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8.4 Investment POLICY CITY OF SALINA REQU ES T FOR COMM I S S I ON ACT I ON DATE T I ME 9/21/92 4:00 P.M. AGENDA SECTION: Administration ORIGINATING DEPARTMENT: APPROVED FOR NO. 8 AGENDA: Finance l TEM BY: Robert K. Biles ~(~ BY: Z~'~'~f Resolution Number 92-4508, adopting an investment policy for the City of Salina, Kansas. In the 1992 legislative session, the State of Kansas provided more investment options for local governments in terms of the type of allowable investments and the term of investments. The expansion of options is long overdue and should allow Kansas municipalities to increase their yields on investments. "~ ~n investment policy is desirable for two reasons. First, Kansas law allows greater flexibility for cities and counties which have an investment policy which is approved by the State of Kansas Pooled Money Investment Board (PM~B). Maturities can extend to four years and may include U.S. agencies. This will be helpful in investing long term cash assets such as bond reserves. Secondly, with these increased options, it becomes more important to pay . a~ttention to such investment factors as liquidity, diversification, safety of princiPal, yield and maturity. This policy addresses each of those issues and others. Responsibility for managing the investment program is delegated to the Director of Finance and Administration. The independent auditor is charged with reviewing safekeeping arrangements on an annual and surprise basis. Internal controls are to be documented in writing with independent auditor review. This policy is modeled after the investment policy set forth in GFOA's "Investing Public Funds" workbook. Modifications have been made to more closely align the policy to state law and the needs of the City of Salina. A draft of this policy has been reviewed by representatives of Kennedy &Coe and First National Bank. If approved by the City Commission, we will submit the investment policy to the PMIB for its consideration. Recommended Action Adopt Resolution Number 92-4508. COMMISSION ACTION MOTION BY SECOND BY TO: CITY OF SALINA, KANSAS Investment Policy September 21· 1992 SCOPE This investment policy applies to the investment activities of the City of Salina for all funds entrusted to its care. OBJECTIVES 1. Safety of principal is the foremost objective of the City of Salina. Each investment transaction shall seek to first insure that capital losses are avoided. 2. The City of Salina's cash management portfolio shall be designed with the objective of regularly exceeding the average return on three-month U.S. Treasury bills, or the average rate on Federal funds, whichever is higher. These indices are considered benchmarks for riskless investments transactions and therefore comprise a minimum standard for the portfolio's rate of return. The investment program shall seek to achieve returns above this threshold, consistent with risk limitations identified herein and prudent investment principles. 3. All investments shall be made in accordance with Kansas Statutes Annotated. 4. Investment officials shall recognize that the investment portfolio is subject to public review and evaluation. The overall program shall be designed and managed with a degree of professionalism worthy of the public trust. The governing body, however, recognizes that in a diversified portfolio, occasional losses from the sale of a security are inevitable and must be considered within the context of the overall portfolio's investment return. DELEGATION OF AUTHORITY Management responsibility for the investment program is hereby delegated to the Director of Finance and Administration, who shall establish written procedures for the operation of the investment program, consistent with this investment policy. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Director of Finance and Administration. The Director of Finance and Administration shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. PRUDENCE The standard of prudence to be used by investment officials shall be the 'prudent person' and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and exercising due diligence shail be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. INTERNAL CONTROLS The Director of Finance and Administration shall establish a system of internal controls with respect to investment activities. Such internal controls shail be documented in writing. The internal controls shall be reviewed with the independent auditor. The controls shall be designed to provide reasonable assurance 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 City of Salina. ALLOWED INVESTMENTS The Director of Finance and Administration may invest in any instrument allowed under Kansas law. The Director of Finance and Administration shall take the necessary actions to have the City's investment policy approved by the Pooled Money Investment Board (PMIB), in order to gain the authority to purchase U.S. Agencies, certain mortgage backed securities and repurchase agreements with primary dealers and to invest in such instruments for up to four years rather than two years. In the event of a vacancy or replacement of the PMIB approved investment official, investments shall be limited to those investments allowed cities which have not had an investment policy approved by the PMIB. MATURITIES Assets of the City of Salina may be invested in instruments whose maturities do not exceed the maximum allowed by Kansas law. Investment maturities shail be scheduled to coincide with projected cash flow needs. At least 50% of the portfolio shall have maturities of one year or less. At least 75% of the portfolio shall have maturities of two years or less. DIVERSIFICATION The goal of diversification is to reduce the extent of losses due to having an unbalanced portfolio in terms of maturities, instrument type and issuers. Therefore, portfolio maturities shail be staggered to avoid undue concentration of assets in a specific maturity sector. Liquidity shail be assured through practices insuring that the next disbursement date and payroll date are covered through maturing investments or marketable U.S. Treasury bills. Positions in securities having potential default risk shall be limited in size. Default risk shall be minimized by requiring delivery of securities or sufficient collateralization. Risk of market price volatility shall be controlled through the adoption of a "buy and hold" strategy whereby the City holds each investment to maturity. When available, it is allowable to sell investments to obtain a gain due to price fluctuations; however, such transactions shall not be part of the normal course of business. RISK The City of Salina recognizes that investment risks can result from issuer defaults, market price changes or various technical complications leading to temporary illiquidity. Portfolio diversification is employed as a way to control risk due to issuer default. In the event of a default by a specific issuer, the Director of Finance and Administration shall review and, appropriate, proceed to liquidate securities having comparable credit risks. To control market price risks, every investment shall be made with a "buy and hold strategy" although it will be permissible to sell an investment at a gain if circumstances so arise. Only 25% of the City's portfolio may be invested in maturities greater than two years. To control risks of illiquidity, a minimum of 15% of the total portfolio shall be held in highly marketable U.S. Treasury bills or overnight repurchase agreements. Non-marketable investments with maturities beyond one year shall not exceed 30% of the portfolio. SAFEKEEPING AND CUSTODY The assets of the City of Salina shall be secured through third-party custody and safekeeping procedures. Bearer instruments shall be held only through third-party institutions. Investment officials shall be bonded. Collateralized securities such as repurchase agreements shall be purchased using the delivery vs. payment procedure. Overnight repurchase agreements and bank certificates of deposit shall be collateralized through the issuance of joint custody receipts in an amount equal to or greater than the investments. Safekeeping procedures shall be reviewed annually by the independent auditor. The independent auditor shall conduct periodic surprise audits of safekeeping and custodial systems. PERFORMANCE EVALUATION At the end of each calendar quarter, the Director of Finance and Administration shall prepare a report outlining the quarter's investment activity. Such report shall contain sufficient information to evaluate the performance of the investment program and verify that investment officials have acted in accordance with the investment policy and written investment procedures.