Chapter 6.20
INVESTMENT OF BOROUGH FUNDS
Sections:
6.20.010 Investment policy and objectives.
6.20.020 Persons authorized to invest borough funds.
6.20.030 Authorized investments.
6.20.050 Portfolio diversification.
6.20.060 Safekeeping and custody of securities.
6.20.080 Investment reporting.
6.20.130 Budget, audit and finance committee.
6.20.140 Procurement code not applicable.
6.20.160 Conflict of interest.
6.20.180 Interpretation and construction.
6.20.010 Investment policy and objectives.
A. Scope. This chapter applies to the investment of all borough moneys, unless expressly provided otherwise by ordinance.
B. Standards. All persons having responsibility for making decisions regarding the investments of borough moneys shall utilize the same judgment and care, under the circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment considering the probable safety of capital as well as the probable income to be derived in accordance with the objectives established in subsection (C) of this section.
C. Objectives. The borough investment portfolio shall be managed so that the portfolio, as a whole, meets the following objectives, which are listed in order of relative importance:
1. Maintaining safety of principal;
2. Achieving reasonable market rate of return; and
3. Maintaining sufficient liquidity to meet the borough’s cash flow requirements.
No investment shall be made of borough moneys which violates any provision of this chapter or the administrative procedures established under this chapter. (Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)
6.20.020 Persons authorized to invest borough funds.
A. Designation of Investment Authority. The mayor is authorized to invest borough moneys in accordance with this chapter, and shall ensure that no person invests borough moneys other than in accordance with this chapter. The mayor may delegate daily management authority over the borough investment program, in writing, only to the treasurer or an investment adviser approved by assembly resolution. The mayor may establish written administrative procedures for the operation of the borough investment program, pursuant to Section 3.08 of the Borough Charter. Whenever this chapter assigns responsibility or gives authority to the mayor, such responsibility or authority may be exercised by the treasurer if the mayor has so delegated the responsibility or authority, unless otherwise provided in this chapter.
B. Periodic Review of Investment Adviser. The mayor and assembly shall annually review performance of the borough’s long-term investments under this chapter. No less than every four years, the mayor, in coordination with the budget, audit and finance committee, shall review the performance of the borough’s investment adviser and solicit comparable investment advisory services under the procurement guidelines in Chapter 6.16 NABC. The assembly, by resolution, may waive the requirement to solicit comparable services if it determines, in consultation with a third-party investment adviser, that the borough’s portfolio performance is adequate to meet the borough’s investment policy and objectives established under NABC 6.20.010. (Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)
6.20.030 Authorized investments.
A. Subject also to the requirements of subsection (B) of this section, borough moneys shall be invested only in the following instruments:
1. Obligations of or obligations insured or guaranteed by the United States and United States agency obligations.
2. Certificates of deposit and other deposits at banks and savings and loan associations collateralized as provided in NABC 6.20.040.
3. Federally insured deposits at banks and savings and loan associations.
4. Bonds and notes which are issued by any state or political subdivision thereof, or pursuant to the Tribal Tax Status Act, 26 USC Section 7871, and which are rated A or higher by a nationally recognized rating service.
5. TIPS – Treasury inflation-protected security. Issued by the U.S. Treasury.
6. Banker’s acceptances drawn on and accepted by: (a) a bank, all of whose debt issues are rated at least AA or its equivalent by a nationally recognized rating service; or (b) if the bank is a subsidiary of one bank holding company, all of whose commercially held paper has the highest rating given by a nationally recognized rating service or whose debt issues meet the requirements in subsection (A)(6)(a) of this section.
7. Money market mutual funds. It is understood that the money market funds will not use leverage or use derivatives.
8. Repurchase agreements, the securities underlying the agreement being any of the items listed in subsections (A)(1) and (6) of this section which meet a margin requirement of 102 percent.
9. Corporate bonds which are rated BBB or higher, investment grade, by a nationally recognized rating service. Limitations include a 10-year maximum maturity on any bond series, and not more than five percent of assets invested in a single company. If, after purchase, these obligations are downgraded below investment grade, the obligations shall be sold in an orderly manner within 90 days of downgrading.
10. Mortgage-backed securities (MBS), asset-backed securities (ABS), and commercial mortgaged-backed securities (CMBS) rated A or higher by a nationally recognized rating organization.
11. Domestic equities, which, taken as a whole, attempt to mirror the characteristics or replicate the Standard and Poor’s 500 Index or another index of similar characteristics, including both mutual funds and exchange traded funds (ETFs).
12. Domestic equities, which, taken as a whole, attempt to mirror the characteristics or replicate the Standard and Poor’s 400 Mid-Cap Index or another index of similar characteristics, including both mutual funds and exchange traded funds (ETFs).
13. Domestic equities, which, taken as a whole, attempt to mirror the characteristics or replicate the Standard and Poor’s 600 Small-Cap Index or another index of similar characteristics, including both mutual funds and exchange traded funds (ETFs).
14. International equities, which, taken as a whole, attempt to mirror the characteristics or replicate the Financial Times Stock Exchange Developed ex North America Index or another index of similar characteristics including both mutual funds and exchange traded funds (ETFs).
15. Emerging market equities, which, taken as a whole, attempt to mirror the characteristics or replicate the Financial Times Stock Exchange Emerging Index or another index of similar characteristics including both mutual funds and exchange traded funds (ETFs).
16. Equities, which, taken as a whole, attempt to mirror the characteristics or replicate the universe of domestic real estate investment trusts as represented by the Standard & Poor’s REIT composite index or another index of similar characteristics, including both mutual funds and exchange traded funds (ETFs).
17. Bond funds, which, taken as a whole, attempt to mirror the characteristics or replicate the Bloomberg Intermediate Government/Credit Index or another index of similar characteristics, including both mutual funds and exchange traded funds (ETFs).
18. Bond funds, which, taken as a whole, attempt to mirror the characteristics or replicate the U.S. Treasury Inflation-Protected Securities universe or portion thereof, including both mutual funds and exchange traded funds (ETFs).
19. Bond funds, which, taken as a whole, attempt to replicate the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index or another index of similar characteristics, including both mutual funds and exchange traded funds (ETFs).
20. Bond funds, which, taken as a whole, attempt to replicate the Bloomberg Barclays US Gov/Credit 1=5 Year Index or another index of similar characteristics, including both mutual funds and exchange traded funds (ETFs).
21. Bond funds, which, taken as a whole, attempt to replicate the Bloomberg Barclays US High Yield Very Liquid Index or another index of similar characteristics, including both mutual funds and exchange traded funds (ETFs).
22. Global infrastructure equities, which, taken as a whole, attempt to replicate the STOXX Global Broad Infrastructure Index, or a substantially similar index, including both mutual funds and exchange traded funds (ETFs).
23. Alternative beta funds, which, taken as a whole, attempt to provide a total return target of cash plus a specified percentage-based return target, including both mutual funds and exchange traded funds (ETFs).
24. Commodities, which, taken as a whole, attempt to replicate a broad-based commodity index, such as the Bloomberg Commodity Index or a substantially similar index, including mutual funds, exchange traded funds (ETFs) and exchange traded notes (ETNs).
B. One hundred percent of moneys in the working capital reserve account, established and maintained under NABC 6.12.225, shall be invested only in one or more of the investments described in subsections (A)(1) through (8) of this section. Moneys in the undesignated fund balance may be invested in any of the instruments described in subsections (A)(1) through (24) of this section. Moneys in the financial contingency reserve account, established and maintained under NABC 6.12.230, and moneys in the sustainability fund may be invested in any of the instruments described in subsections (A)(1) through (24) of this section. Allocations shall be reviewed at least annually and set by assembly resolution.
C. While maintaining compliance with provisions of the borough’s code and investment policies, the prudent investor rule shall be applied by the borough’s investment adviser in the management and investment of borough money. The prudent investor rule as applied to borough investments means that in making investments the adviser shall exercise the judgment and care under the circumstances then prevailing that an institutional investor of ordinary prudence, discretion and intelligence exercises in the management of large investments entrusted to it, not in regard to speculation but in regard to the permanent disposition of funds, considering probable safety of capital as well as probable income.
D. No person shall invest any borough moneys in any instrument which is not listed in subsection (A) of this section.
E. So long as the bank in which the borough operating funds are deposited is on the qualified bidders’ list, the mayor may enter into a repurchase agreement, certificate of deposit, or other authorized investment of 180 days or less with the bank in which the borough’s daily operating moneys are deposited for the purpose of investing any excess operating moneys, which will be needed to fund borough operations during the next 180 days. This short-term investment shall be governed by the provisions of NABC 6.20.040.
F. Prohibited transactions for advisers include:
1. The use of borrowed funds;
2. Purchase of letter stock.
Any exemption from the general equity guidelines requires prior written approval from the borough treasurer.
G. The borough will take a conservative, cautionary posture on derivative securities in order to maintain a risk averse investment strategy. Since it is anticipated that new derivative products will be created each year, it is not the intention of this document to list specific derivatives that are prohibited from investment; rather, it will form a general policy on derivatives. The borough recognizes that derivatives may be utilized within investment products as a portfolio management tool. Derivative use and short exposure within a product is permissible when utilized for the purpose of creating or enhancing exposure to an asset class or implementation strategy. Due to the inherent characteristics of derivatives, embedded leverage is permissible when fully collateralized. Direct leverage or borrowing for the purpose of magnifying returns is prohibited. Exposure must be net long at all times.
H. No securities from an individual issuer shall comprise more than five percent of any portfolio; securities issued or guaranteed directly by the U.S. government are exempt from this limit. (Ord. 20-09 § 1, 2020; Ord. 18-10 § 1, 2018; Ord. 15-01 § 1, 2015; Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)
6.20.040 Collateralization.
A. Payment of principal and interest due upon maturity of certificates of deposit, repurchase agreements or other deposits in a bank or savings and loan association in excess of federal insurance must be collateralized by any combination of the following, unless otherwise provided:
1. Obligations of or obligations insured or guaranteed by the United States; and
2. Obligations of the state of Alaska or its political subdivisions which are secured by the full faith, credit and taxing power thereof, and which are rated at least AA or its equivalent by a nationally recognized rating service.
No security pledged as collateral for a borough investment shall mature longer than three years after the date of the borough’s investment transaction.
B. At all times during the term of the borough’s investment in a certificate of deposit, repurchase agreement or other deposit, the bank or savings and loan association with which borough moneys are so invested shall pledge and maintain collateral in excess of federal insurance. The mayor after consultation with the Northwest Arctic Borough budget, audit and finance committee may require higher margins if the mayor determines that such action is reasonably necessary to protect the security of borough investments.
|
Collateral Type U.S. Treasury Securities |
Margin Requirement |
|---|---|
|
Maturity date one year or less from the date of borough’s investment transaction. |
102% |
|
Maturity date between one and three years from the date of borough’s investment transaction. |
105% |
|
Obligations of the state of Alaska and its political subdivision secured by the full faith, credit and taxing power thereof: |
|
|
Maturity date one year or less from the date of borough’s investment transaction. |
102% |
|
Maturity date between one and three years from the date of borough’s investment transaction. |
107% |
(Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)
6.20.050 Portfolio diversification.
A. Borough investments shall be reasonably diversified to minimize the risk of loss resulting from overconcentration of investments in a specific maturity, a specific issuer, a specific class of security or a specific financial institution.
B. The total amount of principal and accumulated interest, which will be paid to the borough at maturity, of all certificates of deposit, other deposits and/or repurchase agreements invested with any one financial institution shall not at any time exceed 20 percent of the total net worth of the financial institution, as shown on such financial institution’s most current quarterly financial statement. (Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)
6.20.060 Safekeeping and custody of securities.
The mayor shall enter into agreements with one or more financial institutions to provide custodial and safekeeping services for borough investments. Except as provided otherwise in this section, all investments purchased by the borough, or all securities pledged to the borough as collateral, shall be held by a custodial financial institution as agent for the borough, or as agent for a group of depositors of which the borough is also a member. At no time shall a financial institution with whom the borough is investing funds, or from whom the borough is purchasing securities, hold both the borough’s money and the securities purchased or pledged as collateral. A custodial and safekeeping financial institution may hold both the borough’s money and the securities purchased or pledged, for the time necessary to accomplish delivery of either or both. Investments or securities pledged as collateral in excess of amounts insured directly or indirectly by the United States government or the appropriate agency of the United States government, or in excess of amounts insured by a statutorily created organization such as the Securities Investor Protection Corporation or its successor, shall be held by a custodial bank as agent for the borough or as agent for a group of depositors of which the borough is also a member. (Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)
6.20.070 Internal controls.
By administrative procedure, the mayor shall adopt a system of written internal controls to minimize the risk of loss of public funds resulting from fraud, employee error, misrepresentation by third parties, anticipated changes in financial markets or imprudent actions by borough officials and employees. The borough external auditors shall review and evaluate, at least annually, the system of internal controls to ensure that they are adequate for accomplishing the purposes in this section. (Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)
6.20.080 Investment reporting.
The mayor shall cause to be prepared and delivered to the assembly, and the Northwest Arctic Borough budget, audit and finance committee within 45 days following the close of each calendar quarter, quarterly reports containing the following information about each investment in which borough moneys were invested at any time during the quarter:
A. The type of investment;
B. The financial institution;
C. The face amount;
D. The interest rate;
E. The maturity date;
F. The purchase date;
G. The purchase price;
H. The yield to the borough;
I. The current Standard and Poor’s or equivalent rating of the investment;
J. The location of the investment and collateral being provided for each investment;
K. The market value as of the end of the quarter;
L. The information required by subsections (A) through (I) of this section for each instrument pledged as collateral for a borough investment;
M. Identify and describe the status of the borough’s compliance or noncompliance with the portfolio diversification requirements of NABC 6.20.050. (Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)
6.20.130 Budget, audit and finance committee.
A. The budget, audit and finance committee shall review the quarterly investment reports and make recommendations and suggestions to the mayor and the assembly for the conduct and improvement of the borough investment program. The committee shall as necessary report in writing to the assembly at least annually within 120 days of the close of the borough’s fiscal year on the status of the borough’s investment program, its compliance with this chapter and the outlook for future investments. The committee shall also consult with the mayor concerning the adoption of administrative procedures and internal controls to implement this chapter.
B. The duties of the budget, audit and finance committee under this chapter are in addition to those described by the provisions of NABC 2.04.080. (Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)
6.20.140 Procurement code not applicable.
The provisions of this code of ordinances relating to the procurement or purchase of goods and services by the borough, including but not limited to the provisions of Chapter 6.16 NABC, shall not apply to this chapter unless otherwise stated. (Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)
6.20.150 Emergency powers.
Notwithstanding any other provision of this chapter or this code of ordinances, if the mayor and the budget, audit and finance committee determine that a reasonable possibility exists that the principal and interest of a borough investment are not adequately secured for any reason, the mayor with the approval of the BAF committee may take any or all of the following actions in order to protect the principal and interest of such borough investment:
A. Rescind or otherwise terminate the investment without regard to loss of interest or other penalties which may arise because of such action;
B. Demand additional or substitute collateral;
C. Demand additional or substitute safekeeping measures;
D. Notify state or federal regulatory agencies of the nature and reasons for such insecurity and seek assistance in remedying the insecurity; or
E. Take judicial action. (Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)
6.20.160 Conflict of interest.
A. No elected official, agent or employee of the borough shall:
1. Take any action, make any decisions, or exercise any official judgment or discretion with respect to a borough investment with the intent to confer a benefit upon or provide a material advantage to such person, to a member of such person’s immediate family, or to any financial institution or investment adviser in connection with the investment of borough moneys;
2. Accept any gift, gratuity or other inducement which is given or offered directly or indirectly in connection with the investment of borough moneys. Prohibited gifts and gratuities include, but are not limited to: payment of money, gift of real or personal property, reduced commission for investment for the person’s own account, reduced interest rate, waiver of penalties and forgiveness of delinquency or default on a loan or other consideration of value;
3. Participate in a decision regarding the investment of borough money, if the decision concerns or relates to the investment or potential investment of money in, or the purchase or potential purchase of, a security from or offered by any financial institution or investment adviser or other entity of which the person, or a member of the person’s immediate family, is an officer, director or employee, or in which the person or family member has a financial interest; or
4. Perform any other act or omission which would constitute a violation of the public trust imposed upon persons handling public moneys, or which would otherwise impair the public confidence in the integrity of the borough’s financial affairs.
B. Violation of subsection (A) of this section shall constitute cause for terminating employment with the borough or subject an elected official to sanctions for violation of the public trust pursuant to Borough Charter Section 2.05(2)(J).
C. Any institution or adviser whose officers, directors, employees or agents offer a benefit or other inducement to a person identified in subsection (A) of this section, in addition to any other penalty provided by state, federal or borough law, shall be disqualified from being listed on the qualified bidders’ list, from receiving borough funds and from acting as a custodial representative for a period of five years. (Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)
6.20.170 Records retention.
The mayor shall maintain all borough records required by this chapter for a minimum of three years, unless otherwise required by state and federal law. (Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)
6.20.180 Interpretation and construction.
The enumeration in this chapter of instruments which are authorized for borough investment shall not be construed as requiring investment in all or any particular instrument contained in such list at any given time. (Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)
6.20.190 Definitions.
As used in this chapter:
“Actively traded” means securities which are regularly bought and sold on the secondary market on a daily basis and for which price formation is available on a regular basis in the Wall Street Journal.
“Agency or instrumentality of the United States” or “U.S. government agency or instrumentality” means entities whose obligations are guaranteed by the full faith and credit of the United States government.
“Bank” means an institution which is chartered or otherwise authorized to conduct business as a bank by, and regulated by, an agency of the United States government or of any state of the United States, having insurance of accounts through the appropriate insuring agency of the United States and which maintains a main or branch office within the United States on a regular and permanent basis.
“Banker’s acceptance” means an order to pay a certain amount of money on a certain date and bearing an unconditional promise of a bank to pay the draft at maturity.
“Delivery versus payment” means a situation where the purchased securities or the securities used as collateral are delivered to a custodial bank before payment is made by the purchase.
“Financial institution” means a bank, savings and loan association, or securities dealer.
“Immediate family” of a person means the person’s wife or husband, son or daughter, mother or father, brother or sister, aunt or uncle, niece or nephew, grandmother, grandfather or grandchild, and anyone residing in the person’s household on a regular basis.
“Investment adviser” or “adviser” means a firm that is paid a fee for the management of investments based on a percentage of the value of the investments under its management, with experience in managing investment portfolios for corporations, retirement plans, foundations, governments or other institutions and which will act as the borough’s agent as authorized by resolution of the assembly.
“Money market mutual fund” means a mutual fund which maintains a constant share price regardless of market fluctuations and which has an average maturity of its entire portfolio of 60 days or less.
“Northwest Arctic Borough budget, audit and finance committee” means the permanent committee established under NABC 2.04.080.
“Repurchase agreement” means a short-term transaction consisting of the purchase of a security with the promise to return it at a later date.
“Savings and loan association” means an institution chartered or otherwise authorized to do business as a savings and loan association by, and regulated by, an agency of the United States government or of any state of the United States, having insurance of accounts through the appropriate insuring agency of the United States and which maintains a main or branch office within the United States on a regular and permanent basis.
“Securities dealer” means a person, partnership, corporation or other entity licensed by the Securities and Exchange Commission to deal in secondary financial markets, which is a member of the New York Stock Exchange, and which maintains a main or branch office within the United States on a regular and permanent basis.
“Treasurer” means the officer appointed by the mayor and confirmed by the assembly pursuant to NABC 2.20.010 and defined in NABC 1.04.040.
“U.S. Treasury securities” means bills, notes and bonds issued directly by the United States Treasury through the Federal Reserve System and guaranteed by the full faith and credit of the United States government. (Ord. 13-09 § 1, 2013; Ord. 10-08 § 1, 2010)