RESOLUTION No. 1517 -REVIEWING THE INVESTMENT POLICY FOR INVESTED FUNDS, UNDER THE CONTROL OF THE CITY OF SEYMOUR.

Nov 9, 2023

Resolution No. 1517

A RESOLUTION REVIEWING THE INVESTMENT POLICY FOR INVESTED FUNDS, UNDER THE CONTROL OF THE CITY OF SEYMOUR.

 Whereas, the Local Government Code of the State of Texas has stated that the Investment Policy of a local government must be reviewed annually by the City Council; and

Whereas, the City Council of the City of Seymour reviewed the current Investment Policy at the Regular City Council meeting on Thursday, October 21, 2021; and

Whereas, the City Administrator and City Secretary has recommended that no changes be made at this time; and  

Whereas, this Investment Policy has been reviewed by an Eide Bailly Representative,

Whereas, it is the intention of the City of Seymour to adopt this reviewing by resolution.

NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Seymour as follows:

The Investment Policy of the City of Seymour, attached hereto, is adopted as presented.

presented.  

REVIEWED, PASSED AND ADOPTED this 21st day of October, 2021.

________________________________________

                    Mayor Jon Hrncirik

ATTEST:

_________________________________________

             City Secretary Conchita Torrez, TRMC

CITY OF SEYMOUR

INVESTMENT POLICY

Adopted September 21, 1995

Reviewed and Approved 10/21/2021

INTRODUCTION

The purpose of this document is to set forth a specific investment policy and strategy guidelines for the City of Seymour in order to achieve the goals of safety, liquidity, yield, and public trust and economic development for all investment activities.  The City Council of the City of Seymour shall review and adopt its investment strategies and policy not less than annually.  This policy serves to satisfy the statutory requirement (specifically the Public Funds Investment Act, 2256 Texas Government Code (the “Act”) to define, adopt and review a formal investment strategy and policy.

INVESTMENT STRATEGY

The City of Seymour maintains portfolios which utilize four specific investment strategy considerations designed to address the unique characteristics of the fund groups represented in the portfolios:

A.  Investment strategies for operating funds and commingled pools containing operating funds have as their primary objective to assure that anticipated cash flows are matched with adequate investment liquidity.  The secondary objective is to create a portfolio structure which will experience minimal volatility during economic cycles.  This may be accomplished by purchasing high quality, short-to medium-term securities which will complement each other in a laddered or barbell maturity structure.  The dollar weighted average maturity of 180 days or less will be calculated using the stated final maturity date of each security.

B.  Investment strategies for debt service funds shall have as the primary objective the assurance of investment liquidity adequate to cover the debt service obligation on the required payment date.  Securities purchased shall not have a stated final maturity date which exceeds the debt service payment date.

C.  Investment strategies for debt service reserve funds shall have as the primary objective the ability to generate a dependable revenue stream to the appropriate debt service fund from securities with a low degree of volatility.  Securities should be of high quality and, except as may be required by the bond ordinance specific to an individual issue, of short to intermediate-term maturities.  Volatility shall be further controlled purchasing high quality, short securities within the required maturity range and diversifying the portfolio.

D.  Investment strategies for special projects or special purpose fund portfolios will have as their primary objective to assure that anticipated cash flows are matched with adequate investment liquidity.  These portfolios should include at least 10% in highly liquid securities to allow for flexibility and unanticipated project outlays.  The stated final maturity dates of securities held should not exceed the estimated project completion date.

INVESTMENT POLICY

1.  SCOPE

This investment policy applies to all financial assets of the City of Seymour.  These funds are accounted for in the City’s Comprehensive Annual Financial Report (CAFR) and include:

*General Fund   *Special Revenue Funds *Debt Service Funds 

*Capital Projects Funds *Enterprise Fund

II.   OBJECTIVES

The City of Seymour shall manage and invest its cash with five objectives, listed in order of priority: safety, liquidity, yield, public trust and economic development within the guidelines of Chapter 380 of the Texas Local Government Code.  The safety of the principal invested always remains the primary objective.  All investments shall be designed and managed in a manner responsive to the public trust and consistent with State and Local law.

The City shall maintain a comprehensive cash management program which includes collection of accounts receivable, vendor payments in accordance with invoice terms, and prudent investment of all assets.  Cash management is defined as the process of managing monies in order to insure maximum cash availability and maximum yield on short-term invests of pooled idle cash.

SAFETY

The primary objective of the City’s investment activity is the preservation of capital in the overall portfolio.  Each investment transaction shall be conducted in a manner to avoid capital losses, whether they are from securities defaults or erosion of market value.

LIQUIDITY

The City’s investment portfolio shall be structured such that the City is able to meet all obligations in a timely manner.  This shall be achieved by matching investment maturities with forecasted cash flow requirements and by investing in securities with active secondary markets.

YIELD

The City’s cash management portfolio shall be designed with the objective of regularly exceeding the period average rate of return on six-month U.S. Treasury Bill.  The investment program shall seek to augment returns above this threshold consistent with risk limitations identified herein and prudent investment policies.

PUBLIC TRUST

All participants in the City’s investment process shall seek to act responsibly as custodians of the public trust.  Investment officials shall avoid and transaction which might impair public confidence in the City’s ability to govern effectively.

ECONOMIC DEVELOPMENT

The City shall make loans or grants as authorized under Chapter 380 of the Texas Local Government Code for economic development to attract new businesses, encourage businesses, encourage business expansion, and regulate and control development.

III.   RESPONSIBILITY AND CONTROL

DELEGATION OF AUTHORITY AND TRAINING

Authority to manage the City’s investment program is derived from a resolution of the City Council.  The City Administrator and the City Secretary are designated as the investment officers of the City and are responsible for investment decisions and activities.  The investment officers shall attend at least one training session relating to the officer’s responsibility under the Act within 12 month after assuming duties and thereafter obtain training hours as required by the Act.

INTERNAL CONTROLS

The investment officers are responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the entity are protected from loss, theft or misuse.  The internal control structure shall be designed to provide reasonable assurance that these objectives are met.  The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management.

All investments will be made on a competitive basis.

Accordingly, the investment officers shall establish a process for annual independent review by an external auditor to assure compliance with policies and procedures.  The internal controls shall address the following points at a minimum:

A.   Control of collusion

B.   Separation of transaction authority from account and record keeping.

C.   Custodial safekeeping.

D.   Avoidance of physical delivery securities.

E.   Clear delegation of authority to subordinate staff members.

F.   Written confirmation for all transactions for investments and wire transfers.

G.   Development of a wire transfer agreement with the depository bank or third party custodian. 

PRUDENCE

The standard of prudence to be applied by the investment officer 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.”  In determining whether an investment officer has exercised prudence with respect to an investment decision, the determination shall be made taking into consideration:

A.  The investment of all funds, or funds under the City’s control, over which the officer had responsibility rather than a consideration as to the prudence of a single investment.

B.  Whether the investment decision was consistent with the written investment policy of the City.

The investment officer, exercising due diligence, shall not be held personally liable for a specific security’s credit risk or market price changes, provided that these deviations are reported immediately and that appropriate action is taken to control adverse developments.

ETHICS AND CONFLICTS OF INTEREST

City staff 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 the ability to make impartial investment decisions.  City staff shall disclose to the City Administrator any material financial interests in financial institutions that conduct business with the City and they shall further disclose positions that could be related to the performance of the City’s portfolio.  City staff shall subordinate their personal financial transactions to those of the City, particularly with regard to timing of purchase and sales.

An investment officer of the City who has a personal business relationship with an organization seeking to sell an investment to the City shall file a statement disclosing that personal business interest.  An investment officer who is related within the second degree by affinity or consanguinity to an individual seeking to sell an investment to the City shall file a statement disclosing that relationship.  A statement required under this subsection must be filed with the Texas Ethics Commission and the governing body of the entity.

IV.   REPORTING

QUARTERLY REPORTING

The investment officers shall submit a signed quarterly investment report that summarizes current market conditions, economic developments and anticipated investment conditions.  The report shall summarize investment strategies employed in the most recent quarter, and describe the portfolio in terms of investment securities, maturities, risk characteristics, and shall explain the total investment return for the quarter in accordance with the Act.

Market prices will be obtained from an Independent Source.

METHODS

The quarterly investment report shall include a management summary that provides a clear picture of the status of the current investment portfolio and transactions made over the last quarter.  This management summary will be prepared in a manner which will allow the City to ascertain whether investment activities during the reporting period have conformed to the investment policy.  The report will be provided to the City Council.  The report will comply with the Act, and include the following at a minimum:

A.   A detail descriptive listing of individual securities held at the end of the reporting period, including book and market values.

B.   Additions and changes to the market value during the period.

C.   Average weighted yield to maturity of portfolio on entity investments as compared to benchmark.

D.   Detail listing of investments by maturity date.

E.   The percentage of the total portfolio which each type of investment represents.

F.   Statement of compliance of the City’s investment portfolio with State Law and the investment strategy and policy approved by the City Council.

G.   Statement of earnings for the period.

V.   INVESTMENT PORTFOLIO

The City shall pursue an active versus a passive portfolio management philosophy.  That is, securities may be sold before they mature if market conditions present an opportunity for the City to benefit from the trade.   The investment officers and Mayor will routinely monitor the contents of the portfolio, the available markets, and the relative value of competing instruments, and will adjust the portfolio accordingly.

INVESTMENTS

Assets of the City of Seymour may be invested in the following instruments; provided, however, that at no time shall assets of the City be invested in any instrument or security not authorized for investment under the Act, as the Act may from time to time be amended.

I.    AUTHORIZED

A.   Obligations of the United States of America, its agencies and instrumentalities, with a maximum maturity of one (1) year.

B.   Direct obligations of the State of Texas and agencies thereof.

C.   Other obligations, the principal of and interest on which are unconditionally guaranteed by the State of Texas or United States of America.

D.   Obligations of the States, agencies thereof, Counties, Cities, and other political subdivision of any state having been rated as investment quality by a nationally recognized investment rating firm, and having received a rating of not less than “A” or its equivalent.

E.   Certificates of Deposit of state and national banks doing business in Texas, guaranteed or insured by the Federal Deposit Insurance or its successor or secured by obligations described in PFCA, which are intended to include all direct agency or instrumentality issued mortgage backed securities rated AAA by a nationally recognized rating agency, or by the Act, and that have a market value of not less than the principal amount of the certificates and pass the bank test.

F.   Fully collateralized direct repurchase agreements with a defined termination date secured by obligations of the United States or its agencies and instrumentalities pledged with a third party, selected by the Director of Finance, other than an agency for the pledgeor.  Repurchase agreements must be purchased through a primary government securities dealer, as defined by the Federal Reserve, or a bank doing business in Texas

G.   Constant Dollar Local Government Investment pools rated AAA of political subdivisions in the State of Texas which invest in instruments and follow practices allowed by current law.

H.   NOW OR SUPER-NOW ACCOUNTS

I.    The City of Seymour, for businesses locating within the City of Seymour, or Baylor County, or to those businesses expanding within the City of Seymour or Baylor County, or for the purpose of regulating and controlling development, through loans or grants of City funds, use of City personnel, facilities and services, with or without charge, for economic development, as authorized by Chapter 380 of the Texas Local Government Code.

II.   NOT AUTHORIZED

The City’s authorized investments options are more restrictive than those allowed by State law.  State law specifically prohibits investments in the following investment securities.

A.   Obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pay no principal.

B.   Obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security collateral and bears no interest.

C.    Collateralized mortgage obligations that have a stated final maturity date of greater than 10 years.

D.   Collateralized mortgage obligations the interest rate of which is determined by an index that adjusts to the changes in a market index.

HOLDING PERIOD

The City of Seymour intends to match the maturity of investment funds with liquidity needs of the City.  In no case will the weighted average maturity of investments of the City’s operating funds exceed six months.  The maximum final stated maturity of any investment shall not exceed two years, except for loans.

RISK AND DIVERSIFICATION

The City of Seymour recognizes that investment risks can result from issuer defaults, market price changes or various technical complications leading to temporary illiquidity.  Risk is partially controlled through portfolio diversification which shall be achieved by the following general guidelines:

A.   Risk of issuer default is controlled by limiting investments to those high credit quality instruments allowed by the Act, which are described herein.

B.    Risk of market price changes shall be controlled by avoiding over-concentration of assets in a specific maturity sector, limitation of average maturity of operating funds investments to six months, and avoidance of over-concentration of assets in specific instruments other than U.S. Treasury Securities and Insured or Collateralized Certificates of Deposits.

VI.    SELECTION OF BANKS AND DEALERS

DEPOSITORY

At least every three years a Depository shall be selected through the City’s banking services procurement process, which shall include a formal request for proposal (RFP).  In selecting a depository, the credit worthiness of institutions shall be considered as well as services and cost.  The City Secretary shall conduct a comprehensive review of prospective depository’s credit characteristics and financial history.

CERTIFICATES OF DEPOSIT

Banks seeking to establish eligibility for the City’s competitive certificate of deposit purchase program shall submit for review annual financial statements, evidence of federal insurance and other information as required by the City Secretary.

SECURITIES DEALERS

For Brokers and dealers of government securities, the City shall select only those dealers reporting to the Market Reports Division of the Federal Reserve Board of New York also known as the “Primary Government Security Dealers” or regional brokers.  Investment Officials shall not knowingly conduct business with any firm with whom public entities have sustained losses on investments.  All Securities brokers’ dealers shall provide the City with references from public entities which they are currently serving.

All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the following as appropriate.

  • Annual audited financial statements
  • Proof of National Association of Securities Dealers (NASD) certification
  • Proof of state Securities Commission registration/completed City broker/dealer questionnaire
  • Certification of having read the City’s investment policy signed by a registered principal of the organization
  • Acknowledgment that the organization has implemented reasonable procedures and controls in an effort to preclude investment activities not authorized by Policy.

VII.    SAFEKEEPING AND CUSTODY

INSURANCE OR COLLATERAL

All time and demand deposits and investment made under Chapter 380 of the Texas Local Government Code for Economic Development, shall be secured by pledged collateral.  In order to anticipate marked changes and provide a level of security for all funds, the collateralization level will be 102% of market value of principal and accrued interest on the deposits or investments less an amount insured by the FDIC.  Evidence of the pledged collateral shall be maintained by the City Secretary.  Collateral will be held by a third party financial institution.

SAFEKEEPING AGREEMENT

Collateral pledged to secure deposits of the City shall be held by an independent safekeeping institution.  The safekeeping institution, or Trustee, shall be the Federal Reserve Bank or outside the holding company of the bank pledging the collateral.

Collateral will be priced monthly by an independent source.  The bank is responsible for monitoring and maintaining required collateral and margins.  Substitution is authorized only with prior written approval of the City.

COLLATERAL DEFINED

The City of Seymour shall accept only the following securities as collateral:

A.   FDIC insurance coverage

B.   A bond, certificate of indebtedness, or Treasury note of the United States, or other evidence of indebtedness of the United States that is guaranteed as to principal and interest by the United States.

C.   Obligations, the principal and interest on which, are unconditionally guaranteed or insured by the State of Texas.

D.   A bond of the State of Texas or of a county, city or other political subdivision of the State of Texas having been rated as investment grade (investment rating no less than “A” or its equivalent) by a nationally recognized rating agency with a remaining maturity of ten (10) years or less.

E.    Real estate, equipment, fixtures, vehicles, inventory, corporate stock, or other security deemed appropriate by the City Council of the City of Seymour concerning investments made for economic development.

SUBJECT TO AUDIT

All collateral shall be subject to inspection and audit by the Investment Officers or the City’s independent auditors.

DELIVERY VS. PAYMENT

All securities shall be purchased using the delivery vs. payment method.  That is, funds shall not be wired or paid until verification has been made that the correct security was received by the Trustee.  The security shall be held in the name of the City custodian.  The Trustee’s records shall assure the notation of the City’s ownership of or explicit claim on the securities.  The original copy of all safekeeping receipts shall be delivered to the City.

VIII.   INVESTMENT POLICY ADOPTION

The City of Seymour investment policy shall be annually adopted by resolution of the City Council.  The policy shall be reviewed for effectiveness on an annual basis by the Investment Officers and any modifications will be recommended for approval to the City Council. 

PASSED AND APPROVED ON THIS THE 21st DAY OF OCTOBER, 2021.

________________________________

Mayor Jon Hrncirik

Attest:

_______________________________

City Secretary, Conchita Torrez, TRMC