Investment Policy 07-14-08CITY 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 funds 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 11$A, 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.
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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 will be mitigate credit risk and interest rate risk.
Credit Risk is the risk of loss due to failure of the security issuer or backer.
hates°est Rate Risk is the risk that the market value of securities in the portfolio
will fail due to changes in general interest rates.
B. Liquidi~ - The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that maybe 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.
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.
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AUTHORIZED FINANCIAL INSTITUTE AND DEALER
In accordance with Minnesota Statute 118A.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 15c3-1 (uniform
net capital rule).
BROKER REPRESENTATIONS
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 118A.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 $100,000 by the Federal Deposit Insurance Corporation (FDIC).
3. Repurchase Agreement: 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.
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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 ll 8A.
6. Commercial gaper: 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. Money market mutual funds which invest in authorized instruments according to MN Statutes ll8A.
8. Interest-bearingdeposits 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 collateralizationfevel 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 maybe 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 liquid
savings accounts (such as the 4M Fund).
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CERTIFICATE OF AUTHORITY
The Shorewood City Council hereby authorizes the following city staff to sell, assign and endorse for
transfer, certificates of deposit, 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 principah
Adopted by the City Council of the City of Shorewood this 14th day of July, 2008.
Approved:
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~° `. _: ~ ~
Chris Lizee, Mayor
Attest:
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f ~r
~wrence A. Brown, Acting City Administrator
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