(a) Purpose and Intent. It is the City’s intention to safeguard its assets. Cash investments and equivalents comprise the most liquid part of those assets and thus should be handled and invested with diligence and prudence. Investments should always be made with (1) safety and (2) performance in mind.
(b) Scope. All monies in the Treasury of the City of Middleburg Heights are considered investable and are thus covered in this policy, whether active, interim or inactive.
(c) Authority of Finance Director. City of Middleburg Heights Charter Section 9.02
charges the Finance Director with responsibility for investing the City’s money. Ohio R.C. Chapter 135, the Uniform Depository Act, directs the manner in which public funds may be invested.
(d) Prudence. The Finance Director shall follow the prudent investor rule, which states that 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.
(e) Risk Assessment. As stated in subsection (a) hereof, safety and performance of the City’s investment portfolio are the main focus of the investment policy. The City realizes that with any investment comes risk. The safe return of investment principal is the most important aspect of this policy, but it would be just as imprudent to take no risk, and receive no return on the City’s money, as it would be to take too much risk for greater returns. The types of risk that should be noted and assessed are:
(1) Market Risk - The risk that fluctuations in market conditions would lead to a decrease in value of the investment.
(2) Default Risk - The risk that the issuer of a security could not pay principal when due. This risk would also apply to any kind of deposit upon the failure of a banking institution.
(3) Safekeeping Risk - The risk that purchased securities are not actually held in trust, or delivered, or that adequate collateral is not maintained to back an investment.
Default risk and safekeeping risk can be minimized by addressing the subjects in the depository agreements. Proper collateral and strict adherence to the Uniform Depository Act assure that default risk should not be an issue when investing. Another condition, which has been used by the City to reduce the risk of loss due to default by a financial institution, is limiting the amount of investments placed with any institution to no more than fifty percent of the City’s investment portfolio. This also ensures that banking relationships remain intact with all the banks in the community.
Safekeeping risk can be reduced through use of Trustee Agreements and/or physical delivery of securities. The Finance Director will award Trustee Agreements as part of the depository contracts, and securities will be delivered and held in trust with the designated trustee. Financial institutions or brokers/dealers will be required to issue a safekeeping receipt which lists (1) the specific securities to e held in trust as an investment of the City or as collateral, including CUSIP numbers, (2) amounts held and (3) interest rate and other information, including maturity dates and terms. Pooled collateral will only be accepted upon approval of the Director of Finance.
Unless specifically authorized by City Council, variable rate instruments will be unacceptable in the City’s investment portfolio. It is the City’s intention to hold all investments to maturity. In doing so the City can reduce market risk to the extent that a specific investment will only lose market value. The amount of principal and interest will be received by the City as originally anticipated.
(f) Eligible Institutions. The Uniform Depository Act, as amended by Senate Bill 81 in 1996, allows the City to enter into a depository agreement with any financial institution for deposits of active, inactive and interim moneys regardless of whether the institution has a branch located within the City limits or not. Unless specifically authorized by motion of City Council, the City will invest only with financial institutions that have signed a depository agreement with the City, except as noted below.
(g) Eligible Investments. The Finance Director is allowed to invest in any security or investment type allowed by the Uniform Depository Act. Eligible investments include certificates of deposit, no-load money market mutual funds not containing derivatives, United States Treasury securities, STAR-Ohio, bonds of other governmental entities, commercial paper, U.S. government agency debentures and instrumentalities and repurchase agreements (Repo). Collateral-backed mortgage obligations, derivatives, interest-only purchases, variable interest securities, reverse repurchase agreements, investment pools, except for STAR-Ohio, and stocks, are prohibited unless specifically authorized by City Council.
The maximum maturity of any such eligible instrument is five years from the date of settlement, unless the investment is matched to a specific obligation or debt of the City.
The Finance Director may enter into a repurchase agreement with an eligible securities dealer. Eligible securities dealers must be members of the National Association of Securities Dealers. The market value of the securities purchased under the agreement must exceed the principal value of the repurchase agreement by at least two percent. Term purchase agreements are limited to a maximum maturity of thirty days and the securities purchased under the agreement must be marked to market daily. The securities purchased must be delivered either to the Treasury of the City, or to the trust agent as designated by the Director of Finance.
(h) Competitive Selection of Investment Instruments and Institutions. When it is determined by the Director of Finance that funds are available for interim or active deposit, he or she will receive competitive bids from institutions designated as a depository of such, to determine which instrument and institution offers the best rate for the day. Other factors, including the Director’s judgment, may determine who is awarded the investment for that day. Other factors may include Federal Reserve wire transfer fees, bank service charges, amounts already invested with an institution, service and, most of all, the risk associated with the investment instrument. All factors being equal, ties will be broken with the toss of a coin.
(i) Safekeeping. Physical delivery of the purchased securities to the City Treasury is preferable, but when such is either too costly or physically impossible, purchased securities will be delivered to an authorized trust agent of the City. Financial institutions and brokers/dealers that do not have a trust agreement with the City shall deliver, at its own cost, the securities to the trust agent designated by the Director of Finance before payment is received. Trust agents shall be awarded such designations as part of the City’s depository contracts.
(j) Collateralization. The collateral provisions of the Uniform Depository Act shall apply to all deposits, active, inactive, and interim, of the City of Middleburg Heights. Forms of acceptable collateral shall include letters of credit and surety bonds, as well as U.S. Treasuries and other forms of traditional collateral.
(k) Financial Reporting. The Director of Finance will submit a quarterly investment report to City Council. The report will include, at least, the following information:
Financial institution or dealer/broker with whom the investment is placed
Term and maturity date of the instrument or security
Interest rate (STAR-Ohio should show current average rate)
Amount invested
Interest earned (if applicable)
The City will report its investments annually, as part of its financial report, in accordance with generally accepted accounting principles (GAAP), specifically in accordance with the Governmental Accounting Standards Board (GASB) Statement No. 3, deposits with financial institutions, investments (including repurchase agreements), and reverse repurchase agreements. If such reporting requirements are changed, the City will report in compliance with such provisions.
Details of each investment, including the amount invested and earned, by each fund, shall be kept by the Department of Finance, as established by the City Records Commission.
(l) Other Provisions. All investing shall be performed at the direction of the Director of Finance. The Assistant Finance Director will be authorized to invest in the absence of the Director. An investment consultant or manager may be used to help manage the City’s investment portfolio. Contracts for such will be authorized by City Council.
Wire transfers of money in and out of the City Treasury for investment purposes shall be recorded on a wire transfer sheet, which shall include a summary of principal maturities for the day, by financial institution, and new investments, listed by financial institution. All wire transfers shall be authorized by the Director of Finance.
(Ord. 1998-26. Passed 4-14-98.)
(m) All unrestricted investment income shall be allocated to the General Fund, any other provision of this Code notwithstanding.
(Ord. 2005-1. Passed 1-11-05.)