(a) Investment Policy. It is the policy of the City to invest public funds in a manner which will ensure the preservation of capital while providing the highest investment return with the maximum security, meeting the daily cash flow needs of the City, and conforming to all State and local statutes governing the investment of public funds.
(b) Scope. This Section 234.03 applies to all financial assets of the City. These funds are accounted for in the City's Comprehensive Annual Financial Report and include the following funds: General Fund; Special Revenue Funds; Capital Project Funds; Debt Service Funds; Enterprise Funds; Trust and Agency Funds; Inter-Governmental Service Funds; any new fund created by City Council, unless specifically exempted.
(c) Prudence.
(1) The standard of prudence to be applied by the Director of Finance or Investment Advisor shall be the "prudent person" and/or "prudent investor" standard which states: "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 prudent person standard shall be applied in the context of managing the overall portfolio.
(2) All authorized persons, acting in accordance with written procedures and the investment 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 developments.
(d) Objectives. The primary objectives and procedures of the City's investment activities shall be in the following order of importance:
(1) Safety. Safety of principal is the foremost objective of the investment program. Investments of the City shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio.
(2) Liquidity. The City investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated.
(3) Return on investment. The investment portfolio of the City shall be designed in a manner to attain a measurable market rate of return throughout budgetary and economic cycles, with the City's investment risk constraints and the cash flow characteristics of the portfolio.
(4) Maintain the public's trust. All participants in the investment process shall seek to act responsibly as custodians of the public trust. The Director of Finance 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 Director of Finance or Investment Advisor shall also avoid any transaction that might knowingly impair public confidence in the City Council's ability to govern effectively.
(e) Delegation of Authority. Management responsibility for the investment program is hereby delegated to the Director of Finance, who shall be responsible for all investment decisions and transactions undertaken. The Director of Finance shall develop and maintain written administrative procedures for the daily operation of the investment program, consistent with this section. The Director of Finance may contract with an Investment Advisor, with the approval of the City Manager. In the absence of the Director of Finance, the Finance Supervisor 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 Section 234.03 and the administrative procedures established by the Director of Finance.
(f) Ethics and Conflict of Interest. City employees and any contracted 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 Investment Advisor shall disclose to the City Council any material financial interests in financial institutions that conduct business with the City, and they shall disclose any large personal financial/investment positions that could be related to the performance of the City's portfolio. Employees and any contracted Investment Advisor shall subordinate their personal investment transactions to those of the City particularly with regard to the timing of purchases and sales.
(g) Authorized Financial Dealers and Institutions.
(1) Financial institution is defined as a State or nationally chartered bank or a State or Federally chartered savings and loan association, or savings bank whose deposits are insured by an agency of the United States government and which maintains a principal office or branch office in the State of Ohio under the laws of Ohio and the United States.
(2) Should the City choose not to utilize an investment advisor, then the Director of Finance shall maintain a list of financial institutions authorized to provide investment services. Each institution shall provide, at minimum, their quarterly and annual audited financial statements. In addition, a list shall also be maintained of approved security broker/dealers, selected by credit worthiness (e.g. a minimum capital requirement of ten million dollars ($10,000,000) and at least five years of operation), who are authorized to provide investment services in the State of Ohio.
(3) The security dealers and financial institutions may include primary or regional dealers that qualify under Securities and Exchange Commission Rule 15C3-1 (uniform net capital rule) and investment departments of banks, and which have been subject to the following evaluation:
A. Financial condition, loan exposure, capital adequacy, asset quality, earnings, and liquidity;
B. Regulatory status of the dealer;
C. Background and expertise of the individual representative.
(4) Individuals representing institutions doing business with the City shall receive a copy of this Section 234.03, and shall certify that they have read, comprehended and will abide by its content when recommending, buying or selling any investment security for the City. A copy of such certification, along with respective financial statements, shall be kept on file by the Director of Finance.
(h) Authorized and Suitable Investments. In accordance with the provisions included in Ohio R.C. 135.14 and other applicable sections of Ohio R.C. Chapter 135, as amended, the City is authorized to invest in the following permissible investments:
(1) United States Treasury bills, notes, bonds or any other obligation or security issued by the United States Treasury or any other obligation guaranteed as to principal and interest by the United States. Stripped principal or interest obligations of such eligible obligations are strictly prohibited.
(2) Bonds, notes, debentures, or any other obligations or securities issued by any Federal government agency or instrumentality, including but not limited to, the Federal Home Loan Bank (FHLB), Federal Farm Credit Bank (FFCB), Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), and Government National Mortgage Association (GNMA). All Federal agency or instrumentality securities must be direct issuances of the Federal agency or instrumentality.
(3) State Treasury Asset Reserve (STAR Ohio), managed by the office of the Treasurer of the State of Ohio, is an eligible investment as long as the fund maintains the highest letter rating provided by at least one nationally recognized standard rating service as outlined in Ohio R.C. 135.45.
(4) Certificates of deposit, savings accounts, deposit accounts, or depository receipts of a financial institution, but only if the financial institution is eligible to be a depository of funds as provided in Ohio R.C. 135.08.
(5) Commercial paper notes issued by an entity that is defined in Ohio R.C. 1705.01(D) and that has assets exceeding five hundred million dollars ($500.000.000). At the time of the purchase, the notes must be rated in the highest classification established by not less than two standard rating services and that matures not more than 270 days after the date of purchase.
(6) Bankers' Acceptances and Deposits of the top 50 banks in the United States based upon asset size or Ohio-based financial institutions with at least two billion dollars ($2,000,000,000) in total assets, provided the bank is FDIC insured. The maturity of bankers’ acceptances is limited to not more than 180 days after the date of purchase.
(7) Obligations of this State or any of its political subdivisions that at the time of purchase are rated as investment grade by not less than one standard rating service. With respect to obligations of political subdivisions, the obligations are payable from general revenues of the political subdivision, backed by the full faith and credit of the political subdivision and the City is not the sole purchaser of the obligations at original issuance.
(8) Investments in no-load money market mutual funds consisting exclusively of obligations described in subsections (1) and (2) of this section and repurchase agreements secured by such obligations.
(9) Investments in certificates of deposits with FDIC insurance coverage on the full amount of the deposit through the Certificate of Deposit Account Registry Service (CDARS), offered by Promontory Interfinancial Network. Eligibility for this investment is outlined in Ohio R.C. 135.144 and would also apply to any other program that is deemed to meet the requirements of such statute.
(10) Repurchase agreements (e.g. sweep accounts) with eligible institutions.
(11) STAR Plus Federally Insured Cash Account.
(i) Repurchase Agreements. Repurchase agreements are permitted only with any eligible public depository mentioned in Ohio R.C. 135.03, or with any dealer who is a member of the financial industry regulatory (FINRA) and must be in writing. All repurchase agreements must be entered into subject to a Master Repurchase Agreement providing for the terms outlined below.
(1) The market value of the securities subject held as collateral for an overnight repurchase agreement (including sweep accounts) or term repurchase agreements must exceed the principal by at least 2%, the securities must be marked to market daily and the stated margin will be maintained by the initial seller during the life of the transaction. No one repurchase agreement may exceed two million dollars ($2,000,000). The City retains the right to terminate the agreement and sell the securities outside the repurchase agreement. Reverse repurchase agreements are strictly prohibited.
(2) Term repurchase agreements may not exceed 30 days. Any repurchase agreement with an eligible securities dealer must be transacted on a delivery versus payment basis. For all securities purchased pursuant to a repurchase agreement with an institution or dealer, the institution or dealer must agree in writing to unconditionally repurchase any of the securities used for any repurchase agreement transaction.
(j) Derivatives. Investments in derivatives are strictly prohibited. A derivative is defined in Ohio R.C. Chapter 135 as a financial instrument or contract or obligation whose value is based upon or linked to another asset or index or both, separate from the financial instrument, contract or obligation itself. However, any eligible investment with a variable interest rate payment based upon a single interest payment or single index comprised of other investments consisting of U.S. government or Federal agency or instrumentality obligations is not considered a derivative if it matures in two years or less.
(k) Pooling. The pooling of funds by subdivisions is prohibited except as provided in Ohio R.C. 715.02 or Section IV, Article XVIII of the Ohio Constitution, and STAR Ohio.
(l) Collateralization.
(1) All uninsured deposits shall be collateralized pursuant to the requirements of the Ohio Revised Code. Eligible securities used for collateralizing deposits will be held by the depository and/or a third party bank or trust company, subject to security and custodial agreements. In order to anticipate market changes and provide a level of security for all funds, the collateralization level shall be at least 105% of market value of principal and accrued interest when specific collateral is provided or 102% of market value of principal and accrued interest when pooled collateral is provided.
(2) The security agreement shall provide that eligible securities are being pledged to secure City deposits together with agreed upon interest, if any, and any costs or expenses arising out of the collection of such deposits upon default. It shall also provide the conditions under which the securities may be sold, presented for payment, substituted, or released providing collateral values are maintained, and, the events which will enable the City to exercise its rights against the pledged securities including failure to meet deposit repayment or collateral terms, or the deposit institution's insolvency. In the event that the securities are not registered or inscribed in the name of the City, such securities shall be delivered in a form suitable for transfer or with an assignment in blank to the City or its custodial bank.
(3) The custodial agreement shall provide the securities held by the bank or trust company, as agent of and custodian for the City, will be kept separate and apart from the general assets of the custodial bank or trust company and shall not, in any circumstances, be commingled with or become part of the backing for any other deposit or other liabilities. The agreement shall also describe how the custodian will confirm the receipt, substitution, or release of the securities. The agreement shall provide for daily revaluation of eligible securities and for the substitution of securities when a change in the rating of a security may cause ineligibility. The agreement shall provide that the custodian will exercise the City's rights to the security or as instructed by the City. Such agreement shall include all provisions necessary to provide the City with a perfected interest in the securities.
(m) Safekeeping and Custody. All security transactions, including collateral for repurchase agreements entered into by the City shall be conducted on a delivery-versus-payment (DVP) basis. Securities shall be held by a third-party custodial bank chartered by the United States government or the State of Ohio designated by the Director of Finance and evidenced by safekeeping receipts with a written custodial agreement. No withdrawal of such securities, in whole or in part, shall be made from safekeeping except by the Director of Finance as authorized herein, or another person authorized in this Section 234.03
. Any investment advisor, consultant or broker/dealer doing business with the City cannot serve as custodian or safekeeping agent.
(n) Diversification. The City shall diversify its investments by security type, institution, and maturity. With the exception of U.S. Treasury securities and authorized pools, no more than 75% of the City's total investment portfolio will be invested in a single security type, (as listed in division (h) above). No more than 50% of the City's portfolio will be invested with a single financial institution. No more than 40% of the City’s portfolio will be invested in either commercial paper or bankers acceptances. No more than 5% of the City’s portfolio will be invested in a single issuer of commercial paper. Investments in obligations of political subdivisions of the state are limited to 20% of the City’s portfolio. Diversification strategies consistent with the above provisions shall be determined and revised by the Director of Finance from time to time to meet diversification objectives in order to reduce the overall portfolio risks while attaining measurable market average rates of return.
(o) Maturity Guidelines.
(1) Investment maturities for operating funds shall be scheduled to coincide with projected cash flow needs, taking into account routine needs (payroll, bi-weekly bill payments, debt service) as well as considering anticipated revenue (income taxes, utility collections, local government fund distributions). To the extent possible, the Director of Finance will attempt to match the investments with the anticipated cash flow requirements to take best advantage of prevailing economic and market conditions. The maximum maturity of any eligible investment is five years from the settlement date, unless per a related bond indenture the investment is matched to a specified obligation or debt of the subdivision.
(2) Any investment made should be purchased with the expectation it will be held to maturity. Investments may be sold to meet unexpected liquidity needs, to capture a capital gain, to reinvest in a preferred investment, or if otherwise determined to be in the best interests of the City.
(3) Because of the inherent difficulties in accurately forecasting cash flow requirements, a portion of the portfolio should be continuously invested in readily available funds such as, but not limited to, STAR Ohio, money market funds, or overnight repurchase agreements to ensure that appropriate liquidity is maintained to meet ongoing obligations. At least 20% of the portfolio will be invested in liquid instruments or marketable securities that can be sold to raise cash with one or two business day's notice.
(p) Internal Controls. The Director of Finance shall establish an annual process of independent review by the City's designated audit firm, which will assure compliance with policies and procedures. A system of internal controls periodically reviewed by the City Manager will be designed to protect the City from theft, loss, fraud, misrepresentation, imprudent actions and other misuses of public funds. Investment transactions shall be separate from the accounting and recording of those transactions.
(q) Performance Standards. The investment portfolio will be designed to obtain an average measurable market rate of return during budgetary and economic cycles, taking into account the City's investment risk constraints and cash flow needs. The City's investment strategy is passive. Given this strategy, the basis used by the Director of Finance to determine whether market yields are achieved can be BofA Merrill Lynch 1-3 Government/Corporate Index, T-Bill rates, nationally published CD rates, and nationally reported commercial paper rates. The last three indexes can be found in the Wall Street Journal. All national index rates must be for similar duration as the City's investments. The Director of Finance will continually attempt to utilize comparable benchmarks for any comparisons to yields earned on the City's individual investments and portfolio as a whole.
(r) Reporting.
(1) The Director of Finance shall prepare a monthly investment report for the City Manager. The report shall provide an update on the status of the current investment portfolio. It shall include, but not be limited to the following elements: List of investments and percent that each type represents in the portfolio; Issuer; Purchase Date; Maturity Date (including Call Date, if applicable); Average life and effective maturity of all investments; Coupon, discount, or earnings rate; Par value, amortized book value and market value; Monthly interest earnings; Monthly purchases and redemptions.
(2) The Director of Finance shall also prepare a quarterly investment summary report for distribution to all members of the City Council. The composition of the City's investment portfolio and related earnings including annual gains or losses on the market value of the investment portfolio are reported in the City's Comprehensive Annual Financial Report. The Director of Finance shall inform the City Manager of economic changes and budgetary constraints that have a significant effect on the investment portfolio earnings. A review of current and future investment strategies shall also be discussed on a regular basis.
(s) Annual Review. This Section 234.03
shall be reviewed periodically by the Director of Finance and any necessary modifications shall be presented for approval by the City Council.
(Res. 96-R-33. Passed 10-7-96; Res. 02-R-21. Passed 10-7-02; Ord. 08-17. Passed 7-14-08; Ord. 18-21. Passed 10-1-18.)