable in a diversified portfolio and shall be considered within the context of the
overall portfolios return, provided that adequate diversification has been implemented
and that the sale of a security is in the best long -tern interest of the City.
The Finance Director and authorized investment personnel adig in accordance with
written procedures and exercising due diligence shall be relieved of personal
responsibility for an individual security's credit risk or market price changes, provided
that the deviations from expectations are reported in a timely fashion to the City
Manager and appropriate action is taken to control adheres developments.
ETHICS AND CONFLICTS OF INTEREST
Elected officials and employees involved in the investment process shall refrain from
personal business activity that could conflict with proper execution of the investment
program or which could impair or create the appearance of an impairment et their ability
to make impartial investment decisions. Employees and investment officials shall
disdose to the City Manager any material financial interests they have in financial
institutions that conduct business with the Ciry and they shall subordinate their personal
investment transactions to those of Me City.
DELEGATION OF AUTHORITY
Under the Maine Revised Statutes and the Bangor City Code, responsibility for the
investment of the City's funds covered by this Investment Policy resides with the
Finance Director who is Me City's Treasurer. The Finance Director is responsible for
developing City policy regarding Me investment and custody of the Citys investable
funds, as well as the City's internal procedures affecting those funds. The Finance
Director shall implement this Policy after it is approved by the City Council.
Page 2 d9
02 -253 -
The Finance Director has the authority to conduct investment transactions and manage
the operation of the investment portfolio. In the absence of the Finance Director, the
City Manager possesses the same authority. No person may engage in an investment
transaction except as expressly provided under Me terms of this Imestment Policy.
The City may engage the support services of outside professionals in regard to its
investment program, so long as it can be clearly demonstrated that these services
produce a net financial advantage or necessary financial protection of the City's financial
resources.
INTERNAL CONTROLS
The following internal controls shall exist to prevent possible loss of public funds arising
horn fraud, employee error, misrepresentation by third parties, unanticipated changes in
financial markets or imprudent actions by employees and officers of the City.
1. Separation of functions: In order to minimae the possibility, of an employee
personally benefiting from the use of public funds, bre separation of functions shall
be adhered to at all time. The authorized individual initiating the investment shall not
ba coley involved in the recmdkeeping functions of the investment program.
2. Separation of transaction authority from remndkeerma and accounting: All records
generated from the purchase of investments shall be prepared by authorized
personnel. The accounting and auditing a said records shall be the function of the
Audifing Division.
3. Supervisory control of employee actions: Whenever subordinate staff members are
authorized by the Finance Director to perforin investment activities, supervision of
Meir actions shall be exercised at all dross. The Finance Director shall review all
investment decisions and actions.
4. Documentation of transactions: All investment transactions shall be documented
utilizing appropriate investment forms and recorded in the investment ledger and
cash book ledger of the respecfive cash funds.
5. Internal Auction: These internal controls shall be reviewed periodically by the
external auditor of the City. The basis, timing and method of audit Shall be
determined by said external auditor. A report of the audit findings shall be included
in the annual postaudit management letter.
AUTHORIZED SECURITIES AND TRANSACTIONS
All investments of the City shall be made in accordance with Tide 30-A, Sections 5706
through 5719 of the Maine Revised Statutes. Any revisions or extensions of these
sections of the Maine Revised Statutes will be assumed to be part of this Investment
Policy immediately upon being enacted.
The City has further restricted Mrs investment of funds to the following types of securities
and transactions.
Page 3 of 9
02-253
1. U.S, Treasury Obligations: Treasury Bilis, Treasury Notes and Treasury Bonds with
matunties not exceeding Mree Were from date of iretle settlement.
2. Federal Instrumentality Securities: Debentures, discount notes and callable
securities, with maturities not exceeding three years from the date of trade
settlement, Issued by the following only: Federal Home Loan Banks (FHLB), Federal
National Mortgage Association (FNMA), Federal Farm Credit Banks (FFCB), Federal
Home Loan Mortgage Corporation (FHLMC) and Student Loan Marketing
Association(SLMA).
3. Repurchase Agreements: With maturities not to exceed one year collateralized by
U.S. Treasury Obligations or Federal Instrumentality Securities listed in items 1 and
2 above with the maturity of the collateral not exceeding 10 years. For Me purpose
of this "Mon. the term collateral shall mean purchased securities under the terms
of the City's approved! Master Repurchase Agreement. The purchased securities
shall have an original minimum market value including accrued interest of 102
percent of the dollar value of Me transaction and the collateral maintenance level
shall be 101 percent. Collateral shall be held in Me Citya custodian bank as
safekeeping agent, and the market value dMe collateral secumies shall be marked -
to -market daily.
Repurchase Agreements shall be entered into only with dealers who have executed
a City approved Master Repurchase Agreement with Me City and who are
recognized as Primary Dealers with the Market Reports Division of Me Federal
Reserve Bank of New York. Primary Dealers approved as Repurchase Agreement
counterpaNes shall have a short -tern credit rating of at least A-1 or the equivalent
and a long-term credit rating of M least A or the equivalent. The Finance Director
shall maintain a copy of the City's approved Master Repurchase Agreement along
with a list of Me brokerkmalem who have an executed Master Repurchase
Agreement with the City.
4. Commercial Pacer: With maturities not exceeding 270 days from the date of
purchase which is rated at least A-1 by Standard and Paces, P-1 by Moody's or F1
by Fitch at the time of purchase by each service which rates Me commercial paper.
If the commercial paper issuer has senior debt outstanding, the senior debt must be
rated by astir service that publishes a rating on the issuer of a least A by Standard
and Faces, A2 by Moodys or A by Fitch.
5. Money Market Mutual Funds: registered under the Investment Company Act of 1940
which (1) are "no-load (meaning no commission or tee shall be charged on
purchases or sales of shares); (2) have a constant daily net asset value per share of
$1.00; (3) limit swats of the fund to U.S.Treasury Obligations, Federal
Instrumentally or Agency Securities or repurchase agreements collateralized by
such securities; (4) have a maximum stated maturity and weighted average maturity
in accordance with Federal Securities Regulation 2a-7; and 5) have a rating of
A by Sunni and Poor's, Aaa by Mogtlys or A 1+by Fitch,
6. Time Certificates of Deposit: with maturities not exceeding three years, in state or
nationally chartered banks or savings and loans which are insured by Me Federal
Deposit Insurance Corporation (FDIC). Certificates of Deposit which exceed the
FDIC insured amount shall be collateralized in accordance sum Title 30-A, Section
Page 4 of
02-253
5206 the Maine Revised Statutes and, with respect to Time Certficates of Deposit
exceeding $100,000, may be purchased only from financial institutions which meet
the criteria set forth under the following motion, "Selection of Banka and Savings
and Loans.°
It is the intent of the City that the foregoing list of authorized securities be strictly
interpreted. Any deviation from this list must be preapproved by the France Director in
writing.
The City recognizes that bond proceeds may, from time to time, be subject to the
provisions of the Tax Reform Ad d 1995, Federal Arbitrage Regulations, as amended.
Due to that legal complexities of arbitrage law and the necessary immunization of yield
levels to correspond to anticipated cash flow actiodules, the reinvestment of such debt
issuance may, upon the advice or Bond Counsel or financial advisors, deviate from the
maturity limitation provisions of this Policy with written approval of the Finance Director
INVESTMENT DIVERSIFICATION AND LIQUIDITY
It is the intent of the City to diversify the investments within the portfolio to mid
inverting unreasonable risks inherent in over investing in specific instruments, individual
financial institutions or maturities. NeveMeless, the asset allocation in the portfolio
should be flexible depending upon the outlook for the economy, the securities markets,
and the City's anticipated cash flow needs. No more than 60% of the City's total
portfolio shall be invested in any combination of commercial paper and time certificates
of deposit.
To the extent possible, invesbnents shall be matched with anticipated cash flow
requirements and known future liabilities. Unless matched to a specific cash flaw
requirement, the City will not invest in securities maturing more than three yearn from
the data of trade settlement. The City shall maintain at least 10% of its total por folio in
repurchase agreements and/or money market mutual funds.
Bond proceeds are not pooled for investment purposes and shall be excluded from
calculations of the diversification and liquidity requirements in this section. Other
deviations from the diversification and liquidity requirements in this section can be made
only with the advance written authorization of the Finance Director.
Pogo 5OPA
02-253
SELECTION OF FINANCIAL INSTITUTIONS ACTING AS BROKER/DEALERS
AND BROKERIDEALERS
The Finance Director shall maintain a list of authorizetl broker/dealers and financial
institutions which are approved for investment purposes, and it shall be the policy of the
City to purchase securities only from those authorized institutions and firms.
To be eligible, a brokedclealer or financial institution must meet at least one of the
following criteria:
t. Be recognized as a Primary Dealer by the Market Reports Division of the Federal
Reserve Bank of New York,
2. Report voluntarily to the Market Reports Division of the Fetlerel Reserve Bank of
Naw York, or
3. Meet Me securities deataYs capital adequacy requirements of the New York
Federal Reserve Bank and provide written certifcation to the City that the
requirements have been met on a continuous basis for Me previous twelve-month
Period
Broker/dealns and other financial institutions will be selected by the Finance Director on
the basis of their expertise in public cash management and their ability to provide
services for Me City's account. Approvetl brokerldealem and the firms May represent
shell be licensed to do business in the State of Maine.
Each broker/dealer, bank or savings and loan Met has been authorized by the Finance
Director shall be required to submit and annually update a City approved Broker/Dealer
Information Request form which Includes the fir's most recent financial statements.
The Finance Director shall maintain a list of the brokeddealers that have been approved
by the City, along with each firm's most recent Broker/Dealer Information Request form.
Broker/dealers shall attest in writing Mal they have received and reviewed a copy of this
Policy.
The City may purchase commeroial paper from direct ismere even though they are not
on the approved broker dealer list as long as they meat the criteria outlined in Item 4 of
the Authorized Securities and Transactions section of this Policy.
COMPETITIVE TRANSACTIONS
Each investment tr'amaction shall be competitively transacted with broker/dealers who
have been authorized by the City. Al least three brokerldealere shall be contacted for
each transaction and their bid and offering prices shall be recorded.
If the City is oferetl a security for which there is no other readily available competitive
offering, then the Finance Director will document quotations for comparable or
alternative securitim.
When purchasing original issue instrumentality securities, no competitive offerings will
be required as all dealers in the selling group offer those severities at the same orginal
issue price.
Page 6 of 9
02-253
SELECTION OF BANKS AND SAVINGS AND LOANS
The Finance Director shall maintain a list of authorized banks and savings and loans
that are approved to provide investment clearing and other banking services for the Ciry.
To be eligible for authorization, a bank or savings and loan most be a member of the
FDIC and must meet the minimum credit criteria (described below) of credit analysis
provided by commercially available bank rating services. Banks or savings and loans
failing to meet the minimum criteria, or in the judgment of the Finance Director no longer
offering adequate safety to the City, will be removed from the list.
The City shall utilize the commercially available bank rating services of PMA Financial
Network, Inc. or Me Shashunoff Bank and SSL Quarterly to perform credit analyses on
banks and savings and loans seeking authorization. Data obtained from the bank rating
services will include factors covering overall rating, liquiday polity, credit risk policy,
interest rate policy, profitability, and capital policy. To be eligible for designation to
provide banking services, a financial institution must qualify as a depository of public
funds in the State of Maine as defined In Title 30-A, Section 5708 of the Maine Revised
Statutes. Also the financial institution shall meet the following criteria:
1. have a Sheshunoff Peer Group Rating of 30 or better on a soak of zero to one
hundred with one hundred being the highest quality for the most recent reporting
quarter before the time of selection; or
2. have a PMA Financial Network, Inc. overall rating of three or better on a scale of
one to five with arra being the highest quality for the most recent reporting quarter
before the time of selection.
The Finance Director shall maintain a file of the most recent credit rating analysis
reports performed for each approved financial institution by one of the above listed
rating firms. Bank credit analysis shall be performed on a semiannual basis.
SAFEKEEPING AND CUSTODY
The Finance Director shall select one or more financial institutions to provide
safekeeping arse custodial services for the City. A City approved Safekeeping
Agreement shall be executed with each custodian bank prior to utilizing that banks
safekeeping services. To be eligible for assignation as the Citys safekeeping and
custodian bank, a financial institution shall qualify as a depository of public funds in the
State of Maine as defined in Title 30.A, Section 5708 of the Maine Revised Statutes.
Also the financial institution shall meet the following criteria:
1. have a Sheshunoff Peer Group Rating of 20 or better on a scala of zero to one
hundred with one hundred being the highest quality for the most recent reporting
quarter before the time of selection; or
2. have a PMA Financial Network. Inc. overall rating of three minus or better on a
scale of one to five with one being the highest quality for the most recent reporting
quarter before the time of selection.
Custodian banks will be selected on the basis of their ability to provide services for the
Citys account and the competitive pricing of their safekeeping related services.
Page 7 of 9
02-253
The Finance Director shall maintain a file of the credit rating analysis reports performed
for each approved financial institution by one of the above listed rating firma. Bank
credit analysis shall the performed on a semi-annual basis.
The purchase and sale of securities and repurchase agreement transactions shall be
sa led on a delivery versus payment basis. It is the Intent of the City that ownership of
all securities be perfected in the name of the City. Sufficient evidence to title shall be
consistent with modem investment, banking and commercial practices.
All investment securities, except Certificates of Deposit, Money Market Funds, and Local
Government Investment Pcols, purchased by the City will be delivered by either book
entry or physical delivery and will be held in thm-party safekeeping by a City approved
custodian bank, its cerrespondent New York bank or as Depository Trust Company
(DTC) participant account.
All Fed wireable book entry securities owned by the City shall be evidencetl by a
safekeeping receipt or a customer confirmation issued to the City by Me custodian bank
stating that the securities are held in the Federal Reserve system in a CUSTOMER
ACCOUNT for the custodian bank which will name the City as 'customer"
All DTC eligible securities shall be held in the custodian bank's Depository Trust
Company (DTC) participant account and Me custodian bank shall issue a safekeeping
receipt evidencing that Me securities are held for the City as 'customer."
All non -book entry (physical delivery) securities shall be hell by Me custodian bank's
correspondent bank and the custotlian bank shall issue a safekeeping receipt to the City
evidencing Mat the securities are held by the correspondent bank for Me City as
.customer.'
The investment and cash management portfolio shall be designed to attain a market
value rate of return throughout budgetary and economic cycles, taking Into amount
prevailing market conditions, risk constraints for eligible securities, and cash flow
requirements.
REPORTING
Accounting and reporting on the City's investment portfolio shall conform to Generally
Accepted Accounting Principles (GAAP) and the Governmental Accounting Standards
Board (GASB) recommended practices. On a monthly basis, an investment report shall
be prepared and submitted to Me Finance Director, listing the investments held by the
City, the current market valuation of the investments and performance results. The
report shall include a summary of investment earnings during the period. A record shall
be maintained by the City of all bids and offerings for security transactions in order to
ensure that Me City receives competitive pricing.
Reports prepared by outside advisors shall be sent to the City's Finance Director.
Page 8 of 9
02-253
POLICY REVISIONS
This Investment Policy shall be reviewed periodically by the Director of Finance and may
be amended by the City Counal as conditions warrant.
Page 9 of