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(A) This policy applies to all financial assets of the city held by the City Treasurer. These financial assets are accounted for in the city audited financial statements and include the general fund, special revenue funds, debt service funds, capital project funds (unless bond ordinances and resolutions are more restrictive), enterprise funds, trust and agency funds, and any new fund established by the city.
(B) Pooling of funds. Except for cash in certain restricted and special funds, the city will consolidate cash balances from all funds to maximize investment earnings. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles.
(Ord. 02-2010, passed 6-8-2010)
The primary objectives, in priority order, of investment activities shall be:
(A) Safety. Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk.
(1) Credit risk. The city will minimize the risk of loss due to the failure of the security issuer or backer, by:
(a) Limiting investments to the safest types of securities;
(b) pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisers with which the City will do business; and
(c) Diversifying the investment portfolio so that potential losses on individual securities will be minimized.
(2) Interest rate risk. The city will minimize the risk that the market value of securities in the portfolio will fall due to changes in general interest rates by structuring the portfolio to meet the cash requirements of ongoing operations, thereby mitigating the need to liquidate securities at a loss prior to maturity.
(3) Concentration risk. The city will minimize the risk associated with placing a large portion of the investment portfolio with a single issuer by limiting the exposure of each issuer to 20% of the total portfolio.
(4) Custodial credit risk. The city will minimize custodial credit risk by holding the investments in the city’s name.
(5) Foreign currency risk. The city will only invest in U.S. dollar denominated investments.
(B) Liquidity. The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands (static liquidity). Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets (dynamic liquidity). A portion of the portfolio also may be placed in money market mutual funds or local government investment pools which offer same-day liquidity for short-term funds.
(C) Return on investment. 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. Return on investment is of secondary importance compared to the safety and liquidity objectives described above.
(Ord. 02-2010, passed 6-8-2010)
(A) 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 interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions 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 with whom business is conducted on behalf of the city.
(B) Delegation of authority. Authority to manage the investment program is derived from the city charter provision requiring the City Treasurer to be the custodian of the city’s public funds. Management responsibility for the operation of the investment program is hereby delegated to the City Treasurer, who shall act in accordance with established written procedures and internal controls for the operation of the investment program consistent with this investment policy. Procedures should include references to: safekeeping, cash delivery vs. payment, investment accounting, repurchase agreements, wire transfer agreements, and collateral/depository agreements. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the City Treasurer. The City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.
(C) Prudence. 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 probably safety of their capital as well as the probably income to be derived.
(Ord. 02-2010, passed 6-8-2010)
All security transactions, including collateral for repurchase agreements and financial institution deposits, entered into by the City Treasurer may be on a cash basis or a delivery vs. payment basis. Securities may be held by a third party custodian at the discretion of the City Treasurer and must be evidenced by safekeeping receipts.
(Ord. 02-2010, passed 6-8-2010)
Investment types. The following investments will be permitted by this policy and are those defined by state and local law where applicable.
(A) United States government obligations, U.S. government agency obligations, and U.S. government instrumentality obligations, which have a liquid market with a readily determinable market value.
(B) Certificates of deposit, savings accounts, deposit accounts and other evidences of deposit at financial institutions.
(C) Bankers’ acceptances of United States banks.
(D) Commercial paper, rated in the highest two tiers (e.g., A-1/A-2, P-1/P-2, F-1/F-2) by not less than two nationally recognized rating agencies at the time of purchase.
(E) Obligations of this state or any of its political subdivisions that are rated investment grade by not less than one nationally recognized rating agency at the time of purchase.
(F) Repurchase agreements whose underlying purchased securities consist of the foregoing.
(G) Money market mutual funds registered under the investment company act of 1940, title I of chapter 686, 54 Stat. 789 15 U.S.C. 80a-l to 80a-3 and 80a-4 to 80a-64, with the authority to purchase only investment vehicles that are legal for direct investment by the city. This authorization is limited to securities whose intention is to maintain a net asset value of $1 per share;
(H) Investment pools through an interlocal agreement under the Urban Cooperation A, 1967 (Ex Sess)PA7, M.C.L.A. §§ 124.501 to 124.502.
(I) Investment pools organized under the surplus funds investment pool act, 1982 PA367, §§ 129.111 to 129.118.
(J) Certificates of deposit as authorized by M.C.L.A. § 129.91(5) including Certificate of Deposit Account Registry Service (CDARS).
(Ord. 02-2010, passed 6-8-2010)
(A) Diversification. The investments shall be diversified by:
(1) Limiting investments to avoid overconcentration in securities from a specific issuer or business sector (excluding U.S. Treasury securities);
(2) Limiting investment in securities that have higher credit risks;
(3) Investing in securities with varying maturities; and
(4) Continuously investing a portion of the portfolio in readily available funds such as local government investment pools (LGIPs), money market funds or overnight repurchase agreements to ensure that appropriate liquidity is maintained in order to meet ongoing obligations.
(B) Maximum maturities.
(1) To the extent possible, the city shall attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the city will not directly invest in securities maturing more than five years from the date of purchase or in accordance with state and local statutes and ordinances. The city shall adopt weighted average maturity limitations (which often range from 90 days to three years), consistent with the investment objectives.
(2) Reserve funds and other funds with longer-term investment horizons may be invested in securities exceeding five years if the maturity of such investments is made to coincide as nearly as practicable with the expected use of funds. The intent to invest in securities with longer maturities shall be disclosed in writing to the City Council.
(Ord. 02-2010, passed 6-8-2010)
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