Res 2018-02 Rev Investment PolicyRESOLUTION NO. 2018 - 02
A RESOLUTION APPROVING THE REVISED INVESTMENT POLICY
FOR THE CITY AND THE FRIDLEY HOUSING AND
REDEVELOPMENT AUTHORITY
WHEREAS, the City of Fridley recognizes that an Investment Policy promotes acquisition of
safe investments by providing structure to the treasury function, and limiting the risk to public
funds, and
WHEREAS, the Investment Policy provides for a systematic review of public funds, and
WHEREAS, the Investment Policy was last updated in June of 2012 and after review by the
City's investment advisor, Prudent Man Advisors, Inc. (PMA), revisions to the Investment
Policy were recommended, and
WHEREAS, the Investment Policy has been revised in accordance with current State Statutes,
OSA's legal compliance guide, and model policies from the League of Minnesota Cities and the
Government Finance Officers Association.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Fridley adopts the
Revised Investment Policy as identified as Exhibit 1 attached.
PASSED AND ADOPTED BY THE CITY COUNCIL OF THE CITY OF FRIDLEY THIS
8TH DAY OF JANUARY, 2018.
SCOTT J. LUND, MAYOR
ATTEST
DEBRA A. SKOGEN, CITY CLERK
Resolution No. 2018-02 Page 2
EXHIBIT 1
City of Fridley
nvestment Policy
LA 1 pdated and
Pirepaired IlDy the Hinance Dep aurvtime at
City of Fridley Investment Policy Page 1
Resolution No. 2018-02
Investment Policy
Table of Contents
Page 3
I.
Purpose and Need for Policy............................................................................................3
II.
Scope................................................................................................................................3
III.
Prudence..........................................................................................................................3
IV.
Objective..........................................................................................................................4
V.
Delegation of Authority...................................................................................................5
VI.
Ethics and Conflicts of Interest........................................................................................6
VII.
Authorized Broker/Dealers..............................................................................................6
VIII.
Authorized and Suitable Investments..............................................................................6
IX.
Concentration of Credit Risk...........................................................................................8
X.
Collateralizations.............................................................................................................8
XI.
Safekeeping and Custody.................................................................................................9
XII.
Maximum Maturities.....................................................................................................10
XIII.
Internal Control..............................................................................................................10
XIV.
Performance Standards................................................................................................
10
XV.
Market Yield/Benchmark...............................................................................................10
XVI.
Reporting........................................................................................................................11
XVII.
Investment Policy Adoption..........................................................................................11
City of Fridley Investment Policy Page 2
Resolution No. 2018-02
i. Purpose and Need for Policy
Page 4
This policy specifically outlines the investing philosophy and practices of the City of Fridley
and the Fridley Housing and Redevelopment Authority (hereafter collectively referred to as
"the City"), and has been developed to serve as a reference point for the management of city
assets. It is the policy of the City to invest public funds in a manner which will provide for
the following in order of importance: Safety; Liquidity; and Yield (return on investment)
that conforms to all federal, state and local regulations governing the investment of public
funds.
The purpose of this Policy is to develop an overall program for cash investments, designed
and managed with a high degree of professionalism, worthy of the public trust; to establish
that elected and appointed officials and employees are custodians of a portfolio which shall
be subject to public review; to establish cash investment objectives, delegation of authority,
standards of prudence, internal controls, authorized investments, selection process for
investments, and broker representations.
Il. Scope
This Investment Policy applies to all financial assets of the City. These funds are accounted
for within the City's Comprehensive Annual Financial Report and include:
• General Fund
• Special Revenue Funds
• Capital Project Funds
• Debt Service Funds
• Enterprise Funds
• Internal Service Funds
• Trust and Agency Funds
• Any new fund created by the City, unless specifically exempted by City Council.
iii. Prudence
Investments shall be made with judgment and care, under circumstances existing at the time
the investment is made, which persons of prudence, discretion and intelligence exercise in
the management of their own affairs, not for speculation, but for investment, considering
probable safety of their capital as well as interest yield to be derived.
The standard of prudence to be used by investment officials shall be the "prudent investor"
standard and shall be applied in the context of managing the overall portfolio. Investment
officers acting in accordance with written procedures and the investment policy and
exercising due diligence shall be relieved of personal liability 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 situations. Investment
City of Fridley Investment Policy Page 3
Resolution No. 2018-02
Page 5
procedures developed for the Finance Department must be complied with by those with
access to and management responsibilities for City investments.
IV. Objective
At all times, investments of the City shall be in accordance with Minnesota Statutes Chapter
118A and amendments thereto. The primary objectives of the City's investment activities
shall be in the following order of priority:
A. Safety
Safety of principal is the foremost objective of the investment portfolio. Investments
shall be undertaken in a manner that seeks to ensure the preservation of capital in the
overall portfolio. The objective will be to mitigate credit risk, interest rate risk, and
custodial risk.
Credit Risk: Credit Risk is the risk of loss due to failure of the security issuer. Thus,
designated depositories shall have insurance through the FDIC (Federal Insurance) or
appropriate collateral. Credit Risk will be minimized by:
Limiting investments to the type of securities listed in Section VIII of this
investment policy.
Diversifying the investment portfolio so that the impact of potential losses from any
type of security or from any one individual issuer will be minimized.
Interest Rate Risk: Interest Rate Risk is the risk that the market value of securities in the
portfolio will fall due to changes in general interest rates. The City will minimize Interest
Rate Risk by structuring the investment portfolio so that securities mature to meet cash
requirements for ongoing operations, thereby avoiding the need to sell securities on the
open market prior to maturity. The City has also established diversification guidelines
and maturity limits to control the sensitivity of the portfolio to changes in interest rates.
Custodial Risk: The City will minimize deposit Custodial Risk, which is the risk of loss
due to failure of the depository bank (or credit union), by obtaining collateral or bond for
all uninsured amounts on deposit, and by obtaining necessary documentation to show
compliance with state law and a perfected security interest under federal law.
The City will minimize investment Custodial Risk by holding investments in securities
with a major bank's corporate trust department. Investment Custodial Risk is the risk that
in the event of failure of the counterparty to a transaction, the City will not be able to
recover the value of its investment securities that are in possession of an outside party.
Investments in investment pools and money markets are not evidenced by securities that
exist in physical or book entry form, and therefore are not subject to custodial Credit Risk
disclosures.
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Resolution No. 2018-02
B. Liquidity
Page 6
The City's investment portfolio will remain sufficiently liquid to enable the City to meet
all operating requirements that might reasonably be anticipated. The portfolio will be
structured so that securities mature concurrent with cash needs to meet anticipated
demands (static liquidity). Furthermore, since all possible cash demands cannot be
anticipated, the portfolio should consist largely of securities with active secondary or
resale markets (dynamic liquidity). Alternatively, a portion of the portfolio may be placed
in money market mutual funds or local government investment pools which offer same
day liquidity for short-term funds.
C. Yield
The City's investment portfolio shall be designed with the objective of attaining a market
rate return. The core of investments is limited to low-risk securities in anticipation of
earning a fair return relative to the risk being assumed. Securities shall generally be held
until maturity with the following exceptions:
• A security with declining credit may be sold early to minimize loss of principal.
• A security swap would improve the quality, yield, or target duration in the
portfolio.
• Liquidity needs of the portfolio require that the security be sold.
D. Trading
Portfolio purchases will focus on holding investments until maturity to maintain securities
at amortized cost. Excessive investment portfolio turnover commonly referred to as
"trading" or "overtrading" to obtain short-term gains is not consistent with the City's
stated investment objectives and will be prohibited.
V. Delegation of Authority
The investment program shall be operated in conformance with federal, state, and other legal
requirements. Authority to manage the City's investment program is derived from the
following:
• Minnesota Statutes Chapter 118 A, Deposit and Investment of Local Public Funds
• Fridley City Charter Section 7.13, Receipts to go to City Treasurer
Management responsibility for the investment program is hereby delegated to the Finance
Director, who shall establish written procedures for the operations of the Investment Program
consistent with this Investment Policy. The Finance Director, with assistance from finance
department staff, monitors performance of the investment portfolio; and ensures that proper
internal controls are developed to safeguard investments assets. Procedures should include
reference to: safekeeping, delivery versus payment (DVP), investment accounting, wire
transfer agreements, collateral/depository agreements and
City of Fridley Investment Policy Page 5
Resolution No. 2018-02
Page 7
banking service contracts. 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 Finance Director. The Finance Director
shall be responsible for all investment transactions and shall establish a system of controls
to regulate the activities of subordinate officials.
I. Ethics and Conflicts of Interest
re s
Officers and employees involved in the investment process shall refrain from conducting
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 officials shall annually disclose to the City Clerk any material financial
interests as required by state statute on an annual Statement of Economic Interest form.
Employees and officers shall subordinate their personal investment transactions to those of
the City, particularly with regard to the time of purchases and sales, and shall refrain from
undertaking personal investment transactions with the same individual with whom business
is conducted on behalf of the City.
VII. Authorized Broker/Dealer
The City will conduct investment transactions only with authorized broker/dealers that
have met the following criteria:
• They act as primary or regional dealers that qualify under Securities & Exchange
Commission Rule 15C3-1(Uniform Net Capital Rule).
Submit annually to the Finance Director a Minnesota State Auditor Broker
Certification Form.
All broker/dealer relationships, providing they meet the above requirements, will be
maintained at the discretion of the Finance Director. The purchase of all investments must
be from institutional brokers.
The City may enter into contracts with investment advisory firms at the discretion of the
Finance Director when their services are deemed beneficiary to the City. Any such firm
must be registered under the Investment Advisor's Act of 1940. The advisor may have
authority to transact investments on behalf of the City and must comply with State Statue
and this Investment Policy.
ill. Authorized and Suitable Investments
mmme n
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Resolution No. 2018-02
Page 8
Based on the investment objectives as defined in section IV of this policy, the City will
limit its investments to securities authorized under Minnesota Statute 118A and future
revisions. Current statute allows the City to invest in the following types of securities:
. United States Securities including bonds, notes, bills, mortgages or 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.
Mortgage-backed securities that are defined as high risk or in certificates of deposit
secured by letters of credit issued by federal home loan banks are not permissible
investments.
* General obligation bonds of state or local governments rated A or better by a
national bond rating services.
Revenue obligations of state or local governments rated AA or better by a national
bond rating service.
o General obligation bonds of the Minnesota Housing Finance Agency rated A or
better by a national bond rating service.
General obligations of the Housing Finance Agency of any state rated AA or better
and if it includes the moral obligation of the state.
Certificates of Deposits (Time Deposits) that are fully insured by the Federal
Deposit Insurance Corporation.
r Bankers acceptances of United States banks purchased on the secondary market
rated with the highest short-term credit rating of any two Nationally Recognized
Statistical Rating Organizations (NSROs), at the time of purchase. Maximum
maturity will be 270 days. 14'fli �ie eepl��ii we i.s, h mW,.:k-,y n-� k: e flea+i � r�
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,r Commercial paper issued by United States corporations or their Canadian
subsidiaries that is rated A-1, P-1, or F-1 or better by at least two nationally
recognized rating agencies and matures in 270 days or less.
Money Market Mutual Funds provided such investment company is registered under
the Federal Investment Company Act of 1940, and which holds itself out as a money
market fund meeting the conditions of rule 2a-7 of the Securities and Exchange
Commission and is rated in one of the two highest rating categories for money
market funds by at least one nationally recognized statistical rating organization, or
whose shares are registered under the Federal Securities Act of 1933, as long as the
investment company's fund receives the highest credit rating and is rated in one of
the two highest risk rating categories by at least one nationally recognized statistical
rating organization and is invested in financial instruments with a final maturity no
longer than 13 months.
City of Fridley Investment Policy Page 7
Resolution No. 2018-02 Page 9
In addition, the share value of the money market funds must be equal to $1.00.
• The Minnesota Municipal Money Market Fund (4M) that was established by the League
of Minnesota Cities in 1987 to address the investment needs of Minnesota cities.
IX. Concentration of Credit disk.
It is the intent of the City to diversify its investments and thereby reduce the risk of loss
resulting from the over -concentration of assets in a specific maturity, issuer, institution, or
e kls,s, k�::4' sccl i,. No more than 50% of the entity's total investment portfolio
will be invested in
singlesmi ij� el s e cl o�i�° and no more than 15% of the
overall portfolio may be invested in the securities of a single issuer. The following
investments are exempt from diversification restrictions: tj S hIG.mli,�)�Iper gg]�y.
sSecurities k ' 1Ji �,�I S:: Money Market Funds, Local Government Investment
Pools and Deposits.
Due to the fluctuations in the value of the portfolio, maximum percentages for a particular
issuer or investment type may be exceeded at a point in time subsequent to the purchase or
maturity of a particular security. Securities need not be liquidated to realign the portfolio;
however, consideration should be given to this matter when future purchases are made.
Given the smaller portfolio of the Housing and Redevelopment Authority, the above
restrictions will be waived. Prudent judgment in regards to concentration of credit risk should
still be exercised when possible.
X. Collaaterali aations
In accordance with Minnesota Statute 118a.03, financial institutions will be required to
provide collateral on the following:
• Certificates of Deposits (Time Deposits)
• Demand Deposits
The City chooses to limit collateral to the following U.S. government securities:
• Treasury Bills
• Treasury Notes
• Treasury Bonds
• Federal National Mortgage Associations (FNMA)
City of Fridley Investment Policy Page 8
Resolution No. 2018-02 Page 10
• Federal Home Loan Bank (FHLB)
• Federal Farm Credit Bank (FFCB)
• Government National Mortgage Association (GNMA)
• Federal Home Loan Mortgage Corporation (FHLMC)
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For cash deposits on hand collateral will always be held by an independent third party with
whom the entity has a current custodial agreement. Clearly marked evidence of ownership
(safekeeping receipt) must be supplied by the entity and retained. Collateralization shall be in
the form of specific securities held for the City. The only exceptions are federal Depository
Insurance Corporation (FDIC), Securities Investor Protection Corporation (SIPC) and pre -
approved insurance coverage. The right of collateral substitution is granted, subject to
approval from the Finance Director.
1. Safekeeping and Custody
Securities purchased shall be held in a segregated account for the City's benefit at a third
party trustee as safekeeping agent. The investment dealer or bank from which the security is
purchased shall issue a confirmation ticket to the City listing the specific instrument, issuer,
coupon, maturity, CUSIP number, purchase or sale price, transaction date, and other pertinent
information. The financial service provider who executes the transaction on the City's behalf
shall deliver all securities on a delivery versus payment method (DVP) to the designated third
party. DVP is a way of controlling the risk to which securities market participants are
exposed. Delivery of securities (i.e. the change in their ownership) is done simultaneously
with payment. This means that neither the buyer nor the seller is exposed to the risk that the
other will default.
Investments, contracts, and agreements may be held in safekeeping with:
Any Federal Reserve Bank.
Any bank authorized under the laws of the United States or any state to exercise
corporate trust powers including, but not limited to, the bank from which the
investment is purchased.
The City's ownership of all securities should be evidenced by written acknowledgements
identifying the securities by:
City of Fridley Investment Policy Page 9
Resolution No. 2018-02 Page 11
• The names of the issuers.
• The maturity dates.
• The interest rates.
• Any CUSIP, serial numbers, or other distinguishing marks.
The City may not invest in securities that are both uninsured and not registered in the name of
the City and are held by either the counterparty or the counterparty's trust department or agent,
but not in the name of the City.
XII. Maximum Maturities
To the extent possible, the City will attempt to match its investment maturities with
anticipated cash flow liquidity demands (static liquidity). �% lliajk�Filjr, �0��...of the City's
funds ip (mcg i ipl simepi f lig r will be invested in securities maturing in 5 years or less,
with no more than 20% of the City's funds being invested in securities maturing 12 years or
more. sJi0G 1E1 H -k+) [fie i-VeR fliQ� 1he divem ,e dLtiiiliQ�ii A:el:LiAl"
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Portfolio maturities shall be staggered to avoid undue concentration of assets in a specific
sector. Maturities selected shall provide for stability of income and reasonable liquidity.
Because of the inherent difficulties in accurately forecasting cash flow requirements, a
portion of the portfolio should be continuously invested in readily available funds such as
local government investment pools and/or money market funds to ensure that appropriate
liquidity is maintained to meet ongoing obligations.
XIII. Internal Control
The Finance Director is responsible for establishing and maintaining an internal control
structure designed to ensure that the assets of the City are protected from loss, theft or
misuse. The internal control structure shall be designed to provide reasonable assurance that
these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of
a control should not exceed the benefits likely to be derived; and (2) the valuation of the
costs and benefits requires estimates and judgments by management.
The City will engage an external auditor for an annual independent review to assure
compliance with policies and procedures.
XIV. Performance Standard
The Investment portfolio will be designed to obtain a market average rate of return during
City of Fridley Investment Policy Page 10
Resolution No. 2018-02
Page 12
budgetary and economic cycles, taking into account the City's investment risk constraints
and cash flow needs.
. Market Yield/Bench mmmark.
The City's investment strategy is conservative. Under this conservative philosophy, the
City will purchase investments that fit in accordance with this policy. Given this strategy,
the basis used by the Finance Director to determine whether market yields are being
achieved shall be the 6 -month Treasury Bill.
XVI. Reporting
The Finance Director is charged with the responsibility of including a report on investment
activity and returns which are included in the City's Comprehensive Annual Financial
Report. The report will include security diversification information, maturity breakdowns,
and investment earnings.
XVII. Investment mmme n Policy Adoption
The City's Investment Policy shall be adopted by the Finance Director as changes in State
law, GASB standards, or other governmental regulations dictate. Any modifications made
must be approved by the City Council.
Adopted by City Council - June 25, 2012
Arat�xnde by � . �,"�auncil ___�Jc.�er��ar 8 2018
City of Fridley Investment Policy Page 11