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Item 5AAGENDA ITEM # SA APRIL 26, 2010 CITY OF ATLANTIC BEACH CITY COMMISSION MEETING STAFF REPORT AGENDA ITEM: Resolution 10-03; Investment Policy Revision Ad Hoc Committee Report SUBMITTED BY: Nelson Van Liere, Finance Director DATE: March 8, 2010 BACKGROUND: At the request of the City Commission of the City of Atlantic Beach, the Mayor appointed an Ad Hoc Committee to review the City's current investment policy. The purpose of the request was to make revisions to the current policy that would put in place guidelines for portfolio composition and diversification. The Investment Policy Review Ad Hoc Committee consisted of members appointed by the Mayor at the February 12, 2010 meeting. Those members included Bob Sternfeld, John Wolfel and Alan Gleit. Michael O'Shields served as an advisor and the Finance Director serves as the committee liaison. Bob Sternfeld was named the Chairman of the Committee. Below are two sections of the Florida Statutes addressing this issue: 218.415 Local government investment policies (7) PORTFOLIO COMPOSITION.--The investment policy shall establish guidelines for investments and limits on security issues, issuers, and maturities. Such guidelines shall be commensurate with the nature and size of the public funds within the custody of the unit of local government. (8) RISK AND DIVERSIFICATION.--The investment policy shall provide for appropriate diversification of the investment portfolio. Investments held should be diversified to the extent practicable to control the risk of loss resulting from overconcentration of assets in a specific maturity, issuer, instrument, dealer, or bank through which financial instruments are bought and sold. Diversification strategies within the established guidelines shall be reviewed and revised periodically, as deemed necessary by the appropriate management staff. The Committee met to discuss the portfolio composition guidelines to be inserted into the Investment Policy as instructed. Other suggestions were also considered. The attached minutes from the meeting describe the results of the meeting. The minutes are signed by all three members and represent the report to the commission. The proposed resolution is the recommendation of the committee. RECOMMENDATION: Approve Resolution 10-3 updated Investment Policy ATTACHED: Resolution 10-3: Investment Policy Ad Hoc Committee Minutes Updated Investment Policy REVIEWED BY CITY MAN AGENDA ITEM # SA APRIL 26, 2010 CITY OF ATLANTIC BEACH INVESTMENT POLICY REVISION AD HOC COMMITTEE MINUTES TO FEBRUARY 18, 2010 MEETING Call to Order: The meeting was called to order at S:15pm, February 18, 2010 in the North Conference Room of City Hall. All members were present as well as the Investment Advisor from the Pension Boards, Michael O'Shields, and the Finance Director, Nelson Van Liere. The meeting began with a review of the task of the committee. The stated task of adding guidelines for portfolio composition and diversification for the purpose of minimizing risk to the City's assets was explained. The Committee was also asked to raise any other concerns they had with the current policy for the purpose of discussion. The Finance Director provided some background of the policy and how we arrived at the current policy. He explained that a few amendments had been made, some by resolution and some without. He also explained that the result of the committee meeting would be a proposed new policy to be adopted by resolution that would encompass all the changes since the last resolution was passed. Attention was then focused on a table to be included in the policy designed to capture the committee's recommendations for allowable investment types and the percentage of portfolio composition for each type. Discussion of the table resulted in some of the investments in the current policy being removed from the list of approved investments, specifically Repurchase Agreements, Bankers Acceptances and State/Local General Obligation Debts or Bonds. The consensus was that although these types are allowed by Florida Statutes, it was highly unlikely that a City our size would consider these instruments for a portfolio our size. These three types were eliminated from consideration. Next the committee suggested that the order of the investments on the table be from least risky to most risky. The committee then gave direction on the order that the investments should appear on the table. The committee also discussed the City's operating account, currently in a Public Funds Interest bearing Checking Account, should be listed as an investment type separate from Certificates of Deposits. This checking account was included in the Demand Deposit type investment. While addressing the authorized investment list and levels of risk, the committee proceeded to associate portfolio composition percentage limits to each type as well as limits on maturity and issuers. In doing this, the committee decided to distinguish short term treasuries from long term treasuries as two different types of investments so that they could impose limits on each. Short terms represent six months or less and long terms are those that exceed six months. The table included in the proposed resolution is the result of these discussions and represents the major findings of the committee. Also discussed briefly at the meeting was a handout provided by the Finance Director that had some additional changes to the plan. Some of the changes are as a result of researching other City's plans and some are a result of the changes made by the committee as they affected other sections not discussed. The committee tasked the Finance Director with developing the report incorporating all changes and to distribute this report back to the members of the committee for their review and approval. The committee members are then to either approve the report, or make additional changes that would be proposed to all members by way of an additional draft. Once all changes are reflected in the proposal and are approved by the committee, the report will be signed and forwarded to the City Commission for approval. The meeting Adjourned at 6:40p.m. Bob Sternfeld Chairman, Investment Policy Review Ad Hoc Committee Alan Gleit John Wolfel AGENDA ITEM # SA APRIL 26, 2010 CITY OF ATLANTIC BEACH, FLORIDA INVESTMENT POLICY dt~~BAH Revised March 201.0 1 Ji ~,: ~~ i~ ~i !~L`l r ~~~~ ~~ -- -~, AGENDA ITEM # SA APRIL 26, 2010 City of Atlantic Beach, Florida Investment Policy I. Purnose• The purpose of this policy is to set forth the investment objectives and parameters for the management of public funds of the Citv of Atlantic Beach Florida (herenafter "Cite These pohcles are desicned to ensure the prudent management of public funds the availability of operating and capital funds when needed and an investment return competitive with comparable funds and financial market indices II. Scone In accordance with section 218.415 Florida Statutes Tthis (investment policy applies to all financial assets, :, and to the investment of principal interest reserve construction capitalized interest redemption or escrow accounts created by ordinance or resolution pursuant to the issuance of bonds where the investments are held by an authorized depositor This investment policy does not amply to pension fund assets held by the City of Atlantic Beach (City) or for the benefit of the City by a third party custodian, , ,,.,Y Y•~v j.J uia u ~~i ° III. Investment Objectives The investment objectives for the City's cash reserves are (in this order): 1) to ensure the safety and preservation of investment principal 2) provide for sufficient liquidity 3) Maximize the return on investment (yield) while controlling risk through diversification. The City's investment portfolio shall be managed in a manner to attain a market rate of return throughout budgetary and economic cycles while preserving and protecting capital in the overall portfolio. To attain these objectives, and to further reduce risk diversification should be utilized such that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. AGENDA ITEM # SA APRIL 26, 2010 lEIIV. Delegation of Authority The Finance Director is responsible for investment decisions and activities, under the direction of the City Manager. The Finance Director shall develop and maintain written administrative procedures for the operation of the investment program, consistent with these policies. IV. Investment Performance and Reporting A portfolio report shall be provided monthly to the City Manager and the City Commission. This report shall include a breakdown of the portfolio, as well as the performance during the period. VI. Prudence and Ethical Standards The City shall adopt the Prudent Person Rule, which states that: "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 from the investment." VII. Authorized Instruments The Finance Director shall purchase or sell investment securities at prevailing market rates. All investments shall be limited to the following: TYPE RA-l:.U.S. Treasury Securities (6 months or less) and, TYPE A-2: U.S. Securities (over 6 months) -Negotiable; direct obligations, or obligations the principal and interest of which are unconditionally guaranteed by the United States Government. Such securities will include, but not be limited to, the following: 1. Treasury Securities -State Government Series (SLGS) 2. Treasury Bills 3. Treasury Notes 4. Treasury Bonds 5. Treasury Strips TYPE B: Demand Deposits Interest bearing demand deposit accounts whereby the City has access to the funds by writing drafts against the money on deposit Any such deposits are to be secured by the Florida Security for Public Deposits Act Chapter 280 Florida Statutes, and provided that the bank or savings association is not listed with any recognized credit watch information service. TYPE C_: U.S. Government Agency Securities -Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by a United States Government agency, AGENDA ITEM # SA APRIL 26, 2010 provided such obligations are backed by the full faith and credit of the United States Government. 1. United States Export-Import Bank (direct obligations or fully guaranteed certificates of beneficial ownership) 2. Farm Services Agency~FSA) 3. General Services Administration Participation Certificates (GSA) 4. Government National Mortgage Association (GNMA) 5. Small Business Administration (SBA) 6. Maritime Administration Tvpe D: -Certificates of Deposit Non negotiable interest bearing time certificates of deposit or savings accounts in banks or savings associations organized under the laws of Florida and or/ national banks or saving associations organized under the laws of the United States and that any such deposits are secured by the Florida Security of Public deposits Act Chapter 280 Florida Statutes and provided that the bank or savings association is not listed with an recognized credit watch information service Tvpe ~E::US Government Sponsored Enterprises =Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by a United States Government agency (Federal Instrumentalities) which are non-full faith and credit agencies limited to the following: 1. Federal Farm Credit Bank (FFCB) 2. Federal Home Loan Bank or its district banks (FHLB) 3. Federal National Mortgage Association (FNMA) 4. Federal Home Loan Mortgage Association (FHLMA)([Freddie Macs] including Federal Home Loan Mortgage Corporation participation certificates) 7 7 .....: Si.<.vu vivuiG vv'uwii . 1 L,,,~ •, ~ ,.~d "•m " " 'i i- E' El - &i 3f ~- Hi} L~ u i i 3~ ~ ~ ~ ~ ~l » ,crn i r ,rc g c ee E 6 69 r -a~t - L GG ~ 7) ~cr T /T~~~<~/n T Y ~ i ~ } p s-.<L p ~ ' GG ~ ~ p ~ ~' ~ 1~ GG 77 C ~ ~7 , p ~ p ~ C7TV YZ~~1 • ~. LLll ~ ~ CZ[12C [LLT~'~fY v ~~ vl J h~, tl ~ u ~ 1 ~ ~.+ vJ ~aav t uiiva ivuii 1l1A1u 1Vi J ~'I. G,Gl l~'Z IirJVl'~ GG 77 1 GG 77 • , 7 ~`n r<~~«~ .Qr D~ In ~v< o o ~~ Kl1lAtAl li \.L. 1 VVl AGENDA ITEM # SA APRIL 26, 2010 cc » r cc » r cc n r n » r ~. L+..«+ +°...,.. .a L.+ Tyne F:~. Government Fixed iIncome mMutual €Funds as defined by the SEC; which primarily invest in instruments as authorized for ty es ~~~~ p A B, C, and ~E.~ Type G: Local Government Investment Pools - A state or local government authorized pooled investment fund that operates like a mutual fund for the exclusive benefit of the governments within the state. Local government investment pools may be state sponsored pools or set up through intergovernmental agreements known as "joint powers" agreements. VIII. Investment Maturity To the extent possible, an attempt wil l be made to match investment maturities with known cash needs and anticipated cash flow requirements of the City. Refer to the Risk and Diversification Table for maturities. TnG~*, °~* ~ ...t .,N~~ut'~ ~ a , ~' ~ +~ + , ~IIX. Risk and Diversification Assets held should be diversified to control the risk of loss resulting from over investing in specific instruments; or individual financial institutions. Diversification strategies within the established guidelines shall be reviewed and revised periodically, as necessary, by the appropriate management staff. The following table represents those guidelines• Risk and Diversification Tahle Maximum Maximum Percent of Maximum Individual T e Descri tion Portfolio Maturi Issuer U.S. Treasury Securities Short Term 6 months or 100% 6 months None A-1 less U.S. Treasury Securities Long term over 6 75% 10 Years None A-2 months B Demand De osits 100% N/A None U.S. Government C A enc Securities 50% 10 Years $1,000,000 D Certificates of Deposit 50% 1.0 Years $2,000,000 AGENDA ITEM # SA APRIL 26, 2010 U.S. Government E S onsored Ente rises 30% 10 Years $1,000,000 Government Fixed F Income Mutual Funds 30% N/A $1,000,000 Local Government G Investment Pools 20% N/A $1,000,000 IX. Authorized Investment Institutions and Dealers The Finance Director shall only purchase securities from financial institutions which are qualified as public depositories of the State of Florida as identified by the Treasurer of the State of Florida or dealers designated as "Primary Securities Dealers" by the Federal Reserve Bank of New York, for purchases and sales of securities. The firm must have a minimum of $500 million in annual underwriting of U.S. Government Agency Securities or Instrumentalities for the previous calendar year. The firm must have capital of no less than $10,000,000. Bond funds subject to arbitrage rebate shall be invested in accordance with specific bond covenants. XI. Third Party Custodial Agreements The Finance Director may execute a third party Custodial Safekeeping Agreement with a commercial bank having trust powers or a trust company which is chartered by the United States Government or the State of Florida. All securities purchased and/or collateral obtained by the City shall be properly designated as an asset of the City and held in safekeeping by the trust department or trust company, and no withdrawal of such securities, in whole or in part, shall be made from safekeeping, except by an authorized City staff member. The third party Custodial Safekeeping Agreement shall include letters of authority from the City with details as to responsibilities of parties, notification of security purchases, sales, delivery, repurchase agreements, wire transfers, safekeeping and transaction costs, procedures in case of wire failure or other unforeseen mishaps, including liability of each party. XII. Bid Requirements When feasible and appropriate, investment purchases will be competitively bid. A minimum of three (3) banks and/or dealers must be contacted and asked to provide bids on securities in question. Bids will be held in confidence until the best bid is determined and awarded. T~ll~x„ ~>,,, ,.,,~~ ,.~.,,,ro,,oo~: ,. >,,,~ o ~ ,a.,., ,. ..,.>,,,,.,.., ~....._a Y b~ .........b..~ .rrrv.°.t.:vYuivaiu.rv u~iv,.u~r.uw , AGENDA ITEM # SA APRIL 26, 2010 XIII. Internal Controls The Finance Director shall establish and monitor a set of internal controls designed to prevent loss of funds by fraud, employee error, misrepresentation by third parties, or imprudent actions by employees of the City and ensure proper accounting and reporting of the securities transactions. Such internal controls, shall include, but not be limited to, the following: A. All securities purchased or sold will be transferred only under the "deliver versus payment" (D.V.P.) method to ensure that funds or securities are not released until all criteria relating to the specific transaction are met; B. The Finance Director is authorized to accept, on behalf of and in the name of the City of Atlantic Beach, bank trust receipts or confirmations as evidence of actual delivery of the obligations or securities in return for investment of funds; C. Trust receipts or confirmations shall fully describe the various obligations or securities held, and the receipt or confirmation shall state that the investment is held in the name of the City of Atlantic Beach; D. The actual obligations, or securities, whether in book entry or physical form, on which trust receipts or confirmations are issued, may be held by a third party custodial bank and/or institution or a designated correspondent bank which has a correspondent relationship to the City's third party custodian; and, E. Other internal controls such as: 1. Written documentation of telephone or e-mail communicationst~~n~s; 2. Adequate segregation of duties; 3. Custodial safekeeping; 4. Supervisory control of employee actions and operations review; 5. Performance evaluations and interim reporting; 6.-_Requirement of dual signatures on all investment transactions (e~cc~ from two of the following authorized personnel: Finance Director City Manager City Clerk 7.= Staff in the Finance Department reconciles the City's general depository account on a monthly basis. 8.= Independent auditors as a normal part of the annual financial audit to the City shall conduct a review of the system of internal controls to ensure compliance with policies and procedures. XI~IV. Continuing Education The Finance Director and appropriate staff shall annually complete eight (8) hours of continuing education in subjects or courses of study related to investment practices and products. AGENDA ITEM # SA APRIL 26, 2010 XlEV. Ethics and Conflicts of Interest The City's 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 their ability to make impartial investment decisions. Also, employees involved in the investment process shall disclose to the City any material financial interests in financial institutions that conduct business with the City, and they shall further disclose any material personal financial/investment positions that could be related to the performance of the City's investment program. XVI. Derivatives and Reverse Repurchase Agreements Investment in any derivative products or the use of reverse repurchase agreements is not permitted. A "derivative" is defined as a financial instrument the value of which depends on, or is derived from, the value of one or more underlying assets or indices or asset values.