Effective cash management is recognized as essential to good fiscal management. This is particularly true as mounting costs and expanding programs have placed ever increasing pressures on local governmental revenues. Investment returns on funds not immediately required can help to reduce this pressure. Effective cash management of these funds requires that an investment and deposit policy be well-founded and uncompromisingly applied.
(a) Policy Statement. It is the policy of the Municipality of Germantown (the “Municipality”) to deposit and invest public funds in a manner which will provide the highest investment return with the maximum security while meeting the daily cash flow demands of the Municipality and conforming to all state and local statutes governing the investment of public funds.
(b) Scope. This investment and deposit policy (“Policy”) applies to all monies of the Municipality, except for monies whose investment and deposit are otherwise controlled by an independent board, advisory, counsel, or trustee under the requirements of mortgage revenue bond indentures or endowment trusts (as in the case of certain mortgage revenue bond debt service funds and debt service reserve funds and certain non-expendable trust funds). The Municipality’s funds subject to this Policy are hereinafter referred to as the “Active Portfolio”.
The Finance Director is authorized to pool cash balances from the several different funds of the Municipality for investment purposes. Unless otherwise restricted, all investment earnings will be credited to the General Fund of the Municipality.
This investment policy applies to activities of the Municipality with regard to investing the financial assets of all funds, including the following:
General Fund
Special Revenue Funds
Capital Improvement Funds
Debt Service Funds
Special Assessment Funds
Enterprise Funds
Trust and Agency Funds
(c) Objectives and Guidelines. The following investment and deposit objectives will be applied in the management of municipal funds:
(1) The primary objective of the Municipality’s investment activities is the preservation of capital and the protection of investment principal.
(2) In investing public funds, the Municipality will strive to maximize the return on the portfolio, but will avoid assuming unreasonable investment risks.
(3) The Municipality’s investment portfolio will remain sufficiently liquid to enable the Municipality to meet operating requirements which might be reasonably anticipated.
(4) The Municipality will diversify its investments to avoid incurring the unreasonable and avoidable risks regarding specific security types or individual financial institutions.
(5) 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 Municipality’s objective is to obtain good banking services while minimizing the cost of bank services to the Municipality.
(d) Prudence. Deposit and investment of Municipal 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 delivered (hereinafter referred to as “The Prudent Person Standard”).
The standard of prudence to be used by Municipal officials involved in the deposit and investment of municipal funds shall be the The Prudent Person Standard and shall be applied in the context of managing an overall portfolio. Municipal officials acting in accordance with written procedures and this Policy and exercising due diligence shall be relieved of personal responsibility for an individual security’s credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse development.
(e) Finance Director. Authority to manage the Municipality’s deposits and investment program is derived from the Municipal Charter. The Finance Director, as Chief Financial Officer of the Municipality, shall be charged with the administration of this Policy. The Finance Director 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 such Policy.
(f) Authorized Financial Institutions and Dealers.
(1) Depositories. Each of the following criteria shall be met in order for a bank to be considered an eligible depository:
A. The bank shall be a nationally chartered commercial bank organized under the laws of the State of Ohio.
(Ord. 99-38. Passed 6-21-99.)
B. The bank shall have exhibited consistent credit-worthiness 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 similar rating service selected by the Finance Director. The bank rating publishing service will utilize measures of capital risk, asset quality, margin, earnings, and leverage (“CAMEL”) to determine relative strength of financial institutions. The Finance Director shall define the term “average” in the absence of an explicit definition by the rating service.
To the extent practical, the Finance Director will minimize the number of depositories for the efficient, effective and economical deposit of Municipality 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 depository 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.
The Finance Director is authorized to enter into the Depository Agreement set forth in subsection (l) of this Policy.
All Municipal funds deposited with depository banks shall be secured by collateral as prescribed in subsection (l) hereof.
(Ord. 03-102. Passed 12-1-03.)
(2) Broker/dealers - securities purchases.
A. Eligibility requirements.
1. Nationally chartered commercial banks organized within and under laws of the United States, which are insured through the Federal Deposit Insurance Corporation (FDIC) and which are members of the Federal Reserve; or
2. Broker/dealer firms which are registered with the National Association of Securities Dealers (NASD) and which are affiliated with a commercial bank meeting the requirements set forth in subsection (f)(2)A.1. hereof; or
3. Through primary securities dealers as designated by the Federal Reserve Bank of New York and which qualify under Securities & Exchange Commission Uniform Net Capital Rule 15c3-1.
B. Annual certification.
A dealer or commercial bank through which securities other than non-negotiable interest bearing certificates of deposit will be purchased or sold, shall provide on an annual basis a completed and certified Broker/Dealer Questionnaire and Certification (see Exhibit A). The minimum acceptable criteria to be met annually in order to be approved as an Authorized Broker/Dealer will include:
1. The broker/dealer must meet the eligibility requirements set forth in subsection (f)(2)A. hereof;
2. The broker/dealer and the personnel assigned to service the Municipality’s account must be licensed to sell securities in the State of Ohio;
3. The broker/dealer must provide the documentation requested under Section 23 of Exhibit A, the Broker/Dealer Questionnaire and Certification (proof of “primary dealer” designation or proof of FDIC coverage audited annual financial report, proof of State of Ohio licensing compliance).
C. The Finance Director shall:
1. Make additions to the authorized list when the above described criteria are met;
2. Make deletions from the authorized list if directed by ordinance of the Municipal Council or upon failure of the broker/dealer to meet the foregoing investment and deposit policy requirements, or upon request of the broker/dealer; and
3. Make deletions from the list based on the following criteria or circumstances:
a. Perceived financial difficulties of the broker/dealer;
b. Consistent lack of competitiveness by the 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 Municipality.
(g) Maturity. To the extent possible, the Municipality will attempt to match the term to maturity of its investments with anticipated cash flow requirements. 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 Policy.
(h) 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:
Diversification of Instrument | Maximum Percent of County’s Active Portfolio |
U.S. Treasury Obligations | 50% |
Authorized U.S. Federal Agency Securities and U.S. Government-sponsored Corporations | 80% |
Non-negotiable Certificates of Deposit | 60% |
Authorized Bankers Acceptance | 20% |
State of Ohio Treasurer’s Investment Pool | 80% |
Prime Commercial Paper | 20% |
Diversification by Issuer (Obligor) | |
Non-negotiable Certificates of Deposit | 40% |
Bankers Acceptances | 5% |
Prime Commercial Paper | 3% |
No transaction needs to be executed when, through inadvertence or unusual circumstances, maturity in the active portfolio causes the percentage of a type or category of investment to exceed the diversification limits set forth above. Any transactions after such infraction shall work toward returning to compliance.
(i) Authorized Investments. The Finance Director may invest on behalf of and in the name of the Municipality in only those instruments which appear on the List of Authorized Investment Instruments (Exhibit B) and only at a price not exceeding their fair market value. The Finance Director annually on or about May 1st and at other times will update the List of Authorized Investment Instruments if necessary.
In the event the List of Authorized Investment Instruments authorizes the use of repurchase agreements, before transacting a repurchase agreement with a particular broker/dealer, a Master Repurchase Agreement shall be entered into between the Municipality and that particular broker. Each Master Repurchase Agreement will provide for:
(1) Collateralization of each repurchase agreement, the market value of which shall not be less than one hundred two percent (102%) of the principal amount of each repurchase agreement plus accrued interest;
(2) Safekeeping of the collateral by the Municipality’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 Municipality.
The List of Authorized Investment Instruments will be kept on file in the office of the Finance Director.
(j) Safekeeping and Custody. In order to minimize default-risk, the County Treasurer will require delivery of investment instruments as follows:
(1) Government securities, bankers’ acceptances, commercial paper and other authorized money market securities. Book entry or physical securities shall be safekept by a third party safekeeping agent, in agent’s:
A. Federal Reserve customer account;
B. Correspondent money center bank customer custody account; or
C. Depository Trust Corporation (DTC) customer custody account.
A safekeeping receipt shall evidence each delivery and safekeeping.
(2) Non-negotiable interest bearing time certificates of deposit. The Municipality will take possession, for safekeeping in its own vault, 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. the day of settlement.
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 Municipality of Germantown, the Municipality will require an overnight safekeeping document delivery of the Certificate of Deposit or documents evidencing a Certificate of Deposit no later than 12:00 Noon the first business day after date of settlement.
(3) Repurchase agreements. (See subsection (i) hereof, Authorized Investment Instruments)
(k) Competitive Selection of Investment Instruments. Before the Municipality invests any funds, a competitive bid process may be conducted. An approximate maturity will be determined and bids will be requested for instruments that meet the maturity requirement. If a maturity of less than thirty days is required, the funds may be invested in the State Investments Pool without bidding. The Municipality will accept the bid that provides the highest rate of return within the maturing required and within the perimeters of these policies.
Records will be kept of the bids offered, the bids accepted and a brief explanation of the decision that was made regarding the investment.
(l) Collateralization of Municipal Deposits.
(1) With the approval of the Finance Director, a depository may provide collateral for deposits of the Municipality 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 (subsection (l)(1) hereof), all deposits of the Municipality shall be secured by pledged collateral in the manner provided in Ohio R.C. 135.18.
(3) The method of collateralization of the Municipal deposits shall be set forth in a depository agreement between the Municipality and the depository institution. The depository agreement, in accordance with requirements set forth by Federal Depository Insurance Corporation, shall be:
A. In writing;
B. Executed by the depository institution and any person claiming an 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;
D. Be continuously, from the date of its execution, an official record of the depository institution; and
E. Approved by the Municipal Law Director.
(m) Reporting and Performance Standards. The Finance Director will be responsible for providing regular quarterly reports to the Investment Committee and regular semi-annual reports to the Municipal Council about the Municipality’s investment activities. The report should include at least a summary of the Municipality’s portfolio by institution and types of instruments versus diversification limitations, average maturity, and changes in portfolio size by fund.
(n) Legislative Action Required. Inasmuch that this Policy has been duly enacted by ordinance of the Germantown Council, any modifications hereto shall be made only by the appropriate legislative action of that Council. The only exception to this section being those periodic updates to the list of Authorized Investment Instruments as required by subsection (i) of this Policy.
EXHIBIT A
BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION
1. Name of Firm:
2. Local Address: National Headquarters:
3. Local Telephone Number(s), Toll-Free Number(s)
4. Primary Representative/Manager/Partner-in-Charge:
Name: Name:
Title: Title:
5. Is the firm a Primary Dealer in U.S. Government Securities, as designated by the Federal Reserve of New York, qualifying under S.E.C. Uniform Net Capital Rule 15c3-1?
Yes: No:
If yes, for how long has the firm been a Primary Dealer? Years.
6. Is the firm a commercial bank or a NASD-member affiliate of a bank chartered under laws of one of the United States?
Yes: Charter under laws of the State of:
No:
If yes, are the bank customers’ deposits insured by the Federal Deposit Insurance Corporation?
Yes: No:
7. Is the firm licensed to sell securities in the State of Ohio?
Yes: No:
8. Is/Are the person(s) designated to service the Municipality’s account licensed to sell securities in the State of Ohio?
Yes: No:
9. Is the firm a member of the Federal Reserve System? Yes: No:
10. What was the firm’s approximate total retail volume in U.S. Treasury and Agency securities last year?
Firmwide $ Number of Transactions
Local Office $ Number of Transactions
11. Identify personnel who will be trading with or quoting prices of securities to our government:
Name Title
Name Title
12. Please identify the firm’s most directly comparable public sector clients in our geographical area:
Entity: Contact Person:
Telephone No. Client since
Entity: Contact Person:
Telephone No. Client since:
13. Have any of your public sector clients ever reported to the firm, its officers or employees, that they sustained a loss (in a single year) exceeding 10 percent of original purchase price on any individual security purchased through the firm?
14. Has the firm ever been subject to a regulatory or state/federal agency investigation for alleged improper, fraudulent, disreputable, or unfair activities related to the sale of securities?
Explain
15. Who audits the fiduciary systems of the firm’s custody and delivery processes?
16. Has the firm consistently complied with the Federal Reserve’s Capital Adequacy Standard?
Yes: No:
17. By what factor (1.5x, 2x, etc.) does the firm presently exceed the Capital Adequacy Standard’s measure of risk?
18. Has the firm’s capital position ever fallen short of the Capital Adequacy Standard?
Yes: No:
19. What portfolio information do you require from your clients?
20. What reports, confirmations, documents and audit trail will we receive?
21. Approximately how many and what percentage of the firm’s transactions failed last month?
transactions %
Last Year?
transactions %
22. Describe the precautions taken by the firm to protect the interest of the public when dealing with governmental agencies as investors:
23. Please supply the following:
A. The firm’s most recent audited annual financial report and most recent quarterly report.
B. Proof of the firm’s designation by the Federal Reserve Bank of New York as a “primary securities dealer”
-OR-
Proof of FDIC coverage.
C. Proof of individual’s (assigned to service the Municipality’s account) State of Ohio securities sales license.
D. Proof of the firm’s State of Ohio securities sales license.
CERTIFICATION
I hereby certify that for each transaction we pledge to exercise due diligence in disclosing information necessary for each party to agree to the details of the transaction. When recommending a transaction, we will have reasonable grounds for believing the transaction is suitable based upon information available from the issuer and based upon the facts disclosed by the Municipality of Germantown, Ohio or otherwise known about such customer. We have implemented investment procedures and a system of controls designed to preclude imprudent investment activities arising out of transactions conducted between our firm and the Municipality of Germantown, Ohio. I attest to the accuracy of our responses to the questionnaire.
Signed Date
Title
EXHIBIT B
LIST OF AUTHORIZED INVESTMENT INSTRUMENTS
The following represents instruments that are considered authorized investment instruments for the investment of Municipality funds for the period or until this list is updated. The Finance Director may invest on behalf of and in the name of the Municipality in only those following instruments at a price not exceeding their fair market value:
A. Government Securities.
Negotiable obligations of the U.S. Treasury, Federal Agencies, and U.S. Government-sponsored Corporations follows:
Direct Obligations of the U.S. Treasury
Treasury Bills
Treasury Notes and Bonds, including zero-coupon variations
Obligations of Federal Agencies and U.S. Government-sponsored Corporations:
Federal Farm Credit System (FFC)
Federal Home Loan Bank (FHLB)
Federal Home Loan Mortgage Corporation (FHLMC)
Federal National Mortgage Association (FNMA)
Government National Mortgage Association (GNMA)
Resolution Funding Corporation (REFCORP)
Student Loan Marketing Association (SLMA)
B. Non-negotiable Interest Bearing Time Certificates of Deposit and Savings Accounts.
Non-negotiable Interest Bearing Time Certificates of Deposit and savings accounts only in commercial banks organized under the laws of this State, national banks organized under the laws of the United States, doing business in and situated in or operating a full service branch office with the boundaries of Montgomery County or counties adjoining Montgomery County, provided that any such deposits and savings accounts are secured by collateral as prescribed in subsection (l) of the Investment and Portfolio Policy.
C. Bankers Acceptances.
Domestic Bankers Acceptances issued by FDIC-insured commercial banks or bank holding companies having assets of over $2 billion, and whose rank in the most current issue of Bank Financial Quarterly is at least 110% of the national median rank of banks and bank holding companies with assets over $2 billion.
* Bank Financial Quarterly is published and copyrighted by IDC Financial Publishing, Inc. of Hartland, Wisconsin. The publication ranks the financial ratios of approximately 14,000 individual FDIC-insured banks and the average of banks in approximately 900 multi-bank holding companies. 35 ratios are tested on each bank and bank holding company.
D. Commercial Paper.
Commercial Paper issued by any corporation for profit which is incorporated under the laws of the United States, a state, or the District of Columbia, provided such commercial paper at the time of purchase is rated “prime” (P-1) by Moody’s Investors Service and “prime-plus” (A-1+) by Standard and Poor’s, and further provided that the aggregate total amount of active portfolio monies invested in commercial paper and with each issuer at any time shall not exceed the diversification limits imposed by subsection (h) of the Investment and Portfolio Policy.
E. STAR Ohio.
The State Treasury Asset Reserve of Ohio (STAR Ohio) is an authorized investment, subject to the diversification requirements set forth in subsection (h) of the Municipality’s Investment and Portfolio Policy.
F. NOW Accounts (Interest Bearing Negotiable Order of Withdrawal Accounts).
NOW accounts, Super NOW accounts, or any other similar account; authorized by the Federal Reserve’s Depository Institutions Deregulation Committee, provided that such accounts are secured by collateral as prescribed herein.
G. Municipality of Germantown, Ohio Notes and Bonds.
Any obligation of the Municipality of Germantown, Ohio without regard to term-to-maturity or interest rate, is an authorized investment instrument.
List of Authorized Investment Instruments
APPROVED:
Finance Director
Date:
(Ord. 99-38. Passed 6-21-99.)