HomeMy WebLinkAboutCity of Tamarac Resolution (337)Temp. Reso. #9980
November 18, 2002
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CITY OF TAMARAC, FLORIDA
RESOLUTION NO. R-2002- 3_37
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.
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
WHEREAS, the City Commission of the City of Tamarac adopted a
revised Investment Policy by Resolution R-2001--262 attached hereto as Exhibit
1; and
Temp. Reso. #9980
November 18, 2002
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WHEREAS, the City of Tamarac desires to have its Investment Policy
certified by the Municipal Treasurers' Association; and
WHEREAS, the Municipal Treasurers' Association recommends the
addition of the following verbiage to Section VII. C. (hereto attached as Exhibit 2)
in order to receive certification of the policy : If repurchase agreements are legal
and authorized by policy,a Master _Repurchase Aqreement must be sianed with
the bank or dealer. (e.g. a PSA Master Repurchase Aqreement or eauivalent)
WHEREAS, the City of Tamarac executed a Master Repurchase
Agreement with Wachovia Bank, N.A. (f/k/a First Union National Bank) by
Resolution 2001-289; and
WHEREAS, the City of Tamarac Director of Finance and Finance and
Policy Officer recommend the revision of the Investment Policy in order to
receive certification; 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 Section VII. Authorized and Suitable Investment Instruments C.
Re urchase A reement of the City of Tamarac Investment Policy be revised to
include the recommended language in order to receive certification.
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Temp. Reso. #9980
November 18, 2002
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NOW, THEREFORE, BE IT RESOLVED BY THE CITY COMMISSION OF
THE CITY OF TAMARAC, FLORIDA:
SECTION 1: The foregoing "WHEREAS" clauses are hereby
ratified and confirmed as being true and correct and are hereby made a specific
part of this Resolution.
SECTION 2: The appropriate City Officials are hereby authorized
to revise Section VII. Authorized and Suitable Investment Instruments C.
Repurchase A reement of the City of Tamarac Investment Policy to include the
recommended language in order to receive Certification of the Investment Policy
by the Municipal Treasurers' Association.
SECTION 3: All resolutions or parts of resolutions in conflict
herewith are hereby repealed to the extent of such conflict.
SECTION 4: 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.
Temp. Reso. #9980
November 18, 2002
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SECTION 5: This Resolution shall become effective immediately
upon its passage and adoption.
PASSED, ADOPTED AND APPROVED this 27`t' day of November, 2002.
MARION SWE SON, CMC
CITY CLERK
I HEREBY CERTIFY that
I have approved this
RESOLUTION as to form.
MIT.CHELL S. K
CITY ATTORP
JOE SCHREIBER, MAYOW
RECORD OF COMMISSION
MAYOR SCHREIBER
DIST 1: V/M. PORTNER
DIST 2: COMM. MISHKIN
DIST 3: COMM. SULTANOI
DIST 4: COMM. ROBERTS
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Temp. Reso. # 998()
November 18, 2002
No Text
R1V-,�"a,)
CITY COMMISSION
1 AMARAC, FI. cm)RIDA
JOE SCHREIBER.
MAYOR
MARC L. SUL.TANOF
VICE -MAYOR
GERTRUDE MISHKIN
COMMISSIONER
EDWARD C. PORTNER
COMMISSIONER
KAREN ROBERTS
COMMISSIONER
JEFFREY L. MILLER
CITY MANAGER
MITCHELL_ KRAFT
CITY ATTORNFY
DONA J. NEWMAN, LEANNE WILLIAMS,
CPA, CGFO CPA
DIRECTOR OF FINANCE AND POI ICY
FINANCE OFFICER
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Table of Contents
1. PURPOSE ....................................... ............................ 4
II- SCOPE ......................... ........................... 4
Ili. DEFINITIONS ..................................... ............................. _4
IV. OB,)[ C,1 IVES...................... ...... ........ I .............
. 5
A. Satety ............................................ ...... ............. .........,,..........
.............5
B t.ictuidity .................... .
C- Yicad.................................................................. `7
V. STANDARD OF CARE ....................................................... .......................--.
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A- Prudence....................................................................................................
B. Ethics and Conflicts of Interest...............................................................
C. Delegation of Authority ......................... ........................................... .. ..........Ci
V1. SAFEKEEPING:; AND CUSTODY -------------- .............................................................7
A. Authorizc;d I"financial Dealers and Institutions............................................7
B. Internal Controls. ............ -----------------_ _ .... ...... _
C. Third -Party Custodial Agreements........................................................... .10
VI1- AUTHORIZED AND SUITABLE INVESTMENT INSTRUMENTS .......................11
A. Investr'neril .l ypes....................... ....... ...-----....11
B. Collateralixalion......................................................... ............ .---------12
C. Repurchase Agreement........................................................ -----......... 13
D. Compliance with City's Bond Covemants..................................................13
E. Purchase of City's Utility Bond,,;-. ---- .............. ....... ------ __ 13
VIII. INVESTMEN _ INSTRUMENTS NOT AUTHORIZED___ ......... .......... -------- _ 13
A. High Grade Corporate Debt......................................................................13
Q. Repurchase Agreements..........................................................................14
C. Derivative Investment Products__.. ------------------- ....................... __ ---- 14
lX. INVESTMENT PARAMETERS ....... . . ............................................ ---14
A. Diversilication................................................................................ ----14
B. M<axirraum Maturities.................................................................... .....14
C. Duration............
D. Security Selection..................................................................................1 a
E. Policies to Enhance Return on Invcstmonl..---.--...
TABLE 1 Investment Parameters.................................................................. 18
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Table of Contents
RFPORTING.................................................................
---.................-----....--.. 1
A- Method .....--.. .. ....................................................................................
1
B- Performance Standards ...............
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C. Marking to Market .......... ............... ---
--------------- ..................................... 19
XI- POLICY ------------------ - ...... ......................................
.------...........................----.-........19
A- Exemption................................................................................................19
C3. Amendment ... .......................................................
C;. Effective Date— ...............................
..... .........................�---..2Q
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GLOSSARY-- - ----- ---------- ------------ - ...............
...........................---------.....21
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City of Tamarac, Florida
Investment Policy
I. PURPOSE
The intent of this policy is to provide the Director of Finance and designated staff
with st.rfficient latitude to effectively manage the City of Tam arac's (City) financial
assets so as to:
1) Fnsrare the preservation of principal,
2 Maintain sufficient crash flaw to enable the City to meet its
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' obligations, and
.3) Maximize the; return on assets with an acceptably low exposure to
' risk.
Ill. 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 r.►ses are restricted by debt covenants, prior contracts, legal,
regulatory or other constraints.
' All financial assets helot 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 hc;rr:,in set forth_ The guidelines, provided herein, are the
general operating procedures. General operating funds include:
General I and
Special Rev(-anue Funds
Debt Service; 1111tinds
Capital Projects,
Enterprise Funds
Internal Service Funds
Trust and ngenc;y Funds
and any new funds cro ated by the governing body,
unless specifically exempt_
' Ill.. DEFINITIONS
See Glossary Section (Page 21)
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IV. OBJECTIVES
The following investment objectives will be applied in the naanagernent 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, whol;her from market value fluctuations or credit erosion.
This objective: includes mitiC.tation of credit risk and interest rate: risk.
B. Liquidity
The investment portfolio shall remain sufficiently ligtaid to meet all operating
requirements that may be reasonably anticipated. This will be accomplished by
structuring the portfolio so thaat sect.irities mature concurrent with cash needs to
rneet anticipated demands. furthermore, since all possible crash demands
cannot be anticipated, ttae portfolio will consist largely of securities with active
secondary markets.
C. Yield
The investment portfolio shall be designed with the, obie;ctive of attaining a
market rate: of return throughout budgetary and ecoraonaic cycles, taking into
account the investment risk constraints and liquidity raceds. Return on
investment shr_all not heave: 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.
S(�(:.uritie s 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.
A. Prudence
The standard of prudence to be applied by the Director of finance or designee
shall be the, "Prudent Person Ruler" which states: "Investments shall be made
with judgment and c,arc,, undc,r circumstances then prevailing, which persons of
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prudence, discretion and intelligence exercise in the managen'ient 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.
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 he related to the performance of the: investment portfolio. Officers and
employees shall be prohibited from undertaking personal investrraent transactions
with the sarne 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.
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' 2. The Director of Finance: shall have the authority to further restrict
the authority delegated to any staff merYaber.
' 3. -1 fie Director of Finance shall prc;pare 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) incorfle earned,
(3) book value; and
(4) market value
® fa. Performance= Measr.arement Reports for the City's
■1 Aggrectate> Investment Portfolio, as well as for each
separate portfolio and respective third -party manager.
4. prequired f-he reports which are 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
' authorizc;d to provide investment services. In addition, a list will be maintained of
approved security brokers/dealers selected by credit worthiness who are.
authori/ed to provide investment services in the State of Florida. These may
include "primary" do,=,lers 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 he placed only with financial institutions which qualify
Icruder 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 depositaries), 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 he maintained by the Director of Finance or his
designee. Criteria for addition to or deletion from the lists will be based on the
following:
I 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 are 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 rand 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) tho cost of a control should
not exceed the benefits likely to be derived (2) the valuation of costs and benefits
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requires estimates and Judgments by maraagement-
1. Establishment of Internal Controls
The inte;rn<al controls shall address the; following points:
a. Control of collusion
.......... .
Collusion is a situation where two or more employees are
working in conjunction to defraud.
b. Separation functions
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By separating key functions and having different people perform
c-��acfa function, each person can perform a "check and balance"
review of the other people; in the sarne area.
c- Separation of trans<ac;tionauthority from, accounting rand record.
f -
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
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Securities purchased from any bank or dealer, inducting
::appropriate collateral, should bc placed into a third party bank
for custodial safekeeping.
e. Prohibition of bearer -form securities
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Bearer -form securities are much easier to convert to personal
use, than are securities registered in the name of Ific City of
Tarnarac.
f. Avoidance of pfaysical delivery sc�-c:urities
Book entry sc�c urines are much easier to transfer and account
tear, since, actual delivery is never taken- Physical delivery
se, c irities must be properly sateguGarded as are any valuable
documents, the potential for frar.rd and loss increases with
physical delivery securities.
g. Clear delegation of authority to subordinate staff mernbers.
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Subordinate stuff 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. Sf)rrific limitations regardintecurities losses and rerxaedial
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<-action
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Securities losses may he, necessary to adhere to the Investment
Policy- 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.
i- Written confirmation of telephone transactions for investments
and wire transfers
DL.M 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.
f. Dcacurraentation of transactions and stratecfies
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All transactions and the strategies that may have: been used to
develop the transactions must tx> dc:acr.rmented in writing and
approved by the appropriate pE:rson-
k. development ot__ �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- Traininc�arid Education
It is the policy of the City to provides periodic training in investments
for the investrracnt officials through courses and seminars offered by
the Government. Finance Otfic:c.,rs Association, Municipal Treasurers
Association and/or other qualified rand pertinent organizations- Such
training shrill be at least eight (8) hours annually of continuing
education in subjects or courses of study related to inVestnlerat
practices and products.
' C. Third -Party Custodial, Agreements
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The City will execute a Third Party Custodial Scatekeepim Agreement with a
commercial bank's trust department which is separately charts?red 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 W snfekeeping by the trust department and no withdrawal of such
securities, in whole or in part, shall be made irorn safekeeping except by an
authorized City staff member. The Third -tarty Custodial Safekeeping
Agreement shall include letters of authority from the City, details as to
responsibilities of (,>�ac:h party, notification of security purchases, sales, delivery,
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repurchase agreements, wire: transters, safekeeping and transactions costs,
procedures in cease 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 Lando>r the "delivery versLas payment" (D.V.P.) method or
),) ayrnent versus delivery" method to insure that funds or securities
are not rE leasod untie all criterira relating to the specific transactions
are rr c t.
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 I amarac, 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 slaecitic
identification number of each obligation or security held, and that
they are held for the City of I amarac.. The actual obligations or
securitic_>s, whether in book -entry or physical form, on which trust
receipts or confirmations are issued may be held by a third party
custodIA hank 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',-, third party custodian, 1-he above shall apply to all
investments with the exception of securitic:;s underlying overnight
repurchase ,agreements; the custodial relationship for these
instruments is described in Third -Party Custodial Agreements.
VII. AUTHORIZED AND SUITABLE INVESTMENT INSTRUMENTS
A. Investment Types
f toe following are the authorities for investments and limits on security issues,
issuers and maturities as establish(, -A within this policy. The Director of Finance
or cfes1gnc-:c> shall have the caption to further- restrict investrraent in selected
instruments, to conform to then -present inarket conditions.
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In accordance: with Section 218.415, Ronda Statutes, sand section 6-26, City
Code, authorized investments include:
1. the Florida I.cacal Government Surplus ] rust Fund (Administered by the
State Board of Adrrairaistration 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.
1 Obligations guaranteed by the U.S. C:,overnment as to principal and
interest which include but are not limited to Government National
Mortgage Association (GNMA), Farmers Home Administration (FmlIA),
Sm<:all Business Association (SBA), General Services Administration
(GSA), Federal Housing Administration (FHA), Housing and Urban
Dvvc::lopment (HUD), Tennessee Valley Authority ( I VA).
4. I ime deposits and savings accounts in bank and savings and loan
associations, under the laws of Florida and the United States, doing
business in uric situated in -state. All such deposits shall be collateralized
-as provided for fay Florida Statutes Chapter 280-
:5. Securities issued and guaranteed by a federally sponsored corporation
which are by, or the, entity is capable of borrowing from, the U.S.
Treasury. these securitic;s carry the "implied guarantee:" of the U.S.
Government and include the Federal Farm Credit Banks (Ff CB), Federal
Home Loan Bank Mortgage Corporation (FHLMC) (participation
certificates), Federal National Mortgage Association (FNMA), Federal
Home Loan Bank (FHLB) or ils 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 Deserve System
issued by banks having a Moody"s or Standard and Poor°s corramercial
paper rating of at least A1/P1.
8. Securities and Exchange Commission registered money market funds
shares that -arc: open-ended, no-load funds registered under the Federal
Investment Company Act of 1940 Rule 2a-7 — Money Market Funds,
B. Collateral ization
Coilateralization will be required on two types of investments: certificates of
deposit and overnight repurchases agreements (as described in the City Code,
section 6-26). In order to anticiprate market changes and provide ra level of
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security for all funds, the collateralization level will be 100-01% at a minimum with
ufa to 102.0% being desired-
C. Repurchase Agreement
Overnight Repurchase Agree:rnorits are the only repurchase agreements
authorized gas stated in the City Code, section 6-26.
D. Compliance with City's Bond Covenants
Certain surplus funds available for investment represent capital project funds
generated through the issuance of long term banded indebtedness, or represent
debt service hinds created for the repayment of outstanding principal and interest
on such banded ind(,fhtedriess. Whenever ordinances and/or resolutions
adopted by the City Commission which authorize the Issuance of such bonded
irade,ble:.adness contain specific provisions relative to the investment of funds,, the
Investment of such funds shall comply with the provision of the applicable bond
ordinance and/or resolution, the requirement contained in this policy, and
applicable statutory or administrative law.
E. Purchase of City's Utility Bonds
The City may use funds on hand to purchase in [lie open market outstanding
tatility system bonds. Ptirsuarit to Resolution R-85-/1136, section 512(b), rraoraic>s
hold in the General Re serve: 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 terra obtainable with reasonable diligence, such as price not to
exceed the principal of such Term Bonds plus the amount of the redemption
premium, If May, which might on the next rederraption date 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."
Vill. INVESTMENT INSTRUMENTS NOT AUTHORIZED
Types of securities that are Non -Authorized and not suitable for investment (anti
in accordance with Section VII of this policy) include the following as examples:
A. High Grade Corporate Debt
U.S. dollar deraorriim--ated 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 honds, Yankee, notes and bonds.
1 B. Repurchase Agreements
Transaction in which securities are purchased frorn an institution with an
agreement to re -sell the same securities on a specified futdrre elate with the
exception of overnight repos.
D. 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 Tarnarac to diversify its investment portfolios. Assets
held shall be diversified to control the risk of loss resultil1g, from over
concentration of assets in a specific maturity, a specific issuer, a specific
instrument, a crass 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 stuff arid approved by the Director of Finance (See Table 1, page
€ 8),
B. Maximum Maturities
To the extent passible, the City will attempt to match its investments with overall
anticipated cash flow requirements, The City will not invest in long terns
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:
• Keep maturities short in a period of constantly rising interest raters
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 terra 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 whale. The yield curve is normal whe:ri short term rates are
lower than long term rates.
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Maturities should be lengthcncd when interest rates are expected to
fall based on economic reports taken as a whole-
0 Fhe yield o-,urves of the market should be: analyzed for significant
hre<aks in yields over various rrr�aturity dates. The, points at which the
' yield curve breaks are the, points at which there are significant marginal
declines in yields for incremental changc;:s in the maturity dates.
Investments should be made at the breaks in the yield curve so that
yields will be maximized-
C. Duration
The durc:ation of each iravcstniont should not exceed the stated maturity.
D. Security Selection
When purchasing or, selling securities, the. Director of Finance or designee shall
sc lc,ct the security which provides the highest. rate of return within the parameters
of this policy (see Inve strra(_,nt. Objectives) and given the current objectives and
needs of the City`s portfolio. These scicctions shall be: made utilizing one of the
following methods:
• Competitive bids, wherein the City solicits quotes from a minimum of
three firms.
• Corrapprison 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 Markel: pricing)
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- etitivo bid process to select the
In r7lCpst SltllatlUrls, thE,. City shc711 1at111JC; the comp.
securities to be purchased or sold- Selection by comparison to current market
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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. Fxamples of when this might occur are:
• When time constraints due to unusual circumstances preclude use:: of
that: competitive bidding process.
• When the transaction involves new issue-s or issues in the "when
issued" market.
When using the competitive bid process, all bids shall become part of the record
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of the specific security invcplved. When the; selection is made based on
comparison to current market price, the following inforrraation shall become part
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Hcason for use of this method.
• Source of the current market value used..
• Price and/or interest rate quoted b saidsource.
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E. Policies to Enhance Return on Investment
f-he City's investment strategy is active. (_31-ven this strategy, the basis used by
the Director of Finance to determine whetter market yields are being achieved is
the State Board of Administration (State fool). The following specific policies are
set forth below to provide additional guidance in implementing Return on
Investment objectives.
I . Active Portfolio Management
It is the policy of the City to actively manage- the investment portfolio within
the constraints outlined in these investment policies. Ry rasing an active
portfolio ni anagoment philosophy, portfolio yield will he, enhanced without
an appreciable increase in risk.
>_ 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
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where econoinic 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
demonstrates 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 investrnOnt. All swaps shall adequately
compensate the City for administrative costs, reinvestment risk, and
duality considerations, The following categories of pond swaps are
considered appropriate for the City:
<a. Swaps to Increase Yield:
Market aberrations are often caused by supply and demand
conditions for particular securities. For example, if a short.
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supply exist,,, for particular security or maturity range, then
it may be advantageous to swap out of a security in short
supply and into another similar security.
Swaps Between Different Issuers:
Interest rate differentials commonly exist between U.S.
Treasury and agency securities. Periodically, these
relationships may hecome distorted and thereby present
advantageous swap opportunities. At times it may be diffictait.
to isolate the swap opportunities that are attributable to this
factor or (1) above.
Swaps to Reduce Maturity:
Markc:�t 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_
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.
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Table 1
Investment Parameters
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1 X. REPORTING
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A. Method
I he 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, incorne earned, and market value as of the; report date. Such reports shall
be available to the public_
The Director of Finance or De. signee shall provide other such reports and
information as deemed reasonable, upon request from other internal and external
sources.
B. Performance Standards
The investrrac>nt 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/c;conornic environment of stable interest rates. Portfolio
performance should be compared to appropriate benctamarks on a regular hasis.
The City shall rise the Florida Local Government Surplus Funds Trust Fund
(SBA) talus 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.
' I his will ensure that the minimal arrIOUnt of review has been performed on the
investment portfolio in terms of value and subsequent price volatility.
1 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.
I he 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 investrraent.
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1 B. Amendment
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This policy shall be reviewed on a timely basis. Any material changes to the
Investrrlc,rlt Policy should be rewrnmended by the director of Finzince and the,
City Manager and approvod by the City Commission-
C. Effective Date
This policy shall become effective immedi4ately Capon its adoption by the City
Commission.
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GLOSSARY
BANKERS ACCEPTANCE:
lime; draft drawn on aria accepted by a bank, the customary mans of effecting
payment for merchandise sold in irnporl-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 scopo of the requesting banking services, the banking sorvices
;-acjrcrernent 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:
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Accounts for financial resources to be used for the acquisition or construction of
major capital facilities.
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CERTIFICATE OF DEPOSIT (CD):
A time deposit with a specific maturity evidenced by a certificate. I arge
denomination CD's are typically negotiable.
COLLATERAL:
Securities, evidence of deposit or other property which a borrower pledges to
secure repayment of c-a loan_ Also refers to securities pledged by a bank to
secure deposits of public monies.
COMMERCIAL PAPER:
Short-term obligations with rMaturities ranging from % to 270 days issued by
b;�anks, corporations, and other borrowers to investors with temporarily idle cash.
Such instrurnenls are r..ansecured and usually discounted.
CREDIT RISK:
Credit Risk is the risk of loss due to the failure of the security issuer- or' backer.
Cre>dit risk may be rraillgJ Plod by: limiting investments to the,, safest types of
sec:uritir,,s; prequalifyinq 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 minimi/od.
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DEBT SERVICE FUNDS:
Accounts for the accumulation of- resources for, and the payment; of, general
lone -term principal and interest,
DELIVERY VERSUS PAYMENT:
There: are Iwo methods of delivery of securities: delivery versus payment and
delivery versus receipt (also called free). Delivery versus payment is delivery of
scc:raritics 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 prinnarily through user charges; or (b) where the
governing body has decided the periodic determination of revenues earned,
expenses incurred, and/or net income is appropriates for capital maintenance,
Public policy, management control, accountability, and other purposes_
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC):
A tcdcral agency that insure bank deposits, currently up to $100,000 per deposit.
FEDERAL HOME LOAN BANKS (FHLB):
1 he 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, Clank vis-a-vis member commercial hunks.
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
Mac:, 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 assurnes 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 Gongrc;ss and consisting of a
seven member Bonrd of Governors in Washington, I).C_, 12 regional banks and
about 5,700 commercial banks tha it are members of the system.
GENERAL FUND:
Accounts for all financial resources except those required to be accounted for in
another fund.
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GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA OR GINNIE
MAE):
Securitices guaranteed by GNMA and issued by mortgage. bankers, commercial
banks, savings and loan associations, and other institutions. Security holder is
protected by frill faith and credit of the U.S. Government. Ginnie; Mae securities
are backed by FI IA, VA or FMHM mortgages. The term passthroughs is often
used to describe Ginnie Maes.
INTEREST RATE RISK:
Interest rato risk is the risk that the; market value: of securities in the portfolio will
gall duce 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, therebyavoiding the need to sell
securities on the open rra,arket 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 departrraents or agencies of the governmental units, on a cost
reimbursement basis.
LIQUIDITY:
A lietuid asset is one that can be converted easily and rapidly into cash without a
substantial loss of value. In the money market, a seerarity 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 securitic s, certificates of
deposit, and other highly liquid and safe securities. The fa.ands net asset value
remains a constant $1 a share - only the interest rate goes up or down.
PORTFOLIO:
Combined holding of more than one :Mock, bond, commodity, real estate
investment, cash equivalent, or other asset by an individual or institutional
investor- The purpose of a portfolio is to r'educce risk by diversification.
PRIMARY LEADER:
A group c.al goveernment securities dealers that submit daily reports of markeet.
activity and 'positions and monthly financial statemcents to the I-ederal Reserve
Bank of New York and are subject to its informal oversight. Primary dealers
include Securities and Exchange Commission (SEC) registered securities broker-
de�alers, banks, and a few unregulated firms.
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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 is 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 clairn exemption frorn 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 valuer of riot less th,.m its maxis IUM liability and which has been approved by
the Public Deposit Protection Commission to hold public deposits
(MARKET) RATE OF RETURN:
The yield obtainable on a security basis on its purchase price or its current
market Brice. 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 "bLIyer" in effect
lends the "seller" money for the period of the agrc:;ement, and the terms of the
agreement nre structured to compensate him for this. Dealers use RP
extensively to finance their positions. Exception: When the FED is said to be
doing RFC, 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 hold in the bank's vaults for
protections.
SAFETY:
Relates to the volatility of the principal of the investment. Complete safety
means no increases or, decrease in nominal value. The original sure invested is
returnable to the investor either at the investor's option or at the end of some
short contractual period.
SECONDARY MARKET:
1. xchanges anci 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 thc; selcurities. Market in which
money-market instruments are traded among investors.
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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.
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. -1--reasury to finance
the national debt. Mast k_aills are issued to mature in three months, six months, or
one year.
' TREASURY BONDS -
Long -term tr1.S_ "I reasury 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 assc_:ts field 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 Exchangcw (;ornmission 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 not capital rall-o- Indebtedness covers
' all money owed to a firm, illCluding margin loans and commitments to purchase
securities, one reason raew public issues are, spread among memhe s of
under -writing syndicates. LigUid capital includes cash and assets easily
converted into cash.
WIRE TRANSFER AGREEMENTS:
Many bunks require an executed Wire Transter Agreclrraeni from their comrraercial
customers - those Who utilize the Fedwire system as a means for transferring
large amounts of funds on a regular basis.
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YIELD:
The rate if annU,.11 income return on an investment, expressed as a percentage.
(A) INCOME YIELD is obtained by dividing the current dollar income by the
(Airre,rit market price for the security. (B) NET YIELD or YIELD TO MATURITY is
the current income yield minus any preQ111,1111 ,.ibovc,, 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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