Chapter 4.46
INVESTMENT POLICY
Sections:
4.46.020 Investment objectives.
4.46.050 Delegation of authority.
4.46.060 Investment committee.
4.46.070 Ethics and conflicts of interest.
4.46.080 Authorized financial dealers and institutions.
4.46.090 Authorized investment types.
4.46.100 Fund investment and interest allocations.
4.46.110 Safekeeping and custody.
4.46.150 Performance standards.
4.46.170 State or federal amendments.
4.46.010 Policy.
The city invests public funds in a manner that conforms to all Washington statutes governing the investment of public funds, safeguards and protects the principal of the city’s investments, provides liquidity in meeting cash flow requirements, and provides the highest return possible. (Ord. 15-05 § 6, 2015)
4.46.020 Investment objectives.
A. In priority order, the city’s investment objectives are:
1. Safety. Safety of principal is the foremost objective of the city’s investment policy. The city must invest in a manner that ensures the preservation of the amount invested.
2. Liquidity. The city’s investment portfolio will remain sufficiently liquid to enable the city to meet all reasonably anticipated operating requirements.
3. Return on investment. To ensure protection of principal and compliance with state statutes, the city will design its investment portfolio with the objective of attaining a market rate of return throughout budgetary and economic cycles.
B. Rate speculation may not be a major criterion for the selection of an investment. All other criteria, including cash flow and maturity, take preference to rate expectations. (Ord. 15-05 § 6, 2015)
4.46.030 Scope.
This investment policy applies to all financial assets of the city. These assets are accounted for in funds or fund groups as identified in the city’s comprehensive annual financial report and include:
A. General fund.
B. Special revenue funds.
C. Debt service funds.
D. Capital project funds.
E. Internal services funds.
F. Trust and agency funds.
G. Any new fund created by council, unless specifically exempted by council. (Ord. 15-05 § 6, 2015)
4.46.040 Prudence.
A. The city’s investment official must invest city funds in such manner as to maximize the yield of the investment portfolio. In investing and reinvesting moneys and in acquiring, retaining, managing, and disposing of investments, he or she must exercise the judgment and care under the circumstances then prevailing which a person of prudence, discretion, and intelligence exercises in the management of his or her own affairs, not in regard to speculation but in regard to the permanent disposition of the funds considering the probable income as well as the probable safety of the capital.
B. The standard of prudence that the city’s investment official must use is the prudent-person standard. This standard must be applied in managing the city’s overall portfolio. If an investment officer acts under written procedures and exercises due diligence, he or she is relieved of personal responsibility for an individual security’s credit risk or market price changes, provided deviations from expectations are timely reported and appropriate action is taken to control adverse developments. (Ord. 15-05 § 6, 2015)
4.46.050 Delegation of authority.
The finance director is the investment officer of the city. Before investing any of the city’s money, the investment officer must establish written procedures for the operation of the investment program consistent with this investment policy. These procedures must include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under this policy and the procedures established by the investment officer. The investment officer is responsible for all transactions undertaken and must establish a system of controls to regulate the activities of subordinate officials. The investment officer may determine investable balances in each fund and may invest such moneys in a manner consistent with this policy and applicable law, without prior council approval of an investment. (Ord. 15-05 § 6, 2015)
4.46.060 Investment committee.
The city’s budget committee acts as the investment committee. The committee will be available to serve in a general review and advisory capacity, taking into account the city’s investment objectives, available funds and current market conditions. The committee will review periodic reports including, but not limited to: market value of the portfolio, percentages by type and institution, average life of the portfolio, expected cash flows, and average rate of return. (Ord. 15-05 § 6, 2015)
4.46.070 Ethics and conflicts of interest.
An elected official or an employee involved in the investment process must refrain from personal business activity that could conflict with proper execution of the investment program or that could impair their ability to make impartial investment decisions. An elected official or an employee involved in investment transactions must disclose to the mayor any material financial interests in financial institutions that conduct business within this jurisdiction. He or she must further disclose any large personal financial/investment positions that could be related to the performance of the city’s portfolio. Each elected official and each employee must subordinate his or her personal investment transactions to those of the city, particularly regarding the time of purchases and sales. (Ord. 15-05 § 6, 2015)
4.46.080 Authorized financial dealers and institutions.
A. The council authorizes the investment officer to create any accounts necessary to invest the city’s funds. The investment officer will maintain a list of financial institutions and security dealers authorized to provide investment services to the city. These may include both primary and secondary dealers that qualify under Securities and Exchange Commission Rule 15C3-I (uniform net capital rule) (as enacted and as amended), and investment departments of local banks who maintain an office in the state of Washington.
B. Institutional investment staff will be trained in precautions appropriate to state of Washington local government investment laws, and they will be required to familiarize themselves with the city’s investment objectives, policies and constraints.
C. A public deposit must be made in a qualified public depository located in the state of Washington. (Ord. 15-05 § 6, 2015)
4.46.090 Authorized investment types.
A. As authorized by state statute (including, without limitation, RCW 39.59.020, 39.59.030, and 43.250.040 (as enacted and as amended)), the city may invest in various securities, including, without limitation, the following:
1. Investment deposits: certificates of deposit (with qualified public depositories as defined in Chapter 39.58 RCW).
2. Obligations of United States Treasury: U.S. Treasury certificates, notes, bonds, zero coupons, strips, receipts and United States Treasury state and local government securities (SLGS) specifically for debt issues related to arbitrage.
3. Obligations of United States agencies, or of any corporation wholly owned by the government of the United States, such as the Government National Mortgage Association.
4. Bonds of the state of Washington and any local government in the state of Washington, which bonds are rated, at the time of investment, within the three highest possible credit ratings of a nationally recognized rating agency.
5. General obligation bonds of a state other than the state of Washington and general obligation bonds of a local government of a state other than the state of Washington, which bonds are rated, at the time of investment, within the three highest credit ratings of a nationally recognized rating agency.
6. Utility revenue bonds or warrants of any city or town in the state of Washington.
7. Bonds or warrants of a local improvement district within the protection of the Local Improvement Guaranty Fund Law.
8. Banker’s acceptances purchased on the secondary market, with ratings of A1/P1.
9. State of Washington Local Government Investment Pool.
B. The city will buy no structured securities, including those whose rates of return are derivative-based, except for securities that have a call provision prior to maturity or those securities that have their rate of return based on a direct relationship with the federal funds rate or Treasury bill rate. (Ord. 15-05 § 6, 2015)
4.46.100 Fund investment and interest allocations.
Investments must be made with excess funds and the interest earnings will be distributed. Moneys determined by the investment officer to be available for investment may be invested on an individual fund basis or may, unless otherwise restricted by law, be commingled within one common fund called the treasury account. All income derived from treasury account investments shall be deposited to the funds contributing to the common fund on a pro rata basis. Also, funds derived from the sale of general obligation bonds or revenue bonds or similar instruments of indebtedness shall be invested or used in the manner prescribed by the initiating ordinances, resolutions, or bond covenants. (Ord. 15-05 § 6, 2015)
4.46.110 Safekeeping and custody.
All security transactions entered into by the city must be conducted on a delivery-versus-payment (DVP) basis. Each security must be registered in the name of the city. (Ord. 15-05 § 6, 2015)
4.46.120 Diversification.
To reduce overall portfolio risks while attaining market average rates of return, the city must diversify its investments. The city must diversify by institution, by type of investment security, and by years to maturity. Such diversification avoids overconcentration in any of these areas. Except for obligations of U.S. Treasury securities, U.S. agency securities, and for funds in the State of Washington Local Government Investment Pool, no more than 25 percent of the city’s total investment portfolio may be invested in securities offered by a single issuer. (Ord. 15-05 § 6, 2015)
4.46.130 Maturities.
A. To the extent possible, unless matched to a specific cash flow, the city will attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the city will maintain a portfolio with an average life not to exceed five years. However, small amounts of general funds are exempt from this five-year rule based on prior investment portfolio history.
B. The city may sell securities, if deemed appropriate, to maintain liquidity. These actions must be initiated by the investment officer, not by a broker or by a dealer.
C. No transaction needs to be instituted when the maturity or call of a security causes the average life of the portfolio or maximum holdings per category to exceed their limits. Any transactions conducted after these occurrences shall work toward a return to compliance. (Ord. 15-05 § 6, 2015)
4.46.140 Internal control.
The State Auditor’s Office will annually perform an established process of independent review. This review will provide internal control by assuring compliance with policies and procedures. This review may also result in recommendations to change operating procedures to improve internal control. (Ord. 15-05 § 6, 2015)
4.46.150 Performance standards.
Because the city’s investment strategy is passive, the city’s investment portfolio will be designed to obtain a market average rate of return equal to or greater than that obtained by the State of Washington Local Government Investment Pool. The portfolio rate of return will be calculated excluding U.S. Treasury SLGS, which have restricted yields due to arbitrage requirements. (Ord. 15-05 § 6, 2015)
4.46.160 Reporting.
The investment officer will submit monthly investment reports that summarize the portfolio’s holdings and investments by type to the city investment committee. On a quarterly basis, the investment officer must submit investment reports that summarize the portfolio’s average rate of return, market value and average maturity to the city council. (Ord. 15-05 § 6, 2015)
4.46.170 State or federal amendments.
This policy immediately incorporates any new legislation or new regulation that amends permitted instruments or permitted institutions. (Ord. 15-05 § 6, 2015)