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G54-93 Ordinance No. G54-93 AN ORDINANCE PROVIDING FOR THE INVESTMENT OF MUNICIPAL FUNDS BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF ELGIN, ILLINOIS: 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, Pensions 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 . Specific objectives include: a. Safety of Principal . Except for the pension funds for which short term market fluctuations are tolerable, each investment transaction shall seek to first ensure that capital losses are avoided, whether they be from securities, defaults or erosion of market value. b. Diversification of Investments. To avoid incurring unreasonable risks regarding specific security types and individual financial institutions, investments shall be diversified. c. Liquidity. The City's investment portfolio shall remain sufficiently liquid to enable it to meet all operating requirements which may be reasonably anticipated. d. Rate of Return. The investment portfolio of the City, except for 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 of above this threshold, consistent with risk limitations, identified' herein, statutory constraints, available designated staffing capabilities and prudent investment principles. e. 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 . AUTHORITY TO INVEST Except for the independent fund, management 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 2 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 annually, 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 fund of the City in accordance with Generally Accepted Accounting Principles as promulgated by the Government Accounting Standards Board. Accounting treatment shall include: - Investments shall be carried at costs or amortized cost which approximates market. - Premium or discount shall be amortized over the life of the investment. 3 - Gains or losses of investments in all funds except the pension funds shall be recognized at the time of disposition of the security. Gains or losses on the exchange of fixed income securities in the pension funds shall use the deferral of amortization method of accounting. Section 7 . INTERNAL CONTROLS The Treasurer shall establish a system of internal controls which shall be documented in writing. 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. One of the required elements of the system of internal controls shall be the timely reconciliation of all City bank accounts . Bank reconciliations shall be performed on a monthly basis and shall be completed no later than thirty (30) days after the end of the monthly cycle. 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 Statues, Chapter 30 ILCS 235/2 . All investments, except for the Illinois Public Treasurer's Investment Pool, 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) 25% 4 Certificates of Deposit (CDs) 100% Commercial Banks Certificates of Deposit (CDs) 100% Savings & Loans Certificates of Deposit (CDs) 25% Credit Unions Illinois Public Treasurers 75% Investment Pool ( IPTIP) or similar type of investment pool Commercial Paper (CP) 25% 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 Treasurers Investment Pool or similar type investment pool . 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 18 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. 5 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. Section 10 . 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 11. QUALIFIED INSTITUTIONS The City shall maintain a listing of financial institutions which are approved for investment purposes . The City shall maintain for public and managerial inspection, current statements of condition for each financial institution named as depository. If, for any reason the information furnished is considered to be insufficient by the Treasurer, the City may request additional data. The refusal of any institution to provide such data upon request may serve as sufficient cause for the withdrawal of City funds . At a minimum an annual evaluation of each financial institution's credit worthiness to determine whether it should be on the "qualified institution" listing shall be made. For brokers and dealers of government securities, the Treasurer shall select only primary government security dealers that report daily to the New York Federal Reserve Bank, unless a comprehensive credit and capitalization analysis reveals that other firms are adequately financed to conduct public business . The Treasurer shall not conduct business with any securities dealer with whom or through whom public entities have paid excessive prices. A. Security The City shall not maintain funds at any financial institution that is not a member of the FDIC or NCUA systems . Furthermore, the City shall not maintain funds at any financial institution not willing or capable of posting required collateral for funds in excess of FDIC or NCUA insurable limits . To be eligible to bid on public funds, commercial banks must have a minimum capital to assets ratio of 3.2% with savings and loan associations needing a minimum rate of 5.5% . 6 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. F. 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 information may include: - Principal and type of investment by Fund Earnings for the current month and year-to-date - Annualized yield The annual financial report of the City of Elgin shall include all required information of the Governmental Accounting Standards Board Statement #3 as updated. Section 12 . That this ordinance shall be in full force and effect upon its passage. s/ George VanDeVoorde George VanDeVoorde, Mayor Presented: October 27, 1993 Passed: October 27 , 1993 Omnibus Vote: Yeas 7 Nays 0 Recorded: October 28, 1993 Published: Attest: s/ Dolonna Mecum Dolonna Mecum, City Clerk 8 • n - � Agenda Item No September 2, 1993 TO: Mayor and City Council FROM: City Manager SUBJECT: Investment Policy PURPOSE: The purpose of this memorandum is to recommend the adoption of an Investment Policy for the City of Elgin. BACKGROUND: One of the management letter points brought up by McGladrey & Pullen, the City' s auditors, dealt with formulating an investment policy. Please find attached an initial draft of such a policy for the City of Elgin. This policy was assembled based on similar policies of other cities as well as the model policy recommended by the Government Finance Officers Association. It also takes into account existing investing philosophies and the procedures and related controls necessary to carry out those philosophies . Moreover it is an important tool for employees charged with the responsibility of overseeing the investment portfolio. The auditors have had the opportunity to review the policy and encourage its adoption. FINANCIAL IMPACT: None. RECOMMENDATION: It is recommended that the City Council adopt the investment Policy in ordinance form. C anage