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.