HomeMy WebLinkAboutResolution 2019-095 Approving the Updated TOM Investment PolicyMARANA RESOLUTION NO. 2019-095
RELATING TO FINANCE; APPROVING THE UPDATE TO THE TOWN OF
MARANA INVESTMENT POLICY
WHEREAS the Town of Marana Investment Policy was adopted in February
2000 by Resolution No. 2000-17; and
WHEREAS Town staff has proposed an update to the Investment Policy to
modernize language and clarify requirements, to enhance the portfolio's diversification
and yield, to better align the policy with peer cities and towns and Government Finance
Officers Association best practices, and to take advantage of elements now allowed
under Arizona Revised Statutes; and
WHEREAS the Mayor and Council of the Town of Marana find that this
resolution is in the best interests of the Town of Marana and its citizens.
NOW, THEREFORE, BE IT RESOLVED BY THE MAYOR AND COUNCIL OF
THE TOWN OF MARANA, that the updated Town of Marana Investment Policy
attached as Exhibit A to this resolution is hereby adopted, and the Town Manager and
staff are hereby directed and authorized to undertake all other and further tasks
required or beneficial to carry out the terms and objectives of the updated policy.
PASSED AND ADOPTED by the Mayor and Council of the Town of Marana,
Arizona, this 1St day of October, 2019.
ATTES
Cherry L. LVS,
n, Town Clerk
00065775.DOCX /1
Marana Resolution No. 2019-095
�P
Mayor Ed Honea
APPROVED AS TO FORM:
Town
AARANA AZ
ESTABLISHED 1977
9/23/201910:50 AM
MARANA AZ
CELEBRATING 40 YEARS
Investment Policy
10/1/2019
EXHIBIT A
Contents
I. Introduction............................................................................................................................ 3
II. Governing Authority.............................................................................................................. 3
III. Scope.................................................................................................................................. 3
IV. General Objectives...........................................................................................................3
A. Safety.................................................................................................................................. 3
B. Liquidity............................................................................................................................... 4
C. Yield..................................................................................................................................... 4
V. Standards of Care.................................................................................................................4
A. Prudence............................................................................................................................ 4
B. Ethics and Conflicts of Interest......................................................................................... 4
C. Delegation of Authority and Responsibilities................................................................. 4
1. Governing Body.............................................................................................................4
2. Investment Officers........................................................................................................ 5
3. Investment Adviser........................................................................................................ 5
VI. Authorized Financial Institutions, Broker/Dealers, and Depositories ...........................5
A. Authorized Financial Institutions.......................................................................................5
B. Broker/Dealers....................................................................................................................6
C. Depositories........................................................................................................................ 6
D. Competitive Transactions................................................................................................. 6
VII. Safekeeping and Custody...............................................................................................7
A. Delivery versus Payment................................................................................................... 7
B. Third -Party Safekeeping.................................................................................................... 7
C. Internal Controls.................................................................................................................7
VIII. Suitable and Authorized Investments.............................................................................7
A. Investment Types and Credit Guidelines....................................................................... 7
B. Investment Downgrade....................................................................................................8
C. Collateralization.................................................................................................................8
1. Authorized Collateral....................................................................................................8
2. Required Collateral.......................................................................................................9
IX. Investment Parameters.....................................................................................................9
A. Mitigating Credit Risk in the Portfolio.............................................................................. 9
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1. Diversification ............................................
B. Mitigating Market Risk in the Portfolio........
X. Performance Evaluation .................................
XI. Reporting.......................................................
A. Quarterly & Annual Report ..........................
B. Annual Audit .................................................
XII. Policy Considerations ...................................
A. Approval of Investment Policy ....................
B Exem tion
............................................ I............... 9
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.......................................................... 11
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p........................................................................................
C. Annual Policy Review.....................................................................
D. Amendments...................................................................................
XIII. Glossary............................................................................................
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1-,�
TOWN OF MARANA
INVESTMENT POLICY
I. Introduction
The intent of the Investment Policy of the Town of Marana is to define the parameters within which funds
are to be managed. In methods, procedures, and practices, the policy formalizes the framework for the Town
of Marana investment activities that must be exercised to ensure effective and judicious fiscal and
investment management of the Town of Marana funds. The guidelines are 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.
II. Governing Authority
The investment program shall be operated in conformance with federal, state, and other legal requirements,
including those outlined in Arizona Revised Statutes Title 35, Chapter 2, Article 2.1.
III. Scope
This policy applies to activities of the Town of Marana, including funds held in Trust by the Town, such as
the Self -Insurance Trust funds, with regard to investing the financial assets of all funds. In addition, funds
held by trustees or fiscal agents are excluded from these rules; however, all funds are subject to regulations
established by the state of Arizona. The covered funds, and any new funds created by the Town of Marana,
unless specifically exempted by the Town Council of the Town of Marana. and this policy, are defined in
the Town of Marana Comprehensive Annual Financial Report.
Except for funds in certain restricted and special funds, the Town of Marana commingles its funds to
maximize investment earnings and to increase efficiencies with regard to investment pricing, safekeeping,
and administration. Investment income will be allocated to the various funds based on their respective
participation and in accordance with generally accepted accounting principles.
IV. General Objectives
The primary objectives, in priority order, of investment activities shall be:
A. Safety
Safety of principal is the foremost objective of the investment program. Investments shall
be undertaken in a manner that seeks to ensure the preservation of capital in the overall
portfolio. The goal will be to mitigate credit risk and interest rate risk through
diversification of security types, issuers, and maturity dates.
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B. Liquidity
The investment portfolio shall remain sufficiently liquid to ►Beet all operating cash
requirements that may be reasonably anticipated.
C. Yield
The investment portfolio shall be designed with the objective of attaining a market rate of
return throughout budgetary and economic cycles, taking into account the investment risk
constraints of safety and liquidity needs.
V. Standards of Care
A. Prudence
The standard of prudence to be used by investment officials shall be the "prudent person"
standard and shall be applied in the context of managing an overall portfolio. Investment
Officers acting in accordance with written procedures and this 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 developments.
The "prudent person" standard states that,
"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."
B. Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall adhere to the conflict of
interest law set forth in A.R.S. Title §38-501 through §38-511 and shall refrain from
personal activity that could conflict with the proper execution and management of the
investment program, or that could impair their ability to make impartial investment
decisions. Employees and investment officials shall disclose any material interests in
financial institutions with which they conduct business. Disclosure shall be made to the
governing body. They shall further disclose any personal financial/investment positions
that could be related to the performance of the investment portfolio. Employees and
officers shall refrain from undertaking any personal investment transactions with the same
individual with whom business is conducted on behalf of the Town of Marana.
C. Delegation of Authority and Responsibilities
1. Governing Body
The governing body (Town Council) will retain ultimate fiduciary responsibility
for the portfolios. The governing body will receive quarterly reports, designate
Investment Officers, and periodically review the Investment Policy, making any
changes necessary by adoption.
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2. Investment Officers
Authority to manage the investment program is granted to the Finance Director
under the direction of the Town Manager, hereinafter referred to as Investment
Officer, and gives the Investment Officer the right to delegate all or part of this
investment authority.
Responsibility for the operation of the investment program is hereby delegated to
the Investment Officer who shall act in accordance with established written
procedures and internal controls for the operation of the investment program
consistent with this Investment Policy. Officers will prepare investment reports
and other special reports as may be deemed necessary.
All participants in the investment process shall seek to act responsibly as
custodians of the public trust. No officer or designee may engage in an investment
transaction except as provided under the terms of this policy and supporting
procedures.
3. Investment Adviser
The Town of Marana may engage the services of one or more external investment
managers to assist in the management of the Town's investment portfolio in a
manner consistent with the Town's objectives. Such external managers may be
granted discretion to purchase and sell investment securities in accordance with
this Investment Policy and to use their own approved broker dealer list. Such
managers must be registered under the Investment Advisers Act of 1940.
VI. Authorized Financial Institutions, Broker/Dealers, and
Depositories
A list will be maintained of financial institutions and depositories authorized to provide investment services.
In addition, a list will be maintained of approved security broker/dealers selected by conducting a process
of due diligence. These may include "primary" dealers or regional dealers that qualify under Securities and
Exchange Commission (SEC) Rule 150-1 (uniform net capital rule).
A. Authorized Financial Institutions
The Investment Officer shall determine which financial institutions are authorized to
provide investment services to the Town of Marana. Institutions eligible to transact
investment business with the Town of Marana include:
1. Primary government dealers as designated by the Federal Reserve Bank;
2. Nationally or state -chartered banks;
3. The Federal Reserve Bank; and,
4. Direct issuers of securities eligible for purchase.
Selection of financial institutions and broker/dealers authorized to engage in transactions
with the Town of Marana shall be at the sole discretion of the Town of Marana.
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A periodic review of the financial condition and registration of all qualified financial
institutions and broker/dealers will be conducted by the Investment Officer.
B. Broker/Dealers
All broker/dealers who desire to become qualified for investment transactions must supply
the following:
I. Audited financial statements demonstrating compliance with state and federal capital
adequacy guidelines
2. Proof of FINRA certification
3. Proof of state registration
4. Completed broker/dealer questionnaire (not applicable to Certificate of Deposit
counterparties)
5. Certification of having read and understood and agreeing to comply with the Town of
Marana Investment Policy.
6. Evidence of adequate insurance coverage.
If the Town of Marana uses the services of an investment advisor, then the advisor's
approved broker/dealer list and process for monitoring may be used in place of the list
above.
C. Depositories
All financial institutions who desire to become depositories must supply the following:
1. Audited financial statements demonstrating compliance with state and federal capital
adequacy guidelines
2. Proof of state registration
3. Evidence of adequate insurance coverage
D. Competitive Transactions
1. The Investment Officer shall obtain competitive bid information on all purchases of
investment instruments purchased on the secondary market. A competitive bid can be
executed through a bidding process involving at least three separate brokers/financial
institutions or through the use of a nationally recognized trading platform.
2. If the Town is offered a security for which there is no readily available competitive
offering on the same specific issue, then the Investment Officer shall document
quotations for comparable or alternative securities. When purchasing original issue
instrumentality securities, no competitive offerings will be required as all dealers in
the selling group offer those securities at the same original issue price.
If the Town hires an investment adviser to provide investment management services,
the adviser must provide documentation of competitive pricing execution on each
transaction. The investment adviser will retain documentation and provide upon
request.
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VII. Safekeeping and Custody
A. Delivery versus Payment
All trades of marketable securities will be executed (cleared and settled) on a delivery
versus payment (DVP) basis to ensure that securities are deposited in the Town of Marana
safekeeping institution prior to the release of funds.
S. Third -Party Safekeeping
Securities will be held by an independent third -party safekeeping institution selected by
the Town of Marana. All securities will be evidenced by safekeeping receipts in the Town
of Marana name. The safekeeping institution shall annually provide a copy of its most
recent report on internal controls—Service Organization Control Reports (formerly 70, or
SAS 70) prepared in accordance with the Statement on Standards for Attestation
Engagements (SSAE) No. 16.
C. Internal Controls
Management is responsible for establishing and maintaining an internal control structure
designed to ensure that the assets of the Town of Marana 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 the cost of a
control should not exceed the benefits likely to be derived and the valuation of costs and
benefits requires estimates and judgments by management. The internal controls shall
address the following points at a minimum:
1. Control of collusion;
2. Separation of transaction authority from accounting and recordkeeping;
3. Custodial safekeeping;
4. Clear delegation of authority to subordinate staff members;
5. Written confirmation of transactions for investments and wire transfers;
6. Dual authorizations of wire transfers;
7. Staff training; and,
8. Review, maintenance and monitoring of security procedures both manual and
automated.
The external auditor shall provide an annual independent review to assure compliance with
state law, policies, and procedures.
VIII. Suitable and Authorized Investments
A. Investment Types and Credit Guidelines
The following investments will be permitted by this policy and are those defined by state
and local law where applicable. If additional types of securities are approved for investment
by public funds by state statute, they will not be eligible for investment by the Town of
Marana until this Policy has been amended and the amended version adopted by the
governing body. Permitted securities include:
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I . U.S. Treasury and other government obligations that carry the full faith and credit
guarantee of the United States for the payment of principal and interest;
2. Federal Agency or U.S. government sponsored enterprises (GSE) obligations,
issued or guaranteed by the United States or any of the senior debt of its agencies,
sponsored agencies, corporations, sponsored corporations or instrumentalities.;
3. Federally insured time deposits (Non-negotiable certificates of deposit) in state or
federally chartered banks, savings and loans, or credit unions, provided that the
amount per institution is limited to the maximum covered under federal insurance;
4. Time deposits (Non-negotiable certificates of deposit) in state or federally
chartered banks, savings and loans, or credit unions in excess of insured amounts
which are fully collateralized with securities in accordance with state law;
5. Negotiable certificates of deposit (NCDs) issued by a nationally or state-chartered
Tank or savings and loan association. Securities must be rated in the highest short-
term or three highest long-term ratings categories by a NRSRO: A-1/P-1, A-/A3, or
equivalent;
6. Commercial paper rated in the highest tier (e.g., A 1, P1, Fl, or higher) by a NRSRO.
All commercial paper must be issued by corporations organized and doing business
in the United States;
7. Fully collateralized repurchase agreements collateralized in compliance with this
Policy, governed by a S1FMA Master Repurchase Agreement, and with a maximum
maturity of one hundred eighty days. Capital project funds may be invested in a single
flex repurchase agreement with a maximum stated maturity that shall be matched to
the expenditure plan;
8. Bonds, debentures, notes or other evidences of indebtedness that are denominated
in United States dollars and carry at a minimum an "AA-" the equivalent or better
rating, at the time of purchase, from at least two NRSROs.
9. Bonds or other evidences of indebtedness of this state, county or incorporated cities,
towns, or school districts which carry as a minimum "AA-" rating or its equivalent by
a NRSRO;
10. SEC registered money market mutual funds, Funds must have the highest fund
rating by all NRSROs who rate the fund (e.j!., AAAm/Aaa-mf, or the equivalent);
and,
11. Local government investment pools established by the state treasurer pursuant
to A.R.S §35-326.
B. Investment Downgrade
If the credit rating of a security is subsequently downgraded below the minimum rating
level for a new investment of that security, the Investment Officer shall evaluate the
downgrade on a case-by-case basis in order to determine if the security should be held or
sold. The Investment Officer will apply the general objectives of safety, liquidity, yield,
and legality to make the decision.
C. Collateralization
Where allowed or required by state law and in accordance with state law, full
collateralization will be required on all demand deposit accounts, including checking
accounts and negotiable and non-negotiable certificates of deposit.
1. Authorized Collateral
Acceptable collateral for bank deposits and repurchase agreements shall include
only:
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a) A bond executed by a surety company that is approved by the treasury
department of the United States and authorized to do business in this state.
The bond shall be approved as to form by the legal advisor of the treasurer.
b) Securities or instruments of the following character:
(1) Obligations of the U.S. Government, its agencies and GSEs,
(2) Obligations of any state, city, county, or authority rated at least
"AA-" by two nationally recognized statistical rating
organizations.
2. Required Collateral
Per the statutory requirements of ARS § 35-323, collateral of at least 102% of the
deposit amount in excess of federally insured limits must be delivered to the
Collateral Agent prior to the settlement of funds.
IX. Investment Parameters
A. Mitigating Credit Risk in the Portfolio
Credit risk is the risk that a security or a portfolio will lose some or all of its value due to
a real or perceived change in the ability of the issuer to repay its debt. The Town of Marana
shall mitigate credit risk by adopting the following:
Diversi ication
It is the policy of the Town of Marana to diversify its investment portfolios. To
eliminate risk of loss resulting from the over -concentration of assets in a specific
maturity, issuer, or class of securities, assets in all Town of Marana funds shall be
diversified by maturity, issuer, and class of security. Diversification strategies shall
be determined and revised periodically by the Investment Officer for all funds.
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Due to fluctuations in the aggregate surplus funds balance, maximum percentages
for a particular issuer or investment type may be exceeded at a point in time
subsequent to the purchase of a particular issuer or investment type. Securities need
not be liquidated to realign the portfolio; however, consideration should be given
to this matter when future purchases are made to ensure that appropriate
diversification is maintained.
B. Mitigating Market Risk in the Portfolio
Market risk is the risk that the portfolio value will fluctuate due to changes in the general
level of interest rates. The Town of Marana recognizes that, over time, longer-term/core
portfolios have the potential to achieve higher returns. On the other hand, longer-term
portfolios have higher volatility of return. The Town of Marana shall mitigate market risk
by providing adequate liquidity for short-term cash needs, and by making longer-term
investments only with funds that are not needed for current cash flow purposes. The Town
of Marana further recognizes that certain types of securities, including variable rate
securities, securities with principal pay downs prior to maturity, and securities with
embedded options, will affect the market risk profile of the portfolio differently in different
interest rate environments. The Town of Marana, therefore, adopts the following strategies
to control and mitigate its exposure to market risk:
1. The Town of Marana shall maintain a minimum of three months of budgeted operating
expenditures in short-term investments to provide sufficient liquidity for expected
disbursements;
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2. The maximum percent of callable securities in the portfolio shall be 15%;
3. The maximum stated final maturity of individual securities in the portfolio shall be five
years;
4. Liquidity funds will be held in the State Pool or in money market instruments maturing
one year and shorter;
5. Longer term/Core funds will be defined as the funds in excess of liquidity
requirements. The investments in this portion of the portfolio will have maturities
between one day and five years and will be only be invested in higher quality and liquid
securities; and,
6. The duration of the portfolio shall at all times be approximately equal to the duration
(plus or minus 10%) of a Market Benchmark Index selected by the Town of Marana
based on the Town of Marana investment objectives, constraints and risk tolerances.
The Town's current Benchmark shall be documented in an agreement.
i) Due to fluctuations in the aggregate surplus funds balance, maximum
percentages for a particular issuer or investment type may be exceeded at a
point in time subsequent to the purchase of a particular issuer or investment
type. Securities need not be liquidated to realign the portfolio; however,
consideration should be given to this matter when future purchases are made.
X. Performance Evaluation
The investment portfolio will be managed in accordance with the parameters specified within this policy.
The portfolio should obtain a market average rate of return during a market/economic environment of stable
interest rates. A series of appropriate benchmarks shall be established against which portfolio performance
shall be compared on a regular basis. The benchmarks shall be reflective of the actual securities being
purchased and risks undertaken and the benchmarks shall have a similar weighted average maturity and
credit profile as the portfolio. Return comparisons of the portfolio to the market benchmark will be
calculated on a monthly basis. When comparing the performance of the Town's portfolio, all fees and
expenses involved with managing the portfolio shall be included in the computation of the portfolio's rate
of return.
XI. Reporting
A. Quarterly & Annual Report
The Investment Officer shall submit quarterly and annual reports to the Town Manager and
Town Council showing the make-up of the investment portfolio and return for the period.
The report should also contain sufficient information to permit an informed outside reader
to evaluate the compliance of the investment program with this policy. Internal investment
reports will be produced on a monthly basis
B. Annual Audit
Management shall establish an annual process of independent review by the external
auditor to assure compliance with internal controls. Such audit will include tests deemed
appropriate by the auditor.
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XII. Policy Considerations
A. Approval of Investment Policy
The Investment Policy and any modifications to the policy shall be formally approved and
adopted by the Town Council of the Town of Marana
B. Exemption
Any investment currently held that does not meet the guidelines of this policy shall be
temporarily exempted from the requirements of this policy. Investments must come in
conformance with the policy within six months of the policy's adoption or the governing
body must be presented with a plan through which investments will come into
conformance.
C. Annual Policy Review
The Investment Policy shall be reviewed at least annually within 120 days of the end of the
fiscal year to ensure its consistency with the overall objectives of preservation of principal,
liquidity, and yield, and its relevance to current law and financial and economic trends.
D. Amendments
Any changes to this policy must be approved by the Investment Officer and any other
appropriate authority, as well as the individuals charged with maintaining internal controls.
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XIII. Glossary
US Treasury Obligation Direct obligations of the United States Treasury whose payment is guaranteed
by the United States. (State Statute Note)
GSE – Agency Obligations US Government Agencies, Government Sponsored Enterprises (GSEs),
Corporations or Instrumentalities of the US Government—Federal Instrumentality Securities include, but
are not limited to, Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage
Corporation (FHLMC), Federal Home Loan Banks (FHLB), and the Federal Farm Credit Bureau (FFCB).
(State Statute)
Commercial Paper Commercial Paper that is rated A I/PI and has long-term bonds which have a minimum
rating of AA- by Standard and Poor's and Aa3 by Moody's.
Repurchase Agreements An agreement with an approved broker/dealer that provides for sell and
simultaneous purchase of an allowable collateral security. The difference in the sales and purchase price is
the earning rate on the agreement. A master repurchase agreement must be in place with the approved
broker/dealer.
Corporate Indebtedness Corporate Indebtedness that has a minimum long-term debt rating of A- rated
by Standard and Poor's and a A3 rating by Moody's or equivalent rating by any nationally recognized
statistical rating organization.
Local Government Investment Pool State treasurer's local short-term investment fund up to the statutory
limit per state statute
Certificates of Deposit/Bank Deposit/Savings Accounts
Time deposit open accounts, certificates of deposit, and savings accounts in insured institutions as defined
in State Statute, in credit unions as defined in State statute or in federal credit unions, if the institution or
credit union maintains a head office or a branch in this state. [State Statute lawfully issued debt obligations
of the agencies and instrumentalities of the State of Arizona and its political subdivisions that have a long-
term rating of A- or an equivalent rating or better or are rated on the settlement date in the highest category
for short-term municipal debt by a nationally recognized statistical rating organization.]
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