It is the policy of the City of Vermilion, Ohio, to invest public funds in a manner that will provide the highest investment return with maximum security, safety and preservation of principal, while meeting the cash flow demands of the City and conforming to applicable laws governing the investment of public funds by an Ohio municipality. The Finance Director is the investment officer for the City, charged with the responsibility of the implementation and compliance with this Investment Policy.
(a) Scope. This Investment Policy applies to all financial assets of the City, including State and federal funds held by it. Any practice not clearly authorized under this policy is prohibited.
(b) Objectives. The primary objectives, in order of their priority, of the City's investment activities shall be:
(1) Safety: Safety of principal is the foremost objective of the investment program. City investments should 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's investment portfolio should remain sufficiently liquid to enable it to meet anticipated cash outlay requirements.
(3) Return on Investment: The City's investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account this Investment Policy and the cash flow characteristics of the portfolio.
(4) Prudence:
A. 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, for investment and not for speculation, considering both the probable safety of their capital and the income to be derived.
B. The standard of prudence to be used by the Finance Director shall be the "prudent person"standard and shall be applied in the context of managing the overall portfolio. Acting in accordance with this Investment Policy and exercising due diligence will relieve the Finance Director of any personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported to City Council in a timely fashion and appropriate action is taken to control adverse developments.
(c) Delegation of Authority and Responsibilities. The City may engage the services of an investment advisor to assist in the management of the City's investment portfolio in a manner consistent with the City's objectives. Such investment advisor may be granted discretion to purchase and sell investment securities in accordance with this investment policy. The investment advisor must be licensed by the division of securities under Ohio Revised Code section 1707.141 or registered with the Securities & Exchange Commission, and possesses experience in public funds investment management specifically in the area of state and local government investment portfolios, or the investment advisor is an eligible institution as mentioned in Ohio Revised Code section of 135.03.
(d) Authorized Financial Institutions and Dealers.
(1) The Finance Director will maintain a list of financial institutions and approved security broker/dealers who are authorized to provide investment services and who qualify under Section 135.14(M)(1) of the Revised Code. These may include "primary" dealers or regional dealers that qualify under SEC Rule 15c3-1 and are registered with the Ohio Department of Commerce to do business in the State.
(2) All financial institutions, broker/dealers and other entities who desire to conduct investment business with the City must sign this Investment Policy, certifying they have read it, understand it and agree to abide by its contents.
(e) Authorized Investments. The City is permitted to invest in any security authorized by Ohio Revised Code section 135.14 and any other relevant sections, as amended. Those securities include, but are not limited to, the following:
(1) United States Treasury bills, notes, bonds or any other obligation or security issued or guaranteed by the United States Treasury or any other obligation of which the faith of the United States is pledged for payment of the principal and interest thereon (not including "stripped" principal or interest obligations).
(2) Bonds, notes, debentures, or other obligations or securities issued by any federal government agency or instrumentality, including but not limited to the Federal National Mortgage Association, Federal Home Loan Bank, Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation, and Government National Mortgage Association. All such securities must be direct issuances of the federal government agency or instrumentality.
(3) Interim deposits in duly authorized depositories of the City, provided those deposits are properly insured or collateralized as required by law. This includes investments in Certificates of Deposit with FDIC insurance coverage on the full amount of deposit plus accrued interest administered through the Certificate of Deposit Account Registry Service (CDARS). Eligibility of this investment is outlined in Ohio Revised Code section 135.144 and would also apply to any other program that is deemed to meet the requirements of such statute.
(4) Bonds and other obligations of the State of Ohio, or the political subdivisions of this state provided that with respect to bonds or other
obligations of political subdivisions, all of the following apply:
A. The bonds or other obligations are payable from general revenues of the political subdivision and backed by the full faith and credit of the political subdivision.
B. The bonds or other obligations are rated at the time of purchase in the three highest classifications established by at least one nationally recognized standard rating service and are purchased
through a registered securities broker or dealer.
C. The aggregate value of the bonds or other obligations does not exceed 20% of the City's interim funds at the time of purchase.
D. The City is not the sole purchaser of the bonds or other obligations at original issuance.
(5) No-load money market mutual funds consisting exclusively of securities described in paragraphs 1 and 2 of this Section and repurchase agreements secured by such obligations, provided that investments in securities described in this Section are made only through eligible institutions as described in Ohio Revised Code section 135.03.
(6) Ohio Subdivision's Fund (STAR Ohio) and the STAR Plus Federally Insured Cash Account.
(7) Written repurchase agreements that set forth terms and conditions of the agreement between the parties for a period not to exceed 30 days with any eligible institution mentioned in Ohio Revised Code Section 135.03 or a member of FINRA (Financial Industry Regulatory Authority), under the terms of which agreement, the Finance Director purchases and such institution agrees unconditional to repurchase any securities listed in division 1 or 2 of this section that will mature or are redeemable within five years of the date of purchase. The market value of the securities subject to the repurchase agreement must exceed the principal value of the agreement by at least two percent and be marked to market daily. Such agreement shall include the face amount of the securities, type, rate, maturity date and the numerical identifier.
(8) Up to 40% of the City's interim funds in either of the following:
A. Commercial paper rated in the highest credit rating by at least two nationally recognized credit rating agencies. Any investment in commercial paper of a single issuer shall not exceed 5% of the
City's interim funds at time of purchase. The maximum maturity
is 270 days.
B. Bankers Acceptance of banks insured by the Federal Deposit Insurance Corporation (FDIC). The maximum maturity is 180 days.
(f) Maximum Maturities. To the extent possible, the City will attempt to match its investments with anticipated cash flow requirements. No investment shall be made unless the Finance Director, at the time of making the investment, reasonably expects it can be held to its maturity. Any security may be sold prior to maturity.
(g) Safekeeping and Custody.
(1) All security transactions, including collateral for repurchase agreements entered into by the City shall be conducted on a delivery-versus-payment basis. Securities will be held by a third party custodian designated by the Finance Director and evidenced by safekeeping receipts. Securities shall be pledged at the Federal Reserve Bank to collateralize all repurchase agreements with financial institutions. Pledge collateral will only be released by the City after verification that the principal and interest have been credited to the City's account.
(2) Any investment advisor, consultant or broker/dealer doing business with the City cannot serve as custodian or safekeeping agent.
(h) Prohibited Investment Practices. In addition to any other prohibitions in Ohio Revised Code, the City will not:
(1) Contract to sell securities that have not yet been acquired on the speculation that prices will decline.
(2) Make any investment in "derivatives" as defined in Ohio Revised Code Section 135.14 (C).
(3) Invest in a fund established by another public body for the purpose of investing public money of other subdivisions except either (a) STAR Ohio, or (b) a fund created solely from the purpose of acquiring, constructing, owning, leasing or operating municipal utilities as authorized under Ohio Revised Code section 715.02 or Section 4 of Article XVIII of the Ohio Constitution.
(4) Enter into reverse repurchase agreements.
(5) Leverage current investments as collateral to purchase other assets.
(6) Invest in "stripped" principal or interest obligations of otherwise eligible obligations.
(i) Internal Controls. The Finance Director shall routinely monitor the contents of the City's investment portfolio, the available markets and relative value of competing investments, and adjust the portfolio accordingly. The Finance Director shall also develop and maintain procedures for the operation of the City's investment program in accordance with this Investment policy. These procedures shall be designated to prevent loss of the City's funds due to fraud, error, misrepresentation, unanticipated market change or imprudent actions.
(j) Records and Reporting. The Finance Director shall maintain a current inventory of all investments including description of each security, cost, par value, coupon rate, rate of return, purchase date and maturity date. A report of all investments and activity shall be available upon request.
(k) Education. The Finance Director shall participate in any beginning and/or continuing education training programs sponsored by the State Treasurer or the State Auditor in which the Finance Director is required to participate pursuant to Ohio Revised Code. Through participation in those programs, the Finance Director is to develop and maintain an enhanced background and working knowledge in investment, cash management, and ethics.
(l) Non-Binding Arbitration. The Finance Director may enter into a written investment agreement or deposit agreement that includes a provision under which the parties agree to submit to non-binding arbitration (but not binding arbitration) to settle any controversy that may arise out of that agreement so long as such provision meets the requirements of Ohio Revised Code and is specifically approved by Council.
(m) Ethics and Conflict of Interest.
(1) City officials and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or that could impair their ability to make impartial investment decisions. City officials and employees, and investment consultants to the City, shall: (i) disclose to the City Law Director any material financial interests in financial institutions that conduct business with the City and any large personal financial or investment positions that could be related to, or affected by, the performance of the City's portfolio, and (ii) shall subordinate their personal investment transactions to those of the City, particularly with regard to the timing of purchases and sales.
(2) The above supplements the applicable provisions of Ohio ethics laws.
(n) Investment Policy Revision. This policy shall be periodically reviewed by the Finance Director. Any modifications of this Policy must be approved by City Council and, upon approval, filed in the office of the Auditor of State.
(Ord. 2018-50. Passed 9-10-18.)