BCRUA_R-09-05-20-8G RESOLUTION NO. R-09- 'r- 'ZC D 6-
WHEREAS, the Brushy Creek Regional Utility Authority (BCRUA)
desires to approve the "Brushy Creek Regional Utility Authority
Investment Policy, " Now Therefore
BE IT RESOLVED BY THE BRUSHY CREEK REGIONAL UTILITY
AUTHORITY,
That the Board President is hereby authorized and directed to
execute on behalf of the BCRUA approval of the "Brushy Creek
Regional Utility Authority Investment Policy, "' a copy of same being
attached hereto as Exhibit "A" and incorporated herein for all
purposes .
The Board 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 formally acted upon, all as required by the Open Meetings Act,
Chapter 551, Texas Government Code, as amended.
RESOLVED this 210hday of May, 2009.
MITIH FULLER, esident
Bru -C'Regional Utility Authority
T T:
and Secretary
001608686kg
BRUSHY CREEK REGIONAL UTILITY AUTHORITY
INVESTMENT POLICY
� .
Table nfContents
L |ntroduodon.-----'----------------.—.--.—.—'—.� 1
U. Scope ................. .............. --......... .................................................... 1
Ui Objectives
Safety ................................................................................ .................... 1
Liquidity ............ .................................. ......... ............... ........................2
Yield................... ............................................................. ........ ........... 2
K/. Delegation ofAuthority.............. ............ .......... ................ ...................2
V. Standard ofCare...... ................ ............................................................2
Vi Required Investment Training................................................................3
\4i Internal Controls.... .... ......... .......................... ......................................3
\4U. Ethics and Conflicts ufInterest............................................ ..................3
0(. Authorized Investments................................. .................................. .....4
%. Unauthorized Investments............................................... ...................... 5
Xi Credit Downgrade Provision.................................................................. 5
X1i Safekeeping and Custody.........-- .............................. .......................6
XIII. Change in Law-- ............ ........ ... ... .................................... ............
.S
)<K/' Security Dealers.................. .......... .......... ............................................ 5
xV. Sellers ofInvestments....... ..... ............... .................. ............... —.-6
XVL Quarterly Investment Rapurts—........................ ........—....... ..................S
%V}L Performance Measurement.............. .............................. ....................-7
XVIII. Fund Strategies
OperatingFund-- ........ .................. --.......... ......... ....................''7
Project Construction Fund.............. ....... ........ ........ ................ .......—7
Debt Service Funds................................... ............................................7
Debt Service Reserve Funds............... .......................... ........ ..............7
OtherFunds.... ......... ........................... ............ .....................—... .......0
BRUSHY CREEK REGIONAL UTILITY AUTHORITY
INVESTMENT POLICY
I. Introduction
The Brushy Creek Regional Utility Authority ([he "Authority"), represents a partnership between
the cities of Cedar Park, Leander, and Round Rock, with a shared responsibility to provide
reliable, cost-effective sources of water for their fast growing jurisdictions. It is the policy of the
Authority that giving due regard to the safety and risk of investment, all available funds shall be
invested in conformance with the Texas Public Funds Investment Act, Government Code
Chapter 2256 (the "Act") as amended and effective September 1, 2007, all applicable Bond
Ordinance requirements, formal Investment Policy and Investment Strategy.
Active cash management and dynamic investment strategy will be pursued to take advantage
of interest earnings as viable and material revenue to the Authority. The Authority's portfolio
shall be designed and managed in a manner responsive to the public trust and consistent with
this Investment Policy.
II. Scope
This Investment Policy shall govern the investment of all financial assets of the Authority and
shall include, but not be limited to, the following funds:
• Operating Fund
• Project Construction Fund
• Debt Service Fund
• Debt Service Reserve Fund
• Capitalized Interest Fund
Securities may be pooled into a single fund for investment purposes as long as a pooled
accounting method is employed to track balances and earnings data.
III. Objectives
The primary objectives for the Authority's investment activities shall be:
Safety
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 from security defaults or erosion of market value.
The Authority shall seek to control the risk of loss due to the failure of a security issLier or
grantor. Such risk shall be controlled by investing only in the safest types of securities as
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defined in the Policy; by collateralization as required by law; and through portfolio diversification
by maturity and type.
Liquidity
The investment portfolio will remain sufficiently liquid to meet the cash flow requirements that
might be reasonably anticipated. Liquidity shall be achieved by matching investment maturities
with forecasted cash flow requirements; investing in securities with active secondary markets;
and maintaining appropriate portfolio diversification.
Liquidity shall be achieved by anticipating cash flow requirements, by investing in securities with
active secondary markets and by investing in eligible money market mutual funds and local
government investment pools.
A security may be liquidated to meet unanticipated cash requirements, to re-deploy cash into
other investments expected to outperform current holdings, or otherwise to adjust the portfolio.
Yield
The Authority shall seek to earn a fair market yield on its investments at all times consistent with
recognized risk constraints and known cash flow characteristics. To best achieve this, the
Authority shall seek to obtain competitive bids on all of its investments. For bond proceeds to
which arbitrage restrictions apply,the primary objectives shall be to obtain a fair market yield and to
minimize the costs associated with the investment of such funds within the constraints of the
investment policy and applicable bond covenants.
IV. Delegation of Authority
The Authority's Board of Directors shall designate a General Manager who will serve as
Investment Officer and assume primary responsibility for the investment of Authority funds. The
Board may approve additional persons to act as Investment Officers, but no person may engage
in an investment transaction on behalf of the Authority or control Authority funds unless
designated and formally approved as an Investment Officer by the Board.
V. Standard of Care
As per [Gov't Code 2256.0061 the standard of care for designated Investment Officers shall be the
"prudent investor rule", and shall be applied in the context of managing the overall portfolio:
"Investments shall be made with judgment and care, under circumstances then prevailing, 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 designated Investment Officers shall perform their duties in accordance with the adopted
Investment Policy and internal procedures_ In determining whether an Investment Officer has
exercised prudence with respect to an investment decision, the investment of all funds over
which the Investment Officer had responsibility rather that the prudence of a single investment
shall be considered. Investment Officers acting in good faith and in accordance with these
policies and procedures shall be relieved of personal liability.
V1. Required Investment Training
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As required in [Govt Code 2256-008] Investment Officers of the Authority must receive 10 hours
of investment-related training from an independent source approved by the Board within 12
months of taking office. Every two years, an additional 10 hours of education is required.
Appropriate topics to fulfill this requirement include investment controls, security risks, strategy
risks, market risks and compliance with the Public Funds Investment Act.
VII. Internal Controls
A system of internal controls shall be established and documented in writing and must include
specific procedures designed to protect against losses of public funds arising from fraud,
employee error, misrepresentation by third-parties, unanticipated changes in financial markets,
or imprudent actions by employees and officers of the Authority. Controls deemed most
important shall include:
• Separation of transaction authority from accounting, recordkeeping and electronic
transfer of funds.
• Procedures related to banking and movement of funds.
• Procedures and documentation relating to safekeeping of securities
• Clear delegation of authority.
• Documentation of dealer questionnaires, quotations and bids, evaluations,
transactions, and rationale.
VIII. Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from personal business
activity that would conflict with the proper execution and management of the investment
program, or that would impair their ability to make impartial decisions. Employees and
Investment Officers shall disclose any material interests in financial institutions with which they
conduct business. They shall further disclose any personal financial/investment positions that
could be related to the performance of the investment portfolio. Employees and officers shall
refrain from undertaking personal investment transactions with the same individual with which
business is conducted on behalf of the Authority.
An Investment Officer who has a personal business relationship with a business organization
offering to engage in an investment transaction with the Authority shall file a statement
disclosing that personal business interest. An Investment Officer who is related within the
second degree by affinity or consanguinity to an individual seeking to sell an investment to the
Authority shall file a statement disclosing that relationship with the Board and with the Texas
Ethics Commission. For purposes of this policy, an Investment Officer has a personal business
relationship with a business organization if:
• The Investment Officer owns ten percent or more of the voting stock or shares of
the business organization or owns $5,000 or more of the fair market value of the
business organization;
■ Funds received by the Investment Officer from the business organization exceed
ten percent of the Investment Officer's gross income for the previous year; or
• The Investment officer has acquired from the business organization during the
previous year investments with a book value of $2,500 or more for the personal
account of the Investment Officer. [Gov't Code 2256.0051
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IX. Authorized Investments
The Authority shall limit its investment to the following security types as permitted by the Act:
1) Obligations of the United States or its agencies and instrumentalities; direct obligations
of the state of Texas or its agencies and instrumentalities; 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 AA or its equivalent. [Govt Code
2256.009(a))
2) Certificates of deposit ("CDs") or share certificates issued by a financial institution doing
business in the State of Texas, guaranteed or insured by the FDIC or its successor, and fully
collateralized or secured in-any other manner provided by law for the deposits of the Authority.
[Gov't Code 2256.010]
3) Fully collateralized repurchase agreements ("Repos") that have a defined termination
date, are secured by obligations of the United States or its agencies and instrumentalities, are
pledged to the Authority, held in the Authority's name, and deposited with the Authority or an
acceptable third-party custodian, and placed through a primary government securities dealer,
as defined by the Federal Reserve or a financial institution doing business in Texas. [Gov't
Code 2256.011]
4) No-load money market mutual funds that:
■ Are registered with and regulated by the Securities and Exchange Commission;
• Provide the Authority with a prospectus and other information required by the
Securities and Exchange Act of 1934 (15 U.S.C. 78a et seq.) or the Investment
Company Act of 1940(15 U.S.C. 80a-1 et seq.);
• Have a dollar-weighted average stated maturity of 90 days or fewer;and
■ Include in their investment objectives the maintenance of a stable net asset value
of $1 for each share. [Gov't Code 2256.014]
5) A guaranteed investment contract ("GICs"), as an investment vehicle for bond proceeds,
if the guaranteed investment contract:
■ Has a defined termination date.
■ Is fully secured by obligations authorized in this section.
■ Is pledged to the Authority and deposited with the Authority or with an acceptable
third-party custodian.
Bond proceeds, other than bond proceeds representing reserves and funds maintained for debt
service purposes, may not be invested in a guaranteed investment contract with a term longer
than five years from the date of issuance of the bonds-
6) A public funds investment pool meeting the requirements of Government Code 2256.016
and 2256.019, if the Board authorizes the investment in the particular pool by resolution. [Gov't
Code 2256.016, 2256.019)
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X. Unauthorized Investments
The following investments are not authorized:
X Obligations whose payment represents the coupon payments on the outstanding
principal balance of the underlying mortgage-backed security collateral and pays
no principal.
X Obligations whose payment represents the principal stream of cash flow from the
underlying mortgage-backed security collateral and bears no interest.
X Collateralized mortgage obligations that have a stated final maturity date of greater
than ten years.
X Collateralized mortgage obligations the interest rate of which is determined by an
index that adjusts opposite to the- changes in a market index. [Gov't Code
2256.009(b)]
XI. Credit Downgrade Provision
An investment that requires a minimum rating does not qualify as an authorized investment
during the period the investment does not have the minimum rating. The Authority shall take all
prudent measures that are consistent with its Investment Policy to liquidate an investment that
does not have the minimum rating.
XII. Safekeeping and Custody
All cash, collateral and investments of the Authority shall be held by an independent third-party
agent. The Authority shall retain clearly marked receipts providing proof of ownership.
XIII. Change in Law
The Authority is not required to liquidate investments that were authorized investments at the
time of purchase. [Govt Code 2256.017]
XIV. Security Dealers
The Board shall, on an annual basis, review, revise, and adopt a list of qualified dealers that are
authorized to engage in investment transactions with the Authority. Representatives shall be
registered with the Texas State Securities Board and must be in good standing with the National
Association of Securities Dealers. [Gov't Code 2256.025]
XV. Sellers of Investments
A written copy of the Investment Policy shall be presented to any person or business
organization offering to engage in an investment transaction with the Authority_ For purposes of
this policy, a business organization includes investment pools and an investment management
firm under contract with the Authority to invest or manage Authority funds_ The qualified
representative of the business organization offering to engage in an investment transaction with
the Authority shall execute a written instrument substantially to the effect that the business
organization has:
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■ Received and thoroughly reviewed the Authority's investment policy; and
■ Has acknowledged that it has implemented reasonable procedures and controls in
an effort to preclude investment transactions conducted between the Authority and
the organization that are not authorized by the Authority's policy, except to the
extent that this authorization is dependent on an analysis of the makeup of the
Authority's entire portfolio or requires an interpretation of subjective investment
standards.
The Investment Officer may not acquire or otherwise obtain an investment from a financial
organization that has not signed the document as described above. [Govt Code 2256.0051
XVI. Quarterly Investment Reports
Not less than quarterly, the investment Officers shall prepare and submit to the Board a written
report of investment transactions for all funds covered by the Public Funds Investment Act. This
report shall be presented to the Board not less than quarterly, within a reasonable time after the
end of the period. The report must:
■ Contain a detailed description of the investment position of the Authority on the
date of the report;
• Be prepared jointly and signed by all Investment Officers.
■ Contain a summary statement for each pooled fund group (i.e., each internally
created fund in which one or more accounts are combined for investing purposes).
The report must be prepared in compliance with generally accepted accounting
principles and must state:
■ Beginning market value for the reporting period;
• Additions and changes to the market value during the period;
■ Ending market value for the period;and
• Fully accrued interest for the reporting period.
■ State the book value and market value of each separately invested asset at the
beginning and end of the reporting period by the type of asset and fund type
invested.
■ State the maturity date of each separately invested asset that has a maturity date.
■ State the fund or pooled fund group for which each individual investment was
acquired_
■ State the compliance of the investment portfolio as it relates to the writlen
investment policy and strategy.
Security prices used to calculate market values shall be obtained not less than quarterly from
reliable independent sources which may include financial/investment publications and electronic
media, available software for tracking investments, depository banks, commercial or investment
banks, financial advisors, and representatives/advisors of investment pools or money market
funds.
If the Authority invests in other than money market mutual funds, investment pools or accounts
offered by its depository bank in the form of certificates of deposit, money market accounts or
similar accounts, the reports shall be formally reviewed at least annually by an independent
auditor, and the result of the review shall be reported to the Board by that auditor. [Gov't Code
2256.0231
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XVII. Performance Measurement
The Authority will normally seek to invest its funds with an average maturity of less than one
year. As a result, an appropriate benchmark to gauge relative performance shall be the average
of the six-month Treasury bill yield during the reporting period.
XVIII. Fund Strategies
Each fund strategy shall adhere to stated policy objectives of safety, liquidity and yield. In order
to minimize risk of loss due to interest rate fluctuations, investment maturities shall not exceed
the anticipated cash flow requirements of the funds. Investment strategies by fund are as
follows:
a. Operating Fund
Investment strategies for operating 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 experience minimal volatility during
economic cycles. This may be accomplished by purchasing quality, short-to medium term
securities which will complement each other in a laddered structure. The weighted-average
maturity will be limited to 365 days or less while final maturity for any security shall be
limited to a maximum of two years.Any security listed in this policy, with the exception of
guaranteed investment contracts is suitable for investment of operating funds.
b. Project Construction Fund
The investment maturity of bond proceeds (excluding reserve and debt service funds) shall
generally be limited to the anticipated cash flow requirement or the "temporary period,"as
defined by Federal tax law. During the temporary period,which is generally three years for
capital projects, bond proceeds may be invested at an unrestricted yield. After the
expiration of the temporary period, bond proceeds are subject to yield restriction and shall
be invested considering the anticipated cash flow requirements of the funds and market
conditions to achieve compliance with the applicable regulations. The maximum maturity
for all bond proceeds shall be three years. Interest in excess of the allowable arbitrage
earnings will be segregated and made available for necessary payments to the US
Treasury. Any security authorized within this policy is suitable as a construction fund
investment.
C. Debt Service Funds
Investment strategies for Debt Service Funds shalt be to ensure adequate funding for each
consecutive debt service payment. 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 investment securities available to satisfy said payment.Any security listed in
this policy, with the exception of guaranteed investment contracts is suitable for investment
of operating funds.
d. Debt Service Reserve Funds
Market conditions, bond ordinance constraints and arbitrage regulation compliance will be
considered when formulating Reserve Fund strategy. Maturity limitation shall generally not
exceed the call provisions of the bond ordinance and shall not exceed the final maturity of
the bond issue.
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e. Other Funds
The anticipated cash requirements of other Authority funds will govern the appropriate
maturity mix. Appropriate portfolio strategy shall be determined based upon market
conditions. Policy compliance, financial condition, and other risk return constrains will be
considered when formulating investment strategy. Maximum maturity shall not exceed two
years and each fund's weighted-average maturity shall not exceed one year.
XIX. Annual Review
The investment policy and the investment strategy shall be reviewed not less than annually. The
Board shall adopt a written instrument stating that it has reviewed the investment policy and
investment strategies and that the written instrument so adopted shall record any changes
made to either the investment policy or investment strategies.
Th Authority's Investment Policy is hereby adopted by resolution of the Board on
(7 a .in accordance with Chapter 2256 of the Texas Government Code.
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DATE: May 15, 2009
SUBJECT: BCRUA Board Meeting—May 20, 2009
ITEM: 8G. Consider a resolution approving an Investment Policy for the BCRUA.
PRESENTER: BCRUA Financial Advisors—Garry Kimball, Specialized Public Finance &
Richard Ramirez, First Southwest
Justification/Background:
Per State Law and best practices, a governmental body must adopt annually a comprehensive
investment policy and investment strategy for the investment of public funds. This investment
policy has been developed specifically for the investment of BCRUA funds and is in alignment with
the existing investment policies of the three cities.