HomeMy WebLinkAboutCity of Tamarac Resolution R-2004-073Temp Reso #10381 —April 1, 2004
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CITY OF TAMARAC, FLORIDA
RESOLUTION NO. R-2004-'%,5
A RESOLUTION OF THE CITY COMMISSION OF THE CITY
OF TAMARAC, FLORIDA, REVISING THE INVESTMENT
POLICY OF THE CITY OF TAMARAC TO CLARIFY WHEN
SECURITIES LOSSES TO THE CITY ARE APPROPRIATE;
AUTHORIZING THE UTILIZATION OF CERTAIN
INVESTMENT INSTRUMENTS RELATED TO BOND
PROCEEDS AND DEBT SERVICE; PERMITTING THE CITY
TO ENTER INTO INVESTMENT AGREEMENTS WITH
PROVIDERS. PROVIDING FOR THE ADDITION OF THE
TERM "SWAP" TO THE GLOSSARY; DELETING ALL
REFERENCES TO SECTION 6-26 OF CITY CODE OF
ORDINANCES; PROVIDING FOR CONFLICTS; PROVIDING
FOR SEVERABILITY; AND PROVIDING FOR AN
EFFECTIVE DATE.
WHEREAS, an investment policy provides the formal structure that governs the
activities of investment official(s) and clarifies the City's investment objectives,
standards, and activities; and
WHEREAS, the City Commission of the City of Tamarac adopted an Investment
Policy by Resolution R-96-67 on March 27, 1996, and amended in 2000, 2001 and
2002, is hereto attached as Exhibit A, with proposed additions and deletions; and
WHEREAS, the City desires to clarify the language in Section VI. Safekeeping
and Custody, B. Internal Controls, 1. Establishment of Internal Controls, h. Specific
limitations regarding securities losses and remedial action, to explain when security
losses to the City are appropriate; and
WHEREAS, Section VII. Authorized and Suitable Investment Instruments, B.
Collateralization, and C. Repurchase Agreements, of said Investment Policy should
be amended in order to allow utilization of certain investment instruments related to
Temp Reso #10381 — April 1, 2004
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bond proceeds and debt service, and the addition of Section D. Compliance with the
City's Bond Covenants: Investment of Bond Related Funds, will permit the City to enter
into agreements with investment providers to leverage bond proceeds and debt service
payment funds; and
WHEREAS, the addition of the term "Swap" to the Glossary will enhance the
reader's understanding of the policy; and
WHEREAS, references to Section 6-26 of the City Code of ordinances in the
Investment Policy should be deleted since the City Code was amended to remove
reference to specific authorized investments; and
WHEREAS, the City Manager and the Director of Finance recommend including
the aforementioned changes to the City Investment Policy; and
WHEREAS, the City Commission of the City of Tamarac, Florida, has deemed it
to be in the best interest of the citizens and residents of the City of Tamarac that the
present Investment Policy be revised to include the aforementioned changes and
additions to allow the City to participate in certain investment products associated with
the issuance of bonds and "housekeeping" issues.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COMMISSION OF THE
CITY OF TAMARAC, FLORIDA:
SECTION 1: The foregoing "WHEREAS" clauses are hereby ratified
confirmed as being true and correct and are hereby made a specific part of this
Resolution.
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SECTION 2: The appropriate City Officials are hereby authorized to
change the Investment Policy clarifying the meaning of Section VI. Safekeeping and
Custody, B. Internal Controls, 1. Establishment of Internal Controls, h. Specific
Limitations Regarding Securities Losses and Remedial Action, to explain when security
losses to the City are appropriate.
SECTION 3: The appropriate City Officials are hereby authorized to
change the Investment Policy amending Section VII. Authorized and suitable investment
instruments, to update B. Collateralization, and C. Repurchase Agreements, adding D.
Compliance with City's Bond Covenants: Investment of Bond Related Funds,
authorizing the utilization of certain investment instruments related to bond proceeds
and debt service, permitting the City to enter into investment agreements with providers.
SECTION 4: The appropriate City Officials are hereby authorized to
change the Investment Policy adding the term "Swap" to the glossary;
SECTION 5: The appropriate City Officials are hereby authorized to
change the Investment Policy deleting all references to Section 6-26 of the City Code of
Ordinances.
SECTION 6: All resolutions or parts of resolutions in conflict herewith are
hereby repealed to the extent of such conflict.
SECTION 7: If any clause, section, other part or application of this
Resolution is held by any court of competent jurisdiction to be unconstitutional or invalid,
in part or application, it shall not affect the validity of the remaining portions or
applications of this Resolution.
SECTION 8
passage and adoption.
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This Resolution shall become effective immediately upon its
PASSED, ADOPTED AND APPROVED this 14t" day of April, 2004.
ATTEST:
MARION SWENSON, CMC
CITY CLERK
I HEREBY CERTIFY that
I have approved this
RESOLUT4ON as ta'form
MIT
Cl
1�
S.
IA—ESC
HREIBER MAYOR
RECORD OF COMMISSION VOTE:
MAYOR SCHREIBER
DIST 1: COMM. PORTNER
DIST 2: COMM. FLANSBAUMJALABISCO
DIST 3: V/M SULTANOF 0..-4--
DIS3,"OMM. ROBE
1
Resolution Adoption
Number Date
Temp Reso #10381-April 1, 2004
Exhibit A
City of Tamarac
Investment Policy
Authorizing Resolutions
Resolution Title
R-2002-337 11/27/02 A Resolution of the City Commission of the City of Tamarac,
Florida, revising Section VII. Authorized and suitable
investment instruments, C. Repurchase Agreement, of the City
of Tamarac Investment Policy to include required language for
certification of the City of Tamarac Investment Policy by the
Municipal Treasurers' Association of the United States and
Canada; providing for conflicts; providing for severability; and
providing for an effective date.
R-2001-262 09/26/01 A Resolution of the City Commission of the City of Tamarac,
Florida authorizing changes to the Investment Policy of the City
of Tamarac, to comply with Florida Statute 218.415,
subsections (1)-(16); providing for conflicts; providing for
severability; and providing for an effective date.
R-2000-117 05/10/00 A Resolution of the City Commission of the City of Tamarac,
Florida authorizing a change to the Investment •Policy of the
City of Tamarac, Section VII. Authorized and suitable
investment instruments, to include "Commercial Paper" and
"Bankers' Acceptance" as authorized and suitable investment
instruments for the City of Tamarac; providing for conflicts;
providing for severability; and providing for an effective date.
R-96-67 03/26/96 A Resolution of the City Commission of the City of Tamarac,
Florida adopting an investment policy and authorizing its
implementation; providing for conflicts; providing for
severability; and providing for an effective date.
Coding: Words s#FUsk threugI4 are deletions
Words underlined are additions
Table of Contents
PURPOSE............................................................................................................4
11. SCOPE.........................................................................................................4
III. DEFINITIONS.......................................................................................................4
IV. OBJECTIVES........................................................................................................ 5
A. Safety........................................................................................................ 5
B. Liquidity..................................................................................................... 5
C. Yield.......................................................................................................... 5
V. STANDARD OF CARE............................................................................................5
A. Prudence....................................................................................................5
B. Ethics and Conflicts of Interest.............................................................................6
C. Delegation of Authority........................................................................................6
VI. SAFEKEEPING AND CUSTODY...........................................................................7
A. Authorized Financial Dealers and Institutions............................................7
B. Internal Controls.........................................................................................8
C. Third -Party Custodial Agreements...........................................................10
VII. AUTHORIZED AND SUITABLE INVESTMENT INSTRUMENTS .......................11
A. Investment Types.....................................................................................11
B. Collateralization........................................................................................12
C. Repurchase Agreement...........................................................................12
D. Compliance with City's Bond Covenants..................................................12
E. Purchase of City's Utility Bonds................................................................13
VIII. INVESTMENT INSTRUMENTS NOT AUTHORIZED.........................................14
A. High Grade Corporate Debt......................................................................14
B. Repurchase Agreements..........................................................................14
C. Derivative Investment Products................................................................14
IX. INVESTMENT PARAMETERS..........................................................................14
A. Diversification..........................................................................................14
B. Maximum Maturities.................................................................................14
C. Duration....................................................................................................15
D. Security Selection....................................................................................15
E. Policies to Enhance Return on Investment...............................................16
TABLE 1 Investment Parameters.................................................................................18
K
Table of Contents
X. REPORTING......................................................................................................19
A. Method.....................................................................................................19
B. Performance Standards...........................................................................19
C. Marking to Market....................................................................................19
XI. POLICY................................................................................................................19
A. Exemption................................................................................................19
B. Amendment..............................................................................................19
C. Effective Date.........................................------------------------------------------ ------19
GLOSSARY................................................................................................................... 20
N
City of Tamarac, Florida
Investment Policy
I. PURPOSE
The intent of this policy is to provide the Director of Finance and designated staff with
sufficient latitude to effectively manage the City of Tamarac's (City) financial assets so as
to:
1) Ensure the preservation of principal,
2) Maintain sufficient cash flow to enable the City to meet its obligations, and
3) Maximize the return on assets with an acceptably low exposure to risk.
II. SCOPE
This Investment Policy shall apply to all the funds held by the City on behalf of the
residents of the City of Tamarac, with the exception of pension fund assets and funds
whose uses are restricted by debt covenants, prior contracts, legal, regulatory or other
constraints.
All financial assets held or controlled by the City, not otherwise classified as restricted
assets requiring separate investing, shall be identified as "general operating funds" of the
City for the purpose of this policy and shall be invested under the guidelines as herein set
forth. The guidelines, provided herein, are the general operating procedures. General
operating funds include:
General Fund
Special Revenue Funds
Debt Service Funds
Capital Projects
Enterprise Funds
Internal Service Funds
Trust and Agency Funds
and any new funds created by the governing body,
unless specifically exempt.
III. DEFINITIONS
See Glossary Section (Page 20)
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IV. OBJECTIVES
The following investment objectives will be applied in the management of City funds:
A. Safety
Ensuring the preservation of principal is the primary objective of the City's investment
activities. All other objectives are secondary to the preservation of principal. Each
investment transaction shall be executed to insure that capital losses are avoided,
whether from market value fluctuations or credit erosion. This objective includes
mitigation of credit risk and interest rate risk.
B. Liquidity
The investment portfolio shall remain sufficiently liquid to meet all operating requirements
that may be reasonably anticipated. This will be accomplished by structuring the portfolio
so that securities mature concurrent with cash needs to meet anticipated demands.
Furthermore, since all possible cash demands cannot be anticipated, the portfolio will
consist largely of securities with active secondary markets.
C. Yield
The investment portfolio shall be designed with the objective of attaining a market rate of
return throughout budgetary and economic cycles, taking into account the investment risk
constraints and liquidity needs. Return on investment shall not have as much weight in
comparison to safety and liquidity objectives. The core of investments will be limited to
relatively low risk securities in anticipation of earning a fair return relative to the risk being
assumed.
Securities shall not be sold prior to maturity with the following exceptions: a declining
credit security could be sold early to minimize loss of principal; a security swap that would
improve the quality, yield, or target duration in the portfolio; or liquidity needs of the
portfolio require that -the security be sold. No transactions of this kind will be executed
without the approval of the City Manager.
V. STANDARD OF CARE
A. Prudence
The standard of prudence to be applied by the Director of Finance or designee shall be
the "Prudent Person Rule" which states: "Investments shall be made with judgment and
care, under circumstances then prevailing, which persons of prudence, discretion and
intelligence exercise in the management of their own affairs, not for speculation, but for
investments, considering the probable safety of their capital as well as the probable
income derived." The "Prudent Person Rule" shall be applied in the context of managing
the overall portfolio.
Z
B. Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from personal
business activity that could conflict or appear to 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 any material
interests in financial institutions with which they conduct business. They shall further
disclose any personal financial/investment positions that could be related to the
performance of the investment portfolio. Officers and employees shall be prohibited from
undertaking personal investment transactions with the same individual with whom
business is conducted on behalf of their entity.
C. Delegation of Authority
The authority to manage the City's investment program is granted to the City Manager as
set forth in City of Tamarac Resolution R-94-167. Responsibility for the operation of the
investment program .is hereby delegated to the Director of Finance, who shall carry out
established written procedures and internal controls for the operation of the investment
program consistent with this investment policy. Procedures include:
Safekeeping
Delivery vs. Payment
Investment Accounting
Wire Transfer Agreements
Collateral/Depository Agreements
Banking Services Contracts
No person may engage in an investment transaction except as provided under the terms
of this policy and the procedures established by the Director of Finance. The Director of
Finance shall be responsible for all transactions undertaken and shall establish a system
of controls to regulate the activities of subordinate officials. These include but are not
limited to:
1. The Director of Finance, and/or other staff as may be designated by the
Director of Finance, shall have the authority to execute trades and to
otherwise conduct business within the scope of the City's Investment Policy.
2. The Director of Finance shall have the authority to further restrict the
authority delegated to any staff member.
3. The Director of Finance shall prepare or cause to be prepared month -
end reports which, at a minimum, include:
a. Investment Holdings Reports which at a minimum detail shall include:
(1) holdings by class of security;
(2) income earned;
C1
(3) book value; and
(4) market value
b. Performance Measurement Reports for the City's Aggregate
Investment Portfolio, as well as for each separate portfolio and
respective third -party manager.
4. The reports which are required under Item 3 above, as well as any others
deemed appropriate by the Director of Finance, shall be provided to the
members of the Investment Committee no less frequently than monthly.
VI SAFEKEEPING AND CUSTODY
A. Authorized Financial Dealers and Institutions
The Director of Finance or designee shall maintain a list of financial institutions
authorized to provide investment services. In addition, a list will be maintained of
approved security brokers/dealers selected by credit worthiness who are authorized to
provide investment services in the State of Florida. These may include "primary" dealers
or regional dealers that qualify under Securities & Exchange Commission Rule 15C3-1
(Uniform Net Capital Rule). No public deposits shall be made except in a qualified public
depository as established by the laws and regulations of the State of Florida. A current
audited financial statement is required to be on file for each financial institution and
broker/dealer in which the City invests.
Certificates of Deposit shall be placed only with financial institutions which qualify under
Florida Law. Other securities shall be purchased only:
1) through the financial institutions which provide the services of a securities
dealer, (who qualify as public depositories), with an office convenient to the
City of Tamarac,
2) through the "primary government securities dealer" as designated by the
Federal Reserve Bank.
These institutions, dealers and issuers must meet capital adequacy guidelines as
determined by their respective regulatory agencies and certify that no material
adverse events have occurred since the issue of their most recent financial
statements. They must also agree to notify the City in a timely manner in the
event of material adverse events affecting their capital adequacy. All securities
purchased shall be only those securities of authorized issuers of the various
security types. Lists of these authorized institutions, dealers and issuers of the
various security types will be maintained by the Director of Finance or his
designee. Criteria for addition to or deletion from the lists will be based on the
following:
1) in accordance with State Law, City Ordinance or Resolution, or investment
policy requirements;
2) financial condition;
3) consistent lack of competitiveness;
4) experience or familiarity of the account representative in providing service
to large institutional accounts; and/or
5) when deemed in the best interest of the City.
Before engaging in investment transactions with an institution, the Director of Finance
shall receive a signed certification form attesting that the individual responsible for the
City's account with that firm has reviewed the City's investment policy and that they agree
to undertake necessary and appropriate efforts to preclude imprudent transactions
involving City funds.
B. Internal Controls
The Director of Finance or designee is responsible for establishing and maintaining an
internal control structure designed to ensure that the assets of the entity are protected
from loss, theft or misuse. The internal control structure shall be designed to provide
reasonable assurance that these objectives are met. The concept of reasonable
assurance recognizes that (1) the cost of a control should not exceed the benefits likely
to be derived (2) the valuation of costs and benefits requires estimates and judgments by
management.
1. Establishment of Internal Controls
a. Control of collusion
Collusion is a situation where two or more employees are working in
conjunction to defraud.
b. Separation of functions
By separating key functions and having different people perform each
function, each person can perform a "check and balance" review of the
other people in the same area.
c. Separation of transaction authority from accounting and record keeping
By separating the person who authorized or performs the transaction,
from the people who record or otherwise account for the transaction, a
good separation of duties is achieved.
d. Custodial Safekeeping
Securities purchased from any bank or dealer, including appropriate
collateral, should be placed into a third party bank for custodial
safekeeping.
e. Prohibition of bearer -form securities
Bearer -form securities are much easier to convert to personal use, than
are securities registered in the name of the City of Tamarac.
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f. Avoidance of physical delivery securities
Book entry securities are much easier to transfer and account for, since
actual delivery is never taken. Physical delivery securities must be
properly safeguarded as are any valuable documents. The potential for
fraud and loss increases with physical delivery securities.
g. Clear delegation of authority to subordinate staff members
Subordinate staff members must have a clear understanding of their
authority and responsibilities to avoid any improper actions. Clear
delegations of authority also preserves the internal control structure that
is built around the various staff positions and their respective
responsibilities.
h. Specific limitations regarding securities losses and remedial action
Securities losses may be necessary and are allowable if it is in the best
financial interests of the City to adhOFe W the Investment PGIi Y in order
to maximize the performance of the City investment portfolio.This allows
_y " a the City to take advantage of security swaps. A swp is a trade of one .,�,
security for another, usually -to increase _ i ease yield in a rising interest rate
„
paying security at a slight loss in
environment. The City-maysell a lowers .
P q yielding order to purchase a similar, but higher ielding security which would
produce additional income for the City and make up for any loss on the
lower paying security that was sold. These losses should be restricted to
specified purposes and proper documentation, and the required approval
should be clearly defined for each staff person and further requires the
approval of the City Manager.
Written confirmation of telephone transactions for investments and wire
transfers
Due to the potential for error and improprieties arising from the lack of
written confirmations, all transactions must be supported by written
communications and approved by the appropriate person.
Documentation of transactions and strategies
All transactions and the strategies that may have been used to develop
the transactions must be documented in writing and approved by the
appropriate person.
k. Development of a wire transfer agreement with the concentration bank
This agreement must outline the various controls and security provisions
for making and receiving wire transfers.
2. Training and Education
It is the policy of the City to provide periodic training in investments for the
investment officials through courses and seminars offered by the
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Government Finance Officers Association, Municipal Treasurers Association
and/or other qualified and pertinent organizations. Such training shall be at
least eight (8) hours annually of continuing education in subjects or courses
of study related to investment practices and products.
C. Third -Party Custodial Agreements
The City will execute a Third Party Custodial Safekeeping Agreement with a commercial
bank's trust department which is separately chartered by the United States Government
and the State of Florida. All securities purchased and/or collateral obtained by the City
shall be properly designated as an asset of the City and held in safekeeping by the trust
department and no withdrawal of such securities, in whole or in part, shall be made from
safekeeping except by an authorized City staff member. The Third -Party Custodial
Safekeeping Agreement shall include letters of authority from the City, details as to
responsibilities of each party, notification of security purchases, sales, delivery,
repurchase agreements, wire transfers, safekeeping and transactions costs, procedures
in case of wire failure of other unforeseen mishaps including liability of each party.
Internal controls shall include details of delivery vs. payment procedures and trust receipt
documentation. Such controls and procedures shall be reviewed annually by the
External Auditor.
Delivery Versus Payment
All securities purchased or sold will be transferred when possible only under
the "delivery versus payment" (D.V.P.) method or "payment versus delivery"
method to insure that funds or securities are not released until all criteria
relating to the specific transactions are met.
2. Trust Receipt and Confirmation
The Director of Finance or designee is authorized to accept, on the behalf
of and in the name of the City of Tamarac, bank trust receipts or
confirmations in return for investment of temporarily idle funds as evidence
of actual delivery of the obligations or securities. Any such trust receipt or
confirmation shall fully describe the various obligations or securities held,
together with the specific identification number of each obligation or security
held, and that they are held for the City of Tamarac. The actual obligations
or securities, whether in book -entry or physical form, on which trust receipts
or confirmations are issued may be held by a third party custodial bank
and/or institution or a designated corresponding bank or custodian
institution which has a correspondent relationship to the City's third party
custodian or its correspondent institution, who is acting on behalf of and
under the obligation as the City's third party custodian. The above shall
apply to all investments with the exception of securities underlying overnight
repurchase agreements; the custodial relationship for these instruments is
described in Third -Party Custodial Agreements.
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VII. AUTHORIZED AND SUITABLE INVESTMENT INSTRUMENTS
A. Investment Types
The following are the authorities for investments and limits on security issues, issuers,
and maturities as established within this policy. The Director of Finance or designee shall
have the option to further restrict investment in selected instruments, to conform to then -
present market conditions.
In accordance with Section 218.415, Florida Statutes, ,
authorized investments include:
1. The Florida Local Government Surplus Trust Fund (Administered by the State
Board of Administration and commonly referred as the "SBA").
2. Direct obligations of the U.S. Government which include but are not limited to
Treasury Bills, Treasury Notes, Treasury Bonds and Treasury Strips.
3. Obligations guaranteed by the U.S. Government as to principal and interest which
include but are not limited to Government National Mortgage Association (GNMA),
Farmers Home Administration (FmHA), Small Business Association (SBA),
General Services Administration (GSA), Federal Housing Administration (FHA),
Housing and Urban Development (HUD), Tennessee Valley Authority (TVA).
4. Time deposits and savings accounts in bank and savings and loan associations,
under the laws of Florida and the United States, doing business in and situated in-
state. All such deposits shall be collateralized as provided for by Florida Statutes
Chapter 280.
5. Securities issued and guaranteed by a federally sponsored corporation which are
backed by, or the entity is capable of borrowing from, the U.S. Treasury. These
securities carry the "implied guarantee" of the U.S. Government and include the
Federal Farm Credit Banks (FFCB), Federal Home Loan Bank Mortgage
Corporation (FHLMC) (participation certificates), Federal National Mortgage
Association (FNMA), Federal Home Loan Bank (FHLB) or its banks.
6. Commercial Paper of any United States corporation provided such notes have a
rating of A1/P1 by at least two of the five rating agencies.
7. Bankers Acceptance eligible for purchase by the Federal Reserve System issued
by banks having a Moody's or Standard and Poor's commercial paper rating of at
least Al/P1.
8. Securities and Exchange Commission registered money market funds shares that
are open-ended, no-load funds registered under the Federal Investment Company
Act of 1940 Rule 2a-7 — Money Market Funds.
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B. Collateralization
Collateralization will be required on two types of investments: certificates of deposit and
overnight repurchase agreements (as deSGFibedin the City Gede,-SeGtien 6 26). In order
to anticipate market changes and provide a level of security for all funds, the
collateral ization level will be 100.0% at a minimum with up to 102.0% being desired.
C. Repurchase Agreement
Overnight Repurchase Agreements are the only repurchase agreements authorized for
funds not related to bond issues as state in the Gity Gede, Ge^tiGr 6-26. If repurchase
agreements are legal and authorized by policy, a Master Repurchase Agreement must be
signed with the bank or dealer. (e.g.) a Bond Market Association formerly the PSA,
Master Repurchase Agreement or equivalent).
D. Compliance with City's_Bond _Covenants: Investment of Bond Related Funds
1. Certain surplus funds available for investment represent capital progect funds
generated through_ the issuance of _long term bonded indebtedness, or
represent. debt service funds created for the repayment of outstanding
principal and interest on such bonded indebtedness. Whenever ordinances
and/or resolutions adopted by the City Commission which authorize the
issuance of such bonded indebtedness contain specific provisions relative to
the investment of funds, the investment of such funds shall comely with the
p rovislon of the applicable bond ordinance and/or resolution, the requirement
contained in this poligy,and applicable statuto or administrative law.
In addition
to investments otherwise authorized by
this policy
and
notwithstanding the provisions of Section Vill hereof to
the contrary,
the
following investments are authorized by this policy with
respect to capital
ro'ect funds
debt service and debt service reserve funds
whether required
by the bond
ordinance or resolutions or established by
City for
cash
management
,the
purposes) established in connection with bonded indebtedness
of the City.
a. Repurchase Agreements or Forward Delive Agreements with an
financial institution or entity, government securities dealers, insurance
company.,_financial corporation or similar organization (a "Provider")
whose unsecured debt is rated, or with _ a wholly -owned subsidiary
Provider whose obligations are guaranteed _ by a parent corporation
_whose unsecured debt is rated, not less than A" long term or "A-1" short
term by S&P and "AT long term or "P-1 " short term by Mood 'sprovided:
(1) Securities eligible__ for these agreements are limited to those
described in clauses 2, 3, and 5 of Section VI I ;A. hereof;
IN
LQ Securities or collateral under suchagreements must be held by a
third party custodian servincLas agent for the City; and
Repurchase Agreements „must have a Master _Repurchase
Agreement signed by both the City and the dealer; Repurchase
Agreements must be collateralized at 102.0% for United States
o UnitedGovernment Treasuries and 103.0 /o for United States e --nt Agencies.
..
Repurchase Agreements marked -to -market reements must be on a weekly „
basis and any collateral ization shortfalls must be cured within
twenty-four (24) hours.
The City receives an opinion of counsel that such agreement is an
enforceable obligation of the Provider.
b. Investment Agreements with a Provider who have _ an unsecured,
uninsured and un uaranteed credit rating/or claims -paying ability rating,
or whose obligations, ,are guaranteed by a parent corporation or holding_
company which has an unsecured, uninsured and unquaranteed credit
rating_ of"AA-"_or better by S&P or "Aa3" or better by Moody's provided:
M Interest is Imid at least semiannggily at a fixed rate during the entire
term of the aareement:
L2� Moneys invested thereunder may be withdrawn without any penalty,
premium or charge upon ,not less than two daya notice (Provided
such notice may be amended or cancelled at any time prior to the
withdrawal date):
(3� The agreement is not subordinated to any other. obligations of the
Provider: and
The City receives an opinion of counsel that such agreement is an
enforceable obligation of the Provider.
The Director of Finance of the City may solicit bids or proposals for agreements meeting
the. requirements described above and negotiate the terms thereof. The agreements in
y , L, ct to approval by resolution of the City Commission
substantial) final farm shall be sub'e_,.. .
of the City.
E. Purchase of City's Utility Bonds
The City may use funds on hand to purchase in the open market outstanding utility
system bonds. Pursuant to Resolution R-85-436, section 512(b), monies held in the
General Reserve Fund under the Bond Resolution may be used to "purchase or redeem
bonds." Under Section 208, sub section (a), Director of Finance is authorized to
purchase any outstanding Term Bonds "on the most advantageous term obtainable with
reasonable diligence, such as price not to exceed the principal of such Term Bonds plus
the amount of the redemption premium, if any, which might on the next redemption date
13
be paid to the holder of such Term Bonds ... if such Term Bonds should be called for
redemption on such date from monies in the Sinking Fund."
VIII. INVESTMENT INSTRUMENTS NOT AUTHORIZED
Types of securities that are Non -Authorized and not suitable for investment (and in
accordance with Section VII of this policy) include the following as examples:
A. High Grade Corporate Debt
U.S. dollar denominated debt obligations of domestic or foreign corporations, or foreign
sovereignties issued in the United States or in foreign markets. This shall include, but not
be limited to, corporate notes, bonds, medium term notes, Eurodollar notes and bonds,
Yankee notes and bonds.
B. Repurchase Agreements
Transaction in which securities are purchased from an institution with an agreement to re-
sell the same securities on a specified future date with the exception of overnight repos.
C. Derivative Investment Products
This includes but is not limited to collateralized mortgage obligations (CMOs) interest -
only (IOs) and principal only (POs), forwards, futures, currency and interest rate swaps,
options, floaters/inverse floaters, and caps/floors/collars.
IX. INVESTMENT PARAMETERS
A. Diversification
It is the policy of the City of Tamarac to diversify its investment portfolios. Assets held
shall be diversified to control the risk of loss resulting from over concentration of assets in
a specific maturity, a specific issuer, a specific instrument, a class of instruments, and a
dealer through whom these investments are bought and sold. Diversification strategies
within the established guidelines shall be reviewed and revised periodically as necessary
by the appropriate management staff and approved by the Director of Finance (See
Table 1, page 18).
B. Maximum Maturities
To the extent possible, the City will attempt to match its investments with overall
anticipated cash flow requirements. The City will not invest in long term securities unless
matched to a specific cash flow requirement.
Investments do not necessarily have to be made for the same length of time that funds
are available. The basic criteria for consideration for investments are listed below:
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• Keep maturities short in a period of constantly rising interest rates based on
treasury bill auctions or the daily Fed Funds rate.
• Keep maturities short in a period of an inverted treasury yield curve (short term
rates are higher than long term rates).
• Maturities should be lengthened when the treasury yield curve is normal and
expected to remain that way based on economic reports taken as a whole.
The yield curve is normal when short term rates are lower than long term rates.
• Maturities should be lengthened when interest rates are expected to fall based
on economic reports taken as a whole.
• The yield curves of the market should be analyzed for significant breaks in
yields over various maturity dates. The points at which the yield curve breaks
are the points at which there are significant marginal declines in yields for
incremental changes in the maturity dates. Investments should be made at the
breaks in the yield curve so that yields will be maximized.
C. Duration
The duration of each investment should not exceed the stated maturity.
D. Security Selection
When purchasing or selling securities, the Director of Finance or designee shall select
the security which provides the highest rate of return within the parameters of this policy
(see Investment Objectives) and given the current objectives and needs of the City's
portfolio. These selections shall be made utilizing one of the following methods:
• Competitive bids, wherein the City solicits quotes from a minimum of three
firms.
• Comparison to the current market price as indicated by one of the market
pricing resources available to the City (such as the City's financial advisors, the
Wall Street Journal, or a comparable nationally recognized financial publication
providing daily market pricing)
In most situations, the City shall utilize the competitive bid process to select the securities
to be purchased or sold. Selection by comparison to current market prices, as indicated
above, shall be utilized when, in the judgement of two members of the investment staff,
competitive bidding would inhibit the selection process. Examples of when this might
occur are:
• When time constraints due to unusual circumstances preclude use of the
competitive bidding process.
• When the transaction involves new issues or issues in the "when issued"
market.
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When using the competitive bid process, all bids shall become part of the record of the
specific security involved. When the selection is made based on comparison to current
market price, the following information shall become part
of the record of the security involved:
• Reason for use of this method.
• Source of the current market value used.
• Price and/or interest rate quoted by said source.
E. Policies to Enhance Return on Investment
The City's investment strategy is active. Given this strategy, the basis used by the
Director of Finance to determine whether market yields are being achieved is the State
Board of Administration (State Pool). The following specific policies are set forth below to
provide additional guidance in implementing Return on Investment objectives.
1. Active Portfolio Management
It is the policy of the City to actively manage the investment portfolio within the
constraints outlined in these investment policies. By using an active portfolio
management philosophy, portfolio yield will be enhanced without an appreciable
increase in risk.
2. Portfolio Maturity Management
When structuring the maturity composition of the investment portfolio, it is the
policy of the City to evaluate current economic conditions, relative interest rate
levels and general direction of interest rates. During periods where economic
conditions demonstrate considerable potential for interest rate increases in the
near future, the City will consider appropriate actions to shorten maturities.
Similarly, during periods where economic conditions demonstrate potential for
interest rate decreases in the near future, the City will consider appropriate actions
to lengthen maturities.
3. Bond Swaps
It shall be the policy of the City to pursue bond swaps as they may present
themselves over the term of any investment. All swaps shall adequately
compensate the City for administrative costs, reinvestment risk, and quality
considerations. The following categories of bond swaps are considered
appropriate for the City:
a. Market aberrations are often caused by supply and demand conditions
for particular securities. For example, if a short supply exists for a
particular security or maturity range, then it may be advantageous to
swap out of a security in short supply and into another similar security.
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b. Swaps Between Different Issuers:
Interest rate differentials commonly exist between U.S. Treasury and
agency securities. Periodically, these relationships may become
distorted and thereby present advantageous swap opportunities. At
times it may be difficult to isolate the swap opportunities that are
attributable to this factor or (1) above.
c. Swaps to Reduce Maturity:
Market aberrations occasionally create a situation where longer maturity
securities are yielding the same or less than securities with a shorter
maturity. Portfolio quality can be improved by switching from the longer
maturity security to the shorter maturity security with little or no interest
penalty.
d. Overall Loss vs. Initial Accounting Loss:
It is the City's policy to avoid all swaps that result in a loss over the
accounting period of the applicable securities. Other swap transactions
may result in initial accounting losses for the owned security but offer a
gain over the maturity period of the applicable securities. The City is
generally reluctant to enter into this latter form of swap but reserves the
discretion to incur such initial accounting losses in the event the
transaction offers sufficient enhancements to yield, maturity or credit risk
with the approval of the Director of Finance
IIN
Table 1
investment
rarameters
Authorized
Investments
Maturity
Range
Minimum
Percent (%)
Maximum
Percent (%)
State Board of Administration (SBA)
N/A
5%
90%
Overnight Repurchase Agreement
N/A
N/A
N/A
U.S. Treasury Securities
15 years
10%
95%
U.S. Government Obligations (e.g. GNMA,
HUD, FMHA, SBA, GSA, FHA, TVA)
10 years
0%
85%
U.S. Government Instrumentalities (e.g.
FFCB, FHLMC, FHLB, FNMA)
10 years
0%
85%
Certificate of Deposits
5 years
0%
85%
Commercial Paper
270 days
0%
10%
Bankers' Acceptance
270 days
0%
10%
Money Market Funds
N/A
0%
20%
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A. Method
The Director of Finance shall generate monthly reports for the City Manager and
for the City Commission. The report shall summarize the investment strategies
employed and describe the portfolio in terms of investment securities, maturities,
risk characteristic, by class or type, book value, income earned, and market value as of
the report date. Such reports shall be available to the public.
The Director of Finance or Designee shall provide other such reports and information as
deemed reasonable, upon request from other internal and external sources.
B. Performance Standards
The investment portfolio will be managed in accordance with the parameters specified
within this policy. The portfolio should obtain a market average rate of return during a
market/economic environment of stable interest rates. Portfolio performance should be
compared to appropriate benchmarks on a regular basis. The City shall use the Florida
Local Government Surplus Funds Trust Fund (SBA) plus five (5) basis points as a
specific benchmark for the City investment portfolio.
C. Marking to Market
A statement of the market value of the portfolio shall be issued at least monthly. This will
ensure that the minimal amount of review has been performed on the investment portfolio
in terms of value and subsequent price volatility.
XI. POLICY
A. Exemption
Any investments currently held that do not meet the guidelines of the policy shall be
exempted from the requirements of this policy. At maturity or liquidation, such monies so
invested shall be reinvested only as provided for in this policy.
The Director of Finance or designee may take a sufficient period of time to adjust the
existing portfolio to the provisions of the policy so as not to require the premature
liquidation of any investment.
B. Amendment
This policy shall be reviewed on a timely basis. Any material changes to the Investment
Policy should be recommended by the Director of Finance and the City Manager and
approved by the City Commission.
C. Effective Date
This policy shall become effective immediately upon its adoption by the City Commission.
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GLOSSARY
BANKERS ACCEPTANCE:
Time draft drawn on and accepted by a bank, the customary mans of effecting payment
for merchandise sold in import-export transactions and a source of financing used
extensively in international trade.
BANKING SERVICES AGREEMENT:
The purpose of the all -encompassing banking services agreement is to combine all
facets of the total banking relationship into a single document. Depending on the nature
and scope of the requesting banking services, the banking services agreement may
include any member of provisions.
CAPITAL ADEQUACY GUIDELINES:
One test of a dealer's financial solvency is the relationship between the firm's capital
position and its risk exposure, known as capital adequacy. Losses that result from
trading and credit risk reduce the capital of the firm. After capital is exhausted, further
losses may fall on the firm's customers if the Broker/Dealer is holding the securities.
Capital adequacy guidelines measure trading and credit risk to the available liquid capital.
CAPITAL PROJECTS FUNDS:
Accounts for financial resources to be used for the acquisition or construction of major
capital facilities.
CERTIFICATE OF DEPOSIT (CD):
A time deposit with a specific maturity evidenced by a certificate. Large denomination
CD's are typically negotiable.
COLLATERAL:
Securities, evidence of deposit or other property which a borrower pledges to secure
repayment of a loan. Also refers to securities pledged by a bank to secure deposits of
public monies.
COMMERCIAL PAPER:
Short-term obligations with maturities ranging from 2 to 270 days issued by banks,
corporations, and other borrowers to investors with temporarily idle cash. Such
instruments are unsecured and usually discounted.
CREDIT RISK:
Credit Risk is the risk of loss due to the failure of the security issuer or backer. Credit risk
may be mitigated by: limiting investments to the safest types of securities; prequalifying
the financial institutions, brokers/dealers, intermediaries, and advisors with which the City
will do business; and diversifying the investment portfolio so that potential losses on
individual securities will be minimized.
DEBT SERVICE FUNDS:
Accounts for the accumulation of resources for, and the payment of, general long-term
principal and interest.
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DELIVERY VERSUS PAYMENT:
There are two methods of delivery of securities: delivery versus payment and delivery
versus receipt (also called free). Delivery versus payment is delivery of securities with an
exchange of money for the securities. Delivery versus receipt is delivery of securities
with an exchange of a signed receipt for the securities.
ENTERPRISE FUNDS:
Accounts for operations (a) that are financed and operated in a manner similar to private
business enterprises --where the intent of the governing body is that the costs of providing
goods or services to the general public on a continuing basis be financed or recovered
primarily through user charges; or (b) where the governing body has decided the periodic
determination of revenues earned, expenses incurred, and/or net income is appropriate
for capital maintenance, public policy, management control, accountability, and other
purposes.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC):
A federal agency that insure bank deposits, currently up to $100,000 per deposit.
FEDERAL HOME LOAN BANKS (FHLB):
The institutions that regulate and lend to savings and loan associations. The Federal
Home Loan Banks play a role analogous to that played by the Federal Reserve Bank vis-
a-vis member commercial banks.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA):
FNMA, like GNMA, was chartered under the Federal National Mortgage Association Act
in 1938. FNMA is a federal corporation working under the auspices of the Department of
Housing and Urban Development, H.U.D. It is the largest single provider of residential
mortgage funds in the United States. Fannie Mae, as the corporation is called is a
private stockholder -owned corporation. The corporation's purchases include a variety of
adjustable mortgages and second loans in addition to fixed-rate mortgages. FNMA
assumes and guarantees that all security holders will receive timely payment of principal
and interest.
FEDERAL RESERVE BANK:
The central bank of the United States created by Congress and consisting of a seven
member Board of Governors in Washington, D.C., 12 regional banks and about 5,700
commercial banks that are members of the system.
GENERAL FUND:
Accounts for all financial resources except those required to be accounted for in
another fund.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA OR GINNIE MAE):
Securities guaranteed by GNMA and issued by mortgage bankers, commercial banks,
savings and loan associations, and other institutions. Security holder is protected by full
faith and credit of the U.S. Government. Ginnie Mae securities are backed by FHA, VA
or FMHM mortgages. The term passthroughs is often used to describe Ginnie Maes.
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INTEREST RATE RISK:
Interest rate risk is the risk that the market value of securities in the portfolio will fall due
to changes in the general interest rates. Interest rate risk may be mitigated by:
structuring the investment portfolio so that securities mature to meet cash requirements
for ongoing operations, thereby avoiding the need to sell securities on the open market
prior to maturity; and by investing operating funds primarily in shorter -term securities or
by cash flow projections.
INTERNAL SERVICE FUNDS:
Accounts for the financing of goods or services provided by one department or agency to
other departments or agencies of the governmental units, on a cost reimbursement basis.
LIQUIDITY:
A liquid asset is one that can be converted easily and rapidly into cash without a
substantial loss of value. In the money market, a security is said to be liquid if the spread
between bid and asked prices is narrow and reasonable size can be done at those
quotes.
MONEY MARKET FUND:
Open-ended mutual funds that invests in commercial paper, banker's acceptance,
repurchase agreements, government securities, certificates of deposit, and other highly
liquid and safe securities. The funds net asset value remains a constant $1 a share —
only the interest rate goes up or down.
PORTFOLIO:
Combined holding of more than one stock, bond, commodity, real estate investment,
cash equivalent, or other asset by an individual or institutional investor. The purpose of a
portfolio is to reduce risk by diversification.
PRIMARY LEADER:
A group of government securities dealers that submit daily reports of market activity and
positions and monthly financial statements to the Federal Reserve Bank of New York and
are subject to its informal oversight. Primary dealers include Securities and Exchange
Commission (SEC) registered securities broker -dealers, banks, and a few unregulated
firms.
PRUDENT PERSON RULE:
An investment standard. In some states the law requires that a fiduciary, such as a
trustee, may invest money only in a list of securities selected by the state--the-so-called
legal list. In other states the trustee may invest in a security if it it one which would be
bought by a prudent person of discretion and intelligence who is seeking a reasonable
income and preservation of capital.
QUALIFIED PUBLIC DEPOSITORIES:
A financial institution which does not claim exemption from the payment of any sales or
compensating use or ad valorem taxes under the laws of this state, which has
segregated for the benefit of the commission eligible collateral having a value of not less
than its maximum liability and which has been approved by the Public Deposit Protection
Commission to hold public deposits.
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(MARKET) RATE OF RETURN:
The yield obtainable on a security basis on its purchase price or its current market price.
This may be the amortized yield to maturity on a bond or the current income return.
REPURCHASE AGREEMENT (RP or REPO):
A holder of securities sells these securities to an investor with an agreement to
repurchase them at a fixed price on a fixed date. The security "buyer" in effect lends the
"seller" money for the period of the agreement, and the terms of the agreement are
structured to compensate him for this. Dealers use RP extensively to finance their
positions. Exception: When the FED is said to be doing RP, it is lending money, that is,
increasing bank reserves.
SAFEKEEPING:
A service to customers rendered by banks for a fee whereby securities and valuables of
all types and descriptions are held in the bank's vaults for protections.
SAFETY:
Relates to the volatility of the principal of the investment. Complete safety means no
increase or decrease in nominal value. The original sum invested is returnable to the
investor either at the investor's option or at the end of some short contractual period.
SECONDARY MARKET:
Exchanges and over-the-counter markets where securities are bought and sold
subsequent to original issuance, which took place in the PRIMARY MARKET. Proceeds
of secondary market sales accrue to the selling dealers and investors, not to the
companies that originally issued the securities. Market in which money-market
instruments are traded among investors.
SECURITIES & EXCHANGE COMMISSION:
Agency created by Congress to protect investors in securities transactions by
administering securities legislation.
SPECIAL REVENUE FUNDS:
Accounts for the proceeds of specific revenue sources that are legally restricted to
expenditure for specified purposes.
SWAP:
Trading one security for another, usually to increase yield in a rising_ interest rate
environment, -where one security is sold at a loss but is re faced with a higher yielding
security which. when the two transactions are netted. results in a aain for the Citv.
THIRD PARTY CUSTODIAL AGREEMENTS:
A safekeeping contract with a trust custodian not involved in the investment transaction.
TREASURY BILLS:
A non -interest bearing discount security issued by the U.S. Treasury to finance the
national debt. Most bills are issued to mature in three months, six months, or one year.
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TREASURY BONDS:
Long-term U.S. Treasury securities having maturities of more than ten years.
TREASURY NOTES:
Intermediate term coupon bearing U.S. Treasury securities having initial maturities of
from one to ten years.
TRUST AND AGENCY FUNDS:
Accounts for assets held by a governmental unit in a trustee capacity or as an agent for
individuals, private organizations, other governmental units, and/or other trust funds.
UNIFORM NET CAPITAL RULE:
Securities and Exchange Commission requirement that member firms as well as
nonmember securities maintain a maximum ratio of indebtedness to liquid capital of 15 to
1; also called net capital rule and net capital ratio. Indebtedness covers all money owed
to a firm, including margin loans and commitments to purchase securities, one reason
new public issues are spread among members of underwriting syndicates. Liquid capital
includes cash and assets easily converted into cash.
WIRE TRANSFER AGREEMENTS:
Many banks require an executed Wire Transfer Agreement from their commercial
customers - those who utilize the Fedwire system as a means for transferring large
amounts of funds on a regular basis.
YIELD:
The rate if annual income return on an investment, expressed as a percentage. (A)
INCOME YIELD is obtained by dividing the current dollar income by the current market
price for the security. (B) NET YIELD or YIELD TO MATURITY is the current income
yield minus any premium above par or plus any discount from par in purchase price, with
the adjustment spread over the period from the date of purchase to the date of maturity of
the bond.
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