HomeMy WebLinkAboutItem 12 - Investment Policy Review MEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: BRUNO RUMBELOW, CITY MANAGER U2
MEETING DATE: OCTOBER 3, 2017
SUBJECT: INVESTMENT POLICY REVIEW
RECOMMENDATION:
City Council to consider a motion to approve the City Investment Policy pursuant to the
provisions of the Public Funds Investment Act, Chapter 2256, Texas Government Code.
BACKGROUND INFORMATION:
Chapter 2256 of the Texas Government Code, the Public Funds Investment Act (PFIA),
requires an annual City Council review of the City's Investment Policy. The Council
initially adopted the policy in 1997 and has amended it several times.
Several minor changes were made to the PFIA in 2017 which are reflected in the
Investment Policy. All changes to the Investment Policy are marked in red.
A few key changes to the policy are:
A collateralization level of 102% of market value of principal and accrued interest on
deposits.
A rolling one year Treasury bill portfolio shall be the minimum yield objective.
The Investment Policy will be reviewed and adopted by resolution annually by the City
Council.
Staff recommends approval.
RESOLUTION NO. 2017-083
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
GRAPEVINE, TEXAS, APPROVING THE CITY'S
INVESTMENT POLICY
WHEREAS, the City's Investment Policy requires adoption annually by resolution,
and:
WHEREAS, all constitutional and statutory prerequisites for the approval of this
resolution have been met, including but not limited to the Open Meetings Act; and
WHEREAS, the City Council hereby declares that the approval of this resolution is in
the best interests of the health, safety, and welfare of the public.
NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
GRAPEVINE, TEXAS:
Section 1. That all matters stated hereinabove are found to be true and correct
and are incorporated herein by reference as if copied in their entirety.
Section 2. That the attached Investment Policy reflects minor changes from the
previous policy.
Section 3. That this resolution shall take effect from and after the date of its
passage.
PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF
GRAPEVINE, TEXAS on this the 3rd day of October, 2017.
APPROVED:
William D. Tate
Mayor
ATTEST:
Tara Brooks
City Secretary
APPROVED AS TO FORM:
John F. Boyle, Jr.
City Attorney
Resolution No. 2017-083 2
CITY OF GRAPEVINE
INVESTMENT POLICY
Adopted:
May 6, 1997
Most Recent Revision/Review:
January 19, 2016
October 3, 2017
PREFACE
It is the policy of City of Grapevine that, giving due regard to the safety and risk of investment,all
available funds shall be invested in conformance with State and Federal Regulations, applicable
Bond Resolution requirements, adopted Investment Policy and adopted Investment Strategy.
Effective cash management is recognized as essential to good fiscal management. Aggressive cash
management and effective investment strategy development will be pursued to take advantage of
interest earnings as viable and material revenue to all City funds. The portfolio of the City shall be
designed and managed in a manner responsive to the public trust and consistent with this Policy.
Investments shall be made with the primary objectives of:
• Preservation of capital,
• Safety of City funds,
• Maintenance of sufficient liquidity,
• Public Trust due to Prudent Investment Activities,
• Maximization of return within acceptable risk constraints, and
• Diversification of investments.
INVESTMENT POLICY
TABLE OF CONTENTS
Page
I PURPOSE 1
II. INVESTMENT OBJECTIVES 3
III. INVESTMENT POLICIES 5
A. Authorized Investments 5
B. Protection of Principal 8
C. Investment Advisors and Investment Providers 13
D. Responsibility and Controls 14
I. PURPOSE
A. Formal Adoption
This Investment Policy is authorized by the City of Grapevine in accordance with Chapter 2256,
Texas Government Code,and the Public Funds Investment Act,and the Public Funds Collateral
Act.
B. Scope
This Investment Policy applies to all of the investment activities of the City. These funds are
accounted for in the City's Comprehensive Annual Financial Report(CAFR) and include:
• General Fund
• Special Revenue Funds
• Capital Projects Funds
• Enterprise Funds
• Trust and Agency Funds,to the extent not required by law or existing contract to be kept
segregated and managed separately
• Debt Service Funds, including reserves and sinking funds,to the extent not required by
law or existing contract to be kept segregated and managed separately
• 4B Economic Development Corp. Sales Tax Fund
• Crime Control District Sales Tax Fund
• Community Quality of Life Fund
• Any new fund created by the City,unless specifically exempted from this Policy by the
City Council or by law
This Policy establishes guidelines for: 1)who can invest City funds,2)how City funds will be
invested, and 3)when and how a periodic review of investments will be made. In addition to
this Policy, bond funds (as defined by the Internal Revenue Service) shall be managed in
accordance with their issuing documentation and all-applicable State and Federal Law.
This Investment Policy shall apply to all transactions involving the financial assets and related
activity for all the foregoing and future funds. However,this policy does not apply to the assets
administered for the benefit of the City by outside agencies under deferred compensation
programs.
All investments made with City funds prior to the adoption of this Investment Policy shall be
held or liquidated as determined by the Investment Officer to be in the best interest of the
financial well being of the City.
C. Review and Amendment
This Policy shall be reviewed and approved adopted by Resolution annually by the City Council.
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D. Investment Strategy
In conjunction with the annual Policy review,the City Council shall review the separate written
investment strategy for each of the City funds and adopt by Resolution. The investment strategy
must describe the investment objectives for each particular fund according to the following
priorities:
1) Investment suitability,
2) Preservation and safety of principal,
3) Liquidity,
4) Marketability prior to maturity of each investment,
5) Diversification, and
6) Yield.
Monitoring of market prices for investments will be accomplished by utilizing quotations from a
third party service ., . . - - - ' . . -- . . -- -- - - ' t • •--
Daily TexPool and JP Morgan.
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II. INVESTMENT OBJECTIVES
A. Safety of Principal
The City shall manage and invest its cash with four primary objectives,listed in order of priority:
safety, liquidity, public trust, and yield, expressed as optimization of interest earnings. 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.
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 and interest rate risk.
1. Credit Risk—The City will minimize credit risk,the risk of loss due to the failure of
the issuer or backer of the investment, by:
a. Limiting investments to the safest types of highest credit quality investments.
b. Pre-qualifying the financial institutions with which the City
will do business.
c. Diversifying the investment portfolio so that potential losses on individual issuers
will be minimized.
2. Interest Rate Risk—the City will minimize the risk that the interest earnings and the
market value of investments in the portfolio will fall due to changes in general
interest rates, by:
a. Structuring the investment portfolio so that investments mature to meet cash
requirements for ongoing operations, thereby avoiding the need to liquidate
investments prior to maturity.
b. Investing operating funds primarily in certificates of deposit, shorter-term
securities, money market mutual funds, or local government investment pools
functioning as money market mutual funds.
c. Diversifying maturities and staggering purchase dates to minimize the impact of
market movements over time.
B. Maintenance of Adequate Liquidity
The City's investment portfolio will remain sufficiently liquid to meet the cash flow
requirements that might be reasonably anticipated. Liquidity shall be achieved by matching
investment maturities with forecasted cash flow requirements;investing in securities with active
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secondary markets; and maintaining appropriate portfolio diversification.
A portion of the portfolio will be invested in shares of money market mutual funds or local
government investment pools that offer same-day liquidity. In addition,a portion of the portfolio
will consist of securities with active secondary or resale markets.
C. Public Trust
All participants in the City's investment process shall seek to act responsibly as custodians of the
public trust. Investment officers shall avoid any transaction that might impair public confidence
in the City's ability to govern effectively.
D. Yield
The investment portfolio shall be designed with the objective of attaining a reasonable market
fate-ef-retufnyield 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.
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III. INVESTMENT POLICIES
A. Authorized Investments
Only(investments described below are authorized by the Public Funds Investment Act as eligible
securities for the City. The City's funds governed by this Policy may be invested in:
1. Obligations of Governmental Entities
- -- . - -- , tThe following are authorized investments for
obligations of governmental agencies:
a. Obligations of the United States or its agencies and instrumentalities;
b. Direct obligations of the State of Texas or its agencies and instrumentalities;
c. Other obligations, the principal and interest on which are unconditionally
guaranteed,insured by,or backed by the full faith and credit of the State of Texas
or the United States or their respective agencies and instrumentalities;
d. Obligations of states,agencies,counties,cities,and other political subdivisions of
any State having been rated as to investment quality by a nationally recognized
investment rating firm and having received a rating of not less than "A" or its
equivalent; and
e. Collateralized mortgage obligations directly issued by a federal agency or
instrumentality of the United States, the underlying security for which is
guaranteed by an agency or instrumentality of the United States.
f. Guaranteed investment contracts will be authorized for bond proceeds if the
guaranteed investment contract:
(1) has a defined termination date,
(2) is secured by obligations described by Section 2256.009(a)(1),excluding
those obligations described by Section 2256.009(b),in an amount at least
equal to the amount of bond proceeds invested under the contract; and
(3) is pledged to the City and deposited with the City or with a third party
selected and approved by the City.
g. Commercial paper is an authorized investment as described under Sec. 2256.013
subchapter of Public Fund Investment.
h. The stated maturities may not exceed five years.
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i. The following are not authorized investments for this City:
(1) Obligations whose payments represent the coupon payments on the
outstanding principal balance of the underlying mortgage-backed security
collateral and pays no principal (Interest Only CMO);
(2) Obligations whose payments represent the principal stream of cash flow
from the underlying mortgage-backed security collateral and bears no
interest(Principal Only CMO);
(3) Collateralized mortgage obligations that have a stated final maturity date
of greater than 2 1/2 years; and
(4) Collateralized mortgage obligations, the interest rate of which is
determined by an index that adjusts opposite to the changes in the market
index (Inverse Floater CMO).
The City of Grapevine expressly prohibits the acceptance of collateralized deposits interest-only
and principal-only mortgage backed securities and collateralized mortgage obligations with
stated final maturities in excess of five years or with coupon rates that float inversely to market
index movements.
2. Certificates of Deposit
Certificates of deposit issued by state and national banks :, : : .•. • '. •. - that
has its main office or branch office in Texas that are:
a. Organized under Texas law,the laws of another state,or federal law,that has its main
office or a branch office in Texas, or by a . ... , : savings
bank organized under Texas law,the laws of another state,or federal law,that has its
main office or a branch office in Texas;
b. The broker-Of depository institution selected by the City and arranges for the deposit
of the funds in certificates of deposits in one or more federally insured depository
institutions,wherever located for the account of the City as amended by H.B. 2226.
c. Guaranteed or insured by the Federal Deposit Insurance Corporation or its
successors; or
d. Secured by obligations that are described by A.1. above, which are intended to
include all direct Federal agency or instrumentality issued mortgage backed
securities,but excluding those mortgage backed securities of the nature described in
1.f. above, that have a market value of not less than the principal amount of the
certificates; or
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d. Secured in any other manner and amount provided by law for deposits of the City of
Grapevine; or
e. Governed by a Depository Agreement, as described in B.4. of this section, that
complies with Federal and State regulation to properly secure a pledged security
interest.
f. Certificates of Deposit may have stated maturities of no greater than five years.
3. Repurchase Agreements
a. Fully collateralized repurchase agreements and reverse repurchase agreements as
defined by the Public Funds Investment Act,with a defined termination date that are
placed with a primary government securities dealer or financial institution doing
business in the State of Texas, and which are secured by obligations of the United
States or its agencies and instrumentalities and which are pledged in the City's name
and deposited with a third party custodian bank selected and approved by the City.A
Master Repurchase Agreement must be signed by the bank/dealer prior to investment
in a repurchase agreement. All repurchase agreement transactions will be on a
delivery vs.payment basis. Securities received for repurchase agreements must have
a market value greater than or equal to 102 percent at the time funds are disbursed.
Repurchase agreements should not exceed 120 days te-statedand reverse
repurchase agreements should not exceed 90 days , provided an
executed PSA Master Repurchase Agreement is on file with the City and the counter
party bank or dealer.
4. Money Market Mutual Funds
Money market mutual funds regulated by the Securities&Exchange Commission,with a
maximum dollar weighted average portfolio maturity of 960 days or lessthat-fully-invest
., . . . . - :. :, whose
investment objectives include seeking to maintain a stable net asset value of$1 per share.
Money Market Mutual funds that are 1)registered and regulated by the Securities and
Exchange Commission,2)have a dollar weighted average stated maturity of 960 days or
less, 3) rated AAA by at least one nationally recognized rating service, and 4) seek to
maintain a net asset value of$1.00 per share. The City may not invest funds under its
control in an amount that exceeds 10%of the total assets of any individual money market
mutual fund or exceeds 15% of its monthly average fund balance, excluding bond
proceeds and reserves and other funds held for debt service in money market mutual
funds;
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5. Investment Pools
Eligible investment pools organized and operating in compliance with the Public Funds
Investment Act that have been authorized by Resolution by the City Council; and local
government investment pools, which 1) meet the requirements of Chapter 2256.016 of
the Public Funds Investment Act and are rated no lower than AAA or an equivalent
rating by at least one nationally recognized rating service, and 3) are authorized by
resolution or ordinance by the Board,and whose investment philosophy and strategy are
consistent with this Policy and the City's ongoing investment strategy. In addition, a
local government investment pool created to function as a money market mutual fund
must mark its portfolio to the market daily and, to the extent reasonably possible,
stabilize at $1.00 net asset value. All prudent measures will be taken to liquidate an
investment that is downgraded to less than the required minimum rating.
6. Commercial Paper
Commercial Paper is an authorized investment under the Public Funds Investment Act.
Lo Commercial Paper which meet Sec. 2256.013 of the Public Funds
Investment Act and
(1)has a stated maturity of 270 days or fewer from the date of its issuance; and
(2) is rated not less than A-1 or P-1 or an equivalent rating by at least:
(A)two nationally recognized credit rating agencies; or
(B)one nationally recognized credit rating agency and is fully secured by an
irrevocable letter of credit issued by a bank organized and existing under
the laws of the United States or any state.
B. Protection of Principal
The City shall seek to control the risk of loss due to the failure of a security issuer or
grantor. Such risk shall be controlled by investing only in the safest types of securities as
defined in the Policy; by collateralization as required by law; and through portfolio
diversification by maturity and type.
The purchase of individual securities shall be executed"delivery versus payment"(DVP)
through the City's Safekeeping Agent. By so doing, City's funds are not released until
the City has received,through the Safekeeping Agent,the securities purchased.
1. Diversification by Investment Type
Diversification by investment type shall be maintained by ensuring an active and efficient
secondary market in portfolio investments and by controlling the market and opportunity
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risks associated with specific investment types.
Diversification by investment type shall be established by the following maximum
percentages of investment type as compared to the total investment portfolio at the time
of each investment transaction:
a. U.S. Treasury Bills/Notes/Bonds 100%
b. U. S. Agencies & Instrumentalities 100%
c. States, Counties, Cities, & Other 75%
d. Certificates of Deposit 75%
e. Money Market Mutual Funds 20%
f. Eligible Investment Pools 100%
g. Commercial Paper 20%
2. Bond Proceeds
Bond proceeds may be invested in a single security or investment if the City Manager
determines that such an investment is necessary to comply with Federal arbitrage
restrictions or to facilitate arbitrage record keeping and calculation.
3. Diversification by Investment Maturity
In order to minimize risk of loss due to interest rate fluctuations, investment maturities
will not exceed the anticipated cash flow requirements of the funds. Maturity guidelines
by fund are as follows(Investment transactions made prior to the adoption of this Policy
are not subject to these guidelines):
a. Limiting investments to avoid overconcentration in investments from a specific
issuer or business sector (excluding obligations of governmental agencies under
III(A) and certificates of deposit that are fully insured and collateralized in
accordance with state and federal law,
b. Limiting investment in investments that have higher credit risks (example:
commercial paper),
c. Investing in investments with varying maturities, and
d. Continuously investing a portion of the portfolio in readily available funds such as
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local government investment pools (LGIPs), money market funds or overnight
repurchase agreements to ensure that appropriate liquidity is maintained in order to
meet ongoing obligations.
A. Operating Funds
The weighted average days to maturity for the operating fund portfolio shall
be less than 360 days and the maximum allowable maturity shall be 5 years.
B. Construction and Capital Improvement Funds
The investment maturity of construction and capital improvement funds shall
generally be limited to the anticipated cash flow requirement or the
"temporary period," as defined by Federal tax law. During the temporary
period bond proceeds may be invested at an unrestricted yield. After the
expiration of the temporary period, bond proceeds subject to yield restriction
shall be invested considering the anticipated cash flow requirements of the
funds and market conditions to achieve compliance with the applicable
regulations. The maximum maturity for construction or capital improvement
funds investments shall generally be no longer than the construction time
required for a particular project, with no single security instrument exceeding
the life of authorized investments as described in 1 f. above.
C. Debt Service Funds
Debt Service Funds shall be invested to ensure adequate funding for each
consecutive debt service payment. The Investment Officers shall invest in
such a manner as not to exceed an"unfunded" debt service date with the
maturity of any investment. An unfunded debt service date is defined as a
coupon or principal payment date that does not have cash or investment
securities available to satisfy said payment.
Funds that are considered"bond proceeds" for arbitrage purposes may be
invested using a more conservative approach than the standard investment
strategy when arbitrage rebate rules require rebating excess earnings. All
earnings in excess of the allowable arbitrage earnings ("rebate liability") will
be segregated and made available for any necessary payments to the U.S.
Treasury.
4. Ensuring Liquidity
Liquidity shall be achieved by anticipating cash flow requirements, by investing in
securities with active secondary markets and by investing in eligible money market
mutual funds and local government investment pools.
A security may be liquidated to meet unanticipated cash requirements, to re-deploy cash
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into other investments expected to outperform current holdings, or otherwise to adjust the
portfolio.
5. Depository Agreements
Consistent with the requirements of State law,the City requires all bank and savings and loan
association deposits to be federally insured or collateralized with eligible securities or
approved letter of credit issued by Federal Home Loan Bank. Financial institutions serving
as the City's Depositories will be required to sign a Depository Agreement with the City and
the City's safekeeping agent. The safekeeping portion of the Agreement shall define the
City's rights to the collateral in case of default, bankruptcy, or closing and shall establish a
perfected security interest in compliance with Federal and State regulations, including:
• the Agreement must be in writing;
-- -- -- - - - - . . . -- : ' . ., . . _ . . •--
• the Agreement must be approved by the Board of Directors or the loan committee
of the Depository and a copy of the meeting minutes must be delivered to the City
of Grapevine;
• the Agreement must be part of the Depository's"official record"continuously since its
execution.
a. Allowable Collateral and Policy
Consistent with the requirements of the Public Funds Collateral Act, it is the policy of
the City to require full collateralization of all City funds on deposit with a depository
bank,other than investments. In order to anticipate market changes and provide a level
of security for all funds,the collateralization level will be 11-902%of market value of
principal and accrued interest on the deposits. At its discretion,the City may require a
higher level of collateralization for certain investment securities. Securities pledged as
collateral shall be held by an independent third party ' - - -- • • - -
ccusted_a'_ agreement. The Chief Financial Officer is responsible for entering into
collateralization agreements with third party custodians in compliance with this Policy.
The agreements are to specify the acceptable investment securities for collateral,
including provisions relating to possession of the collateral,the substitution or release
of investment securities, ownership of securities, and the method of valuation of
securities. A clearly marked evidence of ownership (safekeeping receipt) must by
supplied to the City and retained. Collateral shall be reviewed at least monthly to
assure that the market value of the pledged securities is adequate.
Collateral Defined
The City shall accept only the following types of collateral:
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• Obligations of the United States or its agencies and instrumentalities,
• Direct obligations of the state of Texas or its agencies and instrumentalities,
• Collateralized mortgage obligations directly issued by a federal agency or
instrumentality of the United States,the underlying security for which is guaranteed
by an agency or instrumentality of the United States,
• Obligations of states, agencies, counties,cities, and other political subdivisions of
any state rated as to investment quality by a nationally recognized rating firm not
less than A or its equivalent with a remaining maturity of five (5) years or less,
• A surety bond issued by an insurance company rated as to investment quality by a
nationally recognized rating firm not less than A,
• A letter of credit issued to the City by the Federal Home Loan Bank.
- -
b. Collateral Levels
The market value of the principal and interest portion of collateral pledged for
certificates of deposit and bank balances on deposit must at all times be equal to or
greater than the par value of the certificate of deposit plus accrued interest.
c. Monitoring Collateral Adequacy
The City shall require monthly reports with market values of pledged securities from all
financial institutions with which the City has collateralized deposits. The Investment
Officers will monitor adequacy of collateralization levels to verify market values and
total collateral positions.
d. Additional Collateral
If the collateral pledged for a deposit falls below the par value of the deposit, plus
accrued interest and less FDIC insurance,the institution holding the deposit will notify
the City and must pledge additional securities no later than the end of the next
succeeding business day.
e -C-ellitteral-Maturity
Collateral pledged for a deposit may not exceed five years as stated maturity.
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e Security Substitution
Collateralized deposits often require substitution of securities. Any financial institution
requesting substitution must contact the Investment Officers for approval and
settlement.The substituted security's value will be calculated and substitution approved
if the substitution maintains a pledged value equal to or greater than the required
security level. An Investment Officer must provide written notification of the decision
to the bank or the safekeeping agent holding the security prior to any security release.
Substitution is allowable for all transactions, but should be limited, if possible, to
minimize potential administrative problems and transfer expense. The Investment
Officers may limit substitution and assess appropriate fees if substitution becomes
excessive or abusive.
6. Safekeeping
a. Safekeeping Agreement
The City shall contract with a bank or banks for the safekeeping of securities either
owned by the City as part of its investment portfolio or held as eellateral custody to
secure demand or time deposits. Securities owned by the City shall be held in the
City's name as evidenced by safekeeping receipts of the institution holding the
securities.
b. Safekeeping of Deposit Collateral
All collateral securing deposits must be held by a third party
banking institution acceptable to and under contract with the City of Grapevine, or by
the Federal Reserve Bank.
c. Subject to Audit
All collateral shall be subject to inspection and audit by the Chief Financial Officer or the
City's independent auditors.
C. Investment Advisors and Investment Providers
Investment Advisors shall adhere to the spirit, philosophy and specific term of this Policy and
shall invest within the same"Standard of Care." Investment Providers shall adhere to the spirit
and philosophy of this Policy and shall avoid recommending or suggesting transactions outside
that"Standard of Care."
Selection of Investment Advisors and Investment Providers will be performed by the Investment
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Committee. The Investment Committee will establish criteria to evaluate Investment Advisors
and Investment Providers, including:
a. Adherence to the City's policies and strategies,
b. Investment performance and transaction pricing within accepted risk constraints,
c. Responsiveness to the City's request for services, information and open communication,
d. Understanding of the inherent fiduciary responsibility of investing public funds, and
e. Similarity in philosophy and strategy with the City of Grapevine's objectives.
Selected Investment Advisors and Investment Providers shall provide timely transaction
confirmations and monthly activity reports.
Business organizations eligible to transact investment business with the City shall be presented a
written copy of this Investment Policy. Additionally, the registcrea p� qualified
representative of the business organization seeking to transact investment business shall execute
a written instrument substantially to the effect that the registered principal has:
1) received and thoroughly reviewed this Investment Policy, and
2) (a) Acknowledged that the business organization has implemented reasonable
procedures and controls in an effort to preclude investment transactions
conducted between the City and the organization that are not authorized by the
City's investment policy,except to the extent that this authorization is dependent
on an analysis of the makeup of the City's entire portfolio or requires an
interpretation of subjective investment standards.
(b) Such instrument must be accepted by a qualified representative of the business.
Such qualified representative must meet the following criteria:
(1) "Qualified representative" means a person who holds a position with a
business organization, who is authorized to act on behalf of the business
organization, and who is one of the following:
(2) for a business organization doing business that is regulated by or registered
with a securities commission, a person who is registered under the rules of
the National Association of Securities Dealers;
(3) for a state or federal bank,a savings bank,or a state or federal credit union,a
member of the loan committee for the bank or branch of the bank or a
person authorized by corporate resolution to act on behalf of and bind the
banking institution; or
(4) for an investment pool,the person authorized by the elected official or board
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with authority to administer the activities of the investment pool to sign the
written instrument on behalf of the investment pool.
The City shall not enter into an investment transaction with a business organization prior to
receiving the written instrument described above.
3) The list of approved brokers to be utilized for the purchase of allowed securities is to be
selected by the investment committee with such list of selected brokers to be provided to
the City Council on an annual basis or at anytime the list is modified.All such brokers
so selected will meet the criteria set forth in the other provisions of this Investment
Policy.
D. Responsibility and Controls
1. Delegation of Authority to Invest
The City Council hereby designates the "Investment Officers" by Resolution to be the City
Manager,with overall responsibilities to see that investment objectives are accomplished and
that the Assistant City Manager,Chief Financial Officer,the Controller,or their designees who
are Certified designated as Public Fund Investment Officers are vested and authorized with
specific day-to-day performance of managing and investment of the funds of the City of
Grapevine.
Per Ordinance 98-127 the City Council has established an Investment Committee consisting of
the City Council representative to the audit committee, City Manager or Assistant City
Manager, the Chief Financial Officer and the Controller of the City of Grapevine. The
committee shall perform the following duties:
(a) Establish and modify from time to time a list of approved brokers and dealers for the
purchase of allowed securities. The list of approved brokers to be utilized for the
purchase of allowed securities is to be selected by the Investment Officers,with such
list of selected brokers to be provided to the City Council on an annual basis or at
anytime the list is modified. - . . • - . • • -- • - -
(b) Review the City's investment portfolio on a regular basis and determine appropriate
portfolio adjustments, oversee the City's investment advisor, monitor compliance
with the City's Investment Policy and Strategy statements and perform other duties as
necessary to maintain the City's investment program.
2. Training
(a) All Certified Public Funds Investment Officers of the City of Grapevine shall have a
minimum of 10 classroom hours of Investment Training during the first consecutive 24
month period and eight hours for each consecutive 24 month period thereafter
following the effective date of this Ordinance.
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(b) Training as required in 2.(a)above is authorized to be provided from one or more of the
following sources:
The Texas Municipal League (TML)
The North Central Texas Council of Governments (NCTCOG)
Courses sponsored by the Government Finance Officers Association
Area Universities and Colleges
Qualified training institutions not affiliated with any financial institution with which
the City does business.
3. Prudent Investment Management
The designated Investment Officers shall perform their duties in accordance with the adopted
Investment Policy and internal procedures. In determining whether an Investment Officer has
exercised prudence with respect to an investment decision, the investment of all funds over
which the Investment Officer had responsibility;rather that the prudence of a single investment
shall be considered. Investment Officers acting in good faith and in accordance with these
policies and procedures shall be relieved of personal liability.
4. Standard of Care
The standard of care used by the City shall be the"prudent investor rule"and shall be applied
in the context of managing the overall portfolio within the applicable legal constraints. The
Public Funds Investment Act states:
"Investments shall be made with judgment and care,under circumstances then prevailing,that
a person of prudence, discretion and intelligence would exercise in the management of the
person's own affairs,not for speculation,but for investment,considering the probable safety of
capital and the probable income to be derived."
5. Standards of Ethics
The designated Investment Officers shall act as custodians of the public trust avoiding any
transaction which might involve a conflict of interest,the appearance of a conflict of interest,
or any activity which might otherwise discourage public confidence. Investment Officers shall
refrain from personal business activity that could conflict with proper execution of the
investment program, or which could impair their ability to make impartial investment
decisions. Additionally, all Investment Officers shall file with the Texas Ethics Commission
and the City a statement disclosing any personal business relationship with an entity seeking to
sell investments to the City.
Each City Investment Officer shall disclose if he has a personal business relationship with any
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investment firm doing business with the City,if the extent of business relationship meets any
of the following conditions:
(a) the Investment Officer owns 10% or more of the voting stock or shares of the business
organization or owns$5,000 or more of the fair market value of the business organization;
(b) funds received by the Investment Officers from the business organization exceed 10%of
the Investment Officer's gross income for the previous year; or
(c) the Investment Officer has acquired from the business organization during the previous
year investments with a book value of$2,500 or more for the personal account of the
Investment Officer.
(d) If the Investment Officer is related within the second degree by affinity or consanguinity,as
determined under the Government Code,to an individual seeking to sell an investment to
the City.
6. Establishment of Internal Controls
The City of Grapevine's Investment Officer will maintain a system of internal controls over the
investment activities of the City.
7. Reporting
Investment performance will be monitored and evaluated by the Investment Officer. The
Investment Officers will provide a quarterly comprehensive report signed by all Investment
Officers to the City Council. This investment report shall:
(a) describe in detail the investment position of the City,
(b) state the reporting period beginning book and market value,additions or changes to the book
and market value during the period and ending book and market value for the period of each
pooled fund group,
(c) state the reporting period beginning book and market value and reporting period ending book
and market value for each investment security by asset type and fund type,
(d) state the maturity date of each investment security,
(e) accrued interest and total earnings for reporting period,
(f) state the percentage of total portfolio that each type of investment represents, and
(g) state the compliance of the investment portfolio with the City's Investment Policy and
strategy and the Public Funds Investment Act.
The City of Grapevine, in conjunction with its Annual Financial Audit, shall perform a
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compliance audit of management controls on investments and adherence to the City's Investment
Policy and Investment Strategy Statement. The City's independent auditor is required to review
the Quarterly Investment Reports during the annual audit of the City's Financial System.
8. Performance Standards
The City's investment portfolio will be managed in accordance with the parameters specified
within this policy. The portfolio shall be designed with the objective of obtaining a rate of return
through budgetary and economic cycles,commensurate with the investment risk constraints and
the cash flow requirements of the City.
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CITY OF GRAPEVINE, TEXAS
BROKER/DEALER LIST
The following is a list of approved and authorized broker/dealers used for the City of Grapevine,
Texas. Each of the firms used from this list will provide compliance materials and a complete file of
those materials will be maintained by the City.
In accordance with Section 2256.025 of the Public Funds Investment Act,the list below is approved
by the Investment Committee and shall be maintained by the Chief Financial Officer and
corresponding staff.
Primary Broker/Dealers
J.P. Morgan Securities
Cantor Fitzgerald
Regional/Local Brokers
Coastal Securities
Duncan Williams
Hilltop Securities
Multi-Bank Securities
Ladenburg Thalmann
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CITY OF GRAPEVINE
INVESTMENT STRATEGY STATEMENT
Adopted:
May 6, 1997
Last Revised:
January 19, 2016
October 3, 2017
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PREFACE
It is the policy of the City of Grapevine that, giving due regard to the safety and risk of investment,
all available funds shall be invested in conformance with State and Federal Regulations,applicable
Bond Resolution requirements, adopted Investment Policy and adopted Investment Strategy.
In accordance with the Public Funds Investment Act,the City of Grapevine's investment strategies
shall address the following priorities (in order of importance):
• Understanding the suitability of the investment to the financial requirements of the City,
• Preservation and safety of principal,
• Liquidity,
• Marketability of the investment prior to maturity,
• Diversification of the investment portfolio, and
• Yield.
Effective investment strategy development coordinates the primary objectives of the City of
Grapevine's Investment Policy and cash management procedures to enhance interest earnings and
reduce investment risk. Aggressive cash management will increase the available "investment
period" and subsequently interest earnings. Maturity selections shall be based on cash flow and
market conditions to take advantage of various interest rate cycles. The City's investment portfolio
shall be designed and managed in a manner responsive to the public trust and consistent with the
Investment Policy.
Each major fund type has varying cash flow requirements and liquidity needs. Therefore specific
strategies shall be implemented considering the fund's unique requirements. The City's funds shall
be analyzed and invested according to the following major fund types:
a. Operating Funds
b. Construction and Capital Improvement Funds
c. Debt Service Funds
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INVESTMENT STRATEGY
In order to minimize risk of loss due to interest rate fluctuations, investment maturities will not
exceed the anticipated cash flow requirements of the funds. Investment guidelines by fund-type are
as follows:
a. Operating Funds
The City of Grapevine's Operating Funds are as follows:
General Fund Heritage Foundation Fund
Water and Sewer Fund Occupancy Tax Fund
TIF 1 &2 Operating Fund Grant Fund
Lake Enterprise Fund Trust and Agency Fund
4B Economic Development Corp. Sales Tax Fund Special Revenue Fund
Crime Control District Sales Tax Fund Capital Project Fund
Community Quality of Life Fund All Non-Major Governmental Funds
Suitability - Any investment eligible in the Investment Policy is suitable for the Operating
Funds.
Safety of Principal - All investments shall be of highest credit quality securities with no
perceived default risk. Market price fluctuations will occur. By managing the weighted average
days to maturity for the Operating Fund portfolio to less than 360 days and restricting the
maximum allowable maturity to 5 years, the price volatility of the overall portfolio will be
minimized.
Marketability-Securities with active and efficient secondary markets are necessary in the event
of an unanticipated cash requirement. Historical market "spreads" between the bid and offer
prices of a particular security-type of less than a quarter of a percentage point shall define an
efficient secondary market.
Liquidity - The Operating Funds require the greatest short-term liquidity of any of the fund
types. Short-term investment pools and money market mutual funds shall provide daily liquidity
and may be utilized as a competitive yield alternative to fixed maturity investments.
Diversification-Investment maturities shall be staggered throughout the budget cycle to provide
cash flow based on the anticipated operating needs of the City. Market cycle risk will be reduced
by diversifying the appropriate maturity structure .
Yield - Attaining a competitive market yield for comparable security-types and portfolio
restrictions is the desired objective. The yield of an-equally-weighted;rolling one
year Treasury bill portfolio shall be the minimum yield objective.
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b. Construction and Capital Improvement Funds
The City of Grapevine's Construction and Capital Improvement funds are as follows:
Capital Projects - Streets
Capital Projects - General Facilities and Equipment
Capital Projects - Recreation
Capital Projects - Street Maintenance and Capital Replacement
Capital Projects - Tax Increment Financing Districts #1 and#2
Capital Projects - Community Quality of Life Fund
Suitability - Any investment listed as eligible in the Investment Policy is suitable for
Construction and Capital Improvement Funds.
Safety of Principal - All investments shall be of highest credit quality securities with no
perceived default risk. Market price fluctuations will, however, occur. By managing the
Construction and Capital Improvement Fund's portfolio to exceed the anticipated expenditure
schedule the market risk shall be reduced : -- . . ' - •- .
Marketability-Securities with active and efficient secondary markets are necessary in the event
of an unanticipated cash requirement. Historical market "spreads" between the bid and offer
prices of a particular security-type of less than a quarter of a percentage point shall define an
efficient secondary market.
Liquidity - The City's funds used for construction and capital improvement programs have
reasonably predictable draw down schedules. Therefore, investment maturities shall generally
follow the anticipated cash flow requirements. Investment pools and money market mutual
funds shall provide readily available funds generally equal to one month's anticipated cash flow
needs, . : : - . . • - . • . . - - . . .. A singular
flexible repurchase agreement may be utilized if disbursements are allowed in the amount
necessary to satisfy any expenditure request. . •• • • • . - - .
as a Flexible Repurchase Agreement.
Diversification - Market conditions and arbitrage regulations influence the attractiveness of
staggering the maturity of fixed rate investments for bond proceeds and other construction and
capital improvement funds. With bond proceeds, if investment rates exceed the applicable
arbitrage yield, the City is best served by locking in most investments. If the arbitrage yield
cannot be exceeded, then concurrent market conditions will determine the attractiveness of
diversifying maturities or investing in shorter and larger amounts. At no time shall the
anticipated expenditure schedule be exceeded in an attempt to bolster yield with any City funds.
Yield-Achieving a positive spread to the applicable arbitrage yield is the desired objective for
bond proceeds. Non-bond proceed construction and capital project funds will target a rolling
portfolio of six month Treasury bills.
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c. Debt Service Funds
The City's Debt Service Fund includes:
Debt Service Fund - General Obligations
Debt Service Fund - Tax Increment Financing Districts #1 and#2
Suitability-Any investment listed as eligible in the Investment Policy is suitable for the Debt
Service Fund.
Safety of Principal-All investments shall be of high quality securities with no perceived default
risk. Market price fluctuations will however occur. By managing the Debt Service Fund's
portfolio to not exceed the debt service payment schedule the market risk of the overall portfolio
will be minimized.
Marketability-Securities with active and efficient secondary markets are fret less necessary,as
the event of an unanticipated cash requirement is not probable.
Liquidity - Debt service funds have predictable payment schedules. Therefore, investment
maturities shall not exceed the anticipated cash flow requirements. Investment pools and money
market mutual funds may provide a competitive yield alternative for short term fixed maturity
investments. A singttler flexible repurchase agreement may be utilized if disbursements are
allowed in the amount necessary to satisfy any debt service payment, •- - . •..
Diversification - Market conditions influence the attractiveness of fully extending maturity to
the next"unfunded"payment date. Generally if investment rates are trending down,the City is
best served by locking in most investments. If interest rates are flat or trending up, then
concurrent market conditions will determine the attractiveness of extending maturity or investing
in shorter- term alternatives. At no time shall the debt service schedule be exceeded in an
attempt to bolster yield.
Yield - Attaining a competitive market yield for comparable security-types and portfolio
restrictions is the desired objective. The yield of an equally weighted, rolling three month
Treasury bill portfolio shall be the minimum yield objective.
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