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RESOLUTION NO. 23-2 1 81
A RESOLUTION OF THE CITY OF DENTON REVISING ADMINISTRATIVE POLICY
NUMBER 403.06 “INVESTMENT POLICY”; AND PROVIDING AN EFFECTIVE DATE.
WHEREAS, the City Council passed Resolution No. R96-061 on October 15, 1996, which
adopted an Investment Policy for the City, in compliance with the Public Funds Investment Act, 74th
Leg., Ch. 402, 1995 Tex. Sess. Law Sew. 2958 (Vernon) (TEX. GOV’T CODE Ann. Ch. 2256); and
WHEREAS, the Investment Policy was most recently amended by City Council on the 13th
day of December 2022 with Resolution No. 22-2180 adopting the current version of the Investment
Policy; and
WHEREAS, the City Council desires to revise the Investment Policy in order to reflect any
changes in the Public Funds Investment Act (PFIA), as well as incorporate needed administrative and
procedural modifications which have occurred over time; NOW, THEREFORE,
THE COUNCIL OF THE CITY OF DENTON HEREBY RESOLVES:
SECTION 1. The findings and recitations contained in the preamble of this resolution are
incorporated herein by reference as true and as if fully set forth in the body of this resolution.
SECTION 2. The policy entitled Policy No. 403.06 “1nvestment Policy”, attached hereto and
made a part hereof, is hereby adopted as an official policy of the City of Denton, Texas and shall
replace the existing Investment Policy.
SECTION 3. The attached policy shall be filed in the official records with the City Secretary.
SECTION 4. This resolution shall become effective immediately upon its passage and
approval.
Th, m,ti,„ t, ,PP„,, thi, „„1„ti,„ w„ m,d, by Ge,„, J Ku>spd\\ ,„d
seconded by B( Ah Jo._ CU's& heGel . The resolution was passed and approved
by the following vote E - a :
Aye
IZ
Z
,Z
Nay Abstain Absent
Mayor Gerard Hudspeth:
Vicki Byrd, District 1 :
Brian Beck, District 2:
Paul Meltzer, District 3 :-Z
&Joe Holland, District 4:
Brandon Chase McGee, At Large Place 5 :\/
Chris Watts, At Large Place 6:
PASSED AND APPROVED this the \lh day of Dcavu\Br _, 2023.
BN
ATTEST:
JESUS SALAZAR, CITY SECRETARY 1\\tIll JIll/
U
APPROVED AS TO LEGAL FORM:
MACK REINWAND, CITY ATTORNEY
Digitally signed by Susan Keller
Susan Keller ::::I'll::iX:=!a';g--
,/email=Susan .K
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Page 2 of 2
DENTON CITY OF DENTON
POLICY STATEMENT
It is the objective of the City of Denton to invest public funds in a manner which will provide
maximum security and the best commensurate yield while meeting the daily cash flow demands
of the City and conforming to all federal, state, and local statutes, rules, and regulations governing
the investment of public funds. This Investment Policy (this “Policy”) serves to satisfy the statutory
requirements of defining and adopting a formal investment policy. This Policy and investment
strategies shall be reviewed annually by City Council who will formally approve any
modifications. This Policy, as approved, is in compliance with the provisions of the Public Funds
Investment Act of Tex. Gov’t. Code Chapter 2256.
ADMINISTRATIVE PROCEDURES
I. SCOPE
A.This Policy applies to the investment activities of the City of Denton, Texas. The specific
funds cited hereafter in Section II(D), shall be excluded from this Policy. All financial
assets of all funds, including the General Fund and any other accounts of the City not
specifically excluded in these policy guidelines are included. These funds are accounted
for in the City’s Annual Comprehensive Financial Report (ACFR). These funds, as well as
others that may be created from time-to-time, shall be administered in accordance with the
provisions of this Policy. All funds will be pooled for investment purposes except for those
listed under Section II(C).
In addition to this Policy, the investment of bond proceeds and other bond funds (including
debt service and reserve funds) shall be governed and controlled by their governing
ordinance and by the provisions of the Tax Reform Act of 1986, including all regulations
and rulings promulgated there under applicable to the issuance of tax-exempt obligations.
B. Funds covered by this Policy and managed as a pooled fund group:
1.
2.
3
General Fund - used to account for resources traditionally associated with
government, which are not required to be accounted for in another fund.
Special Revenue Funds – used to account for the proceeds from specific revenue
sources which are restricted or committed to expenditures for specific purposes
other than debt service or capital projects.
Debt Service Fund used to account for resources to be used for the payment of
principal, interest, and related costs on general obligation debt.
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4. Capital Project Funds – used to account for resources to enable the acquisition or
construction of major capital facilities which are not financed by enterprise funds,
internal service funds, or trust funds.
5.
6.
7.
Enterprise Funds – used to account for operations that are financed and operated
in a manner similar to private business enterprises.
Internal Service Funds – used to account for the cost of providing goods or
services between City departments.
Trust and Agency Funds – used to account for assets held by the City in a trustee
capacity or as an agent for individuals, private organizations, other governments,
and/or other funds.
8.
9.
Bond Reserve Funds – funds set at prescribed levels by certain bond ordinances
to pay principal and/or interest if required to prevent default.
New funds available for investment by the City, such as (but not limited to)
resources associated with Public Improvement Districts or Tax Increment
Financing zones, unless specifically excluded herein.
C. Funds covered by this Policy and managed as separately invested assets:
1.Bond Funds – funds established with the proceeds from specific bond issues
when it is determined that segregating these funds from the pooled funds’
portfolio will result in maximum interest earning retention under the provisions
of the Tax Reform Act of 1986.
2.Endowment Funds – funds given to the City with the instructions that the
principal is to remain intact, unless otherwise agreed to, and the income
generated by the investments will be used for specified purposes.
3.Trust, Escrowed Funds & Security Deposits – funds held outside the City by a
trust, escrow agent, or other entity but belonging to the City.
D. This Policy shall not govern funds, which are managed under separate investment programs
in accordance with the Tex. Gov’t. Code Sec. 2256.004. Such programs currently include
all funds related to employee retirement programs, other funds established by the City for
deferred employee compensation, and certain private donations. The City shall and will
maintain responsibility for these funds to the extent required by federal and state law, the
City Charter, and donor stipulations. This Policy also does not apply to monies held in
escrow to retire bonds which are subject to defeasance requirements stated under their
respective bond ordinances.
11.INVESTMETN OBJECTIVES AND STRATEGIES
It is the policy of the City 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 ordinance requirements, this Policy and investment strategies.
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In accordance with the Public Funds Investment Act, the following prioritized objectives (in
order of importance) in accordance with the Tex. Gov’t. Code Sec. 2256.005(d) apply for each
of the City’s investment strategies.
A.
B
C.
Suitability – Understanding the suitability of the investment to the financial
requirements of the City is important. Any investment eligible in this Policy is suitable
for all City funds.
Safety – Preservation and safety of principal are the primary objectives of this Policy.
All investments will be in high quality securities with no perceived default risk.
Liquidity – The City’s investment portfolio will remain sufficiently liquid to meet
operating requirements that might be reasonably anticipated. Liquidity shall be
achieved by matching investment maturities with forecasted cash flow requirements
and by investing in securities with active secondary markets. Short-term investment
pools and money market mutual funds provide daily liquidity and may be utilized as
a competitive investment alternative to fixed income instruments.
D.Market ability – Securities with active and efficient secondary markets are necessary
in the event of an unanticipated cash requirement. Historical market “spreads”
between the bid and offer prices of a particular security type of less than a quarter of
a percentage point shall define an efficient secondary market.
E.DiversifIcation – Investments will be made with the goal of building a portfolio with
a variety of issuers, security types, and maturities to reduce overconcentration and
mitigate risk. Exceptions are made for cash, government pools and U.S. Government
ISsues
F.Bond Ladder ing – The City will estimate future cash inflows and outflows to make
informed investment decisions to achieve ample liquidity to fund expenses. Maturity
dates will be staggered to support, at minimum, a two-year forward look of the City’s
estimated liabilities.
G Yield – Attaining a competitive market yield, commensurate with the City’s
investment risk constraints and the cash flow characteristics of the portfolio, is the
desired objective. The City’s goal when investing is to meet or exceed the market
yield, at the time of purchase, on U.S. Treasury obligations with comparable
maturltles.
City staff will follow the “Prudent Person” statement relating to the standard of care
that must be exercised when investing public funds as expressed in the Tex. Gov’t.
Code Sec. 2256.006(a-b). The Investment Officers shall avoid any transactions that
might impair public confidence in the City’s ability to govern effectively. The
governing body recognizes that in adequately diversifying the maturity structure
within the portfolio to meet the City’s expenditure needs, occasional measured
unrealized losses due to market volatility and rising interest rates are inevitable and
must be considered within the context of the overall portfolio’s investment return. The
prudence of the investment decisions shall be measured in accordance with the tests
set forth in the Tex. Gov’t. Code Sec. 2256.006(b).
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111.INVESTMENT STRATEGY FOR SPECIFIC FUND GROUPS
In order to better diversify, maximize interest earnings and otherwise meet stated objectives,
fund groups may be combined into one or more internal investment pools. Although fund
monies may be combined into a single asset portfolio, proportional fund ownership will be
accounted for separately. The City maintains separate portfolios for some individual funds or
groups of funds (as listed under Section II) that are managed in accordance with the terms of
this Policy and by The corresponding investment strategies listed below.
A.Investment Pool Strategy – The City’s investment pool is an aggregation of the
majority of City funds which includes tax receipts, enterprise fund revenues, fine and
fee revenues, as well as some, but not necessarily all, bond proceeds, grants, gifts and
endowments. This portfolio is maintained to meet anticipated daily cash needs for the
City’s operations, capital projects and debt service. In order to ensure the ability of
the City to meet obligations and to minimize potential liquidation losses, the dollar-
weighted average stated maturity of the investment pool shall not exceed 2 years or
730 days. The objectives of this portfolio are to:
1.Ensure safety of principal by investing in only high-quality securities for which
a strong secondary market exists.
2.
3.
4.
Ensure that anticipated cash flow needs are matched with adequate investment
liquidity.
Limit market and credit risk through diversification.
Maximize portfolio yield commensurate with the objectives and restrictions set
forth in this Policy by actively employing cash into interest-earning investments
and managing the portfolio with the intent to meet or exceed the Constant
maturity Treasury (CMT) index, with the most comparable maturity as found in
the Federal Reserve Statistical Release H. 15 .
B.Bond Funds Strategy - Occasionally, separate non-pooled portfolios are established
with the proceeds from bond sales in order to maximize earnings within the constraints
of arbitrage regulations. The objectives of the portfolios are to:
1.Ensure safety of principal by investing in only high-quality securities for which
a strong secondary market exists.
2.Ensure that anticipated cash flow needs are matched with adequate investment
liquidity.
3.
4.
Limit market and credit risk through diversification.
Attain the best feasible yield commensurate with the objectives and restrictions
set forth in this Policy and the bond ordinance by actively managing the
portfolio to meet or exceed the bond yield.
C Endowment Fund Strategy - Funds received as gifts to the City with instructions that
the income generated by the investment of said funds be used for specified purposes
are invested as separate non-pooled portfolios in order to maximize return. The
objectives of the portfolios are to:
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1. Ensure safety of principal by investing in only high-quality securities for which
a strong secondary market exists.
2. Ensure that anticipated cash flow needs are matched with adequate investment
liquidity.
3 . Limit market and credit risk through diversification.
4.Attain the best feasible yield commensurate with the objectives and restrictions
set forth in this Policy.
D.Trust, Escrowed Funds & SecurIty Deposit Strategy - Funds that are held outside the
City by a trust, escrow agent, or as a security deposit, but belonging to the City are
governed by their respective trust, escrow, or security deposit agreement and are
subject to the provisions of this Policy. The objectives of the portfolios are to:
1. Ensure safety of principal by investing in only high-quality securities for which
a strong secondary market exists.
2. Ensure that anticipated cash flow needs are matched with adequate investment
liquidity.
3.
4.
Limit market and credit risk through diversification.
Attain the best feasible yield commensurate with the objectives and restrictions
set forth in this Policy and the trust, escrow, or security deposit agreement.
IV.INVESTMENT COMMITTEE
Members – The Investment Committee will consist of the City Manager, or designee, Finance
Assistant City Manager, Chief Financial Officer/Director of Finance, Assistant Directors of
Finance, Controller and Treasury Manager. The investment advisor and City Internal Auditor
will serve as non-voting members of the Investment Committee. When needed, the City
Attorney will act as a legal advisor to the Investment Committee.
Scope – The Investment Committee shall meet at least quarterly to determine general strategies,
investment guidelines, and to monitor results. Included in its deliberations will be such topics
as: economic outlook, portfolio diversification, maturity structure, potential risk to the City’s
funds, authorized broker/dealers (if applicable) and depository institutions, as well as the target
rate of return on the investment portfolio.
Procedures - The Treasury Manager shall provide meeting summations to all members. Any
two members of the Investment Committee may request a special meeting, and four members
shall constitute a quorum. A quorum may be achieved by a member designating a substitute
participant to serve in his or her absence. That substitute participant will not be granted voting
rights. The Investment Committee shall establish its own rules of procedures.
V.RESPONSIBILITY AND STANDARD OF CARE
A Delegation & Training – The management responsibility for the investment program
is delegated to the Chief Financial Officer/Director of Finance. The primary individual
who shall be involved in investment activities will be designated by the Chief
Financial Officer/Director of Finance. The designee may delegate the day-to-day
activities to a responsible individual(s) who has received the appropriate training
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required by state statute. The Chief Financial Officer/Director of Finance and
department designees will use this Policy as the primary guideline for the City’s
investment program, procedures, and internal control issues. The Chief Financial
Officer/Director of Finance, Assistant Directors of Finance, Controller, and the
Treasury Manager are designated as the Investment Officers, pursuant to Tex. Gov’t.
Code Sec. 2256.005(f). Accordingly, the Investment Officers and persons authorized
to execute investment transactions shall attend at least one training session relating to
their responsibilities under the Public Funds Investment Act within 12 months after
assuming duties and receive no less than 10 hours of instruction relating to investment
functions. Thereafter, eight hours of investment training is required in every two-year
period that begins on the first day of the fiscal year and consists of the two consecutive
fiscal years after that date. The training must include education in investment controls,
security risks, strategy risks, market risks, and compliance with the Public Funds
Investment Act. The investment training session shall be provided by an independent
source approved by the Investment Committee. For purposes of this Policy, an
“independent source” for investment training shall include the City’s current
investment advisor, a professional organization, an institute of higher learning or any
other sponsor other than a business organization with whom the City may engage in
an investment transaction. Thus, these independent sources will be training sessions
sponsored, accredited, or endorsed by the Government Treasurers Organization of
Texas (GTOT), Center for Public Management at the University of North Texas
(UNT), Government Finance Officers Association of Texas (GFOAT), Texas
Municipal League (TML), North Central Texas Council of Governments (NCTCOG),
Association of Public Treasurers United States & Canada (APT US & C), and
Government Finance Officers’ Association (GFOA).
No persons may engage in investment transactions except as provided under the terms
of this Policy. The Chief Financial Officer/Director of Finance shall require an annual
compliance review by an external auditor that will consist of an audit of management
controls on investments, adherence to the City’s Investment Policy and a review of the
quarterly investment reports. The reviews will provide internal control by assuring
compliance with policies and procedures. The City Manager or designee, Deputy City
Manager or designee, Chief Financial Officer/Director of Finance, Finance Assistant
City Manager, Assistant Directors of Finance, Treasury Manager, Controller, Mayor,
City Council, and other Finance Department employees shall be personally
indemnified in the event of investment loss provided this Policy has been followed.
B.Conflicts of Interest – All participants in the investment process shall seek to act
responsibly as custodians of public assets. Officers and employees 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. Investment Committee members shall be
required to complete an annual ethics statement noting any known conflicts of interest
as outlined in Section VI(C) below.
C Disclosure – Anyone involved in investing City funds shall file with the Investment
Committee a statement disclosing any personal business relationship with a business
organization offering to engage in investment transactions with the City or is related
within the second degree by affinity or consanguinity, as determined under the Tex.
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Gov’t. Code Ch. 573, to an individual seeking to transact investment business with the
City. A disclosure statement must also be filed with the Texas Ethics Commission and
the City Council. An Investment Officer or other employee has a personal business
relationship with a business organization if any one of the following three conditions
is met
1.The Investment Officer or employee owns 10% 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.
2.Funds received by the Investment Officer or employee from the business
organization exceed 10% of the Investment Officer or employee’s gross income
for the prior year.
/1J.The Investment Officer or employee has acquired from the business
organization during the prior year investments with a book value of $2,500 or
more for their personal account.
D.Prudence – The standard of prudence to be used by the investment officials shall be
the “Prudent Person Rule”, as set forth in Tex. Gov’t. Code Sec. 2256.006 and will be
applied in the context of managing an overall portfolio: “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 their
capital as well as the probable income to be derived.”
Investment officials acting in accordance with this Policy and exercising due diligence
shall be relieved of personal responsibilities for an individual security’s credit risk or
market price change, provided deviations from expectations are reported in a timely
fashion and appropriate action is taken to control adverse developments. In
determining whether an investment official has exercised prudence with respect to an
investment decision, the determination shall be made taking into consideration the
investment of all funds over which the official had responsibility rather than
consideration as to the prudence of a single investment and whether the investment
decision was consistent with this Policy.
E Reporting
Quarterly – Not less than quarterly, the Chief Financial Officer/Director of Finance
shall submit to the City Manager, Mayor and City Council a written report of the City’s
investment transactions within one hundred twenty (120) days of the preceding
reporting period. The report shall: 1) describe in detail the investment position of the
City as of the end of the reporting period, 2) be prepared jointly by all Investment
Officers, 3) be signed by each Investment Officer, 4) contain a summary statement,
prepared in compliance with generally accepted accounting principles, of each pooled
fund group including a) beginning market value for the reporting period; b) additions
and changes to the market value during the period; c) ending market value for the
period; and d) fully accrued interest for the reporting period, 5) state the book value
and market value of each separately invested asset at the end of the reporting period
by type of asset and fund type invested, 6) state the maturity date of each separately
invested asset that has a maturity date, 7) state the account or fund or pooled fund
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group for which each individual investment was acquired, and 8) state the compliance
of the investment portfolio as it relates to the investment strategy expressed in this
Policy and with relevant provisions of the Tex. Gov’t. Code Ch. 2256.
Annually - The City Council shall review and approve the Investment Policy and
investment strategies at least annually and be documented by rule, order, ordinance,
or resolution which shall include any changes made.
Compliance Audit – The City’s external independent auditor will conduct an annual
review of the quarterly reports in conjunction with the annual financial audit. The
results of the audit will be reported to City Council. The audit will also review
compliance with management controls on investments and adherence to this Policy.
F.As recommended by the Texas State Library and Archives Commission, the guidelines
of retaining records for five years from the applicable fiscal year end should be
followed for investment funds other than bond proceeds. Since the City manages the
majority of its investments, including bond funds, using an internal pool consisting of
combined fund groups, records shall be retained in accordance with the Administrative
Policy No. 403.07 "Debt Service Management.” The Chief Financial Officer/Director
of Finance shall oversee the filing and/or storing of investment records.
G.Market prices for all public fund investments will be obtained and monitored through
the use of an independent on-line data pricing service.
VI.SUITABLE AND AUTHORIZED INVESTMENT SECURITIES
A.Portfolio Management – The City intends to pursue active cash management and buy-
and-hold investment management philosophy, whereby securities are expected to be
held until maturity. Securities may be sold before they mature if market conditions
present an opportunity for the City to benefit from the trade. (Refer to Section VIII of
this Policy.) in addition, the Investment Officers may at times restrict or prohibit the
purchase of specific types of investments or issuers due to current market conditions.
The City shall take all prudent measures consistent with this Policy to liquidate an
investment that no longer meets the required minimum rating standards, as per the
Tex. Gov’t. Code Sec. 2256.021. However, if it is determined by the Investment
Committee that the City would benefit from holding the downgraded securities to
maturity to recapture its initial investment then the Investment Officers may act
accordingly. The City is not required to liquidate investments that were authorized
investments at the time of purchase. (Tex. Gov’t. Code Sec. 2256.017)
B Authorized Investments & Maximum Maturities – City funds governed by this Policy
may be invested in the instruments described below, all of which are authorized by the
public Funds Investment Act.
1.
2
Direct obligations of the United States of America, its agencies and
instrumentalities and maturing in less than five years.
Other obligations, the principal and interest of which are unconditionally
guaranteed or insured by, or backed by the full faith and credit of, the United
States of America, or any obligation fully guaranteed or insured by the Federal
Deposit Insurance Corporation and maturing in less than five years.
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3.Direct obligations of the State of Texas or its agencies thereof, counties, cities
and other political subdivisions rated as to investment quality by a nationally
recognized investment rating firm not less than AA or its equivalent and
maturing in less than three years.
4.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, rated as to investment quality by a nationally recognized investment
rating firm not less than AA or its equivalent and maturing in less than three
years
5.
6.
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.
Fully insured or collateralized certificates of deposit/share certificates issued by
state and national banks or savings bank, or a state or federal credit union (having
its main or branch office in Texas) guaranteed or insured by the Federal Deposit
Insurance Corporation or its successor or the National Credit Union Share
Insurance Fund or its successor. Any uninsured portion of collateralized
certificates of deposit must be secured by obligations in accordance with Section
XII herein. Certificates of deposits/share certificates fully insured by the Federal
Deposit Insurance Corporation or National Credit Union Share Insurance Fund
(including successor organizations) do not require prior approval by the
Investment Committee. Both insured and collateralized instruments, including
those backed by a standby letter of credit, must mature in less than three years.
In addition to the City’s authority to invest funds in certificates of deposit and
share certificates stated above, an investment in certificates of deposit made in
accordance with the following conditions is an authorized investment under Tex.
Govt. Code Sec. 2256.010(b): (1) the funds are invested by the City through a
clearing broker registered with the Securities and Exchange Commission (SEC)
and operating pursuant to SEC rule 15c3-3 (17 C.F.R. Section 240.15c3-3) with
its main office or branch office in Texas and selected from a list adopted by the
Investment Committee as required by Section 2256.025; or a selected depository
institution that has its main office or a branch office in this state; (2) the selected
broker or depository institution arranges for the deposit of the funds in
certificates of deposit in one or more federally insured depository institutions,
wherever located for the account of the City; (3) the full amount of the principal
and accrued interest of each of the certificates of deposit is insured by the United
States or an instrumentality of the United States; (4) the selected broker or
depository institution acts as custodian for the City with respect to the
certificates of deposit issued for the account of the City.
7 Interest bearing bank savings deposits issued by state and national banks or
savings bank or a state or federal credit union (having a main or branch office in
Texas) that are guaranteed or insured by the Federal Deposit Insurance
Corporation or the National Credit Union Share Insurance Fund (or successor
organizations). Included also are collateralized interest-bearing savings deposits
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that have secured the uninsured portion of deposits with obligations in
accordance with Section XII herein. Offering banks of both insured and
collateralized savings accounts, including those backed by a standby letter of
credit, require prior approval by the Investment Committee.
In addition to the City’s authority to invest funds in savings deposits as described
above, an investment in savings accounts in accordance with the following
conditions is an authorized investment under Tex. Govt. Code Sec. 2256.009(a):
(1) the funds are invested by the City through a clearing broker registered with
the Securities and Exchange Commission (SEC) and operating pursuant to SEC
rule 15c3-3 (17 C.F.R. Section 240.15c3-3) with its main office or branch office
in Texas and selected from a list adopted by the Investment Committee as
required by Section 2256.025; or a selected depository institution that has its
main office or a branch office in this state; (2) the selected broker or depository
institution arranges for the savings deposits in one or more federally insured
depository institutions, wherever located for the account of the City; (3) the full
amount of the principal and accrued interest of each of the savings accounts is
insured by the United States or an instrumentality of the United States; (4) the
selected broker or depository institution acts as custodian for the City with
respect to the savings deposits issued for the account of the City.
8.Fully collateralized repurchase agreements provided the City has on file a signed
Master Repurchase Agreement, approved by the City Attorney, which details
eligible collateral, collateralizations ratios, standards for collateral custody and
control, collateral valuation, and conditions for agreement termination. The
repurchase agreement must have a defined termination date and be secured by
obligations in accordance with Section XII of this Policy. It is required that the
securities purchased by the City be assigned to the City, held in the City’s name,
and deposited at the time the investment is made with the City or with a third
party selected and approved by the City. Repurchase agreements must be
purchased through a primary government securities dealer, as defined by the
Federal Reserve or a financial institution doing business in this State and the
termination date must be 30 days or less. An exception to the 30 days or less
termination date may be made with respect to bond proceeds. The City may
specifically authorize in the bond ordinance investments in repurchase
agreements, such as a flexible repurchase agreement, with maturities in excess
of 30 days subject to any required approvals from bond insurers.
9.Commercial paper that has a stated maturity of 270 days or less from the date of
issuance and is rated not less than A-1 or P-1 or an equivalent rating by at least
two nationally recognized rating agencies. This section is intended to include
commercial paper obligations of states, agencies, counties, cities, and other
political subdivisions of any state and rated, as to investment quality, by a
nationally recognized investment rating firm not less than A-1 or P-1 or its
equivalent.
10 Public (local) fund investment pools with a dollar weighted average maturity of
60 days or less. The pool must be approved through resolution by the City
Council to provide services to the City and be continuously rated no lower than
Aaa or AAAm or at an equivalent rating by at least one nationally recognized
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rating service. A public funds investment pool created to function as a money
market mutual fund must mark to market daily and stabilize at a $1 net asset
value. The City may not invest an amount that exceeds 10 percent of the total
assets of any one local government investment pool.
To be eligible to receive funds from and invest funds on behalf of the City, an
investment pool must furnish to the Investment Officer or other authorized
representative an offering circular or other similar disclosure instrument that
contains information required by the Tex. Gov’t. Code Sec. 2256.016.
Investments will be made in a local government investment pool only after a
thorough investigation of the pool and approval by the Investment Committee
which shall at least annually review, revise, and adopt the local government
investment pool(s) .
11.A Securities and Exchange Commission (SEC) registered and regulated, no load
U.S. government money market mutual fund that complies with SEC Rule 2a7
and which has a dollar weighted average stated maturity of 60 days or less and
whose investment objectives includes the maintenance of a stable net asset value
of $1 for each share. A rating will not be required of money market mutual funds
that invest exclusively in U.S. government securities or a combination of U.S.
government securities and repurchase agreements backed by U.S. government
securities. The City must be provided with a prospectus and other information
required by the SEC Act of 1934 or the Investment Company Act of 1940. This
may be supplied either through website access or in hard copy form. The City
may not invest an amount that exceeds 10 percent of the total assets of any one
fund. Investments will be made in a money market mutual fund only after a
thorough investigation of the fund and approval by the Investment Committee
which shall, at least annually, review, revise and adopt the money market mutual
fund(s)
C.Denton Municipal Electric (DME) Authorized Investments – DNtE engages in the
distribution and sale of electric energy to the public and, in accordance with Tex. Gov’t
Code Sec. 2256.0201, may enter into a hedging contract and related security and
insurance agreements in relation to fuel oil, natural gas, coal, nuclear fuel, and electric
energy to protect against loss due to price fluctuations. “Hedging” is defined by the
buying and selling of futures, options or similar contracts and related transportation
costs of the aforementioned commodities as a protection against adverse price
movements. A hedging transaction must comply with the regulations of the
Commodity Futures Trading Commission and the Securities and Exchange
Commission.
A payment received under a hedging contract or related agreement in relation to fuel
supplies or fuel reserves is a fuel expense, and, thus, DME may credit any amounts
received against fuel expenses.
The City Council may set and review policies regarding hedging transactions, as per
Tex. Gov’t. Code Sec. 2256.0201 (c).
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D.Prohibited Investments – The City’s authorized investment options are more
restrictive than those allowed by state law. Furthermore, this Policy specifically
prohibits investment in the securities listed below:
1.Obligations, whose payment represents the coupon payments on the outstanding
principal balance of the underlying mortgage-backed security collateral and pays
no principal.
2.Obligations whose payment represents the principal stream of cash flow from
the underlying mortgage-backed security collateral and bears no interest.
3.All collateralized mortgage obligations.
4. Reverse repurchase agreements.
E Divers$cation – it is the policy of the City to diversify its investments within the
portfolio. Diversification will be achieved by building a portfolio with a variety of
issuers, security types, and maturities to reduce overconcentration and mitigate risk.
The diversification will protect interest income from the volatility of interest rates and
the avoidance of undue concentration of assets in a specific maturity sector; therefore,
portfolio maturities shall be staggered. Exceptions are made for cash, government
pools and U.S. Government issues. In establishing specific diversification strategies,
the following general policies and constraints shall apply:
1.Risk of market price volatility shall be controlled through maturity
diversification and by controlling unacceptable maturity extensions and a
mismatch of liabilities and assets. The maturity extension will be controlled by
limiting the weighted average maturity of the internal investment pool portfolio
to 730 days or less. All long-term maturities will be intended to cover long-term
liabilities. In addition, at least 5 percent of the funds in the investment pool
portfolio will be liquid at all times. Investment pool liquidity, which consists of
immediately available funds, is defined as shares in a local government
investment pool and money market mutual fund, as well as bank demand and
savings deposit balances. Although there is no maximum defined portfolio
liquidity position, it is the intent of this Policy to seek out higher yielding
alternative investments in accordance with the prioritized objectives of
preservation and safety of principal, meeting liquidity needs, and yield
enhancement as stated throughout the Public Funds Investment Act.
2.The Investment Committee shall establish strategies and guidelines for the
percentage of the total portfolio that may be invested in U.S. Treasury securities,
federal agencies/instrumentalities, repurchase agreements,
insured/collateralized certificates of deposit and other securities or obligations.
The Investment Committee shall conduct a quarterly review of these guidelines
and shall evaluate the probability of market and default risk in various
investment sectors as part of its considerations.
3 Risk of principal loss in the portfolio as a whole shall be minimized by
diversifying investment types according to the following limitations based on
book values:
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Investment Type o/, of Portfolio
•U.S. Government Treasury Notes/Bills & Obligations 100(yo
•
•
•
•
U.S. Government Agencies & Instrumentalities 100%
State Obligations, Agencies & Local Gov’t.15(yo
Local Government Investment Pools (Gov’t Securities) 50%
Local Government Investment Pools (Prime Securities)159/a
•
•
•
•
Repurchase Agreements 20%
35%
15(3/G
509’/a
Certificates of Deposit (insured/collateralized/SLOC8)
Savings Deposits (insured/collateralized/SLOC+)
U.S. Government Money Market Mutual Funds
•Callable U.S. Agencies/Instrumentalities 20%
• Commercial Paper 209/a
By Institution:
Repurchase Agreements No more than 15%
Collateralized Certificates of Deposit No more than 15%
SLOC8 Backed Certificates of Deposit No more than 15%
Commercial Paper No more than 5%
All Other (except U.S. Treasuries)No more than 35%
8 Standby Letter of Credit
4.Purchases of securities with stated maturities greater than the maximum
authorized under Section VII(B) require prior City Council approval.
ViI.SALE OF SECURITIES
The City’s intended policy is to hold all securities to maturity. However, securities may be sold
prior to maturity to minimize the potential loss of principal on a security whose credit quality
has declined, to swap into another security which would improve the quality, yield, or target
duration of the portfolio, to meet unanticipated liquidity needs, or to capture gains. A horizon
analysis is required for each swap proving benefit to the City before the trade decision is made
and will be held in the file for record keeping.
VIII. COMPETITIVE BIDDING
It is the policy of the City to require competitive bidding for all individual security purchases
and sales, as well as for certificates of deposit. Exceptions include:
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A.
B.
Transactions with money market mutual funds and local government investment pools
which are deemed to be made at prevailing market rates.
Treasury and agency securities purchased as new issues through an approved
broker/dealer, financial institution, or investment advisor.
C.
D.
Automatic overnight “sweep” transactions with the City’s depository bank.
Interest bearing savings deposits deemed to be made at prevailing market rates.
At least three bids or offers must be solicited for all other transactions involving individual
securities. The City’s investment advisor is also required to solicit at least three bids or offers
when transacting trades on the City’s behalf. In situations where the exact security is not offered
by other broker/dealers, offers on the closest comparable investment may be used to establish a
fair market price for the security. In the case of a certificate of deposit purchase, at least two
other offers should be solicited to provide a comparison. When few, if any, banks wish to
participate then staff may use another authorized investment of similar maturity for evaluation
purposes. The quotes may be accepted orally, in writing, electronically, or any combination of
these methods. The Investment Committee may approve exceptions on a case-by-case basis or
on a general basis in the form of guidelines. These guidelines shall take into consideration the
investment type, maturity date, amount, and potential disruptiveness to the City’s investment
program.
IX.ARBITRAGE
The Tax Reform Act of 1986 provided limitations restricting the City’s investment of tax-
exempt bond proceeds. Revised arbitrage rebate provisions require that the City compute
earnings on investment from each issue of bonds on an annual basis to determine if a rebate is
required. To determine the City’s arbitrage position, the City is required to perform specific
calculations relative to the actual yield earned on the investment of the funds and the yield that
could have been earned if the funds had been invested at a rate equal to the yield on the bonds
sold by the City. The rebate provision states that periodically (not less than once every five
years, and not later than sixty days after maturity of the bonds), the City is required to pay the
U.S. Treasury a rebate of excess earnings based on the City’s positive arbitrage position. The
Tax Reform restrictions require precision in the monitoring and recording facets of investments,
as a whole, and particularly as they relate to yields and computations so as to ensure compliance.
Failure to comply may dictate that the bonds become taxable, retroactively from the date of
ISSuance
The City’s investment position, relative to the revised arbitrage restrictions, is the continued
pursuit of maximizing yield on applicable investments while ensuring the safety of capital and
liquidity. It is fiscally prudent to continue the maximization of yield and rebate excess earnings,
if necessary.
X.SELECTION OF BANKS, BROKER/DEALERS AND INVESTMENT ADVISORS
A Depository – City Council shall, by ordinance, “select and designate one or more
banking institutions as the depository for the monies and funds of the City” in
accordance with the requirement of Tex. Loc. Gov’t. Code Ch. 105. At least every five
years a depository shall be selected through the City’s banking services procurement
process, which shall include a formal request for proposal (RFP). The selection of a
Page 14 of 19
depository will be determined by a competitive process and evaluated on the following
crlterra:
1.
2.
3.
4.
5.
6.
Qualified as a depository for public funds in accordance with state and local
laws.
Provided requested information or financial statements for the periods specified.
Complied with all requirements in the banking RFP.
Completed responses to all required items on the proposal form.
Offered lowest net banking service cost, consistent with the ability to provide an
appropriate level of service.
Met credit worthiness and financial standards.
B.Investment Broker/Dealers – if the City has not retained an investment advisor, then
the Investment Committee shall be responsible for adopting the list of qualified
brokers/dealers and financial institutions authorized to engage in investment
transactions with the City. Authorized firms may include primary dealers or regional
broker/dealers that qualify under SEC Rule 15C3-1 (uniform net capital rule) and
qualified depositories as established by the Tex. Loc. Gov’t. Code Ch. 105. The
Investment Committee shall base its evaluation of security broker/dealers and
financial institutions upon:
1.Financial condition, strength, and capability to fulfill commitments.
2.Overall reputation with other broker/dealers or investors.
3.Regulatory status of the broker/dealer.
4.Background and expertise of the individual representatives.
5.Ability to provide additional advisory services.
The Investment Committee must annually review, revise, and adopt the list of
qualified broker/dealers authorized to engage in investment transactions with the City.
Investment Officers, or their authorized representatives, shall not conduct business
with any firm with whom public entities have sustained realized losses on investments
or whose name the Investment Committee has removed from an approved list. If the
City has retained an investment advisor, the Investment Committee shall annually
adopt the investment advisor’s broker/dealer list.
C Investment Advisor – The City may retain the services of an investment advisory firm
registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et
seq.) or with the State Securities Board to assist in the review of the investment policy,
cash flow requirements, the formulation of investment strategies, the execution of
security purchases, sales and deliveries, as well as attend quarterly investment
meetings, provide periodic security valuations, market updates, and to generally
service the investment needs of the City. The investment advisor will also be
responsible for performing broker/dealer financial due diligence on the City’s behalf
and provide a list of its authorized broker/dealers on an annual basis. The City,
however, retains ultimate responsibility as fiduciary of its assets. The investment
Page 15 of 19
advisory contract may not be for a term longer than two years and its renewal or
extension must be approved by the City Council by ordinance or resolution as required
by the Tex. Gov’t. Code Sec. 2256.003(b).
D.Compliance – A qualified representative from any firm offering to engage in
investment transactions with the City is required to sign a written instrument upon
receiving and reviewing a copy of this Policy. Investments shall only be made with
those business organizations (including local government investment pools and
investment advisory firms) which have provided the City with this written instrument
executed by a qualified representative of the firm, acknowledging that the business
organization has:
1. Received and reviewed this Policy.
2.Implemented reasonable procedures and controls in an effort to preclude
investment transactions conducted between the City and the organization that
are not authorized by this 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.
It will be at the Treasury Manager’s discretion to accept any additional caveats to the
above stated required acknowledgements. The written compliance document must, at
a minimum, conform to Tex. Gov’t. Code Sec. 2256(k) as amended.
XI. COLLATERATIIZATION, SAFEKEEPING AND CUSTODY
A Collateralization - The City requires that all uninsured collected balances plus accrued
interest, if any, in depository accounts be secured in accordance with the requirements
of state law. Financial institutions serving as City depositories will be required to sign
a depository agreement with the City which details eligible collateral, collateralization
ratios, standards for collateral custody and control, collateral valuation, rights of
substitution and conditions for agreement termination. This requirement is applicable
to both demand and savings deposits.
The City requires that all securities purchased under the terms of a repurchase
agreement be assigned to the City in accordance with state law. Dealers and financial
institutions wishing to transact repurchase agreements with the City will be required
to sign a Master Repurchase Agreement which details eligible collateral,
collateralization ratios, standards for collateral custody and control, collateral
valuation, rights of substitution, and conditions for agreement termination.
The City requires that all uninsured certificates of deposit plus accrued interest held
with a depository be secured in accordance with the requirements of state law.
Financial institutions will be required to sign a written depository and security
agreement which stipulates eligible collateral, collateralization ratios, standards for
collateral custody and control, collateral valuation, rights of substitution, and
conditions for agreement termination.
Collateral will always be held by an independent third party with which the City has
a current custodial agreement and shall be reviewed at least monthly to ensure that the
market value of the pledged securities is adequate. All deposits and investments of
City funds (other than direct security purchases, money market mutual funds and local
Page 16 of 19
government investment pools) shall be secured by pledged collateral set at no less than
102 percent of the market value of the principal and accrued interest on the deposits
or these investments, less an amount insured by FDIC. Eligible collateral to secure the
City’s deposits include:
1.
2.
3.
4.
Direct obligations of the United States government.
Other obligations, the principal and interest of which are unconditionally
guaranteed or insured by, or backed by the full faith and credit of, the United
States government.
Direct obligations of agencies or instrumentalities of the United States
government, including standby letters of credit.
Cash.
The City will reject adjustable-rate mortgages (ARMs), collateralized mortgage
obligations (CMOs), step-ups, variable rate instruments (except U.S. Treasury
variable rate instruments), or securities that are not found on common pricing systems.
B.Safekeeping and Custody – Safekeeping and custody of the City’s investment
securities shall be in accordance with state law. All security transactions, except local
government investment pool and money market mutual fund transactions, shall be
conducted on a delivery versus payment (DVP) basis. Investment securities will be
held by a third-party custodian designated by the City and be required to issue
safekeeping confirmation notices clearly detailing that the securities are owned by the
City
Safekeeping and custody of collateral pledged to the City shall be in accordance with
state law. Collateral will be held by a third-party custodian designated by the City.
The custodian is required to issue safekeeping confirmation notices clearly showing
that the securities are pledged to the City.
C.Subject fo Audit – All collateral shall be subject to inspection and audit by the Chief
Financial Officer/Director of Finance, or designee, as well as the City’s independent
auditors.
XII.MANAGEMENT AND INTERNAL CONTROLS
Controls shall be designed to prevent losses of public funds arising from fraud, employee error,
misrepresentation by third parties, unanticipated changes in financial markets, or imprudent
actions by employees or Investment Officers of the City.
Controls and managerial emphasis deemed most important that shall be employed include the
following:
Imperative Controls
Custodian safekeeping confirmation notices records management
Avoidance of bearer-form securities
Documentation of investment bidding events
Page 17 of 19
Written confirmation of telephone transactions
Reconcilements and comparisons of security confirmation notices with the
investment records
Compliance with Investment Policy
Verification of all interest income and security purchase and sell computations
Controls Where Practical
Control of Collusion
Separation of duties
Separation of transaction authority between accounting and record-keeping
Clear delegation of authority
Accurate and timely reports
Validation of investment maturity decisions with supporting cash flow data
Adequate training and development of Investment Officers and staff authorized
to execute Investment transactIons
Review of financial conditions of all broker/dealers and depository institutions
Access to information about market conditions, changes and trends that require
adjustments to investment strategies.
XIII. INVESTMENT POLICY ADOPTION
This Policy shall be formally approved and adopted by resolution of the City Council and
reviewed annually in accordance with the provisions of the Public Funds Investment Act of the
Texas Government Code Chapter 2256.
REFERENCES
• None
REVISION HISTORY
Revision Date
12/12/223
Policy Owner
R. Klingele
Summ
e Administrative maintenance
• Clarify investment objectives and strategies
• Remove language that instruments must be general
obligations
• Add lan [e to clarify sale of security to ca
. Administrative maintenance
• Revise policy yield language
• Increase WAM to two years
• Add language to benchmark goal
• Remove requirement for committee to per-approve
LCs
12/13/2022 R. Klingele
CD or
Page 18 of 19
• Increase CP limitations to 20% of portfolio
e Administrative maintenance
• Revise benchmark language
• Remove beginning investment requirement which is not
required by PFIA and current software cannot report
• Add language to allow municipal bonds of other state/cities
outside of Texas
e Annual approval, no changes
+ Adding titles to committee members
12/14/2021 R. Klingele
12/ 17/2020
10/08/20 19
R. Klingele
N. To\vle
Page 19 of 19