(a) Scope.
(1) The Investing Authority shall reside with the Finance Director in accordance with this Investment Policy. This Policy is designed to cover all moneys and financial assets under the control of the City and those that comprise the core investment portfolio. These funds are accounted for in the City's annual general purpose finance statements and include any new funds created by the Council, unless specifically exempted. Notwithstanding the policies detailed below, Ohio R.C. Chapter 135, Chapters V and X of the Charter, and Chapter 232 of these Codified Ordinances will be adhered to at all times.
(2) The Finance Director is authorized to pool cash balances from the several different funds of the City and the City's Municipal Utilities (“Municipal Utilities”) for investment purposes. Unless otherwise restricted, all investment earnings will be apportioned between the City and Municipal Utilities based on month-end cash balances. The investment earnings of the City will be credited to the Improvement Fund of the City and the investment earnings of the Municipal Utilities will be credited to the appropriate accounts of the Municipal Utilities.
(b) Objectives and Guidelines.
(1) The following investment objectives will be applied in the management of City funds:
A. The primary objective shall be the preservation of capital and protection of principal while earning investment income.
B. In investing public funds, the Finance Director will strive to achieve a fair and safe average market rate of return on the investment portfolio over the course of budgetary and economic cycles, taking into account State law, safety considerations, and cash flow.
C. The investment portfolio shall remain sufficiently liquid to enable the Finance Director to meet all operating requirements that may be reasonably anticipated.
D. Investments shall be made with the degree of 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.
(2) The standard of prudence to be used by the Finance Director shall be the “prudent person” standard and shall be applied in the context of managing the overall portfolio. Acting in accordance with this Investment Policy and exercising due diligence will relieve the Finance Director of any personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectation are reported in a timely fashion to the Finance Committee of Council and appropriate action is taken to control adverse developments.
(c) Delegation of Authority. Management responsibility for the investment is delegated to the Finance Director, who shall establish written procedures for the operation of the Investment Program consistent with this investment policy. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Finance Director. The Finance Director is responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.
(d) Ethics and Conflicts of Interest.
(1) 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 Council members shall disclose any material interest in financial institutions with which they conduct business. They shall further disclose any material personal financial/investment positions to the Finance Committee of Council that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual or firm with whom business is conducted on behalf of the City.
(2) The above supplements the applicable provisions of Ohio ethics laws.
(e) Authorized Financial Institutions and Dealers.
(1) U.S. Treasury and Agency securities purchased outright shall be purchased only through financial institutions located within the State of Ohio or through primary securities dealers as designated by the Federal Reserve Board. Repurchase Agreements shall be transacted only through banks located within the State of Ohio with which the Finance Director has signed a Master Repurchase Agreement as required in Ohio R.C. Chapter 135.
(2) Certificates of deposit shall be transacted through commercial banks or savings and loans, Members of FDIC or FSLIC which are located within the State of Ohio and qualify as eligible financial institutions under Ohio R.C. Chapter 135.
(3) A list of authorized institutions and dealers shall be maintained with the Finance Director. Additions and deletions to this list shall be made when deemed in the best interest of the City.
(f) Maturity.
(1) To the extent possible, the Finance Director will attempt to match investments with anticipated cash flow requirements. Unless matched to specific cash flow requirements, the Finance Director will not directly invest in securities maturing more than five years from the date of purchase.
(2) Securities shall not be sold prior to maturity with the following exceptions:
A. A declining credit security could be sold early to minimize loss of principal;
B. A security swap would improve the quality, yield, or target duration in the portfolio; or
C. Liquidity needs of the portfolio require that the security be sold.
(g) Prohibited Investments. The following types of investments are prohibited:
(1) Investments in derivatives and stripped principal or interest obligations of eligible obligations. A derivative means a financial instrument or contract or obligation whose value or return is based upon or linked to another asset or index, or both, separate from the financial instrument, contract, or obligation itself.
(2) Leveraging of current investments as collateral to purchase other assets.
(3) The issuance of taxable notes for the purpose of arbitrage.
(4) Investing in a fund established by another public body for the purpose of investing public money of other subdivisions, except for STAR Ohio, STAR Plus and any federally insured cash account offered by the State Treasurer of Ohio.
(h) Authorized Investments.
(1) The Finance Director may invest in any instrument or security authorized in Ohio R.C. Chapter 135 as amended, and only at a price not exceeding its fair market value. The City is authorized to invest in the following types of securities:
A. U.S. government obligations, U.S. government agency obligations, and U.S. government instrumentality obligations, or any other security issued by the United States Treasury or any other obligation guaranteed as to principal and interest by the United States (not including “stripped” principal or interest obligations);
B. Repurchase agreements secured by such obligations as listed in division (h)(1)A. of this section, provided that: (i) all such investments under this section shall be made with a bank or savings and loan associations eligible to be a depository for public funds of Ohio subdivision; and (ii) any such fund meets the requirements of Ohio R.C. Chapter 135 (including the requirement that the fund not contain any investments in “derivatives”);
C. Certificate of deposit;
D. Bonds and other obligations of the State of Ohio;
E. Investments through an eligible institution in no loan money market mutual funds consisting exclusively of securities described in division (h)(1)A. above;
F. STAR Ohio, STAR Plus, and any federally funded cash account offered by the State Treasurer of Ohio;
G. City of Avon Lake, Ohio notes and bonds;
H. Interim deposits in duly authorized depositories of the City, provided those deposits are properly insured or collateralized as required by law;
I. Bonds, notes, debentures, or other obligations or securities issued by any Federal government agency or instrumentality, including but not limited to the Federal National Mortgage Association, Federal Home Loan Bank, Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation, Government National Mortgage Association and Student Loan Marketing Association. All such securities must be direct issuances of Federal government agencies or instrumentalities;
J. Overnight or term (not exceeding 30 days) repurchase agreements meeting the requirements of Ohio R.C. 1351.4(e), with: (i) a bank or savings and loan associations eligible to be a depository of public funds of Ohio subdivision; or (ii) an NASD member;
K. Up to 25% of interim moneys available for investment in either of the following:
1. Commercial paper notes issued by an entity that is defined in Ohio R.C. 1705.01(D) and that has assets exceeding five hundred million dollars ($500,000,000) to which all of the following apply:
a. The notes are rated at the time of purchase in the highest classification established by at least two nationally recognized standard rating services;
b. The aggregate value of the notes does not exceed 10% of the aggregate value of outstanding commercial paper of the issuing corporation;
c. The notes mature not later than 180 days after purchase.
2. Bankers acceptances of bands that are insured by the Federal Deposit Insurance Corporation and to which both of the following apply:
a. The obligations are eligible for purchase by the Federal Reserve System.
b. The obligations mature not later than 180 days after purchase.
No investment shall be made pursuant to this section unless the Finance Director has completed additional training for making the investments authorized by this section. The type and amount of additional training shall be approved by the Auditor of State and may be conducted by or provided under the supervision of the Auditor of State.
(2) All security transactions where applicable will be executed by delivery vs. payment (DVP). This ensures that securities are deposited in the eligible financial institution prior to the release of funds. Securities will be held by a third party custodian as evidenced by safekeeping receipts. The DVP requirement applies to all transactions except those repurchase items occurring with an eligible financial institution.
(i) Diversification. To avoid incurring unreasonable risks inherent in over-investing in specific instruments, individual financial institutions, dealers, or maturities, the Finance Director will diversify the active portfolio as follows:
Instrument | Maximum Percent of City's Active Portfolio |
U.S. Treasury Obligations | 100 % |
Authorized U.S. Federal Agency Securities | 50% |
Certificates of Deposit | 25% |
STAR Ohio and Star PLUS | 90% |
Repurchase Agreements | 40% |
Commercial paper or bankers acceptances | 25% |
(j) Collateral. All deposits shall be collateralized pursuant to Ohio R.C. Chapter 135. Repurchase agreements must be collateralized with securities authorized within this investment policy. The market value of such securities must exceed the value of the agreement by at least 2% and must be marked to market daily.
(k) Inventory of Investments; Reporting. The Finance Director shall establish and maintain an inventory of obligations and securities. The inventory shall include a description of the security, type, cost, par value, maturity date, settlement date, and coupon rate. The Finance Director shall produce a monthly portfolio report detailing the current inventory of all obligations and securities, and all transactions during the month, detailing income received and investment expenses paid, and the names of any persons effecting transactions on behalf of the City. The reports will be submitted to the Finance Committee of Council no later than 60 days following the end of a calendar year .
(l) Acknowledgment. Pursuant to Ohio R.C. Chapter 135, all brokers, dealers, and financial institutions initiating transactions with the City by giving advice or making investment policy, or executing transactions initiated by the Finance Director, must acknowledge their agreement to abide by the investment policy's content by having a principal representative sign a copy of this policy.
The Institution below, by signing, indicates it has read and acknowledges this investment policy, and agrees to abide by its content.
Name of Institution
Principal
Date
(Ord. 1-97. Passed 1-13-97; Ord. 67-08. Passed 5-12-08; Ord. 129-2013. Passed 10-28-13.)