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HomeMy WebLinkAbout91-067 CITY OF LAKEVILLE RESOLUTION Date June 3, 1991 Resolution No. 91-67 Motion by Harvey Seconded by Sindt RESOLUTION APPROVING THE INVESTMENT POLICY NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of Lakeville, Minnesota that "The Investment Policy", a copy of which is attached hereto, is hereby adopted. APPROVED AND ADOPTED this 3rd day of June, 1991. i CITY OF EVILLE BY: D ane Zaun, or ATTEST- n ~ Charlene Friedges, ~.ty Clerk r • CITY OF LAKEVILLE THE INVESTMENT POLICY The purpose of this Policy Statement is to establish standards governing the investment of City funds. It is the City's policy that available funds be invested to the maximum extent possible, at the highest rates obtainable at the time of investment, in conformance with the legal and administrative guidelines outlined herein. STATEMENT OF POLICY Auplicability • This directive applies to all investments made by the City, irrespective of fund. Scope of Investments The City- will invest only in the following. instruments or those others that may subsequently be permitted by State Statute. a. United States Treasury Obligations b. Federal Agency Securities c. Repurchase Agreements (Repos) d. Certificates of Deposit (C.D.'s) e. Commercial Paper f. Banker's Acceptance g. Money Market Funds h. State of Minnesota or its Agencies These instruments are defined in the Appendix. • • Vendor Aspects The vendor aspects of investment activity will focus upon protection of taxpayer dollars and investment income, consistent with statutory authorization and financial prudence. The City will conduct its investment transactions with several legal competing, reputable investment security dealers and qualifying banks utilizing the following guidelines: A. Repurchase Agreements (Repos) i. Perfecting Collateral. Repo's are considered secured loans with securities as underlying collateral. The collateral in each Repo transaction shall be perfected. (Perfection is a legal concept by which the City attains the right to take delivery and ownership of the collateral involved in a loan in the event that a debtor defaults and files bankruptcy). With collateral perfection there is less principal risk for the City since the claim against the collateral is in place in relation to those of other parties. For Repo's with maturities of 21 days or less, collateral is considered perfected without security • delivery. For Repo's with maturities extending past 21 days, perfection occurs only by taking possession of securities. The City will insist on delivery of securities if the Repo transaction is greater than 21 days. 2. Selection of Repo Vendors. The City will purchase Repo's from vendors who meet certain criteria: a. Reporting dealers who are monitored by the New York Federal Reserve Bank. b. Nationally supervised commercial banks whose combined capital and surplus equals or exceeds $25,000,000. c. Local designated depository banks issuing Repo's in amounts of $500,000 or less and scheduled to mature in seven days or less. • 2 • Vendor Aspects (Continued: d. The qualifying bank or dealer must have demonstrated over a significant period of time, a successful, profitable, and reliable operation. e. The qualifying bank or dealer must have an established managerial component and knowledgeable professional staff capable of ensuring the continued success of the enterprise. B. Local Investments In order to provide an opportunity for small local banks to compete in the bidding process, efforts will be made to offer smaller dollar amounts for bid. The City of Lakeville will purchase short-term and medium-term certificates of deposit from vendors based on the following criteria: 1. The rate should match or exceed other investment options. • 2. The collateral shall be government securities in excess of FDIC maximum insurance ($100,000 under current law). C. Bankers Acceptances Although authorized by Minnesota Law, Bankers Acceptances and Commercial Paper are more risky than instruments of the Federal government or Federal agencies. Because of the credit risk, the City of Lakeville will follow these guidelines: 1. Bankers Acceptances shall be restricted to the top 40 banks in the United States (as measured by deposits). 2. The broker, dealer, or banker shall verify that the .Bankers Acceptance is eligible for repurchase by the Federal Reserve System. 3. Bankers Acceptances should not be purchased unless the yield is greater than United States. Treasury Obligations or Federal Agency Issues. • 3 • Vendor Aspects (Continued: D. Commercial Paper 1. Commercial Paper shall be restricted to issues which mature in 270 days or less with a rating of A-1 (Moody's), P-1 (Standard & Poors), or F-1 (Fitch) among at least two of the three rating agencies. 2. Commercial Paper shall be purchased only from dealers who report to the Federal Reserve Bank of New York or from qualifying banks. 3. Commercial Paper shall not be purchased unless the yield is greater than United States Treasury Obligations or Federal Agency Issues. E. Money Market Funds In order to insure maximum security, only those Money Market Funds with portfolios consisting solely of United States Treasury Obligations and/or Federal Agency Issues will be considered for investment. F. speculative Investments Will Not Be Allowed • The City will not purchase investments that, at the time of investment, cannot be held to maturity. This does not mean that an investment cannot be-sold prior to maturity. Administrative Process Investments shall be undertaken so as to insure the preservation of capital in the overall portfolio. Safety of principal is the foremost objective. Liquidity and yield are also important considerations. It is essential that money is always available when needed, therefore, Lakeville's investment goal is to maximize yield while scheduling maturity dates to coincide with expenditure needs. The City's investment portfolio shall be designed to attain a market-average rate of return during budgetary and economic cycles, taking into account the City's investment risk constraint and the cash flow characteristics of the portfolio. All participating in the investment process shall seek to act responsibly as custodians of the public trust. Investment officials shall avoid any transaction that might impair public confidence in the City of Lakeville's ability to govern effectively . • 4 • The Administrative Process (Continued: A. Procedures Cash management is essential to a good investment program. The Finance Department has responsibility to organize and establish procedures for effective cash management, based on the following guidelines: 1. Cash flow projections will be prepared at the beginning of each budget year. 2. Each morning, cash balances will be prepared based on cash received the previous day, warrants paid the previous day, and sizeable checks or wire transfers that present investment opportunity. 3. Each morning, the investment records will be reviewed and updated as investments mature or are purchased. 4. Each month, the investment records will be balanced to the financial records. 5. Each month, the Finance Director will submit an Investment Report to the City Council. • 6. Interest earnings will be allocated to the various City funds at least quarterly. 7. The General Fund will be allocated a management .fee equal to one percent of the investment earnings. B. Banking and Depositories Investment procedures include controlling the level of bank balances and selecting institutions. At the beginning of each year, the City Council approves depositories and investment firms. Minnesota Statutes 118.005 and 118.01 require that all deposits be collateralized in the amount of 110°s of deposits in excess of federal government insurance coverage. • 5 ELIGIBLE INSTRUMENTS FOR CITY INVESTMENT a. United States Treasury Obligations - constitutes the largest segment of the market for fixed income securities. In general, Treasury securities are the safest and most marketable securities and yield the lowest return for a given maturity of all investment instruments. Treasury Bills which carry the full faith and credit guarantee of the U.S. Government are issued at a discount from par and mature in one year or less. *10,000,00 minimum*. Treasury Notes and Bonds which are also U.S. Government .guaranteed have a semi-annual interest coupon and original maturities of 2 to 30 years. Maturities under 4 years - $5,000.00 minimum; $1,000,00 minimum on 4 years and longer. Treasury STRIPS and Treasury Receipts are zero coupon securities with maturities ranging from 6 months to 30 years. **1,000.00 minimum*. b. Federal Agency Securities - obligations of various • agencies an corporations chartered by the federal government and guaranteed by the agency issuing the security. FFCB - Federal Farm Credit Consolidated Bonds are joint obligations of the 37 Farm Credit. Banks (12 Federal Land Banks, 12 Federal Intermediate Credit Banks and 13 Banks for Cooperatives). They .come to market each month with 3 month, 6 month and 1 year maturities and occasionally a longer maturity. *$5,000.00 minimum*. FHLB - Federal Home Loan Banlc borrows funds in the securities markets in order to provide savings and loans with an adequate flow of funds for the home mortgage market. Maturities range from 1 to 30 years. *$10,000.00 minimum*. FNMA - Federal. National Mortgage Association (Fannie Mae) is the largest single holder of residential mortgages and finances its purchases through sales of debentures ranging from 1 to 30 years. *$10,000.00 minimum*. • FHLMC - Federal Home Loan Mortgage Corporation .(Freddie Mac) increases the availability of mortgage credit by maintaining an active, nationwide secondary market for mortgages. Maturities range from 1 to 30 years. *$10,000.00 minimum*. SLMA - Student Loan Marketing Association (Sallie Mae) provides liquidity for lenders engaged in the Federal Guaranteed Student Loan Program. Sallie Mae offers fixed rate .and floating rate securities with maturities from 6 months to 30 years. *$10,000.00 minimum*. REFCORP Strips - Resolution Funding Corporation provides financing for the Resolution Trust Corporation which was created to help the government in the sale and disposition of failed thrifts and their assets. Refcorp strips and zero coupon securities ranging in maturity from 6 months to 30 years. *$1,000.00 minimum*. Agency Discount Notes are issued by Federal Farm Credit, Federal Home Loan, Fannie Mae, Freddie Mac and Sallie Mae. These are issued at a discount and have maturities ranging from 1 to 360 days. *$100,000.00 minimum*. c. Repurchase Agreements (Repo's) - provide for the sale of short-term securities by a securities dealer to investors, such as cities, with an agreement to repurchase the securities at a specified future date. The investor receives a given yield while holding the security and the repurchase price is guaranteed in advance. The length of the holding period is tailored to the needs of the investor, but is usually of very short duration. Rates are related to the rates on Treasury Bills, federal funds, and loans to government security dealers by commercial banks. d. Certificates of Deposits (C.D.'s) - the deposit of funds at a commercial bank for a specified period of time and at a specified rate of interest. Yields on Certificates of Deposit tend to be higher than on Treasury Bills of comparable maturity. e. Commercial Paper - an unsecured promissory note with a fixed maturity of no more than 270 days. Commercial Paper is normally sold at a discount from face value. • 2 1 f. Bankers Acceptance - short-term, non-interest bearing note sold at discount and redeemed at face value. It is secured by the goods which it finances, the bank that accepts the draft, and the issuers promise to pay. These notes trade at a rate equal to or slightly higher than Certificates of Deposit, depending on market supply and demand. q. Money Market Funds - these are short term, high quality investments, sold by large banks. These instruments include Treasury Bills and notes, Certificates of Deposit, Commercial Paper, Banker's Acceptances and Federal Agency Securities. h. State of Minnesota Agencies. Bonds which are issued by the State of Minnesota or any of its agencies. The bonds are backed by the full faith and credit of the State of Minnesota or collateralized with mortgages. • 3