Investment Financial Policies
In this section, you will find information on the City's financial policies related to the following topics:
- Introduction and Scope
- Investment Objectives
- Delegation of Authority
- Investor Advisor
- Standards of Prudence
- Ethics and Conflicts of Interest
- Internal Controls and Investment Procedures
- Continuing Education
- Authorized Investment Institutions and Dealers
- Maturity and Liquidity Requirements
- Competitive Selection of Investment Instruments
- Authorized Investment and Portfolio Composition
- United States Government Securities
- United States Government Agencies
- Federal Instrumentalities (United States Government-Sponsored Enterprises)
- Interest Bearing Time Deposits or Savings Accounts
- Commercial Paper
- Corporate Notes
- State and/or Local Government Taxable and/or Tax-Exempt Debt
- Registered Investment Companies
- Intergovernmental Investment Pools
- Performance Measurements
- Third-Party Custodial Agreements
1a. Investment Policy - Introduction
This policy sets forth investment objectives and parameters and designates authority for the management of City funds. This policy is designed to ensure the prudent management of public funds, the availability of operating and capital funds when needed, and an investment return competitive with comparable funds and financial market indices.
1b. Investment Policy - Scope
This investment policy applies to all cash and investments held or controlled by the City with the exception of pension funds and funds related to the issuance of debt where there are other existing policies or indentures in effect for such funds. Funds held by either state agencies (e.g., Florida Department of Revenue) and/or Hillsborough County governmental agencies that have not been distributed to the City (e.g., taxes) or that the City paid in anticipation of capital projects to be performed by those agencies, are not subject to the provisions of this policy.
2. Investment Objectives
Safety of Principal - The foremost objective of this investment program is the safety of the principal of those funds within the portfolios. Investment transactions shall seek to keep capital losses at a minimum, whether they are from securities defaults or erosion of market value. To attain this objective, diversification is required so that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio.
Maintenance of Liquidity - The portfolios shall be managed in such a manner that funds are available to meet reasonably anticipated cash flow requirements in an orderly manner. Periodic cash flow analyses will be completed to ensure that the portfolios are positioned to provide sufficient liquidity.
Return on Investment - Investment portfolios shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account investment risk constraints and liquidity needs. Return on investment is of least importance compared to the safety and liquidity objectives described previously. The core of investments is limited to relatively low risk securities in anticipation of earning a fair return relative to the risk assumed.
3. Delegation of Authority
The Chief Financial Officer, with the consent and approval of the Mayor, is authorized to invest any funds of the City in any manner allowed by Florida Statute 215.47 [as it may be amended from time to time], with the exception that the City may not invest in mortgage securities which represent participation in, or are collateralized by, mortgage loans secured by real property. The City is also authorized to invest in United States Government or United States Treasury bonds, certificates, notes or bills; or may arrange interest time deposits with the depositories of the City. The interest derived from such investments or deposits shall accrue as revenue, as required by agreement or by law, to credit each fund with interest on its invested balances. The Chief Financial Officer shall maintain written procedures for the operation of the investment portfolio and a system of internal accounting and administrative controls to regulate the activities of employees. The City may employ an Investment Advisor to assist in managing some or all of the City’s portfolios. Such Investment Advisor must be registered with the Securities Exchange Commission (SEC) under the Investment Advisers Act of 1940.
4. Investor Advisor
If an Investment Advisor is retained, the Investment Advisor will assist the Chief Financial Officer or designee with the following:
- Modifying the investment policy;
- Managing discretionary and/or non-discretionary investments;
- Recommending and monitoring investments;
- Conducting investment activities;
- Preparing a comprehensive set of reports designed to keep the Chief Financial Officer or designee fully informed of all investment transactions and the current status of the investment portfolio;
- Monitoring compliance with the City Investment Policy; and
- Attending the City’s Investment Committee meetings on a quarterly basis or as needed. At the discretion of the Chief Financial Officer, the City Investment Policy may require periodic modification based on economic conditions and/or the best value of the short-term operational needs of the City.
5. Standards of Prudence
The standard of prudence to be used by investment representatives shall be the “Prudent Person” standard and shall be applied in the context of managing the overall investment program. Investment representatives acting in accordance with written procedures and this investment policy, and exercising due diligence, shall be relieved of personal responsibility for an individual security’s credit risk or market price changes, provided deviations from expectation are reported to the City Mayor in a timely fashion and the liquidity and the sale of securities are carried out in accordance with the terms of this policy. The “Prudent Person” rule states the following:
“Investments shall be made with judgment and care, under circumstances then prevailing, which 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 probable income to be derived from the investment.”
Investment representatives who are officers or employees shall use the “Prudent Person” standard, or any person or firm hired or retained to invest, monitor, or advise concerning these assets shall be held to the higher standard of “Prudent Expert”. The “Prudent Expert” standard shall be that in investing and reinvesting moneys and in acquiring, retaining, managing, and disposing of investments of these funds, the Investment Advisor shall exercise: the judgment, care, skill, prudence, and diligence under the circumstances then prevailing, which persons of prudence, discretion, and intelligence, acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims, by diversifying the investments of the funds so as to minimize the risk, considering the probable income as well as the probable safety of their capital.
6. Ethics and Conflicts of Interest
Employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program or could impair their ability to make impartial investment decisions. Also, employees involved in the investment process shall disclose to the Mayor any material financial interests in financial institutions that conduct business with the City, and they shall further disclose any material personal financial/investment positions that could be related to the performance of the City’s investment program.
7. Internal Controls and Investment Procedures
The Chief Financial Officer shall establish a system of internal controls and written standard operating procedures (SOP). The internal controls should be designed to prevent losses of funds, which might arise from fraud, employee error, and misrepresentation by third parties, or imprudent actions by employees. The SOP shall include reference to safekeeping, repurchase agreements, the separation of transaction authority from accounting and record keeping, wire transfer agreements, banking service contracts, and collateralization. No person may engage in an investment transaction except as authorized under the terms of this policy.
8. Continuing Education
The Chief Financial Officer and other City staff that have responsibilities within the City’s treasury and investment program shall annually complete eight (8) hours of continuing education in subjects or courses of study related to investment practices and products in accordance with Florida Statute 218.415.
Continuing education may include internal or external training in a variety of formal or informal sessions and settings. At a minimum, the following employees shall complete eight (8) hours of continuing education training:
- Chief Financial Officer
- Chief Accountant
- Budget Officer
- Accounting Operations Manager – Treasury
- Supervisor – Banking Operations
9. Authorized Investment Institutions and Dealers
Authorized City staff and Investment Advisors shall only purchase securities from financial institutions that are qualified as public depositories by the Chief Financial Officer of the State of Florida; institutions designated as “Primary Securities Dealers” by the Federal Reserve Bank of New York; direct issuers of commercial paper and bankers’ acceptances; or approved non-primary securities dealers.
All approved non-primary securities dealers that qualify under Securities and Exchange Commission Rule 15C3-1 (uniform net capital rule) must provide the following information prior to executing investment trades with the City:
- Annual financial statement as well as the most recent quarterly statement;
- Regulatory history, through either the Office of the Comptroller of the Currency for dealer banks, or the National Association of Securities Dealers (NASD) for securities firms; and
- Statement of any pending lawsuits materially affecting the firm’s business.
10. Maturity and Liquidity Requirements
The Chief Financial Officer or designee shall determine the approximate amount of funds required to meet the day-to-day expenditure needs of the City. In order to have an available source of funds to meet unexpected cash requirements, approximately two (2) months operating expenses will be invested in appropriate short-term securities, i.e. fully-collateralized repurchase agreements, interest bearing time deposits, savings accounts, or money market funds. The balance of the City’s funds will be available for investment according to the guidelines incorporated within this policy.
Investments of bond reserves, construction funds, and other non-operating funds (“core funds”) shall have a term appropriate with the need for funds and in accordance with debt covenants, but in no event shall exceed five (5) years, and the weighted average maturity will be limited to a period of less than three (3) years. The maturities of the underlying securities of a repurchase agreement will follow the requirements of the Master Repurchase Agreement.
11. Competitive Selection of Investment Instruments
After the Chief Financial Officer, designee, or Investment Advisor, has determined the approximate maturity date based on cash flow needs and market conditions, and has analyzed and selected one or more optimal types of investments, a minimum of three (3) qualified banks and/or approved broker/dealers must be contacted and asked to provide bids/offers on securities, unless multiple bids are not feasible or appropriate based on market conditions. Bids will be held in confidence until the bid deemed best to meet the investment objectives is determined and selected.
However, if obtaining bids/offers is not feasible and appropriate, securities may be purchased utilizing the comparison to current market price method on an exception basis. Acceptable current market price providersinclude, but are not limited to:
- Bloomberg Information Systems;
- Wall Street Journal or a comparable, nationally recognized financial publication providing daily market pricing; and
- Daily market pricing provided by the City’s custodian or their correspondent institutions.
The Chief Financial Officer and/or Investment Advisor shall utilize the competitive bid process to select the securities to be purchased or sold. Selection by comparison to a current market price, as indicated above, shall only be utilized when, in judgment of the Chief Financial Officer and/or the Investment Advisor, competitive bidding would inhibit the selection process.
Examples of when this method may be used include, but are not limited to:
- When time constraints, due to unusual circumstances, preclude the use of the competitive bidding process;
- When no active market exists for the security being traded due to the age or depth of the issue;
- When a security is unique to a single dealer, for example, a private placement; and
- When the transaction involves new issues or issues in the “when issued” market.
Overnight sweep repurchase agreements will not be bid but may be placed with the City’s depository bank relating to the demand account for which the repurchase agreement was purchased.
12. Authorized Investment and Portfolio Composition
Investments should be made subject to cash flow requires and such cash flows are subject to revision as market conditions and the City’s needs change. However, when the invested funds are needed in whole or in part for the purpose originally intended or for more optimal investments, the Chief Financial Officer or designee may sell or direct the Investment Advisor to sell the investment at the then-prevailing market price and place the proceeds into the proper account as/with the City’s custodian.
The table shown below lists the investment requirements and allocation limits on security types, issuers, and maturities as established by the City. The Chief Financial Officer shall have the option to further restrict investment percentages periodically based on market conditions, risk, and diversification investment strategies. The percentage allocation requirements for investment types and issuers are calculated based on the original cost of each investment. Investments not listed in this policy are prohibited.
Authorized Investments & Portfolio Composition (table)
13. United States Government Securities
Purchase Authorization - The City may invest in negotiable direct obligations, or obligations the principal of and interest on which are unconditionally guaranteed by the United States Government. Such securities include, but are not limited to the following:
- Cash Management Bills
- Treasury Securities – State and Local Government Series (“SLGS”) Treasury Bills
- Treasury Notes
- Treasury Bonds
- Treasury Strips
Portfolio Composition - A maximum of 100% of available funds may be invested in United States Government securities.
Maturity Limitations - The maximum length to maturity of any direct investment in United States Government securities is five (5) years from the date of purchase.
14. United States Government Agencies
Purchase Authorization - The City may invest in bonds, debentures, notes, or callables if issued or guaranteed by United States Government agencies, provided such obligations are backed by the full faith and credit of the United States Government or guaranteed by the issuing agency.
Portfolio Composition - A maximum of 50% of available funds may be invested in United States Government agencies.
Limits on Individual Issuers - A maximum of 25% of available funds may be invested in individual United States Government agencies.
Rating Requirements - United States Government Agency funds shall be rated “AAA”.
Maturity Limitations - The maximum length to maturity for an investment in any United States Government agency security is five (5) years from the date of purchase.
15. Federal Instrumentalities (United States Government-Sponsored Enterprises)
Purchase Authorization - The City may invest in bonds, debentures, notes, or callables issued or guaranteed by United States Government-sponsored enterprises. Federal instrumentalities carry the implicit backing of the Unites States Government but are not direct obligations of it.
Portfolio Composition - A maximum of 80% of available funds may be invested in federal instrumentalities.
Limits on Individual Issuers - A maximum of 25% of available funds may be invested in any one issuer.
Rating Requirements - Federal instrumentalities shall be rated “AA”.
Maturity Limitations - The maximum length to maturity for an investment in any federal instrumentality is five (5) years from the date of purchase.
16. Interest Bearing Time Deposits or Savings Accounts
Purchase Authorization - The City may invest in non-negotiable interest bearing time deposits, such as certificates of deposit, or savings accounts in banks organized under the laws of this state and/or in national banks organized under the laws of the United States and doing business and situated in the State of Florida, provided that any such deposits are secured by the Florida Security for Public Deposits Act, Florida Statutes Chapter 280. Additionally, the bank shall not be listed with any recognized credit watch information service.
Portfolio Composition - A maximum of 25% of available funds may be invested in non-negotiable interest bearing time certificates of deposit.
Limits on Individual Issuers - A maximum of 15% of available funds may be deposited with any one issuer.
Maturity Limitations - The maximum maturity on any certificate of deposit shall be no greater than one (1) year from the date of purchase.
17. Commercial Paper
Purchase Authorization - The City may invest in commercial paper of any company organized and operating in the United States that is rated, at the time of purchase, “Prime-1” by Moody’s Investors Service (Moody’s) and “A-1” by Standard & Poor’s Financial Services, Inc. (Standard & Poor’s) (prime commercial paper). If the commercial paper is backed by a letter of credit (“LOC”), the long- term debt of the LOC provider must be rated “A” or better by at least two nationally recognized rating agencies.
Portfolio Composition - A maximum of 35% of available funds may be directly invested in prime commercial paper.
Limits on Individual Issuers - A maximum of 10% of available funds may be invested with any one issuer.
Rating Requirements - The commercial paper shall hold the highest two ratings by two NRSROs.
Maturity Limitations - The maximum length to maturity for prime commercial paper shall be 270 days from the date of purchase.
18. Corporate Notes
Purchase Authorization - The City may invest in corporate notes issued by corporations organized and operating within the United States or by depository institutions licensed by the United States that have a long term debt rating, at the time of purchase, at a minimum “A” category by Moody’s and a minimum long term debt rating of “A” category by Standard & Poor’s.
Portfolio Composition - A maximum of 35% of available funds may be directly invested in corporate notes.
Limits on Individual Issuers - A maximum of 5% of available funds may be invested with any one issuer.
Rating Requirements - Corporate notes shall be rated “A” category by two NRSROs.
Maturity Limitations - The maximum length to maturity for corporate notes shall be five years from the date of purchase.
19. State and/or Local Government Taxable and/or Tax-Exempt Debt
Purchase Authorization - The City may invest in state and/or local government taxable and/or tax- exempt debt, general obligation and/or revenue bonds, rated at least a minimum “Aa” category by Moody’s and a minimum long term debt rating of “AA” category by Standard & Poor’s for long-term debt, or rated at least “VMIG2” by Moody’s or “A-2” by Standard & Poor’s for short-term debt.
Portfolio Composition - A maximum of 20% of available funds may be invested in taxable and tax- exempt debts.
Limits on Individual Issuers - A maximum of 5% of available funds may be invested with any one issuer.
Rating Requirements - Corporate notes shall be rated “A” category by two NRSROs.
Maturity Limitations for Fixed Income Securities - The maximum length to maturity for an investment in any state or local government debt security is five years from the date of purchase.
Maturity Limitations for Variable Rate Demand Obligations - The maximum length to maturity for an investment in any state or local government debt security is the shorter of put or tender date, where the put or tender does not expire for the life of the security, or final maturity. The interest rate reset date can be daily, weekly, monthly, or semiannually and shall not exceed one year.
20. Registered Investment Companies (Mutual Funds)
Investment Authorization - The City may invest in shares in open-end, no-load mutual funds provided such funds are registered under the Federal Investment Company Act of 1940 and operated in accordance with 17 C.F.R. § 270.2a-7. In addition, the City may invest in other types of mutual funds provided such funds are registered under the Federal Investment Company Act of 1940, invested exclusively in the securities specifically permitted under this investment policy, and are similarly diversified.
Portfolio Composition - A maximum of 25% of available funds may be invested in mutual funds.
Limits on Individual Issuers - A maximum of 10% of available funds may be invested with any one non-SEC Rule 2a-7 investment mutual fund.
Rating Requirements - Mutual funds shall be rated “AAAm” by Standard & Poor’s or the equivalent by another rating agency.
Due Diligence Requirements - A thorough review of any investment mutual fund is required prior to investing, and on a continual basis. The City shall use a questionnaire, developed by the Chief Financial Officer that covers the major aspects of any investment pool/fund (see Attachment B - Investment Pool/Fund Questionnaire).
21. Intergovernmental Investment Pools
Investment Authorization - The City may invest in Florida Prime and any intergovernmental investment pools authorized pursuant to the Florida Interlocal Cooperation Act of 1969, as provided in Florida Statutes Section 163.01, and provided that said funds contain no derivatives or mortgage pass through securities.
Portfolio Composition - A maximum of 100% of available funds may be invested in intergovernmental investment pools.
Limits on Individual Issuers - A maximum of 50% of available funds may be invested with any one intergovernmental investment pool.
Rating Requirements - The investment pools shall be rated “AAAm” by Standard & Poor’s or the equivalent by another rating agency.
Due Diligence Requirements - A thorough review of any investment pool/fund is required prior to investing, and on a continual basis. The City shall use a questionnaire, developed by the Chief Financial Officer that will contain a list of questions that covers the major aspects of any investment pool/fund (see Attachment B - Investment Pool/Fund Questionnaire).
22. Performance Measurements
To assist in the evaluation of the portfolio’s performance, the City will use performance benchmarks for short-term and long-term portfolios. The use of benchmarks will allow the City to measure its returns against other investors in the same markets.
- For the short-term portfolio (less than 12 months maturity), the S&P Rated GIP Index will be used as a benchmark to compare to the portfolios’ net book value rate of return for current operating funds.
- Investment performance of funds designated as core funds and other non-operating funds that have a long-term (greater than 12 months maturity) investment horizon will be compared to an index comprised of U.S. Treasury or government securities. The appropriate index will have a duration and asset mix that approximates the City’s portfolio and will be utilized as a benchmark to compare to the portfolio’s total rate of return. Examples of an appropriate index are as follows: the Merrill Lynch 1-3 Year Government & Corporate AA Index and/or the Merrill Lynch 1-5 Year Government & Corporate AA Index.
- Investment advisors will report performance on both book value and total rate of return basis and compare the results to the above-stated performance benchmarks.
The Chief Financial Officer shall provide the Investment Committee with quarterly investment reports. Schedules in the quarterly report should include the following:
- A listing of individual securities held at the end of the reporting period
- Coupon, discount, or earning rate
- Average life or duration and final maturity of all investments
- Par value and market value
On an annual basis, the Chief Financial Officer shall provide a written report on all invested funds. The annual report shall provide all, but not limited to, the following: a complete list of all invested funds, name or type of security in which the funds are invested, the amount invested, the maturity date, income earned, the book value, the market value, and the yield on each investment.
The annual report will show performance on both a book value and total rate of return basis and compare the results to the above-stated performance benchmarks. All investments shall be reported at fair value per GASB standards. Investment reports shall be available to the public.
24. Third-Party Custodial Agreements
Securities, with the exception of certificates of deposit, shall be held with a third-party custodian; and, all securities purchased by, and all collateral obtained by the City should be properly designated as an asset of the City. The securities must be held in an account separate and apart from the assets of the financial institution. A third party custodian is defined as any bank depository chartered by the Federal Government, the State of Florida, or any other state or territory of the United States, which has a branch or principal place of business in the State of Florida, as defined in Section 658.12, Florida Statutes, or by a national association organized and existing under the laws of the United States, which is authorized to accept and execute trusts and is doing business in the State of Florida. Certificates of deposit will be placed in the provider’s safekeeping department for the term of the deposit.
The custodian shall accept transaction instructions only from those persons who have been duly authorized by the Chief Financial Officer and for which authorization has been provided, in writing, to the custodian. Only a duly authorized person shall be permitted to, in whole or in part, withdraw securities from the custodian.
The custodian shall provide the Chief Financial Officer with safekeeping receipts that provide detailed information on the securities held by the custodian. Security transactions between a broker/dealer and the custodian involving the purchase or sale of securities by transfer of money or securities must be made on a “delivery vs. payment” basis, if applicable, to ensure that the custodian will have the security or money, as appropriate, in hand at the conclusion of the transaction. Securities held as collateral shall be held free and clear of any liens.