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Investment Policy 01-12-09CITY OF SHOREWOOD, MINNESOTA INVESTMENT POLICY INTRODUCTION This policy covers all monies and cash balances of the City of Shorewood and includes deposits and investments of funds deposited in interest bearing accounts. The policy is intended to be broad enough to allow the Investment Officer to function properly within the parameters of responsibility and authority, yet specific enough to adequately safeguard the investment assets. PURPOSE The purpose of this policy is to establish specific guidelines the City of Shorewood will use in the investment of City funds. It will be the responsibility of the City Finance Director /Treasurer to invest City fiords in order to attain a market rate of return while preserving and protecting the capital of the overall portfolio. Investments will be made, based on statutory constraints, in safe, low risk instruments. SCOPE The City Finance Director /Treasurer is responsible for the investing of all funds in the custody of the City, including, but not necessarily limited to, the General Fund, Special Revenue Funds, Debt Service Funds, Capital Project Funds, Enterprise Funds, and Agency Funds. PRUDENCE The standard of prudence to be used by investment officials shall be the "prudent investor ", and shall be applied in the context of managing the overall portfolio. Investment officers acting in accordance with this policy and with MN Statute 118A, and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided that reasonable action is taken to control adverse developments and unexpected deviations are reported in a timely manner. Page 1 OBJECTIVE There are three main objectives of all investment activities that are prioritized as follows: A. Safe - Safety of principal is the foremost objective of the City. Each investment transaction shall seek to first insure that capital losses are avoided. The objective is to mitigate credit risk and interest rate risk. Credit Risk is the risk of loss due to failure of the security issuer or backer. Interest Rate Risk is the risk that the market value of securities in the portfolio will fail due to changes in general interest rates. B. Liqui - The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonable anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. C. Yield - The investment portfolio of the City of Shorewood shall be designed to attain a market - average rate of return through budgetary and economic cycles, taking into consideration the city's investment risk constraints, cash flow characteristics of the portfolio and prudent investment principles. Subject to requirements of the above objectives, it is the policy of the City of Shorewood to offer financial institutions and companies within the City of Shorewood the opportunity to bid on investments; however the City of Shorewood will seek the best investment yields. DELEGATION OF AUTHORITY Management responsibility for the investment program is hereby delegated from the City Council to the City Finance Director /Treasurer, and, in the absence of the Finance Director/Treasurer, the City Administrator (the investment officers). The investment officers shall establish procedures for the operation of the investment program, consistent with this investment policy. Such procedures shall include delegation of authority to persons responsible for investment transactions. The City Finance Director /Treasurer shall be responsible for all transactions undertaken and shall establish a system of internal controls designed to prevent losses from fraud and employee error. OVERSIGHT COMMITTEE The Council, at its discretion, may form an investment oversight committee for the specific and limited purpose of reviewing the portfolio of investments and earnings with the Finance Director/Treasurer and City Administrator, with the purpose of ensuring the investment practices are in conformance with the provisions established in this policy. The committee shall have no authority to suggest or direct the Finance Director /Treasure or City Administrator to invest city funds in aparticular security, with a particular broker, or in a particular manner. Members of the Oversight Committee shall be the Finance Director, City Administrator, and two Council members. The Committee shall meet at least twice each year but not more than quarterly. Page 2 CONFLICT OF INTEREST Any City Official (elected or appointed) 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 his /her ability to make impartial investment decisions. AUTHORIZED FINANCIAL INSTITUTE AND DEALER In accordance with Minnesota Statute l I8A.005, the responsibility for conducting investment transactions resides with the City Council of the City of Shorewood. Also, the Council shall authorize the City Finance Director/Treasurer to exercise the powers of the Council in designating a depository of the Funds. In selecting depositories, the credit worthiness of the institutions under consideration shall be examined by the City Finance Director/Treasurer. Only approved security broker /dealers selected by creditworthiness shall be utilized (minimum capital requirement of $10 million dollars and at least five years of operation). These may include "primary" dealers or regional dealers that qualify under Securities and Exchange Commission Rule 150-1 (uniform net capital rule). Municipalities must obtain from their brokers certain representations regarding future investments. Minnesota Statutes, Section 118A, Subdivision 6, requires municipalities to provide each broker with information regarding the municipalities investment restrictions. Before engaging in investment transactions with the City of Shorewood, the supervising officer at the securities broker /dealer shall submit a certification annually according to MN Statutes I I8A.05. The document will state that the officer has reviewed the investment policies and objectives, as well as applicable state law, and agrees to disclose potential conflicts of interest or risk to public funds that might arise out of business transactions between the firm and the City of Shorewood. All financial institutions shall agree to undertake reasonable efforts to preclude imprudent transactions involving the City's funds. AUTHORIZED AND SUITABLE INVESTMENTS Minnesota Statutes, Section 118A, Subdivision 3, lists all permissible investments for municipalities. This list establishes the maximum investment risk permitted for a Minnesota municipality. Even though MN Statutes 118A provides for more instruments to be used for investing purposes; the following is a listing of investments the City will be authorized to invest in: 1. Government Securities: Instruments such as bonds, notes, bills, mortgages and other securities which are direct obligations of the federal government or its agencies, with the principal fully guaranteed by the U.S. Government or its agencies. 2. Certificates of Deposit: A negotiable or nonnegotiable instrument issued by commercial banks and insured up to the maximum allowable by the Federal Deposit Insurance Corporation (FDIC). Page 3 3. Repurchase Agre ement: An investment which consists of two simultaneous transactions, where an investor purchases securities from a bank or dealer. At the same time, the selling bank or dealer agrees to repurchase the securities at the same price plus interest at some agreed -upon future date. The security purchased is the collateral protecting the investment. 4. Any security which is a general obligation of any state with taxing powers which is rated "A" or better by a national bond rating service. 5. Statewide investment pools, including Minnesota Joint Powers Investment'Trust (4M Fund), which invest in authorized instruments according to MN Statutes I I8A. 6. Commercial paper Short -term unsecured promissory notes with a rating of A -1 (Standard and Poor's), P -1 (Moody's) or F -1 (Fitch). These must be rated in the highest quality category by at least two nationally recognized rating agencies and must mature in 270 days or less. 7. Monev mark mu tual funds which invest in authorized instruments according to MN Statutes I I SA. 8. Interest-bearin deposits in authorized depositories must be fully insured or collateralized. COLLATERALIZATION Collateralization will be required on two types of investments: Certificates of Deposit (above the FDIC insurance amount) and Repurchase Agreements. In order to anticipate market changes and provide a level of security for all funds, the collateralization level will be 110 percent of the market value of principal and accrued interest. When the pledged collateral consists of notes secured by first mortgages, the collateral level will be 140% of the market value of the principal and accrued interest. Collateral shall be deposited in the name of the City of Shorewood, subject to release by the City Finance Director. SAFEKEEPING AND CUSTODY All invested assets of the City of Shorewood involving the use of public funds custodial agreement shall comply with all rules adopted pursuant to Minnesota Statute 118A. All custodial agreements shall be in writing and shall contain a provision that all custodial services are provided in accordance with the laws of the State of Minnesota. DIVERSIFICATION The City will attempt to diversify its investments according to type and maturity. The portfolio, as much as possible, will contain both short -term and long -term investments. The City will attempt to match its investments with anticipated cash flow requirements. Extended maturities may be utilized to take advantage of higher yields; however, no more than 30% of the total investments should extend beyond five (5) years and in no circumstance should any extend beyond fifteen (15) years. No more than 3% of unencumbered funds shall be kept in commercial paper. At least 30% of funds shall be kept in Iiquid savings accounts (such as the 4M Fund). Page 4 CERTIFICATE OF AUTHORITY The Shorewood City Council hereby authorizes the following city staff to sell, assign and endorse for transfer, certificates of deposit, and certificates representing stocks, bonds or other securities that are registered in the name of the City of Shorewood: City Finance Director /Treasurer and City Administrator. INVESTMENT REPORTING 'The City Finance Director /Treasurer shall prepare an investment report at least quarterly, including a management summary that provides a clear picture of the status of the current investment portfolio. The investment report shall include the cost, date and place of each investment, the maturity date and rate of interest earning on each as of that date; and any additional information as may be requested from time to time by the City Council. CONCLUSION The intent of this policy is to ensure the safety of all City funds. The main goal of the City will be to achieve a market rate of return while providing liquidity and maintaining the safety of its principal. ADOPTED BY THE CITY COUNCIL OF THE CITY OF SHOREWOOD this 12th day of January, 2009. Chris Lized, Mayor ATTEST: Page 5