(a) Policy Statement. It is the policy of the City to deposit and invest public funds in a manner which will provide the maximum security with the highest investment return while meeting the daily cash flow demands of the City and conforming to all applicable local statutes governing the investment of public funds.
(b) Scope.
(1) This section applies to all moneys of the City, except for moneys whose investment and deposit are otherwise controlled by an independent board, advisory council or trustee under requirements of bond indentures or endowment trusts (as in the case of certain bond debt service funds, certain debt service reserve funds and certain nonexpendable trust funds). The City funds subject to this section are hereinafter referred to as the “active portfolio.”
(2) Cash balances from the several different funds of the City may be pooled for investment purposes. Unless otherwise restricted, all interest earnings will be credited to the General Fund of the City.
(c) Objectives. The following investment and deposit objectives will be applied in the management of City funds:
(1) The primary objective of the City's investment activities is the preservation of capital and the protection of investment principal.
(2) All investment and deposit transactions must be in conformance with all applicable laws and ordinances prevailing at the time of the transaction.
(3) The City's investment portfolio will remain sufficiently liquid to enable the City to meet operating requirements which might be reasonably anticipated.
(4) In investing public funds, the City will strive to maximize the return on the portfolio, but will avoid assuming unreasonable investment risks.
(5) The City will diversify its investments to avoid incurring unreasonable and avoidable risks regarding specific security types or individual financial institutions.
(6) Banks vary in the services they provide, their service fees, interest rates on interim investments and the minimum compensating balances required for demand-deposit accounts. The City's objective is to obtain good banking services while minimizing the cost of such services to the City.
(d) Prudent Person Standard; Liability.
(1) The deposit and investment of City funds shall be made with the exercise of that 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 (hereinafter referred to as “the prudent person standard”).
(2) The standard of prudence to be used by City officials involved in the deposit and investment of City funds shall be the prudent person standard and shall be applied in the context of managing an overall portfolio. City officials acting in accordance with written procedures and this section, and exercising due diligence, shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided that deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments.
(e) Delegation of Authority; Engaging in Investment Transactions.
(1) Authority to manage the City's deposits and investment program is derived from the City Charter. The City Manager and the Director of Finance, as Chief Financial Officer of the City, shall be charged with the administration of this section. The City Manager and the Director of Finance shall have the right to assign such duties and responsibilities as he or she deems appropriate in keeping with the efficient and prudent management of this section. Such assignment shall include explicit delegation of authority to persons responsible for investment transactions.
(2) No person may engage in an investment transaction, except as provided under the terms of this section and the procedures adopted by the Treasury Investment Board.
(f) Conflicts of Interest: Disclosure of Financial Interests by Officers and Employees.
(1) Officers and employees involved in the deposit and investment process shall refrain from personal business activity which could conflict with, or have the appearance of a conflict with, the proper execution of the investment program or which could impair their ability to make impartial investment decisions.
(2) Officers and employees involved in the deposit and investment of City funds shall disclose to the City's independent auditors any material financial interests in financial institutions that conduct business with the City and, further, disclose any large personal financial/investment positions that could be related to the performance of the City's portfolio.
(3) Officers and employees involved in the investment of City funds shall subordinate their personal investment transactions to those of the City, particularly with regard to the time of purchases and sales.
(g) Internal Controls; Review. The Director of Finance shall have established a system of controls to regulate the activities of subordinate officials. Such internal controls and compliance therewith shall be subject to review during the annual audit conducted by or on behalf of the Auditor of the State of Ohio.
(h) Maturity of Investments.
(1) To the extent possible, the City will attempt to match the term of maturity of its investments with anticipated cash flow requirements. Unless matched to a specific cash flow requirement, the City will not directly invest in securities maturing more than ten years from the month of settlement. A security trading on a “when issued” basis may be purchased or sold if all aspects of the security and the trade meet the requirements of this section and the settlement date is no longer than thirty days after the trade date.
(2) As an alternative, for securities which repay principal prior to maturity, such as certain mortgage backed securities, the City will not directly invest in securities with an expected average life of more than ten years. Expected average lives must be substantiated by forecasts independent of the City and the dealer from which the security is purchased, such as the Bloomberg System.
(i) Authorized Financial Institutions; Broker/Dealers.
(1) Depositories.
A. Each of the following criteria shall be met in order for a bank to be considered an eligible depository:
1. The bank shall be a nationally chartered commercial bank organized under the laws of the State of Ohio.
2. The bank shall be doing business in, and situated or operating a full-service branch office within the boundaries of, the City of Englewood.
3. The bank shall have exhibited consistent creditworthiness, as evidenced by at least an “average” rating within its peer group in the three most recent issues of an industry-recognized bank rating publishing service, such as IDC Financial Publishing's Bank Financial Quarterly, Sheshunoff s Bank Quarterly or a similar rating service selected by the Director of Finance, which utilizes measures of capital risk, asset quality, margin, earnings and leverage (CAMEL) to determine the relative strength of financial institutions. The term “average” shall be defined by the Director of Finance in the absence of an explicit definition by the rating service.
B. To the extent practical, the Director of Finance will minimize the number of depositories for the efficient, effective and economical deposit of City funds, and may do so by issuing a formal request for proposal as frequently as he or she determines necessary. Exceptions to this centralization of depositories provision will be made when trust agreements or other legal mandates dictate specific handling or investment requirements that may not be obtained or most efficiently managed through existing depositories.
C. The Director of Finance is hereby authorized to enter into the depository agreements set forth in subsection (n) hereof.
D. All City funds deposited with depository banks shall be secured by collateral as prescribed in subsection (n) hereof.
(2) Broker/dealers.
A. Eligibility requirements.
1. Securities shall be purchased only through:
a. Nationally chartered commercial banks, organized within and under laws of one of the United States, which are insured through the Federal Deposit Insurance Corporation and which are members of the Federal Reserve;
b. Broker/dealer firms which are registered with the Financial Industry Regulatory Authority (FINRA) and which are licensed to sell securities within the State of Ohio; or
c. Primary securities dealers, as designated by the Federal Reserve Bank of New York and which qualify under Securities and Exchange Commission Uniform Net Capital Rule 15c3-l.
2. The minimum acceptable criteria to be met in order to be approved as an authorized broker/dealer will include:
a. The broker/dealer must meet the eligibility requirements set forth in paragraph (i)(2)A.1. hereof; and
b. The broker/dealer and the personnel assigned to service the City's account must be licensed to sell securities in the State of Ohio.
B. Authority of Director of Finance regarding eligibility of broker/dealers. The Director of Finance shall:
1. Make additions to the authorized list when the above-described criteria are met.
2. Make deletions from the list as directed:
a. If and as directed by ordinance of the City Council;
b. Upon failure of a broker/dealer to meet the foregoing investment and deposit policy requirements; or
c. Upon request of a broker/dealer.
3. Make deletions from the list of his or her discretion, based on the following criteria or circumstances:
a. Perceived financial difficulties of a broker/dealer;
b. Consistent lack of competitiveness by a broker/dealer;
c. Lack of experience or familiarity of the account representative in providing service to large institutional accounts; or
d. When deemed in the best interest of the City.
(j) Authorized Investments.
(1) The City Manager and the Director of Finance may invest on behalf of and in the name of the City in only those instruments which appear on the List of Authorized Investment Instruments (Exhibit A, attached to original Ordinance 96-13, passed March 27, 1996, as updated) and only at a price not exceeding their fair market value. The List of Authorized Investment Instruments will be updated by the Director of Finance as necessary and will be kept on file in the office of the City Auditor.
(2) Securities eligible for inclusion on the List of Authorized Investment Instruments include:
A. Bonds, notes or other obligations of or guaranteed by the United States, or those for which the faith of the United States is pledged for the payment of principal and interest thereon;
B. Bonds, notes, debentures or any other obligations or securities issued by any Federal Government agency, instrumentality, or Government Sponsored Enterprise;
C. Deposits in eligible financial institutions;
D. Bankers' acceptances issued by banks ranked within the top 100 banks, based upon asset size, or issued by banks within the State of Ohio with at least two billion dollars ($2,000,000,000) in assets;
E. Commercial paper which, when purchased, is rated at least P-1 by Moody's Investor Services and A-1 by Standard and Poor's, and corporate notes and other debt which, when purchased, is rated AA or better by Moody's Investor Services and/or Standard and Poor's;
F. Bonds, notes or other obligations of the State of Ohio and its political subdivisions;
G. The State Treasury Asset Reserve of Ohio (STAR Ohio);
H. No-load money market mutual funds consisting exclusively of obligations described in paragraphs (j)(2)A. and B. hereof; and
I. Repurchase agreements with institutions which have executed a master repurchase agreement, entered into between the City and that particular institution. Each master repurchase agreement will provide for:
1. Collateralization of each repurchase agreement consisting exclusively of obligations described in paragraphs (j)(2)A. and B. hereof, the market value of which shall not be less than 102 percent of the principal amount of each repurchase agreement plus accrued interest;
2. Safekeeping of the collateral by the City's third-party safekeeping agent; and
3. Settlement of each repurchase agreement on a delivery-versus-payment basis. Master repurchase agreements may provide for substitution of collateral by the broker/dealer with the agreement of the City.
(3) Securities which are specifically prohibited for investment include interest-only, mortgage-backed securities or other securities for which there exists a hypothetical mathematical possibility of a negative yield, excluding default risk, if the security is held to maturity.
(k) Diversification.
(1) To avoid incurring unreasonable risks inherent in over-investing in specific instruments, individual financial institutions or maturities, the Director of Finance will diversify the active portfolio as follows:
Instrument Type | Maximum Percent of Active Portfolio | Maximum Percent of Portfolio by Obligor |
Instrument Type | Maximum Percent of Active Portfolio | Maximum Percent of Portfolio by Obligor |
U.S. Treasury obligations | 100 | 100 |
Authorized U.S. Federal agency securities and U.S. Government- sponsored corporations and instrumentalities | 100 | 100 |
Nonnegotiable certificates of deposit | 100 | 25 |
State of Ohio Treasurer's Investment Pool (STAR Ohio) | 100 | 100 |
Prime commercial paper | 25 | 10 |
Commercial debt - demand notes | 50 | 50 |
Commercial debt - notes and bonds | 25 | 10 |
Bankers' acceptances | 25 | 10 |
(2) No transaction needs to be executed when, through inadvertence or unusual circumstances, a maturity in the active portfolio causes the percentage of a type or category of investment to exceed the diversification limits set forth above. Any transaction executed after such infraction shall work toward returning the active portfolio to compliance with such limits.
(3) The City Manager and/or the Finance Director may set lower limits on the amount of funds which can be placed in any investment category.
(l) Competitive Bidding.
(1) The purpose of competitive bidding is to strengthen the investment program in terms of level and consistency of performance. When purchasing securities, the Director of Finance will obtain the minimum number of offerings as follows:
Minimum Acceptable Type of Security | Number of Offerings |
Government securities | 2 |
Nonnegotiable certificates of deposit | 3 |
Bankers' acceptances | 2 |
Commercial paper | 3 |
(2) When selling any type of security, the Director of Finance will use his or her best efforts to obtain a minimum of three bids.
(3) The right is reserved to reject the offering or bid yielding the highest return if such offering or bid is inconsistent with the City's investment strategy, i.e. maturity, risk, diversification, liquidity, etc.
(4) Price and rate quotations on all trades shall be obtained from authorized financial institutions and dealers within and outside the City. In the case of a purchase or sale of securities where all other factors are considered by the Director of Finance to be equal, placement will be made in favor of the institution situated within the City if two or more offerings or bids are the same.
(m) Safekeeping and Custody. In order to minimize default-risk, the Director of Finance will require the delivery of investment instruments as follows:
(1) Government securities, bankers' acceptances, commercial paper and other authorized money market securities.
A. All authorized investment securities shall be settled in a delivery-versus-payment method. Book entry or physical securities shall be safekept by a third-party safekeeping agent, in the agent's Federal Reserve customer account, correspondent money center bank customer custody account or Depository Trust Corporation (DTC) customer custody account.
B. Each delivery and safekeeping shall be evidenced by a safekeeping receipt.
(2) Nonnegotiable interest-bearing time certificates of deposit.
A. The City will take possession, for safekeeping in its own vaults, of all certificates of deposit or document(s) evidencing a certificate of deposit in accordance with Ohio R.C. 135.14, the acceptable time of delivery being no later than 2:00 p.m. on the day of settlement.
B. In the event that the certificate of deposit or document(s) evidencing the certificate of deposit must be prepared at a home office of the issuing bank outside the City, the City will require an overnight safekeeping document and delivery of the certificate of deposit or document(s) evidencing a certificate of deposit no later than 12:00 noon on the first business day after the date of settlement.
(3) Repurchase agreements. (See subsection (j) hereof.)
(n) Collateralization of City Deposits.
(1) With the approval of the Director of Finance, a depository may provide collateral for deposits of the City with a single pool of securities pledged toward all deposits of public funds held by the depository, in the manner provided in Ohio R.C. 135.181.
(2) Unless secured in the manner provided in Ohio R.C. 135.181, all deposits of the City shall be secured by pledged collateral in the manner provided in Ohio R.C. 135.18.
(3) The method of collateralization of City deposits shall be set forth in a depository agreement between the City and the depository institution. The depository agreement, in accordance with requirements set forth by the Federal Depository Insurance Corporation, shall be:
A. In writing;
B. Executed by the depository institution and any person claiming as adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution;
C. Approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, a copy of which is to be provided to the City for its files;
D. Be continuously, from the date of its execution, an official record of the depository institution; and
E. Approved by the City Law Department.
(o) Reporting. The Director of Finance will be responsible for providing regular semi-annual reports to the City Council about the City's investment activities. The report should include at least a summary of the City's portfolio by institution and types of instruments, average maturity and changes in portfolio size by fund.
(p) Modifications. Inasmuch that this section has been duly enacted by ordinance of the City Council, any modification hereto shall be made only by the appropriate legislative action of the City Council, except for those periodic updates to the list of Authorized Investment Instruments appearing in Exhibit A, attached to original Ordinance 96-13, passed March 27, 1996, as required by subsection (j) hereof.
(Ord. 96-13. Passed 3-27-96; Ord. 08-10. Passed 10-14-08; Ord. 10-10. Passed 9-28-10.)