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7569-06 ORDINANCE NO. 7569-06 AN ORDINANCE OF THE CITY OF CLEARWATER, FLORIDA AMENDING THE CITY OF CLEARWATER POOLED CASH INVESTMENT POLICY; PROVIDING AN EFFECTIVE DATE. WHEREAS, the City of Clearwater has established the Poled Cash Investment Policy; and WHEREAS, the City has authority to amend the policy as permitted by law; and WHEREAS, the City has determined that it is in the best interest of the City to amend the Pooled Cash Investment Policy; now therefore BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF CLEARWATER, FLORIDA Section 1: The Pooled Cash Investment Policy is hereby amended to read as follows: (1) SCOPE The statement of investment policy and guidelines applies to all investments of the City's pooled cash, which includes cash and investment balances of the following funds: . General . Special Revenue . Debt Service . Capital Projects . Enterprise . Internal Service Funds . Trust Funds The policies set forth do not apply to the Employee Pension and Deferred Compensation Funds of the City of Clearwater, deposits for defeased debt, or assets under Bond Trust Indenture Agreements. Ordinance No. 7569-06 (2) INVESTMENT OBJECTIVES A. Safety of principal is regarded as the highest priority in the handling of investments for the City. All other investment objectives are secondary to the safety of capital. Each investment transaction shall seek to first ensure that capital losses are avoided. From time to time, however, securities may be traded for other similar securities to improve yield, maturity or credit risk. For these transactions, a loss may be incurred for accounting purposes, providing any of the following occurs with respect to the replacement security: · The yield has been increased, or · The maturity has been reduced, or · The quality of the investment has been improved B. The City's investment strategy will provide sufficient liquidity to meet the City's operating, payroll and capital requirements. To accomplish this the portfolio will be "Iaddered" with maturates each month except for those months in which significant Ad ValOrem taxes are received. To the extend possible, the City will attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow requirement, the City will not directly invest in securities maturing more than 15 years from the date of purchase. And unless, specifically matched against a debt or obligation not more than 10% of the portfolio will have maturity greater than 10 years. C. 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 the City's investment risk constraints and the cash flow characteristics of the portfolio. (3) PERFORMANCE MEASUREMENT The benchmark yield for the operating portfolio will be the weighted average yield determined by using the following maturity distribution and the related U.S. Treasury yields. Treasury yields are considered benchmark for risk less investment 2 Ordinance No. 7569-06 transactions and, therefore comprise a minimum standard for the operating portfolio's rate of return. The investment program shall seek to augment returns above this threshold, consistent with risk limitations identified herein. Average Treasury Rates Percentage Distribution Overnight rate 3 month Treasury Bill rate 6 month Treasury Bill rate 1 year Treasury Bill rate 3 year Treasury Note rate 5 year Treasury Note rate 10 year Treasury Note rate 15 % 15 % 15% 15 % 15 % 15 % 10% Total 100% (4) PRUDENCE AND ETHICAL STANDARDS The standard of prudence to be applied by the investment officer shall be the "Prudent Person" rule, which states: "Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income derived." The "Prudent Person" rule shall be applied in the context of managing the overall portfolio. (5) AUTHORIZED INVESTMENTS 1. The City shall limit investments, as authorized in Florida Statutes to: a. Direct obligations of the United States Treasury. Investments in this category would include but not be limited to the following: United States Treasury Bills, Notes and Bonds, and securities issued by the Small Business Administration, Government National Mortgage Association (Ginny Mae), Veterans Administration, and Federal Housing Administration. 3 Ordinance No. 7569-06 b. Federal agencies and instrumentalities. Investments in this category would include but not be limited to the following: obligations of the Federal Home Loan Banks System (FHLB) or its distinct banks and Financing Corporation (FICO), Federal Farm Credit Bank, Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), Student Loan Marketing Association (Sallie Mae), Financial Assistance Corporation and Federal Agriculture Mortgage Corporation (Farmer Mac). c. Securities and Exchange Commission registered money market funds with the highest credit quality rating from a nationally recognized rating agency. d. Interest-bearing time deposits or savings accounts in qualified public depositories as defined in Florida Statutes. 280.02. e. Collateralized Mortgage Obligations (CMO) and/or Real Estate Mortgage Investment Conduits (REMIC), with the highest credit quality rating from a nationally recognized rating agency with an estimated maturity and class or tranche not to exceed 7 years, which are backed by securities otherwise authorized in this policy. f. Repurchase Agreements and reverse repurchase agreements collateralized by securities otherwise authorized in this policy. g. The Local Government Surplus Funds Trust Fund or any intergovernmental investment pool authorized pursuant to the Florida Interposal Cooperation Act as provided in Florida Statutes. 163.01. h. Securities of, or other interests in, any open-end or closed-end management-type investment company or investment trust registered under the Investment Company Act of 1940, 15 U.S.C. ss. 80a-1 et seq., as amended from time to time, provided that the portfolio of such investment company or investment trust is limited to obligations of the United States Government or any agency or instrumentality thereof and to repurchase agreements fully collateralized by such United States Government obligations, and provided that such investment company or investment trust takes 4 Ordinance No. 7569-06 delivery of such collateral either directly or through an authorized custodian. I. Commercial paper issued by an entity listed above (I.E. FHLB, FFCB FHLMC etc.) with an investment grade rating from a nationally recognized rating agency. 6. Maturity and Liquidity Requirements A. The City will attempt to forecast expected cash outflows and inflows by major categories. For months that the outflows exceed inflows the City will have investments maturing that month in excess of the forecasted deficits. B. As stated above the City will ladder it's maturates so that there are maturates each month with the exception of months when the majority of Ad valorem taxes are received. C. The City will attempt to keep the weighted average maturity to three years or less. Due to market conditions and cash needs the average maturity may temporarily be greater than three years but no greater than four years. 7. Portfolio Composition, Risk And Diversification Assets held shall be diversified to control risk of loss resulting from overconcentration of assets in a specific maturity, issuer, instrument, dealer, or bank through which these instruments are bought and sold. Diversification strategies within the established guidelines shall be reviewed and revised periodically as necessary by the Investment Committee. 8. Authorized Investment Institutions and Dealers A. Banks - Certificates of deposit purchased under the authority of this policy will be purchased only from Qualified Public Depositories of the State of Florida as identified by the State Treasurer, in accordance with Chapter 280 of the State Statutes. 5 Ordinance No. 7569-06 B. Broker/Dealer Approvals and Limitations - Time, practicality, and general business constraints limit the number of investment relationships which can be managed on a regular basis. In most cases, normal investment activity will be limited to no more than ten dealer relationships. A broker/dealer list will be established by the Finance Director or designee. This list will be presented to the Investment Committee for approval. This list will be updated as needed and approved by the Investment Committee. 9. Third-Party Custodial Agreements All securities purchased by the City under this policy shall be purchased using the "delivery versus payment" procedure. For all purchases and sales of securities the third-party custodial will be notified by fax of the transaction including all details of the securities purchased or sold. The notification will be signed by two individuals authorized to make investment decisions. 10. Master Repurchase Agreement All approved institutions and dealer transacting repurchase agreements shall be covered by a Master Repurchase Agreement. All repurchase agreement transactions shall adhere to the requirements of the Master Repurchase Agreement. 11. Bid Requirements After the Finance Director or designee has determined the appropriate maturity based on cash flow needs and market conditions and has selected one or more optimal type of investment, the security in question shall, when feasible and appropriate, be competitively bid. Competitive bids or offerings shall be received from at least three dealers/brokers on all sales or purchases except in situations where: A. The security involves is a "new issue" and can be purchased "at the auction" . B. The security has a fixed "postal-scale" rate. C. The security involved is available through direct issue or private placement. 6 Ordinance No. 7569-06 D. The security involved is of particular special interest to the entity and dealer competition could have an adverse impact with respect to the price and availability to the City. It is also realized that in certain very limited cases the City will not be able to get three quotes on a certain security. For those cases the City will obtain current market prices one of the following to determine if the transaction is in the City's best interest: 1. Bloomberg Information Delivery System. 2. Wall Street Journal or a comparable nationally recognized financial publication providing daily market pricing. 3. Daily market pricing provided by the City's Custody Agent or their corresponding institution. 12 Internal Controls The Finance Director shall establish and monitor internal and procedural controls designed to protect the City's assets and ensure proper accounting and reporting of the transactions related thereto. The Finance Director shall establish an Investment Committee that meets on a regular basis for the purpose of reviewing investment transactions, approving brokers/dealer changes and other investment activities. 13 Reporting The Finance Director or designee shall report on at least an annual basis the following information on the City's investments: A. Securities by class/type. B. Book Value C. Market Value D. Income Earned Section 2: All ordinances or parts of ordinances, resolutions or parts of resolutions in conflict herewith are herby repealed to the extent of such conflicts. Section 3: This ordinance shall take effect immediately upon adoption. 7 Ordinance No. 7569-06 PASSED ON FIRST READING PASSED ON SECOND AND FINAL READING AND ADOPTED [eslie K. Douga - i Assistant City Attorney 8 December 15, 2005 January 19, 2006 -=t~ t( ~ ~k V. Hibbard Mayor Ordinance No. 7569-06