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HomeMy WebLinkAboutS13-02 Ordinance No. S13-02 AN ORDINANCE AMENDING THE INVESTMENT POLICY OF MUNICIPAL FUNDS WHEREAS, the City Council of the City of Elgin passed Ordinance No. S12-99 entitled "An Ordinance Providing for the Investment Policy of Municipal Funds" on October 27, 1999; and WHEREAS, in order to conform to certain government accounting standards, it is in the best interest of the City of Elgin to amend Section 6 Accounting of said ordinance . NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF ELGIN, ILLINOIS, that Ordinance No. S12-99 passed on October 27, 1999, be and is hereby amended 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 Fire 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 is to establish cash management and investment guidelines for City officials responsible for the stewardship of public funds . Primary objectives include : a. Legality. All investments shall be made in conformance with Federal , State, and other legal requirements . b. Safety. All investment transactions shall seek to first ensure the preservation of Capital and protection of investment Capital . c. Liquidity. The investment portfolio shall be structured to anticipate the maintenance of sufficient liquidity to meet operating requirements . d. 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. e . Yield. The investment portfolio, with the exception of the pension funds, shall be designed with the objective of regularly exceeding the average return of the three month U. S . Treasury Bill . The investment program shall seek to augment returns above this threshold, consistent with risk limitations, statutory constraints, available designated staffing capabilities, and prudent investment principles . 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. The portfolio should be reviewed periodically as to its effectiveness in meeting the City' s needs for safety, liquidity, rate of return, diversification, and its general performance. Section 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 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 . PRUDENCE The standard of prudence to be applied by the Treasurer shall be 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. " Section 5 . 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 6 . 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 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 7 . 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, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of the City of Elgin. Section 8 . 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 . 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 9 . 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 . A. Diversification by Instrument Percent of Portfolio U. S. Treasury Obligations 100% (Bills, Notes, & Bonds) U. S . Government Agency Securities and 50% Instrumentalities of Government Sponsored Corporations Bankers Acceptances (Bas) 25% Repurchase Agreements (REPOs) 35% (monies in the Public Funds or other Money Market funds are not to be included in this limitation) Certificates of Deposit (CDs) 100% Commercial Banks/Savings & Loans Certificates of Deposit (CDs) 25% Credit Unions Illinois Public Funds 75% (or similar types of investment/ Money Market pools) Commercial Paper (CP) 33% B. Diversification by Financial Institution Bankers Acceptances (BAs) No more than 25% of the total portfolio with any one institution. Repurchase Agreements (REPOs) No more than 25% of the total portfolio with any one institution. Certificates of Deposit (CDs) - Commercial Banks, Savings & Loan Associations, Credit Unions No more than 25% of the total portfolio with any one institution. Local Government Investment Pool - The Illinois Public Funds or similar type investment/money market pools. No more than $30, 000, 000 . C. Maturity Scheduling Investment maturities for operating funds shall be scheduled to coincide with projected 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 . For example, investment of capital project funds shall be timed to meet contractor payments usually for a term not to exceed three years . Investment of prepaid assessment funds shall be tied to bond payment dates after cash flow projections are made using a forecasting model which considers prepayment rate, delinquency rate, interest on bonds and income on investment . 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. D. 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 . Section 10 . ETHICS AND CONFLICT OF INTEREST Employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment policy; or that could impair their ability to make important decisions . Employees should disclose any material interest in financial institutions with which they conduct business . Employees should further refrain from undertaking personal investment transactions with the same individual (s) with whom business is conducted on behalf of the City. Section 11 . 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 12 . 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 National Association of Securities Dealers (NASD) Certification. C. Proof of State Registration D. Certification of having read & understood and agreeing to comply with the City' s investment policy An annual review of the financial condition and registration of qualified financial institutions and broker/dealers will be conducted by the Treasurer. Section 13 . 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 -Obligations of the State of Illinois -Obligations of the City of Elgin -General Obligation Municipal Bonds rated "A" or better -Any other collateral identified in Illinois Complied Statutes as acceptable -Any other Collateral identified by the Treasurer of the State of Illinois 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. Alleged collateral will be held by the City of Elgin or in safekeeping or evidenced by a safekeeping agreement . The City desires to establish and maintain joint custody accounts with depository institutions and the Federal Reserve. The minimum amount in the joint custody account shall be equal to 105% of those investments currently on deposit with each individual institution in excess of $100 , 000 . If collateral is held in safekeeping, it may be held by a third party or by an escrow agent of the pledging institution. 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 14 . 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 #3 as updated. Section 15 . That this ordinance shall be in full force and effect upon its passage . s/ Ed Schock Ed Schock, Mayor Presented: September 11, 2002 Passed: September 11, 2002 Omnibus Vote : Yeas : 6 Nays : 0 Recorded: September 12 , 2002 Published: Attest : s/ Dolonna Mecum Dolonna Mecum, City Clerk