Chapter 3.11
INVESTMENT POLICY
Sections:
3.11.010 Purpose of provisions.
3.11.060 Delegation of authority.
3.11.070 Ethics and conflicts of interest.
3.11.080 Authorized financial dealers and institutions.
3.11.090 Authorized and suitable investments.
3.11.110 Safekeeping and custody.
3.11.150 Market yield (benchmark).
3.11.170 Investment policy review.
3.11.010 Purpose of provisions.
The city council declares that city cash management and investment practices have a significant impact on the operation of city government. In furtherance of that recognition, the city council adopts the policies set forth in this chapter, which shall be referred to as the city of Mount Vernon investment policy. (Ord. 2727 § 1, 1996).
3.11.020 Policy.
It is the policy of the city of Mount Vernon to invest public funds in a manner which will provide the highest investment return with the maximum security while meeting the daily cash flow demands of the entity and conforming to all state and local statues governing the investment of public funds. Cash may, at the discretion of the city finance director, be invested separately by fund or be commingled into a common investment portfolio and earnings from such portfolio distributed at least quarterly. The city finance director has been authorized by Ordinance 2310 and MVMC 2.28.080 to manage the investments described herein. (Ord. 2727 § 2, 1996).
3.11.030 Scope.
This investment policy supersedes any previous investment policy and applies to all financial assets of the city. These funds are accounted for in the city’s comprehensive annual financial report and include:
A. General fund (current expense);
B. Special revenue funds;
C. Debt service funds;
D. Capital project funds;
E. Enterprise funds;
F. Internal service funds;
G. Fiduciary funds including expendable trust funds and agency funds. (Ord. 2727 § 3, 1996).
3.11.040 Prudence.
Investments shall be made with such judgment and care – under circumstances then prevailing – as 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 standard of prudence to be used by investment officials shall be the “prudent person” standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and the investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security’s credit risk or market price changes; provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. (Ord. 2727 § 4, 1996).
3.11.050 Objective.
The primary objectives, in priority order, of the city’s investment activities shall be:
A. Safety. Safety of principal is the foremost objective of the investment program. Investments of the city shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio.
B. Liquidity. The city’s investment portfolio will remain sufficiently liquid to enable the city to meet all operating requirements which might be reasonably anticipated.
C. Return on Investments. The city’s investment portfolio shall be designed with the objective of attaining a rate of return throughout budgetary and economic cycles, commensurate with the city’s investment risk constraints and cash flow characteristics of the portfolio.
D. Local Institutions. Local institutions shall be given preference when they are, in the judgment of the finance director, competitive with other institutions. (Ord. 2727 § 5, 1996).
3.11.060 Delegation of authority.
Ordinance 2310 and MVMC 2.28.080 delegates investment authority to the finance director. The finance director shall establish and maintain detailed written procedures for the operation of the investment program consistent with the investment policy set forth in this chapter. Procedures shall include reference to: safekeeping, public securities association (PSA) repurchase agreements, wire transfer agreements, collateral/depository agreements and banking service contracts. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the finance director. The finance director shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. (Ord. 2727 § 6, 1996).
3.11.070 Ethics and conflicts of interest.
Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investments officials shall disclose to the mayor and city council any material financial interest in financial institutions that conduct business with this city, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the city’s portfolio, particularly with regard to the time of purchases and sales. (Ord. 2727 § 7, 1996).
3.11.080 Authorized financial dealers and institutions.
The finance director will maintain a list of financial institutions authorized to provide investment services. In addition, a list will also be maintained of approved security broker/dealers selected by credit worthiness who maintain an office in the state of Washington. These may include “primary” dealers or regional dealers that qualify under U.S. Securities and Exchange Commission Rule 15C3-1 (uniform net capital rule). No public deposit shall be made except in a qualified public depository as established by state law.
All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the finance director with their most recent audited financial statements.
An annual review of the financial conditions and registrations of such institutions and broker/dealers shall be conducted by the finance director.
A current audited financial statement is required to be on file for each financial institution and broker/dealer in which the city invests. (Ord. 2727 § 8, 1996).
3.11.090 Authorized and suitable investments.
A. The city shall limit its investments to those allowed by the RCW 35A.40.050, as it now exists or may hereafter be amended. In general, and by way of illustration only, and not by way of limitation, these investments include the following:
1. United States bonds;
2. United States certificates of indebtedness;
3. Bonds or warrants of this state;
4. General obligations or utility revenue bonds or warrants of its own or of any other city or town in the state;
5. Its own bonds or warrants of a local improvement district which are within the protection of the local improvement guaranty fund law; and
6. In any other investments authorized by law for any other taxing districts.
B. The finance director may invest in the following instruments which the city has determined fall within the allowable investments authorized by RCW 35.40.050:
1. Obligations of United States government and its agencies;
2. Certificates of deposit of financial institutions (either banks or thrifts) which are qualified public depositories and which are in accordance with the restrictions placed on such deposits;
3. Savings or time accounts in banks, trust companies, savings and loan associations, and mutual savings banks which are conducting business in this state, up to the amount of the insurance afforded such accounts by the Federal Deposit Insurance Corporation or by the Federal Savings and Loan Insurance Corporation. Savings or time deposits may exceed federal insurance limits if such excess is insured by the Washington Public Deposit Protection Commission (WPDPC);
4. Bankers acceptances, with limitations specifically outlined in the investment procedure;
5. Repurchase agreements, with limitations specifically outlined in the investment procedure;
6. The Washington Local Government Investment Pool. (Ord. 2727 § 9, 1996).
3.11.100 Collateralization.
Collateralization will be required on repurchase agreements. In order to anticipate market changes and provide a level of security for all funds, the collateralization level will be 102 percent of market value of principal and accrued interest.
The city chooses to limit collateral to the obligations of the United States government and its agencies.
Collateral will always be held by an independent third party with whom the city has a current custodial agreement. A clearly marked evidence of ownership (safekeeping receipt) must be supplied to the city and retained.
The right of collateral substitution is granted. (Ord. 2727 § 10, 1996).
3.11.110 Safekeeping and custody.
All securities shall be held by a third party custodian in the name of the city and shall not be lent out or commingled with the holdings of other investors. The finance director shall designate the third party custodian who shall provide a separate statement of holdings which shall be evidenced by safekeeping receipts. (Ord. 2727 § 11, 1996).
3.11.120 Diversification.
The city will diversify its investments by security type and institution. With the exception of U.S. Treasury securities and the Washington State Local Government Investment Pool, no more than 65 percent of the city’s total investment portfolio will be invested in a single security type or with a single financial institution. (Ord. 2727 § 12, 1996).
3.11.130 Maximum maturities.
To the extent possible, the city will attempt to match its investments with anticipated cash flow requirements, holding investments to maturity whenever possible. The city will not directly invest in securities maturing more than 10 years from the date of purchase; provided the average maturity of all city investments shall not exceed five years.
Reserve funds may be invested in securities exceeding five years if the maturity of such investments are made to coincide as nearly as practicable with the expected use of the funds. (Ord. 2727 § 13, 1996).
3.11.140 Internal control.
The finance director shall establish a system of internal controls, which shall be reviewed annually by an external auditor. This review will provide internal control by assuring compliance with policies and procedures. (Ord. 2727 § 14, 1996).
3.11.150 Market yield (benchmark).
The city manages its investment portfolio using an active rather than a passive management style. This means that securities are actively bought and sold to obtain greater market yield through both trading gains and interest earnings as opposed to a passive management investment approach which involves a buy and hold process where only interest earnings to maturity are realized. Using active portfolio management, there will be both trading gains and losses. To assure preservation of capital, trading losses will be confined to lower rates of return on investments rather than loss of principal. Securities may not be sold or traded if the result would cause a loss of principal. (Ord. 2727 § 15, 1996).
3.11.160 Reporting.
The finance director is charged with the responsibility of including a market report on investment activity and returns in the city’s comprehensive annual financial report. This report shall contain such information as the finance director deems appropriate. (Ord. 2727 § 16, 1996).
3.11.170 Investment policy review.
The city’s investment policy as adopted by this chapter shall be reviewed on an annual basis by the finance director. The finance director shall recommend to the city council such modifications as may be deemed advisable. (Ord. 2727 § 17, 1996).