HomeMy WebLinkAbout2644 Resolution RESOLUTION NO. 2644
A RESOLUTION APPROVING AN INVESTMENT
POLICY TO GOVERN INVESTMENT OF CITY FUNDS.
WHEREAS, the City is responsible for handling significant amounts of
funds generated by local taxes and fees for services as well as state and federal
grant programs; and
WHEREAS, the City has a fiduciary responsibility to safely maximize the
income opportunity associated with holding those funds prior to their
expenditure; NOW, THEREFORE,
THE CITY COUNCIL OF THE CITY OF PASCO, WASHINGTON, DO
RESOLVE AS FOLLOWS:
Section 1. That the attached "Investment Policy" shall govern the
investment of all funds under the control of the City, except the Fire Pension
Fund.
Section 2. The City Manager is hereby authorized and directed to
conformance to the investment policy.
assure c P y
PASSED by the City Council of the City of Pasco at a regular meeting this
19th day of February, 2002.
Michael L. Garrison, Mayor
ATTEST: TlLellaand D AS TO FO
ebster U. Jackso , City Clerk Kerr, Ofty Attorney
INVESTMENT POLICY
AW
•
� � r
i
FOR THE CITY OF
PASCO, WASHINGTON
CITY OF PASCO, WASHINGTON
INVESTMENT POLICY
TABLE OF CONTENTS
Section Page
1. POLICY STATEMENT 1
2. SCOPE 1
3. OBJECTIVE 1
4. DELEGATION OF AUTHORITY 2
Investment Committee
Responsibility
Reporting Requirements
5. ETHICS & CONFLICTS OF INTEREST 2
6. INVESTMENTS 3
Authorized Investments
Unauthorized Investments
7. QUALIFIED INSTITUTIONS AND DEALERS 3
S. SAFEKEEPING AND CUSTODY 4
Diversification
Delivery vs. Payment
9. INTEREST EARNINGS 5
10. AUDIT EXAMINATIONS 5
GLOSSARY 6
a
CITY OF PASCO, WASHINGTON
INVESTMENT POLICY
1.0 POLICY STATEMENT
It shall be the general policy of the City of Pasco (City), to combine all cash available for
investment into a common investment portfolio conforming to all state and local statutes
governing the investment of public funds (as authorized by RCW 35.A.40.050), except for
the Fire Pension Fund that is controlled separately by its own Pension Board.
2.0 SCOPE
This investment policy, which was adopted on the date hereof by the Pasco City Council in
Resolution # , supersedes any previous investment policy and applies to all financial
assets of the City excluding the Fire Pension Fund. These funds are accounted for in the
City's Comprehensive Annual Financial Report and include: General Fund, Special Revenue
Funds, Debt Service Funds, Capital Project Funds, Enterprise Funds, Internal Service Funds,
and Trust and Agency Fund Types (excluding the Fire Pension Fund) and any new funds
created by the City Council, unless specifically exempted by Council.
3.0 OBJECTIVE
The primary objective of the City of Pasco's Investment Policy shall be to outline the criteria
for maintaining the security of invested public funds. Criteria for managing the City's
investment portfolio shall be:
a to maintain liquidity to meet the
City's cash needs;
b) to minimize potential market risks; and,
c) to maximize return on investments.
As an optimum goal, the investment portfolio shall also be designed with the objective of
attaining returns equalling or exceeding the average return on three month U.S. Treasury
Bills, or the average rate on Federal Funds, whichever is higher. These indices are considered
benchmarks for risk-free investment transactions, and therefore, comprise a minimum
standard for the portfolio's rate of return, subject to prudent investment principles and the risk
limitations identified herein.
INVESTMENT POLICY Page 1
4.0 DELEGATION OF AUTHORITY
Management responsibility for the investment program is hereby delegated to the
Administrative and Community Services Director, who shall establish written procedures for
the operation of the investment program consistent with this investment policy. Such
procedures shall include the creation of an Investment Committee and contain explicit
delegation of authority to those persons responsible for investment transactions. No person
may engage in an investment transaction except as provided under the terms of this policy
and the procedures established by the Administrative and Community Services Director. The
Administrative and Community Services Director shall be resposible for all transactions
undertaken and shall establish a system of controls to regulate the activities of subordinate
officials.
4.1 INVESTMENT COMMITTEE
The members of the Investment Committee (Committee) shall be composed of the
following: the Administrative and Community Services Director, the Public Works
Director, and the Finance Manager.
4.2 RESPONSIBILITY
Investments shall be made with judgement and care, under the circumstances prevailing
at the time of the investment. The standard of prudence to be used shall be the "prudent
person" standard. It shall be applied in the context of managing the overall portfolio.
The members of the Investment Committee, who act in accordance with written
procedures and exercise due diligence, shall be relieved of personal responsibility for an
individual security's credit risk or market price changes, provided that: a) deviations from
expectations are routinely evaluated by the Investment Committee; and, b) appropriate
action is taken to control adverse developments.
4.3 REPORTING REQUIREMENTS
A report of the investment committee will be included in the regularly prepared quarterly and
annual reports distibuted to the City Council and City Manager. These reports will
summarize the activity of the investment portfolio, e.g. types of investments, yields,
maturities and other related data.
5.0 ETHICS AND CONFLICTS OF INTEREST
Each member of the Investment Committee shall refrain from personal business activity that
could conflict with the proper execution of the investment program, or which could impair
his/her ability to make impartial investment decisions. Each Investment Committee member
shall disclose to the City Manager any material financial interests in financial institutions that
conduct business within this jurisdiction, and they shall further diclose any large personal
INVESTMENT POLICY Page 2
financial/investment positions that could be related to the performance of the City's portfolio.
The Committee members shall subordinate their personal investment transactions to those of
the City, particularly with regard to the time of purchase and sales.
6.0 INVESTMENTS
As a guideline, the time to maturity of investments should be relatively short term in nature.
Authorization for the Investment Committee is required from the City Manager for any
proposed investment with a maturity exceeding one year. Bond/Loan/Note proceeds and/or
Bond Reserves will be evaluated by the Investment Committee as to the respective arbitrage
laws/regulations and invested accordingly.
6.1 AUTHORIZED INVESTMENTS
Investment instruments shall be limited to those allowed in accordance with RCW
35.39.030. Funds of the City of Pasco may be invested as follows:
6.1.1 U.S. Treasury Obligations and Government Agency Securities
Obligations of the U.S. Government, its agencies and instrumentalities, provided that
the payment of the principal and interest is either guaranteed by the Federal
Government, carries an outright government backing or carries an implicit guarantee.
6.1.2 Certificates of Deposit
Certificates of deposit and other collateralized evidences of deposits from financial
institutions that have been approved by the Investment Committee and are authorized
participants in Washington State's Public Deposit Protection Commission (PDPC)
listing of"Qualified Public Depositories".
6.1.3 Savings Accounts
Savings or time accounts in banks, trusts companies and mutual savings banks which
are conducting business in this state, up to the amount of the insurance afforded such
accounts by the Federal Deposit Insurance Corporation.
6.1.4 Banker's Acceptances
Banker's Acceptances from primary depositories that report their activities to the
Federal Reserve Bank in New York.
6.1.5 Repurchase Agreements
INVESTMENT POLICY Page 3
Repurchase agreements collateralized by the U.S. Treasury securities. Ideally, these
repurchase agreements should yield at least an additional 1/4 percent over U.S.
Treasury Bill rates. Master Repurchase Agreements are required.
6.1.5 Washington State Treasurer's Office Local Government Investment Pool
As authorized by the City of Pasco, Washington, Resolution No. 1742, dated July 7,
1986.
6.2 UNAUTHORIZED INVESTMENTS
Reverse Repurchase Agreements
Under no circumstances shall the City borrow funds through reverse repurchasing
agreements for the purposes of financing the acquisition of securities.
7.0 (QUALIFIED FINANCIAL INSTITUTIONS AND DEALERS
All investments for the City shall be made through Qualified Public Depositories. As
required by the State of Washington Public Deposit Commission, the Finance Manager shall
maintain a list of financial institutions authorized to provide investment services (R.C.W.
39.58.080) and located within the State of Washington. First consideration shall be given to
qualified Public Depositaries with a branch located in Pasco. In addition, a list will also be
maintained of approved security broker/dealers who maintain an office in the State of
Washington. These may include primary dealers or regional dealers that qualify under the
Securities & Exchange Commission Rule 15C3-1 (uniform net capital rule). No public
deposit shall be made except in a qualified public depository as established by state laws.
7.1 A current financial statement is required to be on file for each financial institution and
broker/dealer through which the City invests.
7.2 If marketable securities are purchased through Security Dealers, such firms must be
classified as "primary dealers", affiliated with the New York Federal Reserve Bank.
Updated listings of the primary dealers are available through the Markets Reports
Division of the Federal Reserve Bank of New York.
8.0 SAFEKEEPING AND CUSTODY
The maximum amount to be placed with any one depositary shall not exceed the net worth of
the insitution (at the time of investment) as determined by the State of Washington Public
Deposit Protection Commission (PDPC). Deposit type securities (i.e., certificates of
deposits) shall be properly collateralized as required by RCW for amounts exceeding FDIC
and FSLIC coverage.
INVESTMENT POLICY Page 4
8.1 DIVERSIFICATION
It is the policy of the City to diversify its investment portfolio to eliminate the risk of loss
resulting from over concentration of assets in a specific maturity, a specific issuer or a
specific class of securities. The City will diversify its investments by security type and
institution. With the exception of U.S. Treasury securities and the State Treasurer's
Local Government Invesment Pool (LGIP), no more than 20% of the City's total
investment portfolio should be invested in a single security type and no more than 20%
should be invested with a single financial insitution.
8.2 DELIVERY VERSUS PAYMENT
Ideally, all wireable investments should be accomplished on a "delivery versus payment"
basis (DVP). There are two methods of delivery of securities: delivery vs payment and
delivery vs receipt. Delivery vs payment is the delivery of securities with an exchange of
money for the securities. Delivery vs receipt is the delivery of securities with an
exchange of a signed receipt for the securities.
Securities should be held by a third party custodian designated by the City's Invesment
Committee and evidenced by safekeeping receipts.
9.0 INTEREST EARNINGS
Interest generally follows principal and is credited to the fund from which it is derived, e.g.:
if invested funds originate from the General Fund, the interest is credited to the General
Fund. The distribution of interest income from the pooled investments shall be allocated to
the individual funds proportionately, based on available cash balances in each fund at the
time of investment. Interest earnings on investments in the Washington State Treasurer's
Local Government Investment Pool may be allocated to the individual funds proportionately,
based on the average yield on dollars invested over a specified period of time, or on a
two-month average of ending cash balances, whichever is determined by the Committee to be
the most equitable.
10.0 AUDIT EXAMINATIONS
The Investment Committee, in conjuction with the State Auditor's Office, will evaluate
conformance with the Investment Policy and audit internal controls annually. The purpose of
these examinations shall be to audit the accountability of the City's Investment Portfolio and
to verify that Investment Officials have acted in accordance with the investment policies and
procedures.
INVESTMENT POLICY Page 5
CITY OF PASCO, WASHINGTON
INVESTMENT POLICY GLOSSARY
ASSET - Defined as "probable future economic benefits obtained or controlled by a particular
entity as a result of past transactions. An asset has three essential characteristics: a) it
embodies a probable fixture benefit that involves a capacity, singly or in a combination
with other assets to contribute directly or indirectly to future net cash flows; b) a
particular enterprise can obtain the benefit and control others' access to it; and, c) the
transaction or other event giving rise to the enterprise's right to or control of the benefit
which has already occurred. A footnote points out that "probable" means that which can
be reasonably expected or believed but is neither certain nor proved. May be tangible or
intangible, short-terns (current) or long-term.
BANKERS' ACCEPTANCES (BA's) - Bankers' Acceptances generally are created based on a
letter of credit issued in a foreign trade transaction. They are used to finance the
shipment of commodities between countries as well as the shipment of specific goods
within the United States. BA's are short-term, non-interest-bearing notes sold at a
discount and redeemed by the accepting bank at maturity for full face value. These notes
trade at a rate equal to or slightly higher than Certificates of Deposits (CDs), depending
on market supply and demand.
BA's are sold in amounts that vary from $100,000 to 1,000,000 or more with maturities
ranging from 30 - 270 days. They offer liquidity to the investor as it is possible to sell
BA's prior to maturity at the current market price.
While commercial banks are major investors in BA's, more than half of the volume
outstanding is held by state and local governments, major corporations, insurance
companies, savings and loan associations, pension funds, credit unions, foreign central
banks and the Federal Reserve Bank. BA's are legal public sector investments in
Washington State. The record shows that in 70 years of use in the United States, BA's
have experienced no known principal loss to investors.
BASIS POINT -A measure of interest rate, i.e., 1/100 of 1 percent, or .001.
BOOK ENTRY SECURITIES - U.S. government and federal agency securities that do not exist
in definitive (paper) form; they exist only in computerized files maintained by the Federal
Reserve Bank.
CARRYING AMOUNT - The amount at which assets and liabilities are reported in the financial
statements. Carrying amount is also known as book value.
CERTIFICATES OF DEPOSITS (CD's) - For more than a decade, CD's issued by commercial
banks have been the mainstay of most local governments' investment programs. The bank
CD's are available at all traditional government depositaries, are familiar instruments in
governmental and banking circles and have been authorized for investment purposes by
most legislative bodies. For professional investors, the CD offers money market rates of
return for larger deposits, and allows the purchaser to choose a maturity date. In many
INVESTMENT POLICY Page 6
� r
instances, local jurisdictions' commercial bank depositaries compete aggressively with
other money market instruments and offer reasonable returns. Saving and loan
associations also issue CD's. Regulatory and insurance limits are similar to those
governing commercial banks' CD's. Recent regulatory reduction of the minimum
maturity from 30 to 14 days has made the commercial bank CD even more practical.
Federal regulations and most financial institutions' policies provide for interest penalties
upon premature redemption of a CD.
Federal law constrains the rate of interest that banks can pay. Under current law banks are
allowed to pay a rate higher than the one allowed on a time deposit if the depositor
promises to leave the funds on deposit for several months or more. When the bank
receives such funds, it issues a certificate of deposit.
CD's may be issued in either negotiable or non-negotiable form. Only negotiable CD's
are truly money market instruments. Local financial institutions generally issue the non-
negotiable certificates to governments and other investors who are not concerned about
the resale in the secondary market.
COLLATERAL - Value of securities pledged to a specific amount or investment as
supplemental security to the credit of the issuer or the broker. Collateral can be of a
specific nature and priced at par or market value.
COLLATERAL, POOL - A group of securities pledged by various financial institutions to
provide common collateral for their deposits of public funds. In a collateral pool, the total
collateral pledged by all financial institutions holding public funds is usually at least
equal to the largest deposit of public funds in a single financial institution. For purposes
of the City's Investment Policy, collateral pools are considered depositary insurance to
the extent they adequately insure public deposits.
COMMERCIAL BANK - A financial institution licensed by the state and/or the federal
government to receive deposits, allow demand accounts, lend money, and provide trust
services and other related services. Generally, banks are allowed to engage in more
varied lending activities than other financial institutions. They are owned by the
stockholders and are operated for profit.
COMMINGLE - A process by which cash is mixed together so that the identity of individual
items is lost. Commingle is vastly different from combine or consolidate and is generally
not legal or appropriate for public funds.
COMPETITIVE BID PROCESS - A process by which three of more institutions are contacted
via the telephone to obtain interest rates for specific securities. Concurrent with Policy
limitations, the investment is awarded to the highest bidder.
CONSOLIDATE - A process by which cash, or any other item, is combined while maintaining
the identity of each item. Consolidating several cash amounts into one (for investment
purposes) is normally accomplished by a continuation of separate book balances for each
fund on the government unit's ledger. Consolidation is a legal and efficient way to gain
economies of scale in cash management. Also referred to as pooling of funds. See
POOLING.
INVESTMENT POLICY Page 7
CREDIT RISK - The risk that another party to an investment transaction will not fulfill its
obligations. Credit risk can be associated with the issuer of a security, a financial
institution holding the entity's deposit, or a third party holding securities of collateral.
Credit risk exposure can be affected by a concentration of deposits or investments in any
one investment type or with any one party.
CUSTODIAL AGREEMENT - A written contract establishing the custodial responsibilities of
an independent third party holding collateral for deposits with financial institutions and
securities underlying repurchase agreements.
DELIVERY - The transfer of securities in an investment transaction, underlying a repurchase
agreement, or collateralizing a deposit. Delivery of securities can be taken in two ways:
a) By taking physical possession of the securities; or b) By having the securities delivered
to an independent third party agent (custodian) of the governmental entity. This delivery
can be made to the independent third party either physically or through book entry. (See
BOOK ENTRY SECURITIES.) In either case, the entity should receive confirmation
from the third party that those securities are being held in a safekeeping account in the
name of the entity. The trust or safekeeping departments of the broker-dealers or financial
institutions selling the investment or pledging the collateral or underlying securities, or
their custodial agents, are not considered independent third parties for purposes of the
City's Investment Policy.
DEPOSITARY - See FINANCIAL INSTITUTION.
DEPOSITARY BANK - A local bank used as the point of deposit for cash receipts.
DEPOSITARY INSTITUTIONS DEREGULATION AND MONETARY CONTROL ACT OF
1980 - An encompassing legislative act designed to improve the effectiveness of
monetary policy by applying new reserve requirements set by the Federal Reserve Board
to all depositary institutions. Also referred to as the Monetary Control Act (MCA) of
1980.
DEPOSITARY INSURANCE - Insurance on deposits with financial institutions. For purposes of
this policy statement, depositary insurance includes: a) Federal depositary insurance
funds, such as those maintained by the Federal Deposit Insurance Corporation (FDIC)
and Federal Savings and Loan Insurance Corporation (FSLIC); b) Public Deposit
Protection Commission; and, c) Collateral pools to the extent they adequately insure
public deposits.
DIVERSIFICATION - Dividing available funds among a variety of securities and institutions so
as to minimize market risk.
ELECTRONIC FUNDS TRANSFER (EFT) - An electronic system for transferring funds from
one bank to another for investment or disbursement, commonly referred to as wire
transfers.
INVESTMENT POLICY Page 8
FANNIE MAE'S - Mortgage securities issued and guaranteed, as to timely interest payments, by
the Federal Administration. FNMA stock is publicly traded. See FEDERAL AGENCY
SECURITIES.
FEDERAL AGENCY SECURITIES - Several government-sponsored agencies, in recent years,
have issued short- and long-term notes. Such notes typically are issued through dealers,
mostly investment banking houses. These federal government-sponsored agencies were
established by the U.S. Congress to undertake various types of financing without tapping
the public treasury. In order to do so, the agencies have been given the power to borrow
money by issuing securities, generally under the authority of an act of Congress. These
securities are highly acceptable and marketable for several reasons, mainly because they
are exempt from state, municipal and local income taxes. Furthermore, agency securities
must offer a higher yield than direct treasury debt of the same maturity to find investors,
partly because these securities are not direct obligations of the Treasury.
The main agency borrowing institutions are the Federal National Mortgage Association
(FNMA), the Federal Home Loan Bank System (FHLB), and the Federal Farm Credit
System(FFCS).
FNMA - Federal National Mortgage Association - issues notes tailored to the maturity needs of
the investor. Maturities range from 30 days up to 10 years. These notes are made
attractive by their denominations from $5,000 to $1 million. See Federal National
Mortgage Association.
FHLB - Federal Home Loan Bank System - consists of twelve Federal Home Loan Banks,
issues, in addition to long-term bonds, coupon notes with maturities of up to one year.
Their attractiveness stems from their investment denominations of$10,000 to $1 million.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) - A federal institution that
insures bank deposits. The current limit is up to $100,000 per deposit.
FEDERAL FUNDS RATE - The rate of interest at which Fed Funds are traded between banks.
Fed Funds are excess reserves held by banks that desire to invest or lend them to banks
needing reserves. The particular rate is heavily influenced through the open market
operations of the Federal Reserve Board. Also referred to as "Fed Funds rate".
FEDERAL HOME LOAN BANKS (FHLB) - The institutions that regulate and lend to savings
and loan associations.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC OR Freddie Mac's)
FHLMC was created by Congress in 1970.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - FNMA, like GNMA, was
chartered under the Federal National Mortgage Association Act in 1938. FNMA is a
federal corporation working under the auspices of the Department of Housing and Urban
Development,H.U.D. It is the largest single provider of residential mortgage funds in the
United States. Fannie Mae, as the corporation is called, is a private stockholder-owned
corporation. The corporations purchases include a variety of adjustable mortgages and
second loans in addition to fixed-rate mortgages. FNMA's securities are also highly liquid
INVESTMENT POLICY Page 9
and are widely accepted. FNMA assumes and guartantees that all security holders will
receive timely payment of principal and interest. See FEDERAL AGENCY
SECURITIES, FNMA, FANNIE MAE'S.
FEDERAL RESERVE SYSTEM - The central banking system of the United States created by
Congress and consisting of a seven-member Board of Governors (Federal Reserve
Board), 12 regional Reserve banks and 25 Reserve branch banks. All national banks are
members. The principal responsibility of the Federal Reserve Board is to establish and
implement monetary policy.
FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION (FSLIC) - A federal
institution that insures savings and loan deposits. The current limit is up to $100,000 per
deposit.
FINANCIAL INSTITUTION - Any of the following which are located in this state and are
lawfully engaged in business:
Bank Depositaries - Any branch of a bank engaged in the banking business in
Washington State in accordance with State RCW's, and any State bank or trust company
or national banking association.
Thrift Depositaries - Any state chartered mutual savings bank or stock savings bank, any
state or federally chartered savings and loan association (including federally chartered
savings banks).
FLOAT - The time interval between when a check is prepared and when it is subsequently paid
by the bank on which it is drawn.
FLOAT ANALYSIS - An analysis of an organization's disbursements to determine the
approximate number of days between issuance of a check and presentation of the check
for payment at the organization's bank. Performing a float analysis allows an organization
to use funds in the demand deposit during the disbursement float period.
FREDDIE MAC'S - Mortgage securities issued and guaranteed, as to timely interest payments
and eventual principal payments, by the Federal Home Loan Mortgage Corp. FHLMC
stock is owned by savings institutions. There are two types of Freddie Mac's:
1) Standard Program: introduced in 197 --- --Participation Certificates (PCs)/--Freddie Mac
buys mortgages and sells undivided ownership interests in pools or mortgages.
2) Guarantor Program: introduced in 1981 to provide liquidity for Savings & Loans caught
in the interest rate vise. Mortgage originators swap pooled mortgages for PC's
representing ownership interests in those same mortgages. These PC's can be held, sold,
or used as collateral.
Freddie Mac like his cousins, Ginnie Mae and Fannie Mae, is highly liquid and is widely
accepted. Freddie Mac also guarantees timely payment of principal and interest. See
FEDERAL NATIONAL MORTGAGE ASSOCIATION.
INVESTMENT POLICY Page 10
FULL SERVICE BANK - A commercial bank that provides normal functions, such as receiving
funds,transferring money, lending and other related activities.
FUNDS - For the purposes of this policy, these are public funds under the control of or in the
custody of any local government official by virtue of the official's authority that are not
immediately required to meet current demands.
GINNIE MAES - Mortgage securities issued and guaranteed, as to timely interest and principal
payments, by the Government National Mortgage Association, an agency within the
Department of H.U.D. See GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - The Government
National Mortgage Association was chartered under the Federal National Mortgage
Association Act in 1938 and became an independent entity on September 1, 1968.
GNMA's (Ginnie Maes) are collateralized with government securities backed by
mortgages insured by the Federal Housing Authority or guaranteed by the Veterans
Administration. The purpose of the GNMA is to support the government's housing
objective where conventional financing is not readily available.
There are two types of GNMA's:
1) Mortgage-backed securities (pass through Securities).
These securities are issued by mortgage lenders which are backed by FHA, VA and
FMHA mortgages and are guaranteed by GNMA.
2) Mortgage Purchase Programs. Purchases subsidized and unsubsidized multi-family
project loans, insured by FHA, they are sold by GNMA (on a discounted basis) to private
investors.
The attractiveness of GNMA pass-through is the government guaranteed payment of
interest and principal on a monthly basis, The full faith and credit of the United States are
pledged under this guarantee. See GINNIE MAE'S.
INTEREST - The charge or cost for using money: expressed as a rate per period, usually one
year, called the interest rate.
INVESTMENT DEPOSITS - The term "investment deposit" shall mean time deposits and
savings deposits of public funds available for investment.
INVESTMENTS - Assets held for the production of revenues in the form of interest, dividends,
rentals, or lease payments. The term does not include fixed assets used in governmental
operations.
LINE OF CREDIT -A pre-approved amount of credit extended to an organization.
LIQUIDITY - Refers to the ease and speed with which an asset can be converted into cash
without a substantial loss in value.
INVESTMENT POLICY Page 11
LOCAL GOVERNMENT INVESTMENT POOL (LGIP) - The aggregate of all funds from
political subdivisions that are placed in the custody of the State Treasurer for investment
and reinvestment.
LOCAL GOVERNMENT OFFICIAL - Any officer or employee of a political subdivision who
has been designated by statue or by local charter, ordinance, or resolution as the officer
having the authority to invest the funds of the political subdivision.
MARGIN - The excess of the market value of the securities underlying a repurchase--reverse
repurchase agreement over the cash given for the agreement. It is common practice for a
margin to be built into the agreement to protect against declines in the market value of the
underlying securities.
MARKETABILITY - Ability to sell large blocks of money market instruments quickly and at
competitive prices.
MARKET VALUE - The price at which a security is traded and could presumably be sold.
MARKET RISK - The risk that the market value of an investment, collateral protecting a
deposit, or securities underlying a repurchase agreement will decline. Market risk is
affected by the length to maturity of a security, the need to liquidate a security before
maturity, the extent that collateral exceeds the amount invested, and the frequency at
which the amount of collateral is adjusted for changing market values.
MASTER AGREEMENT - A written contract covering all future transactions between the
parties to repurchase--reverse repurchase agreements that establishes each party's rights
in the transactions. A master agreement will often specify, among other things, the right
of the buyer-lender to liquidate the underlying securities in the event of default by the
seller-borrower.
MONEY MARKET - An informal telephone network of a small number of large banks and
brokers who deal in money market instruments. Money market instruments are
short-term, high quality investments. These instruments include Treasury bills and notes,
CD's, commercial paper, BA's and Eurodollar instruments.
NEGOTIABLE CERTIFICATE OF DEPOSIT - A large denomination CD (usually$1 million or
more) that can be sold in the secondary market, and are currently not authorized
investments for governmental entities within the State of Washington.
NET WORTH - "Net Worth" of a qualified public depositary means:
For a Bank Depositary- the aggregate of capital, surplus, undivided profits and all capital
notes and debentures which are subordinate to the interest of depositors; and
For a Local Thrift Depositary- the aggregate of such capital stock, guaranty fund, general
reserves, surplus, undivided profits, and all capital notes and debentures which are
subordinate to the interest of depositors, and are eligible for inclusion in otherwise
determining the net worth of a mutual saving bank, stock savings bank, or savings and
INVESTMENT POLICY Page 12
loan association, excluding appraised equity capital and income capital and net worth
certificates.
PERFECTED SECURITY INTEREST - An interest in property, including securities, that is
superior to the interests of the general creditors. Delivery of the securities is generally
needed to create a perfected security interest. In addition, a perfected security interest can
be created without taking possession of the security if the transferor of the security
interest has signed a security agreement that contains a description of the collateral and
the secured party pays for the investment. Such a security interest is perfected for a
period of 21 days. However, the secured party risks loss or impairment of its security
interest during the 21 day period, as there are provisions for a holder in due course of a
negotiable instrument or a bona fide purchaser of the instrument to take priority over the
secured party. After 21 days, the security interest becomes unperfected unless delivery to
the secured party takes place.
POOLING - See CONSOLIDATION; also connotes combining of assets of different entities
(i.e., two or more cities) for investment purposes while maintaining separate accounting
trails.
POOL PARTICIPANT - Any county, city, town, municipal corporation, or special purpose
taxing district that invests with the Washington State Local Government Investment Pool.
PRIMARY DEALERS - A group of government securities dealers that submit daily reports of
market activity and positions and monthly financial statements to the Federal Reserve
Bank of New York and are subject to its informal oversight. Primary dealers include
Securities and Exchange Commission (SEC) registered securities broker-dealers, banks,
and a few unregulated firms.
PRIME RATE - The rate for loans charged by commercial banks to their most preferred risks.
The Federal Reserve Bulletin is considered the authoritative source of information about
historical prime rates.
PRINCIPAL- An invested amount on which interest is charged or earned.
PRUDENT PERSON STANDARD - For purposes of this policy, this standard is defined as a
person capable of exercising sound judgment, caution and discretion when making
investment decisions through utilization and evaluation of the information and known
facts available at the time.
QUALIFIED PUBLIC DEPOSITARY - A financial institution which does not claim exemption
from the payment of any sales or compensating use or ad valorem taxes under the laws of
this state, which has segregated for the benefit of the commission eligible collateral
having a value of not less than its maximum liability and which has been approved by the
Public Deposit Protection Commission to hold public deposits.
REGISTERED SECURITY - A security that has the name of the owner written on its face. A
registered security cannot be negotiated except by the endorsement of the owner.
REPRICING- The revaluation of the market price of securities.
INVESTMENT POLICY Page 13
C Y
REPURCHASE AGREEMENTS (Repo's) - range in maturity from overnight to fixed time to
open end. Repo's involve a simultaneous sale of securities (generally secure treasuries or
agencies) by a bank or government securities dealer to a city with an agreement for the
bank to repurchase the securities at a fixed date at a specified rate of interest. This
investment vehicle is mutually beneficial to both the City and the bank. The security
"buyer" in effect lends the "seller" money for the period of the agreement, and the terms
of the agreement are structured to compensate the "buyer" for this.
RESERVE REQUIREMENTS - The percentages of different types of deposits that member
banks are required to hold on deposit at the Federal Reserve. These requirements are
determined by the Federal Reserve Board and function as a tool to control monetary
policy.
REVERSE REPO'S - The opposite of the transaction undertaken through a regular repurchase
agreement. In a "reverse" the city initially owns securities and the bank or dealer
temporarily exchanges cash for this collateral. This in effect is temporarily borrowing
cash at a high interest rate. Most typically a Repo is initiated by the lender of funds.
Reverses are used by dealers to borrow securities they have shorted. Such investments are
not authorized in the City of Pasco's Investment Policy.
RISK -Degree of uncertainty of the return on an asset.
SAFEKEEPING - An arrangement under which an organization's securities are kept in a bank
vault. Evidence of this arrangement is a safekeeping receipt.
SALLIE MAE'S - Pooling of student loans guaranteed by the Student Loan Mortgage
Association (SLMA) to increase the availability of education loans. The SLMA
purchases the loans after buying them on the secondary market from lenders. SLMA
stock is publicly traded.
SAVINGS AND LOAN ASSOCIATION - A national- or state-chartered institution that accepts
deposits and lends them out generally as mortgages. These associations generally are
owned by the depositors, not by stockholders as in the case of banks.
SEC-REGISTERED SECURITIES BROKER-DEALER - A securities broker-dealer regulated
b the Securities and Exchange Commission.
Y g
SECONDARY MARKET - The market which exists for the purchase and sale of securities after
the initial offerings.
SECURITIES - Bonds, notes, mortgages, or other forms of negotiable or non-negotiable
instruments. See INVESTMENTS.
SECURITIES INVESTOR PROTECTION CORPORATION (SIPC) - A nonprofit corporation
that protects customers accounts in the event of the financial failure of a member
SEC-registered securities broker-dealer by distributing customer assets and then
providing funds for all remaining claims of each customer up to a maximum of$500,000,
including up to $100,000 on claims for cash. SIPC does not consider repurchase
INVESTMENT POLICY Page 14
agreement participants to be customers of its member broker-dealers and does not extend
insurance to repurchase agreements.
STUDENT LOAN MORTGAGE ASSOCIATION (SLMA) - See SALLIE MAE'S.
STRIPPED TREASURIES - U.S. Treasury debt obligations in which coupons are removed by
brokerage houses, creating zero-coupon bonds.
THRIFT DEPOSITARIES - See FINANCIAL INSTITUTION.
TIME DEPOSIT - Interest-bearing deposit at a savings institution that has a specific maturity.
TREASURY BILLS - Treasury bills are short-term debt obligations of the U.S. Government.
They offer maximum safety of principal since they are backed by the full faith and credit
of the United States Government. Treasury bills, commonly called "T-Bills", account for
the bulk of government financing, and are the major vehicle used by the Federal Reserve
System in the money market to implement national monetary policy. T-Bills are sold in
three, six, nine, and twelve month bills. Because treasury bills are considered "risk free",
these instruments generally yield the lowest returns in the major money market
instruments.
TREASURY NOTES AND BONDS - While T-Bills are sold at a discount rate that establishes
the yield to maturity, all other marketable treasury obligations are coupon issued. These
include Treasury Notes with maturities from one to ten years and Treasury Bonds with
maturities of 10 - 30 years. The instruments are typically held by banks and savings and
loans associations. Since Bills, Notes and Bonds are general obligations of the U.S.
Government, and since the Federal Government has the lowest credit risk of all
participants in the money market, its obligations generally offer a lower yield to the
investor than do other securities of comparable maturities.
UNDERLYING SECURITIES - Securities transferred in accordance with a repurchase--reverse
repurchase agreement. See REPURCHASE AGREEMENTS and REVERSE REPO'S.
U.S. GOVERNEMENT AGENCY SECURITIES - A variety of securities issued by several
U.S. agencies. Some are issued on a discount basis and some are issued with coupons.
Some are backed by the full faith and credit guarantee of the U.S. Government, while
others are not. See FEDERAL AGEN— SECURITIES.
WIRE TRANSFER- See ELECTRONIC FUNDS TRANSFER.
YIELD - The rate of annual income returned on an investment, expressed as a percentage.
ZERO-COUPON BONDS - Securities that do not pay interest but are instead sold at a deep
discount from face value. They rise in price as the maturity date nears and are redeemed
at face value upon maturity.
INVESTMENT POLICY Page 15
CITY OF PASCO, WASHINGTON
INVESTMENT PROCEDURES
INTRODUCTION
This set of Administrative Procedures is intended to compliment the Investment Policy of the
City by providing specific guidelines for the management of the City's Investment Portfolio.
INVESTMENT COMMITTEE
As stated in the Investment Policy, there is hereby formed an Investment Committee consisting
of the Administrative and Community Services Director, the Public Works Director and the
Finance Manager. Any two of the above mentioned members of this committee shall constitute a
quorum and have the power to transact business.
AUTHORITY
Chairman of the Investment Committee
The Administrative and Community Services Director and the Public Works Director shall
serve as Co-Chairman of the Investment Committee. These persons shall have the highest
degree of authority regarding investment of City funds including, but not limited to, the
award of investments and approval of investment policies and procedures. The Chairman
may delegate responsibility for investment decisions as required.
Finance Manner
The Finance Manager is responsible for supervision of the day-to-day operations of the
Investment Program in accordance with the Investment Policy. The duties include
appropriate designations of authority to the person responsible for the investment
transactions and for monitoring investment activities. The Finance Manager shall exercise
due diligence in the training of subordinates regarding investment policies and procedures.
Accounting Supervisor
Under the direction of the Investment Committee, the Accounting Supervisor shall be
responsible for treasury functions and shall coordinate the day-to-day operations of the
investment portfolio. The duties shall include maintaining sufficient cash levels in the
checking and savings accounts to cover outstanding checks, obtaining investment quotes and
purchasing investments of less than one year in maturity, maintaining daily cash control
procedures, and preparing periodic reports as required. The Accounting Supervisor is also
responsible for the monitoring of the City's cash position,with the goal of ensuring that idle
funds are invested to produce maximum investment returns.
INVESTMENT PROCEDURES Page 1
r
MEETING REQUIREMENTS
The Investment Committee shall meet at least quarterly and as needed to review investment
strategies,activities, and deviations from expectations,reports,policies, and procedures.
INVESTMENTS
As a guideline, the time from purchase to maturity of investments should be kept relatively short.
Prior approval of the City Manager shall be required for maturities exceeding one year in length.
DIVERSIFICATION
No more than 20% of the City's total investment portfolio will be invested in a single security
type or with a single financial institution, with the exception of the State Treasurer's Office
Local Government Investment Pool (LGIP). Financial institutions must meet the requirements
of the State of Washington Public Deposit Protection Commission. No more than 30% of the
City's investment portfolio will be invested with the maturities exceeding one year. Any
variation from these guidelines will require the approval of the City Manager.
COMPETITIVE SELECTION OF INVESTMENT INSTRUMENTS
Before the investment of any surplus funds, a competitive bid process should be conducted. Bids
should be secured from at least two institutions meeting the City's diversification requirements.
Competitive bids need not be used when placing investments with the LGIP or in any savings
accounts for short-term cash flow.
REPORTING REQUIREMENTS
Under the direction of the Investment Committee, the Accounting Supervisor shall prepare
quarterly and annual investment reports as required.
Quarterly Reports
A quarterly investment summary shall be provided to the City Manager on Wednesday for
inclusion in the Council agenda packet distributed on the Friday before the second regular
City Council business meeting following the end of each calendar quarter.
Annual Reports
An annual investment report describing the previous year's investment activity shall be
provided to the City Manager on Wednesday for inclusion in the Council agenda packet
distributed on the Friday before the second regular City Council business meeting in January
of each year.
INVESTMENT PROCEDURES Page 2