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ITEM 5.1 Resolution 14-784P �tsTe F o MINNESOTA g DEPARTMENT INFORMATION Request for City Council Action ORIGINATING DEPARTMENT: REQUESTOR: MEETING DATE: Finance Dan Jordet, ASD November 24, 2014 PRESENTER(s): REVIEWED BY: ITEM #: Dan Jordet, ASD Lori Johnson, CA 5.1 AGENDA ITEM DETAILS RECOMMENDATION: It is recommended that the City Council adopt the accompanying policy governing the investment of Citv funds ARE YOU SEEKING APPROVAL OF A CONTRACT? No IS A PUBLIC HEARING REQUIRED? No BACKGROUND/JUSTIFICATION: In order to establish a series of policies for prudent management of the City's financial affairs I am submitting an Investment Policy for the Council's review and adoption. The main portion of the policy was developed in the past and is standard language among Minnesota cities. The sheet labeled "Investment Procedures" contains the variables that change from city to city. The degree to which the City maintains cash balances, maturity horizons and safekeeping of investments are all included in this section. Reporting on investments is included in the final paragraph of the policy document. Upon adoption of the policy the Finance Department would begin the search for a Custody and Trust service provider. This would likely be a bank with trust and custody services available but who would not be involved in the actual purchase or sale decisions for investment securities. The City would continue to rely on brokers to recommend and procure securities for the investment portfolio. However, these brokers would no longer hold the securities on our behalf but would arrange with the third party Trustee to complete the transaction for purchase or sale of an investment through a process called DVP; delivery versus payment. DVP is a securities industry settlement procedure in which the buyer's payment for securities is due at the time of delivery. Delivery versus payment (DVP) is a settlement system that stipulates that cash payment must be made prior to or simultaneously with the delivery of the security. DVP requirements arose as a result of institutions being prohibited from paying money for securities before the securities were held in negotiable form. I believe this is a more secure way to handle our investment transactions. In addition, the procedures would limit the portfolio to a five year spread of maturities on investments. This would protect against market fluctuations that could lock the City into longer term investments while rates rise above the City's procured rate of return. This policy would take some time to bring to full implementation as the City's current portfolio carries securities extending our more than twelve years. SUPPORTING DOCUMENTS: X ATTACHED ❑ NONE Proposed Policy POSSIBLE MOTION Please word motion as you would like it to appear in the minutes. Move to adopt Resolution 2014-78 establishing an Investment Policy for the City of Otsego. BUDGET INFORMATION FUNDING: Regular fees from Finance Department Professional Services Fund ACTION TAKEN BUDGETED: X YES ❑ NO ❑ APPROVED AS REQUESTED ❑ DENIED ❑ TABLED ❑ OTHER (List changes) COMMENTS: DRAFT 11/6/2014 CITY OF OTSEGO INVESTMENT POLICY It is the policy of the City of Otsego to invest public monies which may become available for a period of time before such monies are required to be expended. It is prudent that such monies are invested to maximize the resources available for the City. It is the intent of the City to: 1. Invest these public monies in a responsible and secure manner in conformance with Minnesota Statute 118A to provide protection of investment principal. 2. Acquire a reasonable rate of return given market conditions and alternate uses of funds. 3. Provide sufficient liquidity to meet daily cash flow requirements, and 4. Conform with all state statutes and city policies or directives. This investment policy applies to all assets of the City that are accounted for in the City's Comprehensive Annual Financial Report. The City will work with the depository banks and brokers approved annually by the City Council. Investments shall be made with judgment and care under circumstances, then prevailing, that persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment considering the probable safety of their capital as well as the income to be generated from the investment. The standard of prudence to be used by the designated investment officer shall be the prudent person standard as defined in Minnesota Statutes 356A.04 Subdivision 2, and shall be in the context of managing an overall investment portfolio. The designated investment officer acting in accordance with written procedures and policies and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market prices changes provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. Any investment of the City is limited to those that are permitted by Minnesota Statutes. The objective of any City investment shall be prioritized as follows: 1. Safety 2. Liquidity 3. Maintaining the Public Trust 4. Investment Return DRAFT 11/6/2014 City of Otsego Appendix A - Investment Policy Page Two Safety is the first investment objective. Investment options shall be considered in a manner that seeks to ensure the preservation of the principal amount in the overall investment portfolio. To obtain this objective, diversification is to be considered in the type of investment, maturity and the investment institution where the investment is located. For checking accounts and savings accounts collateral may be required. Such collateral requirements will be monitored on a monthly basis. Certificates of deposit will not be purchased beyond the FDIC limitations on insurance of said Certificates. Liquidity is the second investment objective to be considered. The investment portfolio must remain sufficiently liquid to enable the City to meet its cash flow requirements as may be reasonably anticipated. Liquidity in the face of changing market conditions will also be a consideration in determining the term of any investment purchased. Criteria will be established and periodically reviewed to determine the proportions of the portfolio invested at less than one year, one to three years and three to five years. The maximum maturity authorized for investment is five years from the date of purchase unless otherwise authorized by the City Council. The City's liquidity will be reviewed on a monthly basis and may be considered part of any interim reporting to Administration or the Council. Maintaining the Public Trust is the third of the investment objectives. All employees that are part of the investment process shall act responsibly as custodians of the public trust. Employees of the City shall avoid transactions that may impair the public's confidence in the City's ability to govern effectively. The Return on Investment is the fourth investment objective. The investment portfolio should be designed with the objective of attaining a market rate of return through the budgetary and economic cycles taking into account the constraints of risk and cash flow characteristic on the investment portfolio. The City's investment policies and practices will conform to Minnesota Statutes 118A. Management of the City's investment activity is delegated to the City's Administrative Services Director. No person will engage in an investment transaction on behalf of the City except as provided under the terms of this policy and the procedures established to maintain this program. Employees and any other city officials involved in the investment process shall refrain from personal business activity that could conflict with the City's investment program or could reasonably expect the public to question or doubt the ability to make impartial, objective investment decisions. Any such conflict or potential conflicts must be declared to the City Administrator as soon as such conflict or potential conflict is known. The City Council will annually approve the financial institutions or broker/dealers authorized to provide investment DRAFT 11/6/2014 City of Otsego Appendix A - Investment Policy Page Three services. All broker/dealers providing investment services shall have a Broker Certification form properly completed annually and on file with the City. The Council will also adopt, on an annual basis, a Corporate Form of Resolution declaring that the City Administrator and Director of Administrative Services are authorized to transact business on behalf of the City of Otsego. Investment authorized and permitted by this policy are as follows: • United States Securities including governmental bonds, notes, bills, mortgages and other securities which are direct obligations or are guaranteed or insured issues of the United States, its agencies, its instrumentalities, or organizations created by an act of Congress ( e.g. U.S. Treasury bills, Federal Home Loan Bank Notes, other government backed securities, etc.). • Minnesota Joint Powers Investment Trust agreements or contracts for shares of a Minnesota joint powers investment trust whose investments are restricted to securities authorized for investment by the City and shares of an investment company registered under the Federal Securities Act of 1940, whose shares are registered under the Federal Securities Act of 1933, as long as the investment company receives the highest credit rating and is rated in one of the two highest risk categories by at least one nationally recognized statistical rating organization and is invested in financial instruments with a final maturity of no longer than 13 months (e.g. the Minnesota Municipal Money Market (4M) Fund). • State and local government obligations including any security that is a general obligation of any state or local government with taxing powers rated "A" or is a revenue obligation of any state or local government which is rated "AA" or better by a national bond rating service. • Commercial paper issued by a United States Corporation or their Canadian subsidiary that are rated in the highest quality category by at least two nationally recognized rating agencies. The rating of such commercial paper is referred to as "A1 P 1 ". • Time deposits fully insured by the Federal Deposit Insurance Corporation. Investment transactions are to be documented by the City's finance department. Investment confirmations are received from banks and/or brokers for each transaction. The finance department maintains all investment transactions on a monthly summary of cash and investments. Quarterly reports on composition of the investment portfolio will be provided to the Council by the second Friday of the month following the end of the quarter. DRAFT 11/6/2014 City of Otsego Appendix A - Investment Policy Page Four INVESTMENT PROCEDURES City funds not required for cash flow purposes will be invested at the direction of the Administrative Services Director in instruments that meet the criteria set forth by the City's investment policy, including the types of instruments, maturity dates, insurance and collateral requirements of the portfolio. Investment securities may be purchased through the services of a bank, dealer or broker who has a current Broker Certification Form on file with the City. Purchase of investment instruments will be accomplished through delivery versus payment (DVP) transactions facilitated by a Trustee appointed by City Council resolution. The Trustee will provide monthly statements to the City of those instruments held by the Trustee on behalf of the City, their purchase and maturity dates, interest rate, face value, and fair market value as of the end of the statement period. All investment instruments of the City will be held by the Trustee. Investment instruments will not be held by the dealers, brokers or banks facilitating the acquisition or liquidation of investment instruments. On a monthly basis the Administrative Services Director will provide to the City Administrator and the City Council a detailed report of all investment portfolio transactions during the reporting period. On a quarterly basis, the Administrative Services Director will provide to the City Administrator and the City Council a detailed listing of all investment instruments and securities in the City's portfolio with both book value and fair market value as of the end of the reporting period. CITY OF OTSEGO COUNTY OF WRIGHT STATE OF MINNESOTA RESOLUTION NO: 2014-78 RESOLUTION ESTABLISHING AN INVESTMENT POLICY WHEREAS, the prudent management of the City's fmancial affairs requires that certain policies be adopted and followed to insure proper and transparent management of those activities; and WHEREAS, the investment of idle cash is process that should be controlled by policy provisions that are followed in a consistent manner; and WHEREAS, City Council action is required in order to establish or amend such policiess. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF OTSEGO, WRIGHT COUNTY, MINNESOTA THAT: the City of Otsego Investment Policy dated November 6, 2014 is hereby approved and the Finance Department is hereby instructed to being the process of retaining a Trustee for holding investments on the City's behalf. ADOPTED by the Otsego City Council this 24st day of November, 2014. MOTION made by Council Member IN FAVOR: OPPOSED: and SECONDED by Council Member ATTEST: CITY OF OTSEGO Jessica Stockamp, Mayor Tami Loff, City CLerk