R-2019-0473 - 12/5/2019 RESOLUTION NO. R-2019-0473
WHEREAS, pursuant to Section 2256.005, Texas Government Code ("the Act") the City
Council desires to adopt a written investment policy and investment strategy regarding the investment
of City funds; and
WHEREAS, the City Council has reviewed the attached updated policy and has determined
same to be in compliance with the Act,Now Therefore
BE IT RESOLVED BY THE COUNCIL OF THE CITY OF ROUND ROCK, TEXAS,
That the updated Investment Policy and Strategy for the investment of City funds, attached
hereto as Exhibit"A" and incorporated herein, is hereby approved and adopted.
The City Council hereby finds and declares that written notice of the date, hour, place and
subject of the meeting at which this Resolution was adopted was posted and that such meeting was
open to the public as required by law at all times during which this Resolution and the subject matter
hereof were discussed, considered and forinally acted upon, all as required by the Open Meetings Act,
Chapter 551, Texas Government Code, as amended.
RESOLVED this 5th day of December, 2019.
CRAIG ORV)&, Mayor
City of oun ock, Texas
ATTEST:
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SARA L. WHITE, City Clerk
0112.1902;00435659
EXHIBIT
kROUNDROCK TEXAS
FINANCE
City of Round Rock, Texas
Investment Policy & Strategy
December 5, 2019
City of Round Rock, Texas
Investment Policy & Strategy
December 5, 2019
Section Page
I. Purpose .................................................................................................................. 3
II. Scope ..................................................................................................................... 3
III. Investment Objectives & Strategy........................................................................ 3
Objectives
Strategy
IV. Standard of Care ..................................................................................................... 5
Prudence
Delegation of Authority
Training
Ethics
Limitation of Liability
Internal Controls
V. Authorized Investments ........................................................................................ 7
Authorized Investments
Prohibited Investments
Valuation
Protection of Principal
Diversification by Investment Type
Diversification by Investment Maturity&Weighted Average Maturity
VI. Relationships with Financial Institutions and Firms ............................................ 11
Primary Depositories
Selection and Compliance of Investment Providers
VII. Safekeeping &Collateralization .......................................................................... 12
Safekeeping &Custody
Collateralization Requirements
VIII. Portfolio Reporting and Review ........................................................................... 13
Reporting
Annual Review
External Audit
Addendum A—List of Authorized Broker/Dealers ....................................................... 15
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City of Round Rock, Texas
Investment Policy
December 5, 2019
I. PURPOSE
The Investment Policy of the City of Round Rock, Texas, is adopted in accordance with Chapter
2256,Texas Government Code,the Public Funds Investment Act(the"Act"). This Policy establishes
guidelines for the Investment Officers with regard to how City funds will be invested. This Policy
also establishes guidelines for periodic review and reporting of the investments.
II. SCOPE
This Investment Policy applies to all aspects of investing the financial assets for the City of Round
Rock,Texas. This applies to all funds reported in the City's Comprehensive Annual Financial Report
and include the General Fund, Special Revenue Funds, including the Round Rock Transportation
& Economic Development Corporation, Debt Service and Debt Reserve Funds, Capital Project
Funds,Enterprise Funds,Internal Service Funds,Trust and Agency Funds and any new funds created
by the City and any funds managed by the City of Round Rock, Texas, as trustee or agency, unless
exempted by law. In addition to this Policy,bond funds established by bond ordinances shall also be
managed by their governing ordinances and all applicable State and Federal Law.
All funds covered by this Investment Policy shall be invested in accordance with the Public Funds
Investment Act as amended from time to time. (Texas Government Code, Ch. 2256.)
III. INVESTMENT OBJECTIVES &STRATEGY
A. Objective
It is the policy of the City of Round Rock that,giving due regard to the safety and risk of investments,
all available funds shall be invested in conformance with State and Federal Regulations, applicable
bond covenants and ordinances, and this adopted Investment Policy. The primary objectives for
investment activities are listed in priority order.
1. Suitability
Understanding the suitability of the investment to the financial requirements of the City is
important. The needs and limitations of each group of funds must be considered. Any
investment eligible in the Investment Policy is suitable for all City funds.
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2. Safety of Principal
The primary objective of all investment activity is the preservation of capital and the safety of
principal in the overall portfolio. Each investment transaction shall seek to ensure first that
capital losses are avoided, whether they have resulted from securities defaults or erosion of
market value. All investments are to be of high-quality instruments with no perceived default
risk. Market price fluctuations will,however,occur.
With foremost emphasis on safety of principal (i.e. avoidance of capital losses), the
Investment Officers will ensure that preservation of capital and protection of principal in the
overall portfolio is maintained. Speculation is prohibited.
3. Maintenance of Adequate Liquidity
The investment portfolio will remain sufficiently liquid to meet the cash flow requirements
that might be reasonably anticipated. Liquidity shall be achieved by maintaining appropriate
cash equivalent balances, matching investment maturities with anticipated cash flow
requirements, investing in securities with active secondary markets, and maintaining
appropriate portfolio diversification.
4. Marketability
Securities with active and efficient secondary markets are necessary in the event of an
unanticipated cash requirement. An efficient market is generally defined as having a bid-
asked price relationship being no greater than 1/4 of 1 percent of principal value.
5. Diversification
Diversified investment maturities shall provide monthly cash flow based on the anticipated
operating needs of the City. Short term financial institution deposits,investment pools,money
market mutual funds and staggered maturities of securities shall provide timely liquidity and
may be utilized.
6. Yield
Attaining a competitive market yield for comparable security-types and portfolio restrictions
is the desired objective. The comparative yield of a like-term treasury security shall be the
minimum yield objective.
B. Strategy
The investment objectives above apply to all funds covered by this Policy. Investment strategies
and guidelines by fund-type are as follows:
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1. Pooled Funds
Pooled Funds comprise the majority of the City's portfolio and include all operating funds
and long-term reserves. Investment strategies for pooled funds have as their primary objective
to assure that anticipated cash flows are matched with adequate investment liquidity. The
secondary objective is to create a portfolio structure which will minimize volatility while
providing competitive yields on City fiinds. Daily liquidity for operations is required first.
Reserves established in accordance with the City's cash reserves policy or designated for
specific purposes and time frames may be invested for longer terms.
2. Debt Service Funds
Investment strategies for Debt Service Funds have as their primary objective the assurance of
investment liquidity to cover the debt service obligations on the required dates. Surplus funds
outside the debt service dates will be invested according to investment targets and strategies
for Pooled Funds.
3. Debt Service Reserve Funds
Debt Service Reserve Funds are reserves required by bond covenant or other contractual
requirement to be maintained through the life of the debt issue. These fiinds generally do not
have a need for liquidity and may be invested in longer term maturities within the overall
guidelines of this Policy.
4. Capital Project and Special Purpose Funds
These fields include both bond proceeds and operating funds set aside for identified Capital
Projects or Special Purposes. The funds should be invested to match projected cash flow
requirements of projects with sufficient liquidity to meet unanticipated project outlays. In
general, the final maturity dates of investments should not exceed the expected project
completion date(s)and meet all underlying bond covenants,where applicable.
IV. STANDARD OF CARE
A. Prudence
Investments shall be made with judgment and care,under prevailing circumstances,that a person of
prudence, discretion and intelligence would exercise in the management of the person's own affairs,
not for speculation, but for investment, considering the probable safety of capital and the probable
income to be derived. The standard of care shall be applied to the context of managing the overall
portfolio.
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B. Delegation of Authority
The Chief Financial Officer, Deputy Chief Financial Officer, the Accounting Manager, and the
Treasury Accountant are hereby designated as the Investment Officers of the City of Round Rock,
Texas, and are responsible for investment decisions and activities consistent with this Investment
Policy.
The Investment Officers shall be responsible for all transactions and compliance with the internal
controls, ensuring all safekeeping, custodial, and collateral duties remain consistent with this
Investment Policy, as well as establishing and maintaining written procedures for cash management.
The Investment Officers shall maintain timely, accurate and systematic records of all investments,
maturities and earnings. Bonding of all staff with financial signatory authority is required and such
bonding requirements will also apply to those individuals authorized to place, purchase or sell
investment instruments. Bonding will protect the public against loss from possible embezzlement
and malfeasance.
C. Training
It is the City's policy to provide training required by the Public Funds Investment Act Section
2256.008(a) through courses and seminars offered in compliance with the Act to ensure the quality
and capability of the Investment Officers in making investment decisions. In accordance with State
Law, Investment Officers must accumulate ten hours of investment training within twelve months of
attaining the position of Investment Officer. Thereafter,eight hours of training must be accumulated
every two-years within the period that begins on the first day of the City's fiscal year and ends on the
last day of the next fiscal year.
All investment training shall be from an independent source approved by the City Council. The
following sponsors are hereby approved:
1) Government Finance Officers Association(GFOA and GFOAT);
2) Texas Society of Certified Public Accountants (TSCPA);
3) Texas Municipal League (TML);
4) Government Treasurers' Organization of Texas (GTOT);
5) Sponsors approved by the TSCPA and GFOA,GFOAT,GTOT,to provide CPE credits;
6) Center for Public Management at the University of North Texas; or
7) Alliance of Texas Treasury Associations (ATTA)
D. Ethics
The Investment Officers 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. Furthermore, in accordance with the Public
Funds Investment Act, an Investment Officer who has a personal business relationship with a firm or
is related within the second degree by consanguinity or affmity to individuals seeking to sell
investments to the City must disclose such relationships in accordance with Section 2256.005(1) of
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the Public Funds Investment Act. Such disclosure should be made to the Texas State Ethics
Commission and to the City Council.
E. Limitation of Liability
The Investment Officers acting in accordance with this Policy and the City's Investment Strategy and
exercising due diligence shall be relieved of personal liability for an individual investment's
performance provided that deviations from expectations are reported in a timely fashion and
appropriate action is taken to control adverse development.
F. Internal Controls
The Investment Officers shall establish a system of internal controls, which shall be documented in
writing and reviewed periodically by the City's independent auditors. The controls shall be designed
to prevent and control losses of public funds arising from fraud, employee error, misrepresentation
by third parties, unanticipated changes in financial markets, or imprudent actions. Dual controls of
all investment activities will consistently be maintained by the Investment Officers.
The Investment Officers shall develop and maintain written administrative procedures for the
operation of the investment and cash management program, consistent with this Investment Policy.
It is the policy of the City to provide a competitive environment for all individual investment
purchases and sales, and financial institution, money market mutual fund, and local government
investment pool selections. The investment officer is authorized to solicit bids for investments
orally, in writing, electronically, or in any combination of these methods. At least three providers
must be contacted in all transactions involving individual securities. For those situations where it
may be impractical or unreasonable to receive three quotes for a transaction due to a rapidly
changing market environment or to secondary market availability,documentation of a competitive
market survey of comparable securities or an explanation of the specific circumstance must be
included with the transaction quote/bid sheet. All quotes received must be documented and filed
for auditing purposes.
V. AUTHORIZED INVESTMENTS
A. Authorized Investments
The following is a list of authorized and legal investment options:
1) Obligations, including letters of credit, of the United States or its agencies and
instrumentalities, including the Federal Home Loan Banks, but excluding mortgage backed
securities;
2) Direct obligations of the State of Texas or its agencies and instrumentalities;
3) Other obligations, the principal and interest of which are unconditionally guaranteed or
insured by, or backed by the full faith and credit of,the State of Texas or the United States or
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their respective agencies and instrumentalities,including obligations that are fully guaranteed
or insured by the Federal Deposit Insurance Corporation (FDIC) or by the explicit full faith
and credit of the United States;
4) Obligations of states agencies,counties,cities and other political subdivisions of any state
rated as to investment quality by a nationally recognized investment rating firm not less than
"A"or its equivalent;
5) Certificates of Deposit(CD)as authorized under the Act;
6) Repurchase Agreements which are fully collateralized as authorized by the Act. Flexible
repurchase agreements may be used for capital project funds but will not extend past the
anticipated expenditure schedule;
7) Commercial Paper rated A 1/P 1 or better as authorized by the Act;
8) AAA-Rated no-load government money market mutual funds as authorized by and
compliant with the Act,
9) Local government investment pools as authorized by and compliant with the Act,
10)FDIC insured Brokered Certificate of Deposit securities purchased from a broker or a
bank with a main or branch office in Texas, settled delivery versus payment to the City's
safekeeping agent.
11) Fully insured or collateralized interest-bearing accounts as authorized under the Act,
including those accounts utilizing an FDIC insurance spreading program acceptable to the
City.
B. Prohibited Investments
This Policy bestows the authority upon the Investment Officers to determine certain investment
instruments as unsuitable for the City even though those investments may be authorized by this Policy
and/or the Public Funds Investment Act. Additionally, certain investments are expressly prohibited
by the Public Funds Investment Act. Those prohibited investments are:
1) Obligations whose payment represents the coupon payments on the outstanding
principal balance of the underlying mortgage-backed security collateral and pays no
principal;
2) Obligations whose payment represents the principal stream of cash flow from the
underlying mortgage-backed security collateral and bears no interest;
3) Collateralized mortgage obligations (CMO) that have a stated final maturity date of
greater than 10 years; and
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4)Collateralized mortgage obligations the interest rate of which is determined by an index
that adjusts opposite to the changes in a market index.
C. Valuation
The Investment Officers shall monitor, on no less than a quarterly basis, the credit rating on all
authorized investments in the portfolio based upon independent information from a nationally
recognized rating agency. An investment that requires a minimum rating under this Policy and/or
the Public Funds Investment Act does not qualify as an authorized investment during the period the
investment does not have the minimum rating required by the Act. The City shall take all prudent
measures that are consistent with its Investment Policy to liquidate an investment that does not have
the minimum rating. The City is not required to liquidate investments that were authorized
investments at the time of purchase.
The Investment Officers shall monitor, on no less than a quarterly basis, the status and ownership
of all banks issuing brokered CDs owned by the City based upon information from the FDIC. If
any bank has been acquired or merged with another bank in which brokered CDs are owned, an
Investment Officer shall take steps to ensure that full FDIC insurance is in place as soon as the
lapse in FDIC coverage is detected.
D. Protection of Principal
The City shall seek to control the risk of loss due to the failure of an issuer or grantor. Such risk shall
be controlled by investing only in the safest types of investments as defined in this Policy; by
qualifying the broker,dealer and financial institution with whom the City will transact;by maintaining
collateralization as required by law; and through portfolio diversification by maturity and type.
The purchase of individual securities shall be executed"delivery versus payment"through the City's
safekeeping agent. By so doing, City funds are not released until the City has received, through the
safekeeping agent,the securities purchased.
E. Diversification by Investment Type
Diversification by investment type is primarily intended to reduce the credit risk inherent to a
particular issuer or investment type. The City will diversify its investments by security type and
institution.
Investment Type Portfolio Limitation
1)U.S. Government and its Agencies and Instrumentalities 75%
2) States and their Agencies, Counties, Cities and Other 35%
Political Subdivisions of any State
%of any one(1)issuer 5%
3)Commercial Paper 10%
%of any one(1)issuer 5%
4)Money market bank accounts 75%
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5)Local government investment pools 100%
6)Government money market mutual funds 100%
7)Certificates of Deposit(Depository&Brokered) 85%
Bond proceeds may be invested in a single security or investment if the Investment Officers determine
that such an investment is necessary to comply with Federal arbitrage restrictions or to facilitate
arbitrage recordkeeping and calculation.
F. Diversification by Investment Maturity and Weighted Average Maturity
To minimize risk of loss due to interest rate fluctuations, investment maturities will not exceed the
anticipated cash flow requirements of the funds. The weighted average maturity will be determined
on a total portfolio basis with a maximum of 540 days and maximum maturity for an individual
security or CD shall not exceed three(3)years.
Maturity guidelines by fund are as follows:
1) Pooled Funds
Pooled Funds are a pooling of operating funds needed for day to day operations along with
special revenue funds, internal service funds, and any other funds that do not fall into one of
the three(3)categories listed below.
Maturity Limitation: The maximum allowable maturity for an individual investment shall be
three(3)years.
2) Debt Service Funds
Debt Service Funds shall be invested to ensure adequate funding for each consecutive debt
service payment.
Maturity Limitation: The Investment Officers shall invest in such a manner as not to exceed
an "unfunded" debt service date with the maturity of any investment. An unfunded debt
service date is defined as a coupon or principal payment date that does not have cash or
investments available to satisfy said payment.
3) Debt Service Reserve Funds
Market conditions, Bond Ordinance constraints and Arbitrage regulation compliance will be
considered when formulating Reserve Fund strategy.
Maturity Limitation: Maturities shall generally not exceed the call provisions of the Bond
Ordinance and shall not exceed the final maturity of the bond issue or three years,whichever
is less.
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City funds that are considered"bond proceeds"for arbitrage purposes will be invested using
a more conservative approach than the standard investment strategy when arbitrage rebate
rules require refunding excess earnings. All earnings in excess of the allowable arbitrage
earnings will be made available for any necessary payments to the U.S. Treasury.
4) Capital Project and Special Purpose Funds
Maturity Limitation: Funds used for construction programs have reasonably predictable draw
down schedules. Therefore, investment maturities shall generally follow the anticipated cash
flow requirements. Bond proceeds(excluding reserve and debt service funds)shall generally
be limited to the cash flow requirements or the "temporary period" as defined by Federal tax
law. During the temporary period bond proceeds may be invested at an unrestricted yield.
After the expiration of the temporary period, bond proceeds subject to yield restriction shall
be invested considering the anticipated cash flow requirements of the funds and market
conditions to achieve compliance with the applicable regulations.
VI. RELATIONSHIPS WITH FINANCIAL INSTITUTIONS AND FIRMS
A. Primary Depositories
Primary Depositories shall be selected through the banking service procurement process,which shall
include a formal request for applications no less than every five (5) years. In selecting the primary
depository, the creditworthiness of institutions shall be considered and the Investment Officers shall
conduct a comprehensive review of prospective depositories' credit characteristics and financial
history. The City's primary depository contract and other financial relationships for banking services
are outside the scope of this Investment Policy; however, all deposits and collateral are subject to
compliance with the Act.
B.Selection and Compliance of Investment Providers
An investment provider offering to engage in an investment transaction with the City shall be
presented with the Investment Policy of the City. The qualified representative of a local government
investment pool or discretionary investment management firm must execute a written instrument to
acknowledge that the business organization has implemented reasonable procedures and controls to
preclude transactions conducted between the City and the business organization that are not
authorized by the City's Investment Policy, except to the extent that this authorization is dependent
on an analysis of the makeup of the City's entire portfolio, or requires an interpretation of subjective
investment standards.
Broker/Dealer institutions or firms may qualify under this section:
1) Security Dealers which are the approved and designated Dealers of the Federal Reserve
Bank of New York"Primary Dealers" and approved by City Council.
2) Security Dealers and Brokers which are not designated as "Primary Dealers" but which
are approved individually by the City Council.
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Addendum A is the list of brokers/dealers who have qualified and are hereby approved to conduct
business with the City as required by the Act. The qualified broker/dealer list must be reviewed and
approved by City Council at least annually.
VII. SAFEKEEPING AND COLLATERALIZATION
To protect against potential fraud and embezzlement,investments shall be secured through third party
custody and safekeeping procedures.
A. Safekeeping&Custody
All security purchases and trades conducted for the City of Round Rock, Texas will be settled and
protected by the City's contracted third-party safekeeping agent. The use of the Delivery Versus
Payment(DVP)procedure will be continually used for investment securities transactions,purchases
and sales. The City shall authorize the release of funds only after its safekeeping agent has received
securities or receipt for the same amount into the City's safekeeping account.
Securities owned by the City under repurchase agreements shall be secured by written Master
Repurchase Agreement, or similar agreement, and all securities will be moved on a DVP basis.
The City shall approve all third-party custodial agents for the custody of securities pledged to the City
as collateral to secure demand or time deposits.
All securities and collateral shall be held in an account in the City's name as evidenced by safekeeping
receipts of the institutions with which the securities are placed.
Safekeeping and custody procedures shall be reviewed annually by the independent auditor.
B. Collateralization Requirements
The City, in accordance with state statute,requires all City funds held by financial institutions above
the FDIC insurable limit to be collateralized with securities or letters of credit issued to the City by
the Federal Home Loan Bank. Money Market Accounts and Certificates of Deposits require collateral
or FDIC coverage for all principal and accrued interest. Letters of Credit pledged as collateral for
Certificates of Deposit and Money Market Accounts must equal 100%of total value of principal and
anticipated interest in excess of FDIC insurance levels. Securities held as collateral shall have a
market value equaling at least 102%of the total value of City funds held in excess of FDIC insurance
levels, and all securities shall be placed with a third-party custodial agent. Collateral may be
substituted or released only with the written authorization of an Investment Officer. Allowable
collateral may consist only of the following securities as permitted under the Public Funds Collateral
Act(Texas Government Code,Ch.2257).
- Obligations of the U.S. Government, its agencies and instrumentalities including
mortgage backed securities and CMOs which do not constitute a high-risk mortgage
security as defined by the Public Funds Collateral Act.
- Obligations of any U.S. state, agencies, counties, cities and other political subdivisions
rated as to investment quality by at least one nationally recognized rating agency.
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A monthly report listing the collateral must be provided directly from the Custodian to the City.
Financial institutions serving as City Depositories will be required to sign a Depository Agreement
with the City. The"Security for Deposits"portion of the Agreement shall define the City's rights to
the collateral in case of default,bankruptcy or closing and shall establish a perfected security interest
in compliance with Federal and State regulations,including:
1) the Agreement must be in writing;
2) the Agreement has to be executed by the Depository and the City contemporaneously with
the acquisition of the asset;
3) the Agreement must be approved by the Board of Directors or the Bank Loan Committee
of the Depository and a copy of the meeting minutes must be delivered to the City; and
4) the Agreement must be part of the Depository's "official record" continuously since its
execution.
VIII. PORTFOLIO REPORTING AND REVIEW
A. Reporting
As required by law, the Investment Officers shall submit a written investment report, prepared in
accordance with the Act,signed by each Investment Officer of the City within a reasonable time after
the end of each fiscal quarter to the City Council detailing the investment position for the previous
quarter. Monthly market values will be obtained from the City's investment advisor,or other source
believed to be reliable, to monitor the portfolio's position. "Weighted Average Yield to Maturity"
shall be the standard for calculating portfolio rate of return.
1) For pooled investments—the report must:
a. state the beginning book value and market value of the pool portfolio
for the reporting period,
b. state changes to the book value and market value during the reporting period,
c. state the ending book value and market value of the portfolio, and
d. state the fully accrued interest for the reporting period.
2) For separately invested assets—the report must:
a. state the book value and market value for each investment at the beginning and end of
the reporting period,
b. disclose the stated maturity date for each separate investment, and
c. show the specific fund from which moneys were received to purchase the investment.
3) The report must state compliance of the investment portfolio with the City's Investment
Policy& Strategy and relevant provisions of the Public Funds Investment Act.
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B. Annual Review
This Policy shall be reviewed and adopted annually by the City Council.
C. External Audit
In accordance with the Public Funds Investment Act, in conjunction with the City's annual financial
audit, a compliance audit of management controls on investments and adherence to the City's
established investment policies shall be performed. An annual review of the City's quarterly reports
will also be performed by an independent auditor with the results being presented to the City Council.
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CITY OF ROUND ROCK, TEXAS
LIST OF AUTHORIZED BROKE"EALERS
Branch Banking&Trust Company
Cantor Fitzgerald&Co.
Duncan Williams, Inc.
Frost Capital Markets
FTN Financial
Hilltop Securities Co.
Multi-Bank Securities, Inc.
Oppenheimer&Co., Inc.
Piper Jaffray&Co.
PNC Financial Services Group, Inc.
RBC Capital Markets, LLC
Raymond James
Rice Financial
Wells Fargo Securities
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