R-2016-3167 - 1/14/2016 RESOLUTION NO. R-2016-3167
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 fiuids; 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 formally acted upon, all as required by the Open Meetings Act,
Chapter 551, Texas Government Code, as amended.
RESOLVED this 14th day of January, 2016.
ALAN MCGRAW, Mayor
City of Round Rock, Texas
ATTEST:
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SARA L. WHITE, City Clerk
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EXHIBIT
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City of Round Rock, Texas
Investment Policy & Strategy
January 14, 2016
Invpo12016
City of Round Rock,Texas
Investment Policy & Strategy
January 14,2016
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 Requirement
VIII. Portfolio Reporting and Review .................................................... 13
Reporting
Annual Review
External Audit
Addendum A—List of Authorized Broker/Dealers ................................. 14
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City of Round Rock,Texas
Investment Policy
January 14,2016
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 finds
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 funds. 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 objectives the
assurance of investment liquidity to cover the debt service obligations on the required
dates. Surplus fund 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 funds 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 funds 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 securities 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, insure all safekeeping, custodial, and collateral duties 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(x)(2)through courses and seminars offered in compliance with the Act in order to insure
the quality and capability of the Investment Officers in making investment decisions.
All investment training shall be from an independent source approved by the City Council. The
following sponsors are hereby approved:
A. Government Finance Officers Association (GFOA and GFOAT);
B. Texas Society of Certified Public Accountants (TSCPA);
C. Texas Municipal League (TML);
D. Government Treasurer's Organization of Texas (GTOT);
E. Sponsors approved by the TSCPA and GFOA, GFOAT, GTOT, to provide CPE
credits;
F. Center for Public Management at the University of North Texas; or
G. 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 to individuals seeking to sell to the Investment Officer must disclose such relationships
in accordance with Section 2256.005 of the Public Funds Investment Act.
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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
perfonnance 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.
V. Authorized Investments
A. AUTHORIZED INVESTMENTS
The following is a list of authorized and legal investment options:
1) Obligations of the United States or its agencies and instrumentalities, 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 their respective agencies and instrumentalities, including obligations that are fully
guaranteed or insured by the Federal Deposit Insurance Corporation 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 as authorized under the Act;
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6) Repurchase Agreements which are fully collateralized as authorized by the Act. Flex
repurchase agreements may be used for capital project fiends but will not extend past the
anticipated expenditure schedule;
7) Commercial Paper rated Al/PI or better as authorized by the Act;
8) AAA-Rated Money Market Mutual Funds as authorized by the Act, which strive to
maintain a$1 NAV.
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, delivered versus payment to the City's
safekeeping agent.
11) Fully insured or collateralized interest bearing accounts from any bank in Texas,
including those accounts utilizing a FDIC insurance spreading program acceptable to
the City.
B. PROHIBITED INVESTMENTS
This Policy bestows the authority upon the Investment Officer 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 pay no
interest;
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 that have a stated final maturity of greater than
10 years; and
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 Officer(s) 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 PFIA. The City shall
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take all prudent measures that are consistent with its Investment Policy to liquidate an investment
that does not have the minimum rating.
The Investment Officer 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 insure that full FDIC insurance is maintained.
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
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 fiends 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 Agencies and Instrumentalities 75%
2) States and their Agencies, Counties, Cities and Other 35%
Political Subdivisions of a State
%of any one (1) issuer 5%
3) Commercial Paper 10%
%of any one(1) issuer 5%
4) Money Market bank accounts 50%
5) Local government investment pools 100%
6) Certificates of Deposit(Depository&Brokered) 75%
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 AVREAGE
MATURITY
In order 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
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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 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 fonnulating 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.
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
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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 PFIA.
B. SELECTION AND COMPLIANCE OF INVESTMENT PROVIDERS
An investment provider offering to engage in an investment transaction with the City must execute
a written instrument stating that the qualified representative has received and thoroughly reviewed
the Investment Policy of the City. The qualified representative also must acknowledge that the
firm has implemented reasonable procedures and controls to preclude transactions conducted
between the City and the firm 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.The Investment Officers
may not acquire or otherwise obtain any authorized investment from a person who has not
delivered to the City an instrument in substantially the form described above.
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.
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.
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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 same into the City's safekeeping account.
Securities owned by the City under repurchase agreements shall be secured by written City
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.
Safekeeping and custody procedures shall be reviewed annually by the independent auditor.
B. COLLATERALIZATION REQUIREMENT
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 letter of credit issued to the
City by the Federal Hoene Loan Bank. Securities held as collateral shall have a market value
equaling at least 102%of the total value of City funds held 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 US Government, its agencies and instrumentalities including
mortgage backed securities and CMOs which pass the bank test as defined by the
Federal Reserve.
- Obligations of any US state, agencies, counties, cities and other political subdivisions
rated as to investment quality by at least one nationally recognized rating agency.
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;
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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, in order 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. changes to the book value and market value during the reporting period
c. the ending book value and market value of the portfolio and
d. the fully accrued interest for the reporting period.
2) For separately invested assets -
a. the report must state the book value and market value for each investment at the
beginning and end of the reporting period
b. the report also must disclose the stated maturity date for each separate investment and
must 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 Strategy
and relevant provisions of the Public Funds Investment Act.
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 BROKER/DEALERS
1. Bank of America/Merrill Lynch X 7. Morgan Stanley *
901 Main Street 717 Texas Avenue, Ste 3050
Dallas, TX 75202 Houston, TX 77002
214-209-2015 800-324-2708
2. Bonwick Capital Partners,LLC 8. Mutual Securities
135 S LaSalle St, Suite 1930 501 W. Broadway
Chicago, IL 60603 San Diego, CA 92101
844-708-0850 877-664-6133
3. Coastal Securities 9. Piper Jaffray & Co
920 Memorial City Way, Suite 11 111 SW Fifth Street, Ste 1900
Houston, TX 77024 Portland, OR 97204-3604
800-681-4121 877-664-6133
4. Duncan Williams Inc 10. RBC Capital Markets, LLC '
9801 Westheimer#302 2711 N. Haskell Avenue, Suite 2500
Houston, TX 77042 Dallas, TX 75093
800-266-5652 866-410-5833
5. Hilltop Securities Company 11. Wells Fargo Brokerage x
325 North St. Paul Street, Suite 800 1445 Ross Ave
Dallas, TX 75201-4652 Dallas, TX 75202
877-887-3792 214-777-4018
6. Frost Capital Markets
100 West Houston Street
San Antonio, TX 78296
800-438-4891
*Federal Reserve Primary Dealer
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