APPENDIX XI.
INVESTMENT POLICY
RESOLUTION NO. 1505
A RESOLUTION ADOPTING AN INVESTMENT POLICY
WHEREAS, the current investment policy for the City of Cottage Grove was adopted by the City Council on January 15, 1993; and
WHEREAS, the current policy was last reviewed by the Oregon State Treasury Short Term Fund Board in June, 1996; and
WHEREAS, the policy suggests a periodic review by the City Council and comment by the Short Term Fund Board upon turnover in key personnel and changes in the investment environment; and
WHEREAS, the proposed policy has been reviewed by the Short Term Fund Board and incorporates several changes to the existing policy that create additional investment opportunity for available city funds; and
WHEREAS, the primary objective of the investment program continues to be preservation of capital and protection of investment principal.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF COTTAGE GROVE, OREGON:
The attached investment policy dated March, 2004 is hereby adopted.
BE IT FURTHER RESOLVED that this resolution shall be effective immediately upon its passage.
PASSED BY THE CITY COUNCIL AND APPROVED BY THE MAYOR THIS 12TH DAY OF April, 2004.
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ATTEST: |
SIGNED: |
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Richard Meyers, City Manager |
Gary Williams, Mayor |
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Date: April 13, 2004 |
City of Cottage Grove, Oregon
Investment Policy
March, 2004
City of Cottage Grove Investment Policy
I. Scope
This policy shall apply to all investable funds of the City of Cottage Grove except for deferred compensation fund assets, pension fund assets, and assets of restricted trust and escrow funds. Included under the provisions of this policy are financial assets of general operating funds, enterprise funds, special revenue funds and any other funds not specifically excluded which are recognized in the City’s Comprehensive Annual Financial Report.
The investment portfolio will have seasonal and operational fluctuations but will typically range between seven and ten million dollars. Funds will be invested in conformance with all cited city, state and federal regulations.
II. Objectives
The primary objectives, in priority order, of investment activities shall be safety, liquidity and yield.
Safety. Preservation of capital and protection of investment principal are the foremost objectives of the investment program.
Liquidity. The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This will be accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. Furthermore, since all possible cash demands cannot be anticipated, securities in the portfolio will be limited to those with active secondary or resale markets. A major portion of the available surplus funds shall be deposited in the Local Government Investment Pool (LGIP) in order to achieve next-day liquidity for short-term needs.
Yield. The investment portfolio shall be designed with the objective of attaining a market value rate of return throughout budgetary and economic cycles. Return on investment is of secondary importance compared to the safety and liquidity objectives described above. The portfolio shall be limited to highly rated/low risk securities in anticipation of earning a fair return relative to the risk being assumed.
III. Standards of Care
Prudence. The standard of prudence to be used for managing the City’s assets is the "prudent investor" rule which states, "Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment considering the probable safety of their capital, as well as the probable income to be derived."
The overall investment program shall be designed and managed with a degree of professionalism that is worthy of the public trust. The City recognizes that no investment is totally risk-free and that the investment activities of the City are a matter of public record. Accordingly, the City recognizes that occasional measured losses are inevitable in a diversified portfolio and shall be considered within the context of the overall portfolio’s return, provided that adequate diversification has been implemented and that the sale of a security before maturity is in the best long-term interest of the City.
The City’s Custodial Officer (ORS 294.004 (2)) and staff acting in accordance with this investment policy, written procedures, and Oregon Revised Statutes 294.035 and 294.040 and exercising due diligence shall be relieved of personal responsibility for an individual security’s credit risk or market price change or other loss in accordance with ORS 294.047, provided that these deviations and losses are reported as soon as practical and action is taken to control adverse developments. Losses that are sustained in the City’s portfolio shall be charged against current or future investment earnings.
Ethics and Conflicts of Interest. Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program or create the appearance of an impairment of their ability to make impartial investment decisions. Employees and investment officials shall disclose in writing to the City Manager any material interests they have in financial institutions that conduct business with the City. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio.
Officers and employees shall comply with ORS 244.040 (Code of Ethics), ORS 244.120 (Methods of Handling Conflicts), GARS Article 3.15 (Standards of Conduct), any amendments to these provisions, and any Code of Ethics applicable to employees that the City may adopt in the future.
Delegation of Authority. The ultimate responsibility and authority for the investment of City funds resides with the City Council. The City hereby designates the Finance Director as the Custodial Officer for the City’s funds. The Custodial Officer shall invest City funds in accordance with ORS Chapter 294, Public Financial Administration, and with this investment policy. This policy shall constitute a "written order" from the City Council per ORS 294.035. The Custodial officer, with the consent of the City Manager, may further delegate the authority to invest City funds to additional City finance personnel.
Subject to required procurement procedures, the City may engage the support services of outside professionals in regard to its financial program, so long as it can be demonstrated or anticipated that these services produce a net financial advantage or necessary financial protection of the City’s resources. External service providers shall be subject to Oregon Revised Statutes and the provisions of this investment policy.
IV. Safekeeping and Custody
Agencies. Investment and safekeeping services shall only be made in qualifying obligations offered through agencies and instrumentalities of the United States as qualified pursuant to ORS 295.005 to 295.165. In addition, all financial institutions and broker/dealers must provide the following, as appropriate:
• Audited financial statements
• Proof of National Association of Securities Dealers (NASD) certification
• Proof of state registration
• Certification of having read and understood the City of Cottage Grove’s investment policy
• Certification of agreement to comply with the City of Cottage Grove’s investment policy
An annual review of the financial condition and registration of participating financial institutions and broker/dealers shall be conducted by the Custodial Officer.
The purchase and sale of securities and repurchase agreement transactions shall be settled on a delivery versus payment basis in accordance with ORS 294.145 (4) and (5). It is the intent of the City that all purchased securities be perfected in the name of the City. Sufficient evidence to title shall be consistent with modern investment, banking and commercial practices.
Except for the State of Oregon Local Government Investment Pool, time deposit open accounts, Certificates of Deposit and savings accounts, all investment securities purchased by the City, and all purchased securities under the terms of a City approved Master Repurchase Agreement, shall be delivered by either book entry or physical delivery and shall be held in third-party safekeeping by a City approved custodian bank, its correspondent bank or the Depository Trust Company (DTC).
Internal Controls. The Custodial Officer shall establish and maintain a system of written internal controls consistent with this policy designed to prevent the loss of public funds due to fraud, error, misrepresentation or imprudent actions by third parties or by employees of the City. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. Written internal controls shall be reviewed and tested at least annually or upon any extraordinary event such as turnover of key personnel or the discovery of inappropriate activity.
Accounting Method. The City shall comply with all required legal provisions and generally accepted accounting principles (GAAP) relating to investment accounting. The accounting principles are those contained in the pronouncements of authoritative bodies including, but not necessarily limited to, the Governmental Accounting Standards Board (GASB), the American Institute of Certified Public Accountants (AICPA), and the Financial Accounting Standards Board (FASB).
Annual Audit. The Custodial Officer shall establish a process for an annual independent review by an external auditor to assure compliance with policies and procedures. The review shall include the following issues:
• Control of collusion,
• As much as possible, the separation of transaction authority from accounting and record keeping,
• Custodial safekeeping,
• Avoidance of physical delivery of securities whenever possible and address control requirements for physical delivery where necessary,
• Clear delegation of authority to subordinate staff members, and
• Written confirmation of transactions for investments and wire transfers
In addition, an independent special review by an external auditor should be conducted upon any extraordinary event such as turnover in key personnel or the discovery of any inappropriate activity.
Pooling of funds. Except for cash in certain restricted and special funds, the Custodial Officer shall consolidate cash balances from all funds to maximize opportunities for investment and investment earnings. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles.
Collateralization. All bank deposits, time deposits, certificates of deposit, and savings accounts, shall be collateralized through the collateral pool for any excess over the amount insured by an agency of the United States government in accordance with ORS 295.015 and ORS 295.018. The Custodial Officer is responsible for insuring that a Certificate of Participation has been issued to cover City deposits.
V. Investment Parameters
All investments of the City shall be made in accordance with Oregon Revised Statutes: ORS 294.035 (Investment of surplus finds of political subdivisions; approved investments), ORS 294.040 (Restriction on investments under ORS 294.035), ORS 294.135 (Investment maturity dates), ORS 294.145 (Prohibited conduct for custodial officer), ORS 294.805 to 294.895 (Local Government Investment Pool). Any revisions or extensions of these sections of the ORS shall be assumed to be part of this investment policy immediately upon being enacted.
Maturities and Diversification. To the extent possible, the Custodial Officer shall match investments with anticipated future cash flow requirements. Investment maturities shall generally be less than 90 days but may exceed 18 months upon specific City Council approval of a written investment policy. Prior to City Council approval, the investment policy must be submitted to the Oregon Short Term Fund Board for review and comment. The policy must include guidelines concerning maximum investment maturity dates.
Maturities shall be consistent with the following:
• At least fifty percent of the actual portfolio must mature within 93 days.
• Up to 25 percent of the actual portfolio may mature in over one year.
• No investment may mature in over three years.
Diversification shall be consistent with the following:
• At least 10 percent of the actual portfolio must be in U.S. Treasury and/or U.S. Government Agency securities.
• No more than 25 percent of the actual portfolio may be in Bankers Acceptances or Repurchase Agreements.
• No more than 25 percent of the actual portfolio may be in time certificates of deposit.
• No more than 30 percent of the actual portfolio may be invested in any one financial institution with the exception of the Local Government Investment Pool to the extent allowed under ORS 294.810.
VI. Other Investment Guidelines
Prohibited Conduct. Oregon State Statutes have addressed several areas of prohibited conduct for the Custodial Officer when making investments, ORS 294.145. Specifically, the Custodial Officer shall not:
• Make a commitment to invest funds or sell securities more than fourteen business days prior to the anticipated date of settlement of the purchase or sale transaction,
• Enter into any agreement to invest funds or sell securities for future delivery for a fee other than interest,
• Lend securities to any person or institution, except on a fully collateralized basis, and except when such lending is specifically permitted under an investment policy adopted pursuant to ORS 294.135 (1)(a), or
• Pay for any securities purchased by the custodial officer until the officer has received sufficient evidence of title thereof. Evidence of title shall be consistent with modern investment, banking and commercial practices and may include physical possession, book entry and automated recordation of such title. However, the Custodial Officer may instruct one or more custodian banks, as defined in ORS 295.005, to accept or release securities as the Custodial Officer considers advisable to be held in safekeeping for collection of principal and interest or other income.
Performance Evaluation. The Custodial Officer shall periodically establish a benchmark yield for the City’s investments. Considerations for establishing the benchmark yield shall include the current yield on the State of Oregon Local Government Investment Pool, and the average yield on the three-month U. S. Treasury Bill. When comparing the performance of the City’s portfolio, all fees and expenses involved with managing the portfolio shall be included in the computation of the portfolio’s rate of return.
Policy Review. This investment policy shall be reviewed periodically by the Custodial Officer, the City Manager and the City Council. The policy shall be submitted to the Oregon Short Term Fund Board for review and comment if the City intends to invest in maturities exceeding 18 months or if material changes are made since the last OSTF Board review.