Chapter 4.12
INVESTMENT OF CITY FUNDS
Sections:
4.12.010 Investment policy and objectives.
4.12.020 Persons authorized to invest city moneys.
4.12.030 Authorized investments.
4.12.040 Insurance and collateralization.
4.12.050 Portfolio diversification.
4.12.060 Safekeeping and custody of securities.
4.12.080 Investment reporting.
4.12.090 Qualification of financial institutions.
4.12.100 Removal from qualified bidders list.
4.12.110 Placement of city investments.
4.12.140 Procurement code not applicable.
4.12.160 Conflict of interest.
4.12.180 Interpretation and construction.
4.12.010 Investment policy and objectives.
A. This chapter applies to the investment of all city moneys, unless otherwise provided expressly by ordinance. City moneys shall be invested only in accordance with this chapter.
B. All persons having responsibility for making decisions regarding the investment of city 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. The city investment portfolio shall be managed so that the portfolio, as a whole, meets the objectives set forth in this subsection. All persons selecting investments for city moneys shall adhere to these objectives, which are listed in order of relative importance:
1. Safety of principal is the most important objective of the city investment program;
2. Maintaining sufficient liquidity to meet the city’s cash flow requirements is the second most important objective of the city investment program;
3. Achieving a reasonable market rate of return is the third most important objective of the city investment program;
4. It is the public policy of the city that investment of city moneys with or through local financial institutions furthers the public interest. “Local financial institution” is defined as a financial institution which maintains an office in the city on a regular and permanent basis. However, the welfare of all the citizens of the city requires that the objectives contained in this subsection be met at all times. Therefore, an investment shall not be placed with or through such a local financial institution if the placement would result in any decrease in or impairment of the city’s ability to meet these objectives.
D. Notwithstanding the above objectives, no person shall invest city moneys in a manner which violates any provision of this chapter or the administrative procedures established under this chapter. (Ord. 90-07 §4(part), 1990)
4.12.020 Persons authorized to invest city moneys.
The mayor is authorized to invest city moneys in accordance with this chapter, and shall ensure that no person invests city moneys other than in accordance with this chapter and the administrative procedures established under this chapter. The mayor may delegate daily management authority over the city investment program, in writing, to the finance director. With the advice of the finance director, the mayor shall establish written administrative procedures for the operation of the city investment program, which may delegate authority to specific employees of the city financial services department to supervise or conduct all or part of each investment transaction. Whenever this chapter assigns responsibility or gives authority to the mayor, such responsibility or authority may be exercised by any person to whom the mayor has delegated the responsibility or authority in writing, unless otherwise provided in this chapter. (Ord. 90-07 §4(part), 1990)
4.12.030 Authorized investments.
A. City moneys shall be invested only in the following instruments. All securities purchased by the city, and all other city investments, must mature not later than the time indicated below, measured from the date of the city investment transaction:
1. U.S. Treasury securities, five years;
2. Other obligations guaranteed by the U.S. government or its agencies and instrumentalities, five years;
3. Repurchase agreements with financial institutions for the sale and repurchase of securities specified in subsections (A)(1) and (2) of this section, which meet the margin requirements for such securities specified in Section 4.12.040; maturity of security which is the subject of the repurchase agreement, three years;
4. Certificates of deposit and other deposits at banks and savings and loan associations collateralized as provided in Section 4.12.040, three years;
5. Uncollateralized deposits at banks and savings and loan associations, to the extent that the deposits are insured by the Federal Deposit Insurance Corporation, three years;
6. Bonds and notes which are issued by any state or political subdivision thereof, and which are graded A or higher by Moody’s Investors Service, Inc., or Standard and Poor’s Corporation, three years;
7. Prime commercial paper graded A1 or higher by Moody’s Investors Service, Inc., or P1 or higher by Standard and Poor’s Corporation, two hundred seventy days;
8. Prime banker’s acceptances offered by the fifty largest international banks, one hundred eighty days;
9. Money market mutual funds whose portfolios consist entirely of instruments specified in subsections (A)(1), (2) and (3) of this section, maturity date not applicable.
B. No person shall invest any city moneys in any instrument which is not listed in subsection A of this section. This prohibition includes, but is not limited to, investment of city moneys in any mutual fund, except as otherwise provided in subsection (A)(9) of this section, common or preferred stock, precious metal, zero coupon bond, corporate bond, option contract, futures contract or negotiable instrument with a variable interest rate.
C. The mayor may enter into a short-term repurchase agreement, certificate of deposit or other authorized investment with the bank in which the city’s daily operating moneys are deposited, for the purpose of investing any excess operating moneys which will be needed in the immediate future to finance city operations, but which are not needed for such purpose at the time of investment. This investment may be continuing in nature, such that excess city operating moneys are continually invested. This short-term investment shall be governed by the provisions of this chapter relating to similar long-term investments, except that the mayor may alter the margin requirements of Section 4.12.040 with respect to this short-term investment, if the mayor determines that such action is reasonably necessary to obtain and secure the investment.
D. Subject to the limitations imposed by Section 4.12.090, city moneys may be invested in any financial institution, as defined in Section 4.12.190, except that moneys may be invested with a bank which does maintain a business office in the United States on a regular and permanent basis, only when investment with an “international bank” is expressly authorized by this chapter. (Ord. 2003-04 §2; Ord. 90-07 §4(part), 1990)
4.12.040 Insurance and collateralization.
A. If city moneys are invested in certificates of deposit or other deposits in a bank or savings and loan association, the entire amount of principal and interest which will by payable to the city upon maturity of the investment must be insured and/or collateralized by any combination of the following, unless otherwise provided:
1. Insurance issued by the Federal Deposit Insurance Corporation (FDIC) or the Federal Credit Union Administration (FCUA);
2. U.S. Treasury securities;
3. Obligations guaranteed by the U.S. government or its agencies and instrumentalities;
4. Obligations of the state or its political subdivisions which are secured by the full faith, credit and taxing power thereof, and which are rated A or higher by Moody’s Investors Service, Inc., or Standard and Poor’s Corporation;
No security pledged as collateral for a city investment shall mature more than five years after the date of the city’s investment transaction.
B. At all times during the term of the city’s investment in a certificate of deposit or other deposit, the bank or savings and loan association with which city moneys are so invested shall pledge and maintain collateral, in accordance with this chapter and the administrative procedures adopted under this chapter, which has a then-current market value equal to the following percentage (margin requirement) of the total amount of principal and interest which will be due and owing to the city at the maturity date of such certificate of deposit or other deposit. At all times during the term of such investments the collateral pledged as security of each investment shall have a market value at least equal to the applicable margin requirement, which requirement shall vary with the type of instrument pledged as security, according to the schedule set out in this subsection. The margin requirements contained herein are minimums. The mayor may require higher margins if he determines that such action is reasonably necessary to protect the security of city investments.
|
Collateral Type |
Margin Requirements |
|
|---|---|---|
|
U.S. Treasury securities |
|
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|
|
Maturity date one year or less from the date of city’s investment transaction |
102 percent |
|
|
Maturity date between one and five years from the date of city’s investment transaction |
105 percent |
|
Actively traded U.S. government agency or instrumentality securities, except mortgage pass-through securities |
|
|
|
|
Maturity date one year or less from the date of city’s investment transaction |
103 percent |
|
|
Maturity date between one and five years from the date of city’s investment transaction |
107 percent |
|
Government National Mortgage Association mortgage pass-through securities |
120 percent |
|
|
All other U.S. government agency or instrumentality mortgage pass-through securities, and U.S. government agency or instrumentality securities which are not actively traded |
125 percent |
|
|
Obligation of the state and its political subdivisions secured by the full faith, credit and taxing power thereof |
|
|
|
|
Maturity date, one year or less from the date of city’s investment transaction |
102 percent |
|
|
Maturity date between one and five years from the date of city’s investment transaction |
107 percent |
|
FDIC or FCUA insurance |
100 percent |
|
(Ord. 90-07 §4(part), 1990)
4.12.050 Portfolio diversification.
A. City investments shall be 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. The mayor shall adopt administrative procedures to implement this section.
B. The total amount of principal and accumulated interest which will be paid to city 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 twenty percent of the total net worth of the financial institution, as shown on the financial institution’s most current annual financial statement. The short-term investments authorized by Section 4.12.030(C) shall not be included in calculating compliance with this thirty percent limitation. (Ord. 90-07 §4(part), 1990)
4.12.060 Safekeeping and custody of securities.
The mayor shall enter into agreements with one or more banks to provide custodial and safekeeping services for city investments. All investments purchased by the city, and all securities pledged to the city as collateral, shall be either held directly by the city or held by a third-party custodial bank as agent to the city. A custodial and safekeeping bank may hold both the city’s money and the securities purchased or pledged, for the time necessary to accomplish delivery of either or both. (Ord. 90-07 §4(part), 1990)
4.12.070 Internal controls.
By administrative procedure, the mayor shall adopt and establish a system of internal controls within the financial services department, and the other departments of the city administrative staff, to provide checks and balances within the process by which city moneys are invested. The internal control shall be designed to minimize the risk of loss of public moneys resulting from fraud, employee error, misrepresentation by third parties, anticipated changes in financial markets or imprudent actions by city officials and employees. The city’s external auditors shall review and evaluate, at least annually, the system of internal controls to ensure that they are adequate for accomplishing the purposes stated in this section. (Ord. 90-07 §4(part), 1990)
4.12.080 Investment reporting.
A. The mayor shall cause to the prepared and delivered to the council quarterly reports containing the following information about each investment in which city moneys were invested at any time during the quarter:
1. The type of investment;
2. The financial institution;
3. The face amount;
4. The interest rate;
5. The maturity date;
6. The purchase date;
7. The purchase price;
8. The amount of interest accrued on the investment during the quarter;
9. The yield to the city;
10. The market value as of the end of the quarter;
11. The information required by subsections (A)(1) through (10) of this section for each instrument pledged as collateral for any city investment.
B. The report shall also identify and describe the status of the city’s compliance or noncompliance with the insurance and collateralization requirements of Section 4.12.040 and the portfolio diversification requirements of Section 4.12.050. (Ord. 90-07 §4(part), 1990)
4.12.090 Qualification of financial institutions.
A. The mayor shall maintain a roster of financial institutions qualified to bid on city investments, called the qualified bidders list. If the investment is a repurchase agreement, certificate of deposit or other deposit, the financial institution in which moneys are invested must be on the qualified bidders list. If the investment is a direct purchase of a security (other than a repurchase agreement, certificate of deposit or other deposit) either directly from the issuer or through an intermediary financial institution, the institution issuing the security need not be on the qualified bidders list, but any intermediary institution from which the city takes delivery of the security must be on the qualified bidders list.
B. The mayor shall adopt administrative procedures under which financial institutions interested in becoming included on the qualified bidders list may apply for inclusion. The procedures may restrict the times at which applications will be received, but must provide at least one opportunity to apply for inclusion per year. The mayor may also add financial institutions, which meet the criteria established under subsection C of this section, to the qualified bidders list at any time without utilizing the application procedure.
C. The mayor shall adopt administrative procedures for evaluating financial institutions for inclusion on the qualified bidders list. Such procedures shall require financial institutions to provide such records, reports and information as the mayor shall require, and shall be designated to evaluate the financial institution’s ability to meet the objectives of the city’s investment program, pursuant to Section 4.12.010. The administrative procedures shall require an analysis of the credit characteristics, capitalization, management policies, financial history, client references and other relevant information concerning the creditworthiness and competitiveness of each financial institution. The mayor may place a financial institution on the qualified bidders list if, after such analysis, he determines that the financial institution is able to meet the objectives of the city’s investment program. The procedures shall also require financial institutions on the qualified bidders list to submit such records, reports and all financial institutions on the qualified bidders list be evaluated for continued retention on such list at least annually. (Ord. 90-07 §4(part), 1990)
4.12.100 Removal from qualified bidders list.
The mayor may remove a financial institution from the qualified bidders list if, after such analysis, he determines that the financial institution is unable to meet the objectives of the city’s investment program. The procedures shall also require financial institutions on the qualified bidders list to submit such records, reports and all financial institutions on the qualified bidders list be evaluated for continued retention on such list at least annually. (Ord. 90-07 §4(part), 1990)
4.12.110 Placement of city investments.
A. Because of rapid fluctuations in interest rates, and the brief period of availability of some securities, bids may be solicited, received and accepted, either orally or in writing. Solicitation, receipt and acceptance of bids over the telephone are authorized. In order for a bid to be responsive, it must meet all of the specifications and requirements of the bid solicitation, and must be received by the mayor at or before the date and time specified in the bid solicitation. The mayor shall not consider nonresponsive bids.
B. The mayor shall award a bid to the financial institution whose bid best fulfills the investment objectives contained in Section 4.12.010, considering the city investment portfolio as a whole; meets the bid specifications; and complies with all other restrictions and limitations contained in this chapter and the administrative procedures adopted under this chapter.
C. All securities transferred to or from the city, except securities pledged as collateral, shall be transferred using the delivery versus payment method. All securities pledged to the city as collateral shall be actually received by the custodial bank designated by the mayor, before city moneys are transferred to the financial institutions with which the city is investing. The mayor may require financial institutions to deliver collateral to a custodial bank prior to bidding on city investments.
D. The mayor shall maintain records of the specifications of all bid solicitations, and the contents of all responses thereto, including the date and time each such response was received. The mayor shall also prepare a record of the final decision made with respect to each solicitation for bids, together with a brief explanation of the reasons for such decision. The mayor shall prepare such written records not later than one business day following the day of which the mayor takes final action with respect to each bid transaction. (Ord. 90-07 §4(part), 1990)
4.12.120 Appeal.
A. A financial institution may appeal an action of the mayor taken under Sections 4.12.090 through 4.12.110 to the city council only by filing a written notice of appeal, stating the reasons therefor, with the city clerk not more than ten days following the date of the action appealed. The council shall consider the matters presented by the financial institution, city records of the transaction and any other available information, and may, but is not required to, hold a hearing on the matter. If the council finds that the financial institution has established by clear and convincing evidence that the action appealed violated the provisions of this chapter or the administrative procedures adopted hereunder, the council shall grant the appeal. Otherwise the council shall deny the appeal. Not more than thirty days following the date on which the financial institution files the appeal, the council shall provide the financial institution with written notice of its decision on the appeal, stating the reasons for such decision. The city or the financial institution may appeal the decision of the council to the superior court as provided by law. The mayor may adopt administrative procedures to implement this section.
B. The mayor may investigate and consider informal complaints concerning city investments, but such complaints shall not constitute formal appeals and complainant shall not be entitled to receive the remedies provided below.
C. The mayor may suspend action with respect to any financial institution, or any city investment, including the investment which is the subject matter of an appeal, during the pendency of the appeal.
D. If a financial institution’s appeal of a decision not to add it, to remove it, or to add another financial institution to the qualified bidders list, is granted its sole remedy shall be inclusion of itself on the qualified bidders list, or removal of another financial institution from the list, as applicable. If a financial institution’s appeal regarding failure to consider its bid or failure to award the bid to such financial institution is granted, the financial institution’s sole remedy shall be payment by the city to the financial institution of the costs actually incurred by the financial institution in preparing its bid. (Ord. 90-07 §4(part), 1990)
4.12.140 Procurement code not applicable.
The provisions of this code of ordinances relating to the procurement or purchase of goods and services by the city, including but not limited to the provisions of Title 16, shall not apply to this chapter. (Ord. 90-07 §4(part), 1990)
4.12.150 Emergency powers.
Notwithstanding any other provision of this chapter, if the mayor determines that a reasonable possibility exists that the principal and interest of a city investment are not adequately secured for any reason, the mayor may take any or all of the following actions in order to protect the principal and interest of such city investment:
A. Rescind or otherwise terminate the investment without regard to interest or other penalties which may arise because of such action;
B. Demand from the financial institution additional or substitute collateral;
C. Demand from the financial institution 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;
E. Temporarily deviate from the requirements of Sections 4.12.090 through 4.12.110 relating to the qualified bidders list and the placement of city investments, and provisions of Section 4.12.050 relating to portfolio diversification;
F. Take any other action which the mayor deems reasonably necessary to protect the security of the principal and interest of city investments. (Ord. 90-07 §4(part), 1990)
4.12.160 Conflict of interest.
A. No elected official or employee of the city shall:
1. Take any action, make any decision, or exercise his official judgment or discretion with respect to a city investment with the intent to confer a benefit upon, or provide a material advantage to, himself, to a member of his immediate family, or to any financial institution in connection with the investment of city moneys;
2. Accept any gift, gratuity or other inducement offered by any person for the purpose of influencing his opinion, judgment, action, decision or exercise of official discretion in connection with the investment of city moneys. Prohibited gifts and gratuities include, but are not limited to, payment of money, gift of real or personal property, reduced commission for investments for the person’s own account, reduced interest rate, waiver of penalties and forgiveness of delinquency or default on a loan;
3. Participate in a decision regarding the investment of city 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 other entity of which the person’s immediate family is an officer, director or employee, or in which the person or family member has a substantial financial interest;
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 city’s financial affairs.
B. Violation of the prohibitions contained in subsection A of this section shall constitute cause for terminating employment with the city. (Ord. 90-07 §4(part), 1990)
4.12.170 Records retention.
The mayor shall maintain all city records required by this chapter for three years, unless otherwise required by state or federal law. (Ord. 90-07 §4(part), 1990)
4.12.180 Interpretation and construction.
This chapter represents the maximum amount of authority and discretion which the mayor may utilize in investing city moneys. Nothing in this chapter shall be construed, however, to prohibit the mayor from adopting standards, rules, policies and procedures which are more restrictive than those contained in this chapter. The enumeration in this chapter of instruments which are authorized for city investments shall not be construed as requiring the mayor to invest in all, or any particular, instruments contained in such list at any given time. The mayor may invest in some or all of such instruments as he deems appropriate. Similarly, the enumeration of instruments which are acceptable as collateral for city investments shall not be construed as requiring the mayor to accept all, or any particular, instruments contained in such list at any given time. The mayor may accept some of such instruments, and reject others, in his discretion. (Ord. 90-07 §4(part), 1990)
4.12.190 Definitions.
In this chapter:
A. “Actively traded” means securities which are regularly bought and sold on the secondary market on a daily basis and for which price information is available on a regular basis in The Wall Street Journal;
B. “Bank” means an institution which is chartered or otherwise authorized to conduct business as a bank by, and regulated by, an agency of the U.S. government or of any state, which is insured by the Federal Deposit Insurance Corporation, and which maintains a main or branch office within the United States on a regular and permanent basis;
C. “Financial institution” means a bank, savings and loan association, international bank or securities dealer;
D. “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;
E. “International bank” means a bank as defined in this chapter, and any other institution chartered or otherwise authorized to provide banking services by the government of any foreign country, or political subdivision thereof, whether or not the institution maintains an office within the U.S.;
F. “Money market mutual fund” means a mutual fund which maintains constant share price regardless of market fluctuations and which has an average maturity of its entire portfolio of sixty days or less;
G. “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 U.S. government or of any state, and insured by the Federal Deposit Insurance Corporation, which maintains a main or branch office within the U.S. on a regular and permanent basis;
H. “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;
I. “U.S. government agency or instrumentality securities” means securities issued by the Asian Development Bank, District of Columbia Armory Board (D.C. Stadium), Export- Import Bank of the United States, Farmers Home Administration, Federal Farm Credit Consolidated System-Wide Securities, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal Housing Administration (FHA), Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA), Interamerican Development Bank, International Bank for Reconstruction and Development (World Bank), Maritime Administration, Small Business Administration (SBA), Student Loan Marketing Association (SLMA), Tennessee Valley Authority (TVA), United States Postal Service, Washington Metropolitan Area Transit Authority;
J. “U.S. Treasury securities” means bills, notes and bonds issued directly by the U.S. Treasury through the Federal Reserve System, and guaranteed by the full faith and credit of the U.S. government. (Ord. 90-07 §4(part), 1990)