S12-99 Ordinance No. S12-99
r AN ORDINANCE
PROVIDING FOR THE INVESTMENT POLICY 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, 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
eft. financial institutions, investments shall be
t 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
elk 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 shall be carried at cost or amortized cost
which approximates market .
eft. - Premium or discount shall be amortized over the life
of the investment .
- Gains or losses of investments in all funds except the
fir•• 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 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 Statues, 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
rwhich 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
eft. 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
r 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
e " Board Statement #3 as updated.
Section 15 .
That this ordinance shall be in full force and effect upon its
passage .
Ed Schock, Mayor
Presented: October 27, 1999
Passed: October 27 , 1999
Omnibus Vote : Yeas 7 Nays 0
Recorded: October 28, 1999
Published:
Attest :
Dolonna Mecum, City Clerk
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