Loading...
HomeMy WebLinkAbout1997- 3 Repealing and Reenacting the Investment Policy Set Forth in Chapter 3/52 of the Vail Municipal Codex ORD~CE NO. 3 SERA .S OF 1997 AN ORDINANCE REPEALfNG AND REENACTING THE INVESTMENT POLICY 5ET FORTH IN CHAPTER 3.52 OF THE MUNICIPAL CODE OF THE TOWN OF VAIL WHEREAS, the Vail Town Counci! adopts the required investment policy for the Town of Vail which represents the financial boundaries within which the Town's cash management process will operate; and WHEREAS, changes to investment policies have been recommended by the Government Finance Officers Association and the Council feels the need to update the Town's internal policies to comply with the recommended changes to maintain strong internal controls; and NOW, THEIaEFORE, SE IT ORDAINED BY THE TOWN COUNCIL OF THE TOWN OF VAIL, COLORADO THAT THE INVESTMENT POLICY SET FORTI-t IN CHAPTER 3.52 OF THE MUNICIPAL GODS OF THE TOWN OF VAIL BE REPEALED AND REENACTED AS FOLLOWS: Section 1 Chapter 3.52 Sections: INVESTMENT POLICY 3.52.014 S#atement of Purpose 3.52.020 Scope 3.52.03D Objective 3.52.44D Standards of Care 3.52.D5D Safekeeping and Custody 3.52.464 Suitable and Authorized Investments 3.52.D7'D Investment Parameters 3.52.080 Reporting 3.52.09D Policy 3.52.010 Statement of Purpose This Investment Policy of the Vail Town Gounci! for the Town of Vail represents the financial boundaries within which its cash management process will operate. 3.52.020 Scope This investment policy applies to ail financial funds of the Town of Vail (hereby referred to as the "Town"), except the Pension Trust Fund. 3.52.030 Objective The primary objectives, in priority of order, of investment activities shall be: 1. Safety. 1 Ordinance No. 3, Seriss of 1997 r Safety of principal is the foremost ob~ve of the investment program. Inves~nts shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objec#ive will be to mitigate credit risk and interest rate risk. A. Credit Risk. Credit Risk is the risk of loss due to the failure of the security issuer or backer. Credit risk may be mitigated by: limiting investments to the safest types of securities; Pre-qualifying the financial institutions, brokers/dealers, intermediaries, and advisors with which the Town will do business; and "' Diversifying the investment portfolio so that potential losses on individual securities will be minimized. B. Interest Rate Risk. lnterest rate risk is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. interest rate risk may be mitigated by: ~` Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity, and By investing operating funds primarily in shor#er-term securities. 2. liquidity. The investment portfolio shall remain sufficiently liquid to meet al! operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to rneet anticipated demands {static liquidity). 1=urthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets (dynamic liquidity). 3. Yield. The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Retum an investment is of least importance compared to the safety and liquidity objectives described above. The care of investments are limited to relatively low risk securities in anticipation of earning a fair return rely#ive to the risk being assumed. Speculative investments will not be allowed. Speculative investments are those attempting to gain market premium appreciation through short term market volatility resulting in increased risk and loss exposure. The Town will not purchase a security which cannot be held to maturity. This does not mean an investment cannot be sold prior to maturity. 2 Ordinance No. 3, Series of 1997 r 3.~~40 Standards of Care 1. Prudence. The standard of prudence to.be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and this investment policy and exercising due diligence shall be relieved of persanal responsibility for an individual security`s credit risk ar market price changes,' provided deviations from expectations are reported in a timely fashion and the liquidity and the sale of securities are carried out in accordance with the terms of this policy. Investments shall be made with judgement and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their awn affairs, not for speculation, but for investment, considering the probable safety of their capita! as well as the probable income to be derived. 2. Ethics and Conflicts of Interest. Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interest in financial institutions with which they conduct business. They shall further disclose any personal financialJinvestment positions that could be related #o the performance of the investmen# portfolio. Employees and officers shall refrain from undertaking personal investments. transactions with the same individual with whom business is conducted on behalf of their entity. 3. Delegation of Aukhority. Management responsibility for the investment program is held by the Town Manager and appointed designees. No employee may engage in an investment transaction except as provided under the terms of this policy and any procedures which may be established by the Tnwn Manager. The Town Manager shall review the quarterly investment report (see Section 3.52.080). There is hereby created an investment committee, consisting of the Town Manager, Finance Director, and the Finance Controller. Members of the committee will meet at least quarterly to determine general strategies and to monitor results. Minutes of the decisions made by the investment committee shall be kept on file in the Town Clerk`s office. The committee shall include in its review and deliberations such topics as: potential risks, authorized depositories, rate of return, maturity structure and investment transactions. It shall be the duty of the Finance Controller or hislher appoin#ed designee to manage the day-to-day opera#ions of the portfolio, and place actual purchaselsell orders with institutions. In 3 Qrdinance No. 3, Series of 1997 th~"~sence of the controller, the Financ~ec#or shad assume these duties. ~ Finance Controller shall establish a system of written internal controls, which shall be reviewed annually by the independent auditor. Management of a portion of the portfolio and placing of buylsell orders for a portion of the portfolio may be delegated to an independent investment manager designated by the Town Council. The transactions of any selected independent investment manager will be subject to the Town's investment policy and will be reviewed and verified by the Finance Department. The authority for the investment philosophy and selection of investment managers far the Town of Vail Employee Pension Plan and the Town of Vail Police and Fire Employees Pension Plan shall be the responsibility of the Pension Plan Trustee as defined in the pension plan document. 3.52.450 Safekeeping and Custody Authorized Financial Dealer and Institution. Qualified banks -can only be commercial banks and the Town's investment with the bank may be in excess of one hundred thousand dollars. The Town's Finance Controller shall obtain and review whatever documents are necessary to verify the bank's continued stability including the monthly listing of securities pledged for collateralization to monitor the bank's collateralization of Town deposits. Non-qualified banks -can be either commercial banks or savings and loans or savings banks and the Town's investment with the bank will not be in excess of one hundred thousand dollars. The Finance Controller shall inquire with bank officials andlor review an independent bank evaluation to determine the banks meets the standard selection criteria established by the Investment Committee. The Town shall select a primary bank, which bank the town uses to process daily deposits and checks, at the discretion of the Investment Committee every three to five years. A formal request for proposal should be used in the selection process. Securities dealers not affiliated with a bank shall be required to be classi#ied as reporting dealers affiliated with the New York Federal Reserve Bank, as primary dealers. Broker/dealers which are not primary dealers may be used if they have been approved by the investment committee. The investment committee shall develop and document the methodology for qualifying non-primary brokerldealers. 2. Internal Controls. The Finance Controller and Finance Director are responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the entity are 4 Ordinance No. 3, Series of 1997 ' ~ pr~ted from loss, theft, or misuse. The i~na1 con#roi structure shall be design provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that (1 }the cast 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. Accordingly, the Finance Controller shall establish a process for annual independent review by an external auditor to assure compliance with policies anal procedures. The internal controls shall address the following points: a. Control of collusion. Collusion is a situation where two or more employees are working in conjunction to defraud their empfayer. b. Separa#ion of transaction authority from accounting and record keeping By separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved. c. Custodial safekeeping. Securities purchased from any bank or dealer shall be placed with an independent third party designated as primary agent for custodial safekeeping. The primary agent shall issue a safekeeping receipt to the Town listing the specific instrument, rate, maturity, and other information. Securities may be purchased from the primary agent's brokerage department and safekept by the same bank's trust department. d. Avoidance of ahvsical delivery securities. Soak entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded agains# loss or destruction. The potential for fraud and foss increases with physically delivered securities. e. Clear designation of authority to subordinate staff members, Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions and their respective responsibilities. f. Written confirmation or telephone transactions for investments and wire transfers. Due to the potential for error and improprieties arising from telephone transactions, all telephone transactions should be supported by written communications and approved by the appropriate person. Written communications may be via fax if on letterhead and the safekeeping institution has a list of authorized signatures. S Ordinance No. 3, Series of 1997 3. Delivery vs. Payment i i Ali trades where applicable will be executed by delivery vs. payment (DVP). This ensures that securities are deposited in the eligible financial institution prior to release of funds. Securities wiU be held by a third party custodian as evidenced by safekeeping receipts. 3.52.OB0 Suitable and Authorized fn~estments 1. ~ The town shall invest in the following accounts, or securities: A. Fully collateralized or insured interest bearing checking accounts, savings accounts, and certificates of deposit at commercial banks with amount not to exceed one hundred thousand dollars if the bank is not designated as a qualified institution by the investment committee. ' A commercial bank may use any securities authorized by the Public Deposit Protection Act as collateral. B. Certificates of deposi# at savings and loan associations insured by the FD1C or other agency of the federal government with amount not to exceed ninety-nine thousand dollars. Deposits with savings banks insured by the FDIC with amount not to exceed ninety-nine thousand dollars. C. {1) Any security issued by, guaranteed by, ar for which the credit of any of the following is pledged for payment: The United States, a Federal Farm Credit Bank, the Federal Land Bank, a Federal Hame Loan Bank, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, or the Government National Morkgage Association; (2) a. Any security issued by, guaranteed by, or for which the credit of the fiollawing is pledged for payment: An entity or organization which is not listed in paragraph {1) of this subsection C but which is created by, or the creation of which is authorized by, legislation enacted by the United States congress and which is subjec# to control by the federal government which is at least as extensive as that which governs an entity or organization listed in paragraph {1) of this subsection (C). b. No security may be purchased pursuant to this paragraph (2) unless, at the time of purchase, the security is rated in its highest ra#ing 6 Ordinance hto. 3, Series of 1897 f category by or!~ more nationally recognized arganiza~is which regularly rate such obligations. D. Colorado Investment Pools. The town may participate in a Colorado Public Investment Pool, the Colorado Local Government Liquid Asset Trust or other similar local government pools organized in conformi#y with Part 7 of Article 75 of Title 24, CRS, which provides specific authority for pooling of local government funds. F. Any money market fund that is registered as an investment company under the federal "investment Company Act of 1940", as amended, if, at the time the investing public entity invests in such fund: (i) The investment policies of the fund include seeking to maintain a constant share price; {II} No sales or load fee is added to the purchase price or deducted from the redemption price of the investments in the fund. F, No load mutual funds that invest in mortgage backed securities issued by the Government National Mortgage Association {"GNMA") or the Federal National Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC") G. Repurchase agreements -with either qualified commercial banks or a primary securities dealer for which a properly executed master repurchase agreement has been entered into by the town. Repurchase agreements involving pooled collateral shall be avoided. The securities used as collateral shall be safekept in accordance with Section 3.52.Q5Q Safekeeping and Custody, 2, if a specific maturity date is required for cash flow purposes, bids will be requested for instruments which meet the maturity requirement. If no specific maturity is required, a market trend (yield curve} ana{ysis will be conduc#ed to determine which maturities would be most advantageous. After selecting a type of instrument at least two bids should be obtained from similar institutions. Two bids are not required if treasury bills or notes are purchased at a treasury auction or for overnight or open-term repurchase transactions. The Town may place an investment with a local insti#ution that is not the highest bidder, provided the bid is not mare than twenty-five basis points below the highest bidder. The rate of interest must be at least equivalent to the average rate of re#urn available in the market place. 7 Ordinance Na. 3, Series of 1997 r It is the responsibility of the Fi,ce Controller to demonstrate compiiar~with this section. A local institution is defined as a bank or savings and loan association doing business inside the corporate limits of the Town of Vail andlor Eagle County. 3. Interest allocation method. All investments will be in the name of the Town of Vail and in most cases it will be a general policy of the town to pool all available operating cash into a Treasury Cash Management investment portfolio. However, a specific investment purchased by a specific fund shall incur all earnings and expenses to that particular fund. Interest earnings from pooled funds shall be allocated to all participating funds in the following order. a. Payment of interest earnings shall be allocated to designated funds from its specific investments. b. Payment to the genera! fund of an amount equal to the total annual bank service charges as incurred by the general fund for all operating funds as included in the annual operating budget. C. Payment to each fund of an amount based on the average monthly cash balance included in the- common portfolio far the earning period. 4. Funds borrowing from pooled cash fund. All funds may borrow cash from the pooled cash fund in order to cover shortfalls in their equity in pooled cash. The interest rate charged shall be equal to the interest rate earned on the pool at the time the money is borrowed. 3.52A7Q Investment Parameters 1. Portfolio diversification. The town will diversify use of investment instruments to avoid incurring unreasonable risks inherent in averinvesting in specific instruments, and individual financial institutions. Maximum Percent of Portfolio Diversification by Instrument: Money Market and Interest Bearing Checking Accounts with Commercial Banks Money Market Funds U,S. Treasury Obligations {Bills, Notes and Bonds) U.S. Government Agency Securities (per Section 3.52.060 1. C (1}} U.S. Government Agency Securities (per Section 3.52.060 1. C (2) a) 8 50% 50% 100% 100% 25% Ordinance IVo. 3, Series of 1997 a~ Repurchase Agreements ~ 75% Certifiicate of Deposit Commercial Banks or Savings Banks 100°I° Certificate of Deposit Savings and Loan Association 25% Local Government Investment Pool 100% Diversification by Financial Institution: Repurchase Agreements No more than fifty percent of the total investment portfolio shall be secured in Repos with any one institution. Certificates of Deposit -Commercial Banks No more than twenty percent of the total investment portfolio shall be secured in any one commercial bank's CDS. If the amount of any of the above investments are in excess of the percentage allowed, it is not considered a violation of this policy if the amount is corrected within thirty days. 2. Maturity scheduling. roves#ment maturities for operating funds shall be scheduled to coincide with projected cash flow needs, taking into account large routine expenditures {payroll, bond payments) as welt as considering sizeable blocks of anticipated revenue {sales tax, property tax). The period from the date of purchase of a security to its maturity date will be five years or less except far transactions initiated by an appointed independent investment manager, or if authorized by the Town Council. 3.52.080 Repor#iing 1. Methods. The Finance Con#roller will submit a quar#erly investment report which discloses investments on the last day of each month. This report will be distributed to the Town Manager, Town Council members, and the Finance Director. The Finance Controller will present at least annually the investment report to the town council. 2. Performance Standards. The investment portfolio will be. managed in accordance with the parameters specified within this policy. The portfolio should obtain a market average rate of return during amarket/economic environment of stable interest rates. Portfolio performance should be compared to appropriate benchmarks on a regular basis. 9 Ordinance No. 3, Series of 1997 ~3. Marking to Market. . A statement of the market value of investments having a remaining maturity exceeding 2 years shall be issued at least quarterly. This will ensure that the minimal amount of review has been performed on such long-term investments in terms of value and subsequent price volatility. 4. Monitoring and adjusting the portfolio. The Finance Controller will routinely monitor the contents of the portfolio, the available markets and the relative values of competing instruments, and will adjust the portfolio accordingly. 3.5.090 Policy ~ . Exemption. Any investment currently held that does not meet the guidelines of this policy steal[ be exempted from the requirements of this policy. At maturity or liquidation, such monies shall be reinvested only as provided by this policy. 2. Policy review. The investment policy shall be reviewed annually by the investment committee. A recommendation will be made annually to the Town Council for any proposed changes to the investment policy. Section 2 If any part, section, subsection, sentence, clause or phrase of this ordinance is for any reason held to be invalid, such decision shall not affect the validity of the remaining portions of this ordinance; and the Tawn Council hereby declares it would have passed this ordinance, and each part, section, subsection, sentence, clause or phrase thereof, regardless of the fact that any one or more parts, sections, subsections, sentences, clauses or phrases be declared invalid. Section 3 The Town Council hereby finds, determines, and declares that this ordinance is necessary and proper for the health, safety, and welfare of the Town of Vail and the inhabitants thereof. Section 4 The repeal or the repeal and reenactment of any provision of the Municipal Code of the Town of Vail as provided in this ordinance shall not affect any right which has accrued, any duty imposed, any violation that occurred prior to the effective date hereof, any prosecution commenced, nor any other action or proceedings as commenced under or by virtue of the provision repealed or repealed and reenacted. The repeat of any provision hereby shall not revive any provision or any ordinance previously repealed or superseded unless expressly stated herein. ~. 0 Ordinance No. 3, Series of '4997 INTRODUCED, REA©, APPROVED~D ORDERED PUBLISHED ONCE Ih~JLL ON FIRST READING this 21st day of January, 1997, and a public hearing shall be held on this Ordinance on the 4th day of February, 1997, at 7:30 p.m. in the Council Chambers of the Vail Municipal Building, Vail, Colorado. ~~ Robert W. Armour, Mayor ATTEST: ~~~~~ Molly cCutcheon, Town Clerk READ AND APPROVED ON SECOND READING AND DRDERE© PUBLISHED in full this 4th day of February, 1997. Robert W. Armour, Mayor ATTEST: ~~~ Holly cCutcheon, Town Clerk c.~oaos~.a i~ _~ Drdinence iVv. 3, Series of 1997 • s ~y~ay,,......,. c o'r~ . „~ ~'~ ~~ ~~ 'ih~ .~ a~ n _~ O ~~ n ppN O m O m u, cn ~- ~6 ~ ~ m -~. o a O Q o ~ o ~, Q~ ~ O _~ ] "' O ro ~~ 0 Q ~ Q o m O Q C ~ ~. ~~ Q Q. O ~ ~ O C O ~ 3 ~ ro R~'O Q p!O ~ m ~ Q o~ m x o ~ ~ j a Q ~ ~ Q c ~ m ~ m ~ ~ ~ -* ~p Q ~ O c ~ Q ~ a ~ o ~ ~ a ° CAD ~ ~ ~ ~ g Q ~ Q ~. ~ cD ~ ~ ~ Q ~ ~Q ~ Q ~~ ~ ~ m ~o ~ ~. Q ~ ~ ~ Q ~ ~ ~ g ~ a ~ a ~ ~ ~ O O D ~ ~ ~ ~` ~m ~ ~ ° ~ ~ -~ ~. ~ Q Q ~ . ~ ~ ~ ~ Q ~ ~ ~~ o Q ~ ~ c C ~ ~ Q Q ~ ~ ~ n ~ - Q ~ o ~ ~ a j ~ p Q ~ ~ ~ y. cD n ~ . ~' ~ . ~ m~ c~ m pQ" ~ ~ ~ O Q ~ ~ ~ ~. ~D ~ ~ ~ o ~' ?- D ~~°Q~°Q~~=-z to ~ cn cn ~' m Q. (b ~ z ~ ~ C7 Q ~ ~ ~ ~ ~ o o ~ ~ ~ m ~Q -.~.~ ~~ ro Q. o Q .~ O Q C2 ~ O Q p O Q fQ ti O ~ ~ s~ O ~ ° ro ~ ~ ~ m .~ oo ~: m Q~ n m ~ Q -° '° Q ~ ~ ~ p ~ ° ~ Q p ~ ~ Q. O 'Z7 ~ o~~Q~~oa-~Q m o p `~ m O~ Q~ 3 -, ~ (~ Q~ N Q~ O O Q -+ ~ .~.~Q~ Q ~ ~ ~a~ ca O h m ~ (D c O Q ~. n (Q ~ ~ ~ C Q CQ ~ ~ {p ~ 0 O~ C p O C Q ~ ~ ~ ca c~D ~ cD ~ ~ ~ c~ ~ ~ o o ~ '} N @ _n_ ~ m ~ ~ Q. ~ ~ ~- N C ~ ma~~ao~.oQo ~0m ~ - ~~.iz~~ cam ... .',6~` ' .g ~ ~ ~~mOC~S'~ :.n~ZO ..0 5,'1 om ry~ ~izQ '3 ~ ~m. ~m ~'`~ wi~ ~`;' g~±'m~5~3 ~ ~i D'a S~ ~ amn . 9±~+~oa azz ~5E ~ .~ .. ,.. ~ ~ ~D ~ O o n ~ ~ ~ O 0 0 C W ~_ O Z