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HomeMy WebLinkAboutG59-19 Ordinance No. G59-19 AN ORDINANCE ESTABLISHING AN AMENDED INVESTMENT POLICY OF MUNICIPAL FUNDS FOR THE CITY OF ELGIN WHEREAS, the City of Elgin is a home rule unit pursuant to Article VII Section 6 of the Constitution of the State of Illinois; and WHEREAS, as a home rule unit, the City of Elgin may exercise any power and perform any function pertaining to its government affairs; and WHEREAS, an investment policy of municipal funds for the City of Elgin pertains to the government and affairs of the City of Elgin; and WHEREAS,the City of Elgin's current investment policy of municipal funds was established pursuant to Ordinance No. S37-04 passed by the city council of the City of Elgin on December 15, 2004; and WHEREAS, the city council of the City of Elgin has determined that it is necessary and desirable to update the city's investment policy of municipal funds. NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF ELGIN, ILLINOIS, that Ordinance No. S37-04 be and is hereby amended in its entirety, and an amended investment policy of municipal funds for the City of Elgin be and is hereby established to read as follows: Section 1. Scope of Investment Policy. The provisions of this ordinance shall not apply to the investment of such funds which by law are in the control of an officer other than the City Treasurer. All financial assets of funds, including: the General Fund, Special Revenue Funds, Capital Project Funds, Debt Service Funds, Enterprise Funds, Internal Service Funds, Nonexpendable Trust Funds, and such other funds that may be created from time to time shall be administered in accordance with the provisions of this ordinance. Any monies received for independent funds including but not limited to the Police Pension Fund and the Firefighter's Pension Fund shall be administered by the written order of the respective Board of Trustees of each fund. In the absence of such orders,money received and securities held by the City of Elgin on behalf of such funds shall be administered in accordance with the provisions of this ordinance. Section 2. Objectives. Funds of the City shall be invested in accordance with the Public Funds Investment Act, 30 ILCS 235/01, et seq., as amended from time to time, this ordinance, and policies and written administrative procedures consistent with the Act and this ordinance. The purpose of this ordinance 1 is to establish cash management and investment guidelines for City officials responsible for the stewardship of public funds. Primary objectives include: a. Safety. Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk. 1. Credit Risk. The City will minimize credit risk, which is the risk of loss due to the failure of the security issuer or backer, by: • Limiting investments to the types of securities listed within this Investment Policy. • Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisers with which the City will do business. • Diversifying the investment portfolio so that the impact of potential losses from any one type of security or from any one individual issuer will be minimized. 2. Interest Rate Risk. The City will minimize interest rate risk,which is the risk that the market value of securities in the portfolio will fall due to changes in market interest rates, by: • Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity. • Investing operating funds primarily in shorter-term securities, money market mutual funds, or similar investment pools and limiting the average maturity of the portfolio in accordance with this policy. b. Legality. All investments shall be made in conformance with Federal, State, and other legal requirements. c. Liquidity. The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands (static liquidity). Furthermore, a portion of the portfolio may be placed in money market mutual funds or local government investment pools which offer same-day liquidity for short-term funds. d. Yield. The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles,taking into account the investment risk constraints and liquidity needs. Return on investment is of secondary importance compared to the safety and liquidity objectives described above. The core investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities shall generally be held until maturity with the following exceptions: • A security with declining credit may be sold early to minimize loss of principal. 2 • A security swap would improve the quality, yield, or target duration in the portfolio. • Liquidity needs of the portfolio require that the security be sold. e. Diversification. To avoid incurring unreasonable risks regarding specific security types and individual financial institutions, investments shall be diversified based upon type of funds invested and cash flow needs of the fund. f. Public Confidence. In managing its investment portfolio City officials shall avoid any transactions that might impair public confidence of the government of the City. 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 their probable income to be derived. Section 3. Standards of Care. I. Prudence 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 this 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 the liquidity and the sale of securities are carried out in accordance with the terms of this policy. The "prudent person" standard states that, "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." 2. 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 that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual(s)with whom business is conducted on behalf of the City. 3. Delegation of Authority Management administrative responsibility for the investment program is vested in the Treasurer who shall establish written procedures for the operation of the Investment 3 Program consistent with these policies. 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 procedures established by the Treasurer. The Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. Section 4. Cash Management. The City's policy regarding cash management shall be based upon the fact that there is a time value to money. Temporarily idle cash may be invested for a period of one day to an excess of one year depending upon when the money is authorized to be needed. Accordingly, the Treasurer shall cause to be prepared written cash management procedures which shall include,but not be limited to, the following: A. Receipts All monies due the City shall be collected as promptly as possible. Monies that are received shall be deposited in an approved financial institution no later than the next business day after receipt by the City. Amounts that remain uncollected after a reasonable length of time shall be subject to any available legal means of collection. B. Disbursements Any disbursements to suppliers for goods or services or to employees for salaries and wages shall be contingent upon an available budget appropriation. All disbursements shall be supported by proper documentation and approved by the City Council. C. Cash Forecast At least monthly, a cash forecast shall be prepared using the expected revenue sources and items of expenditure to project cash requirements over the fiscal year. The forecast shall be updated from time to time to identify the probable investable balances that will be available. D. Pooling of Cash Except for cash in certain restricted and special accounts, pool the cash of various funds to maximize investment earnings. Interest income earned from investments will be allocated to the various funds based on their respective participation. Section 5. Accounting. The City shall maintain its accounting records based on the basis of Fund and Account Groups, each of which is considered a separate accounting entity. All investment transactions shall be recorded in the various funds of the City in accordance with Generally Accepted Accounting 4 Principles as promulgated by the Government Accounting Standards Board. Accounting treatment shall include: • Investments with a maturity equal to or less than one year when purchased will be carried at cost or amortized cost. Investments with a maturity greater than one year when purchased will be reported at fair value. • Premium or discount shall be amortized over the life of the investment. • Gains or losses of investments in all funds shall be recognized at the time of disposition of the security. Section 6. Internal Controls. The Treasurer shall establish a written procedure of internal controls. The internal controls shall be reviewed by an independent certified public accountant in conjunction with the annual examination of the financial statements of the City. The controls shall be designed to prevent losses of public funds arising from fraud, employee error, and misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of the City of Elgin. Section 7. Investment Selection. The City of Elgin may invest in any type of security allowed by law as set out in the Illinois Compiled Statutes, Chapter 30 ILCS 235/2. Approved investments include, but are not limited to: • Bonds, notes, certificates of indebtedness, treasury bills, treasury strips or other securities, including obligation of the Governmental National Mortgage Association, which are guaranteed by the full faith and credit of the government of the United States of America,or other similar obligations of the United States of America or its agencies. • Interest bearing savings accounts, interest bearing certificates of deposit or interest bearing time deposits or any other investment constituting direct obligations of any institution as defined by the Illinois Banking Act and is insured by the Federal Deposit Insurance Corporation. • Local Government Investment Pools • Obligations of corporations (commercial paper) organized in the United States with assets exceeding $500 million and rated at the time of purchase at one of the three highest classification established by at least two standard rating services. Must mature within three years from the date of purchase. • Investment grade municipal obligations(rated AA or better by a nationally recognized ratings agency) of state, provincial and local governments and public authorities. • Short-term discount obligations of the Federal National Mortgage Association or in shares of other forms of securities legally by savings and loan associations incorporated under the laws of this state or any other state or under the laws of the United States. Investments may be made only in those savings and loan associations of which the shares, or investment certificates are insured by the Federal Deposit Insurance Corporation. 5 All investments, except for the Illinois Public Funds or similar type of investments/money market pools,shall be selected on the basis of competitive bids. Financial Institutions located within the City of Elgin will be awarded a bid if the local bid is not less than the prevailing rate. Section 8. Diversification of Maturities. The City shall diversify its use of investment instruments to avoid incurring unreasonable risks inherent in over investing in specific instruments,individual financial institutions or maturities. Maturities selected shall provide for stability of income and reasonable liquidity. A. Diversification The investments shall be diversified by: • Limiting investments to avoid overconcentration in securities from a specific issuer or business sector(excluding U.S. Treasury securities and Federal Agency securities), • Limiting investments in securities that have higher credit risks, • Investing in securities with varying maturities, and • Continuously investing a portion of the portfolio in readily available funds such as local government investment pools (LGIP's), money market funds or overnight repurchase agreements to ensure that appropriate liquidity is maintained in order to meet ongoing obligations. B. Maturity Scheduling Investment maturities for operating funds shall be scheduled to coincide with anticipated cash flow needs, taking into account large routine expenditures (payroll, accounts payable, bond payments) as well as considering sizable blocks of anticipated revenue (sales tax, property tax). Investment maturities in the General Fund and Special Revenue Funds shall be limited to a maximum maturity of 36 months from the date of purchase. Investments in other funds may be purchased with maturities to match future projects or liability requirements. Notwithstanding,the provisions of the above paragraph,no investment in any fund shall have a maturity date greater than the period allowed by the Illinois Compiled Statutes, City ordinance, or by other standards of this policy. C. Delivery vs. Payment All trades where applicable will be executed by delivery vs. payment (DVP)to be sure that securities are deposited in an eligible financial institution prior to the release of funds. Securities will be held by a third party custodian as evidenced safekeeping receipts. D. Safekeeping 6 Securities will be held by an independent third-party custodian selected by the entity as evidenced by safekeeping receipts in the City of Elgin's name. The safekeeping institution shall annually provide a copy of their most recent report on internal controls (Statement of Auditing Standards No. 70, or SAS 70). Section 9. Competitive Selection of Investment Instruments. Before the City invests its surplus funds,a competitive "bid"process shall be conducted. If a specific maturity date is required, either for cash flow purposes or for conformance to maturity guidelines, bids will be requested for instruments which meet the maturity requirement. If no specific maturity is required, a market trend (yield curve) analysis will be conducted to determine which maturities would be most advantageous. Section 10. Qualified Institutions. The City will maintain a listing of financial institutions authorized to provide investment services. In addition, a list also will be maintained of approved security brokers/dealers selected by credit worthiness. All financial institutions and brokers/dealers who desire to become qualified for investment transactions must supply the following as appropriate: A. Audited financial statements B. Proof of Financial Industry Regulatory Authority, Inc. (FINRA) Certification. C. Proof of State Registration D. Certification of having read & understood and agreeing to comply with the City's investment policy E. Evidence of adequate insurance coverage An annual review of the financial condition and registration of qualified financial institutions and broker/dealers will be conducted by the Treasurer. Section 11. Collateral. The City requires that funds on deposit in excess of FDIC limits be secured by some form of collateral. Any of the following assets would be acceptable as collateral: -U.S. Government Securities -Obligations of the Federal Agencies -Obligations of the Federal Instrumentalities -FHLB Letter of Credit -Obligations of the State of Illinois -Obligations of the City of Elgin -General Obligation Municipal Bonds rated "A" or better 7 -Any other collateral identified in Illinois Complied Statutes as acceptable The amount of collateral provided shall not be less than 105% of the fair market value of the net amount of public funds secured. The ratio of fair market value of collateral to the amount of funds secured shall be reviewed weekly and additional collateral will be requested when the ratio declines below the level required. Collateral shall be held in third party safekeeping and shall be evidenced by a tri-party signed safekeeping agreement. Collateral agreements will preclude the release of the pledged assets without an authorized signature from the City of Elgin, but they will allow for an exchange of collateral of like value. Section 12. Reporting Requirements. The Treasurer shall generate monthly reports for management purposes. In addition,the City Council will be provided quarterly reports which will include data on investment instruments being held, as well as any narrative necessary for clarification. The monthly report shall include, at a minimum: 1. Principal and type of investment by fund 2. Earnings for the current month and year to date 3. Annualized yield 4. Current market value of portfolio The annual financial report of the City shall include all required information of the Governmental Accounting Standards Board Statement #40 as updated. Section 13. Policy Considerations. This policy shall be reviewed on an annual basis. Any changes must be approved by the investment officer and formally adopted by the governing body of the City of Elgin. Section 14. That this ordinance shall be in full force and effect upon its passage in the manner provided by law. / - eAro,fr . David J. Kapt..'' , M'or 8 Presented: November 6, 2019 Passed: November 6, 2019 Omnibus Vote: Yeas: 9 Nays: 0 Recorded: November 6, 2019 Published: November 7, 2019 Attest; 644 /3('/AN ° .0� Kimberly Dewis, C lerk t,`-�Y ` F<' vi 6 9