CROSS REFERENCES
Department of Finance - see CHTR. §§6.01, 6.04, 6.05; ADM. Ch. 236
Finance generally - see CHTR. Art. X
Municipal Trust Fund - see CHTR. § 10.05
Uniform Public Securities Law - see Ohio R.C. Ch. 133
Uniform Depository Act - see Ohio R.C. Ch. 135
Investment of inactive funds - see ADM. 236.01
INVESTMENT AND DEPOSIT AUTHORITY
The electors of the City of Miamisburg, Ohio (the City), have adopted a charter form of government. Division (L) of Section 135.01 of the Ohio Revised Code (effective March 15, 1982) allows municipal corporations that have adopted a charter under Article XVIII of the Ohio Constitution to set forth special provisions by ordinance or charter respecting deposit or investment of its public monies.
The following policy, prepared by the Finance Director and approved by the City Manager, sets forth the rules and regulations that are to govern the investment and deposit of the City's public monies, subject to approval of the policy by City Council. This policy will become effective on the date of an ordinance of City Council approving this policy.
Prepared by: Finance Director
Reviewed by: City Manager
INVESTMENT AND DEPOSIT POLICY
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.
I. Policy
It is the policy of the City of Miamisburg to 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 City and conforming to all applicable local, State and Federal statutes governing the investment of public funds.
II. Scope
This investment policy applies to all financial assets of the City under direct control of City staff. These funds are accounted for in the City’s Comprehensive Annual Financial Report and include:
A. Funds:
1. The General Fund
2. Special Revenue Funds
3. Capital Projects Funds
4. Debt Service Funds
5. Enterprise Funds
6. Internal Service Funds
7. Fiduciary Funds
8. Any other fund created by City Council, unless specifically exempted.
The City’s investment policy applies to all interim funds that are pooled and deposited in the City’s general bank depository account or other bank accounts held by the City. Except for cash in certain restricted and special funds as required by law or bond indenture, the City will consolidate cash balances from all funds to maximize investment earnings. The investment portfolio shall be regularly monitored in the context of available markets and the relative value of competing investments. The portfolio may be adjusted accordingly.
Interest is distributed to any funds legally required to receive interest on a relative proportion each fund is of the prior month’s total ending cash balance, with the remaining interest posted to the General Fund.
III. 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 probable safety of their capital as well as the probable income to be derived. The standard of prudence to be used by the Finance Director or contracted independent SEC Registered Investment Advisor shall be the “prudent person” standard and shall be applied in the context of managing an overall portfolio.
IV. Objectives
The following investment and deposit objectives will be applied in the management of City funds:
A. The primary objective of the City’s investment activities is the preservation of capital and the protection of investment principal.
B. The City will diversify its investments to avoid incurring unreasonable and avoidable risks regarding specific security types or individual financial institutions.
C. The City’s investment portfolio will remain sufficiently liquid to enable the City to meet operating requirements which might be reasonably anticipated.
D. In investing public funds, the City will strive to maximize the return on the portfolio but will avoid assuming unreasonable investment risks.
E. Banks vary in the services they provide, their service fees, interest rates earned on account balances and the investment services provided. The City’s objective is to obtain appropriate banking services while minimizing the cost of banking services to the City.
F. All participants in the investment process shall seek to act responsibly as custodians of the public trust. The Finance Director shall recognize that the investment portfolio is subject to public review and evaluation. In addition, the overall investment program shall be designed and managed with a degree of professionalism worthy of the public trust. The Finance Director or Registered Investment Advisor shall also avoid any transaction that might knowingly impair public confidence in the Miamisburg City Council’s ability to govern effectively.
To ensure that the City will continue to receive the best service and rates available and that other financial institutions will have an equal opportunity to competitively bid in future years, the City will seek competitive requests for proposals or information for depositories of active funds at least every five (5) years.
V. Delegation of Authority
Authority to manage the City’s investment program is derived from the City Charter, the Ohio Revised Code and Ordinance No. 6771. Responsibilities for the investment program are hereby delegated to the Finance Director. The Finance Director shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. The Finance Director may contract with an independent SEC Registered Investment Advisor, with the approval of the City Manager. In the absence of the Finance Director, the Assistant Finance Director will assume all related investment responsibilities, subject to review and approval by the City Manager. No person may engage in investment transactions except as provided under the terms of this policy and the administrative procedures established by the Finance Director.
Broker/dealers, contracted independent SEC registered investment advisors and financial institutions transacting investment business with the City are required to sign the approved investment policy as an acknowledgment and understanding of the contents of said policy. Under no circumstances will brokers/dealer firms act as an investment advisor or in a similar capacity as an investment advisor, either directly or indirectly, if such broker/dealers participate in transaction business (purchase and sale of securities) with the City or the City’s designated investment advisor.
VI. Ethics and Conflicts of Interest
Officers and employees or any contracted independent SEC Registered Investment Advisor involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and any contracted independent SEC Registered Investment Advisor or investment officials shall disclose to the City Manager any material financial interests in financial institutions that conduct business with the City, and they shall further disclose any large personal financial/investment positions that could be related to the performance of the City’s portfolio. Employees and officers shall subordinate their personal investment transactions to those of the City.
VII. Authorized Financial Institutions and Dealers
The Finance Director will maintain a list of financial institutions and security broker/dealers who maintain an office in the State of Ohio and are authorized to provide investment services to the City. These may include “primary” dealers or regional dealers that qualify under Securities and Exchange Commission Rule 15C3-1 (uniform net capital rule).
All financial institutions and broker/dealers who or which desire to become qualified bidders for investment transactions must supply the Finance Director with the following, if appropriate and when requested:
A. Audited financial statements
B. Proof of membership in Financial Industry Regulatory Corporation (FINRA)
C. A trading resolution
D. Proof of State registration
E. A completed broker/dealer questionnaire
F. Certification that they have read and agree to comply with the terms of Miamisburg’s Investment and Deposit Policy
G. A depository agreement
A periodic review of the financial condition and registrations of qualified bidders will be conducted by the Finance Director.
VIII. Authorized and Suitable Investments
In accordance with the provisions included in Ohio Revised Code Section 135.14, as amended, the City of Miamisburg is authorized to invest in the following permissible investments at a price not exceeding their fair market value:
A. United States Government Securities
Direct obligations of the Department of the Treasury of the United States of America (bills, notes and bonds);
B. United States Government Agency Securities and Instrumentalities of Government Sponsored Corporations
1. Bonds, notes, debentures or any other obligations or securities issued by any Federal government agency or instrumentality, the principal and interest of which are unconditionally guaranteed by the United States; and,
2. Bonds, notes debentures or any other obligations or securities issued by any Federal government agency or instrumentality;
3. The purchase of collateralized mortgage obligations (CMO’s) or any other obligation classified as a derivative product is expressly prohibited.
C. Competitively Bid Interest Bearing Certificates of Deposit
Competitively bid interest bearing certificates of deposit in banks and savings and loan associations organized under the laws of Ohio, and in national banks organized under the laws of the United States that are doing business and situated in Ohio. Certificates of deposit and any accrued interest in excess of the amount insured by the Federal Deposit Insurance Corporation (FDIC) must be collateralized with at least two percent excess market value amount to secure such certificates of deposit.
D. Repurchase Agreements
Repurchase agreements with any eligible institution mentioned in section 135.03 ORC, or any eligible securities dealer pursuant to (M) of 135.14 ORC of this section, except that such eligible securities dealers shall be restricted to primary government securities dealers. Repurchase agreements will settle on a delivery vs. payment basis with collateral held at a qualified custodian or agent, designated by the City. Eligible repurchase collateral is restricted to securities listed in division (B)(1) or (B)(2) under 135.14 ORC. The market value of securities subject to an overnight written repurchase agreement must exceed the principal value of the overnight repurchase agreement by a least two percent. A written repurchase agreement shall not exceed thirty days and the market value of securities subject to a written repurchase agreement must exceed the principal value of the written repurchase agreement by at least two percent and be market to market daily. Prior to the execution of any repurchase transaction, a master repurchase agreement will be signed by the City and the eligible parties.
E. Commercial Paper and Bankers Acceptances
Up to forty percent of interim moneys available for investment in either of the following:
1. Commercial Paper
Commercial paper notes issued by an entity that is defined in Ohio Revised Code Section 1705.01D and that has assets exceeding five hundred million dollars, to which all of the following apply:
a. At the time of purchase, the notes must be rated in the single highest classification, “A-1”, by Standard and Poor’s and “P-1” by Moody’s Investors Service.
b. The aggregate value of the notes does not exceed ten percent of the aggregate value of the outstanding commercial paper of the issuing corporation.
c. The notes mature not later than two hundred seventy days after purchase.
d. The investment in commercial paper notes of a single issuer shall not exceed in the aggregate five percent of interim moneys available for investment at the time of purchase.
2. Bankers acceptances
Bankers acceptances of banks that are insured by the federal deposit insurance corporation and that mature not later than one hundred eighty days after purchase.
No investment shall be made in commercial paper or bankers acceptances unless the Finance Director has completed additional training for making the investments authorized by ORC 135.14 (B)(7). The type and amount of additional training shall be approved by the Treasurer of State;
F. State Treasury Asset Reserve of Ohio
The State Treasury Asset Reserve of Ohio (“Star Ohio”), which is a Statewide investment pool managed by the Treasurer of the State of Ohio similar in concept to a money market fund but available exclusively to political subdivisions of Ohio. State law sets the guidelines that determine the program’s investment practices;
G. Other Ohio Investment Pools
Any other investment pool operating in Ohio and available exclusively to public fund agencies of Ohio. The investments of these pools must have the full faith and credit backing of the United States or be fully collateralized or insured;
H. Now Accounts
Now accounts, super now accounts or any other similar account authorized by the Federal Reserve’s Depository Institutions’ Deregulation Committee;
I. Ohio Government Securities
Bonds, notes and other obligations issued by the State of Ohio or any political subdivision therein including the City of Miamisburg, Ohio. Except for obligations of the City of Miamisburg, Ohio, all such debt issuances will have a minimum credit rating of AA, or the equivalent, by a nationally recognized rating agency, at the time of purchase. Except for obligations of the City, obligations of the State of Ohio or obligations of any agency of the State of Ohio, or obligations of any Ohio political subdivision may not be purchased as private placements.
IX. Collateral
All deposits, including certificates of deposit and repurchase agreements, shall be collateralized pursuant to the requirements of the Ohio Revised Code Section 135.18. The collateralization level will be at 102% of the market value of principal and accrued interest to anticipate market changes and to provide a level of security for all funds.
Eligible securities used for collateralizing deposits will be held by the depository and/or a third-party bank or trust company in the City of Miamisburg’s name, subject to security and custodial agreements. In lieu of having to independently manage the collateralization process, deposits held by authorized financial institutions may instead collateralize such deposits through participation in the statewide Ohio Pooled Collateral System program.
The security agreement must state that the eligible securities are pledged to secure the City’s deposits together in a single pool with agreed interest, if any, and any collection expenses arising from said deposits.
It shall also provide the condition under which the securities may be sold, substituted, presented for payment, or released providing collateral values are maintained and the events which enable the City to exercise said rights against the pledged securities, including failure to meet deposit repayment or collateral terms, or the institution’s insolvency.
Collateral will always be held by an independent third-party. The custodial agreement must state that the securities are held by the bank or trust company, as agent of and custodian for and approved by the City. The securities will be kept separate from the general assets of the custodial bank or trust company and will not be commingled with or become part of the backing for any other deposit or liabilities. A clearly marked evidence of ownership must be supplied and retained by the City. The agreement will describe the custodian’s confirmation of the receipt, substitution or release of the securities. The custodial agreement also shall provide for daily revaluation of eligible securities and for the substitution of securities when a change in the security’s rating may cause ineligibility. The custodial agreement shall provide that the custodian will exercise the City’s rights to the security or as instructed by the City. Finally, the agreement must include all provisions to provide the City with a perfected interest in the securities. The right of collateral substitution is granted.
X. Sale of Securities Prior to Maturity
Portfolio assets may be liquidated or sold prior to maturity under the following conditions:
A. To meet additional liquidity needs.
B. To purchase another security to increase yield or current income.
C. To lengthen or shorten the portfolio’s average maturity.
D. To realize any capital gains and or/ income.
E. To adjust the portfolio’s asset allocation.
Such transactions may be referred to as “sale and purchase” or a “bond swap”. For purposes of this section, redeemed shall also mean “called” in the case of a callable security.
XI. Procedures for the Purchase and Sale of Securities
Securities will be purchased or sold through approved broker/dealers on a “best price and execution” basis. All such investment transactions, executed by the Finance Director or the contracted independent SEC Registered Investment Advisor, will be communicated electronically or by facsimile transmission to the Finance Director or to an authorized representative, designated by the Finance Director. A purchase or sale of securities will be represented by transaction advices which will describe the transaction, including par value, coupon (if any), maturity date, and cost.
A facsimile transmission or electronic advice will also be sent to the City’s designated custodian bank and will serve as an authorization to such custodian to receive or deliver securities versus payment. Confirmation advices, representing the purchase or sale of securities, will be issued by the eligible broker/dealer and sent to the investing authority. Copies of such advices will be sent to the City’s contracted independent SEC Registered Investment Advisor.
XII. Safekeeping and Custody
All securities transactions will settle using the standard delivery-vs-payment (DVP) procedures. The records of the custodian shall identify such securities in the name of the City. Broker/dealer firms used by the City or broker/dealer firms used the City’s designated independent Registered SEC Investment Advisor to purchase or sell investment assets shall not hold any such investment assets in safekeeping. All investment assets of the City will be held in safekeeping by a custodian bank where such custodian bank and the City have entered into a custodian agreement.
XIII. Diversification
The City will diversify the use of investment instruments to avoid incurring unreasonable risks inherent in over-investing in specific instruments, individual financial institutions or maturities. With the following exceptions no more than 40% of the City’s total investment portfolio will be invested in a single security type or with a single financial institution:
A. United States Treasury securities
B. United States government agency securities and instrumentalities of government sponsored corporations, the principal and interest of which are unconditionally guaranteed by the United States
C. Fully collateralized certificates of deposit
D. State Treasury Asset Reserve of Ohio
E. Other Ohio-based investment pools
XIV. Maximum Maturities
To the extent possible, the City will attempt to match 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 five (5) years from the date of purchase.
XV. Internal Control
The Auditor of State’s Office or the independent public accounting firm selected to perform the City’s annual audit will review the investment and deposit policies and procedures established by the City Charter, the Ohio Revised Code or City ordinances to assure compliance.
The Finance Director is responsible for establishing and maintaining internal control procedures to provide reasonable, but not absolute, assurance that deposits and investments are safeguarded against loss from unauthorized use or disposition, that transactions are executed in accordance with management’s authorization, properly recorded, and managed in compliance with applicable laws and regulations.
XVI. Performance Standards
The investment portfolio shall seek to obtain a market average rate of return during budgetary and economic cycles, taking into account the City’s investment risk constraints and cash flow needs. The basis used by the Finance Director to determine whether market yields are being achieved shall be the six-month United States Treasury Bill.
XVII. Competitive Bidding
The purpose of competitive bidding is to strengthen the investment program in terms of level and consistency of performance. All sales of securities will be bid competitively to the extent practical and all investments will be placed with vendors yielding the highest returns to the City. The right is reserved to reject the bid yielding the highest rate of return on any investment if such bid is inconsistent with the City’s investment strategy, i.e. maturity, risk, liquidity, etc.
Price and rate quotations on all trades may be obtained from sources within and outside the City. In the case of the sale of securities or the purchase of securities where all other factors are considered by the Finance Director to be equal, placement will be made in favor of the institution situated within the City if two bids or more are the same.
XVIII. Liability
The City Manager and Finance Director shall be relieved from any liability for the loss of any public monies deposited or invested pursuant to and in compliance with this Policy, including, but not limited to, losses occasioned by the sale of any instruments, securities or obligations, the closing of any deposit accounts or the failure of any depository.
XIX. Reporting
The Finance Director is charged with reporting on the investment activity and earnings in the City’s quarterly and annual financial reports.
XX. Policy Adoption
The City’s Investment and Deposit Policy shall be adopted by ordinance of City Council. The Policy shall be reviewed on an annual basis by the Finance Director and any modifications made thereto must be approved by the City Council.
Any amendments to this policy will be filed with the Auditor of State (Attn: Clerk of the Bureau, P.O. Box 1140, Columbus, OH 43216-1140) within fifteen days of the effective date of the amendment.
XXI. Glossary
The attached glossary of the terms utilized in this Investment and Deposit Policy shall be incorporated into this Policy.
GLOSSARY
ACTIVE FUNDS:
Public monies of the City determined to be necessary to meet current demands of the City Treasury.
BANKER’S ACCEPTANCE:
A time draft or bill or order to pay a specified amount on a specified date accepted by a bank or trust company. The accepting institution guarantees to return the face value of the acceptance at maturity. These are generally short-term instruments sold on a discounted basis.
BROKER:
A person who brings buyers and sellers together for a commission paid by the initiator of the transaction or by both sides.
CERTIFICATE OF DEPOSIT:
A time deposit with a specific maturity earning a specified rate of interest and evidenced by a certificate.
COLLATERAL:
Securities, evidence of deposit or other property which a borrower pledges to secure repayment of a loan. The word also refers to securities pledged by a bank to secure deposits of public monies.
COMMERCIAL PAPER:
A short-term unsecured promissory note issued by large, well known corporations. Usually sold at a discount, commercial paper may be issued as an interest-bearing instrument. Backed by the general credit of the corporation, it generally carries a higher yield than Treasuries of comparable maturity.
COMPREHENSIVE ANNUAL FINANCIAL REPORT:
The official annual financial report for the City of Miamisburg. It includes six combined statements and basic financial statements for each individual fund and account group prepared in conformity with generally accepted accounting principles.
It also includes supporting schedules necessary to demonstrate compliance with finance-related legal and contractual provisions, extensive introductory material and a detailed statistical section.
DEALER:
A person who acts as a principal in all transactions, buying and selling securities.
DEBENTURE:
A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT:
Delivery of securities with an exchange of money for the securities. It requires that delivery be evidenced before payment is released.
DISCOUNT:
The difference between the cost price of a security and its value at maturity when quoted at lower than face value; the amount or percentage that a security sells below par value.
DISCOUNT SECURITIES:
Non-interest bearing instruments that are issued at a discount and redeemed at maturity for full face value.
DIVERSIFICATION:
Dividing investment funds among a variety of securities offering independent returns.
FACE (PAR) VALUE:
The value on the face of a security at which it can be redeemed at maturity. Sales prior to maturity are usually at a premium over or discount below face value.
FEDERAL DEPOSIT INSURANCE CORPORATION:
A Federal agency that insures bank deposits.
FEDERAL RESERVE SYSTEM:
The central bank of the United States of America created by Congress and consisting of a seven member Board of Governors in Washington, D.C., twelve Regional Banks and thousands of commercial banks that are members of the system.
LIQUIDITY:
A measure of the ability to convert a security into cash easily and rapidly with minimum risk of loss of principal.
MARKET VALUE:
The price at which a security is traded and could presumably be purchased or sold.
MASTER REPURCHASE AGREEMENT:
A written contractual agreement covering all future transactions between the parties involved in a repurchase agreement or reverse repurchase agreement. 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.
MATURITY:
The date upon which the principal or stated value of an investment becomes due and payable.
MONEY MARKET:
The market in which short term debt instruments are issued and traded.
PRIMARY DEALER:
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 registered securities broker/dealers, banks and a few unregulated firms.
PREMIUM:
The difference between the cost price of a security and its value at maturity when quoted at higher than face value. The amount or percentage that a security sells above par value.
PRUDENT PERSON RULE:
An investment standard. For example, an allowable investment in a security if it is one which would be bought by a prudent person of discretion and intelligence who is seeking a reasonable income and preservation of capital.
PUBLIC DEPOSITORY:
An institution which receives or holds public monies.
RATE OF RETURN:
The yield obtainable on a security based on its purchase price or its current market price. This may be the amortized yield to maturity on a bond or the current income return.
REGISTERED INVESTMENT ADVISOR:
A Registered Investment Advisor is an advisor or firm engaged in the investment advisory business and registered either with the Securities and Exchange Commission or state securities authorities.
REPURCHASE AGREEMENT:
A contractual agreement between the City and brokerage firms, banks or government bond dealers. The repurchase agreement issuer receives cash and, in turn, provides securities to the City. There exists a contractual agreement for the issuer to repurchase the securities at predetermined dates and prices.
SAFEKEEPING:
A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank’s vaults for protection.
SECURITIES AND EXCHANGE COMMISSION:
An agency created by Congress to protect investors in securities transactions by administering securities legislation.
TREASURY BILL:
A non-interest bearing discount security issued by the United States Treasury to finance the national debt. Most T-Bills are issued to mature in three-month, six- month or one-year instruments.
TREASURY BONDS:
Long term United States Treasury coupon-bearing securities having initial maturities of more than ten years.
TREASURY NOTES:
Intermediate term coupon-bearing United States Treasury securities having initial maturities of from one to ten years.
UNIFORM NET CAPITAL RULE:
Securities and Exchange Commission requirement that member firms as well as non- member broker/dealers in securities maintain a maximum ratio of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio. Indebtedness covers all money owed to a firm, including margin loans and commitments to purchase securities. Liquid capital includes cash and assets easily converted into cash.
UNITED STATES GOVERNMENT AGENCY SECURITIES AND INSTRUMENTALITIES OF GOVERNMENT SPONSORED CORPORATIONS:
These Federal agency securities vary widely depending on the issuing agency. Though most are not technically legal obligations of the United States government, they do not present a significant credit risk because the government closely supervises the issuing agency. These securities are considered to be moral obligations of the United States.
YIELD:
The rate of annual income return on an investment, expressed as a percentage.
(a) INCOME YIELD is obtained by dividing the current dollar income by the current market price for the security.
(b) NET YIELD or YIELD TO MATURITY is the current income yield minus any premium above par or plus any discount from par in purchase price, with an adjustment spread over the period from the date of purchase to the date of maturity of the bond.