HomeMy WebLinkAbout025151 RES - 12/17/2002RESOLUTION
AMENDING THE CITY INVESTMENT POLICY TO INCREASE MAXIMUM
AMOUNTS ALLOWED IN LOCAL GOVERNMENT INVESTMENT POOLS
FROM $50,000,000 TO $65,000,000; ALLOWING FOR UP TO A TWO-DAY
INCREASE IN MAXIMUM AMOUNT UPON NOTIFICATION TO INVESTMENT
COMMITTEE; AND ADOPTING THE INVESTMENT POLICY AS AMENDED
WHEREAS, the City of Corpus Christi Investment Policy was adopted in
Resolution No. 022390 on October 24, 1995; amended in Resolution No. 022980 on
July 8, 1997; amended October 27, 1998; amended in Resolution No. 023864 on
December 14, 1999; amended in Resolution No. 024208 on September 12, 2000; and
amended in Resolution No. 024679 on December 11,2001;
WHEREAS, The City of Corpus Christi Investment Committee reviewed
the proposed amendments to the Investment Policy identified herein and recommends
that the City Council amend the City Investment Policy;
WHEREAS, as provided in Section II. C of the Investment Policy, the City
Council must review the Investment Policy on or before December 31 of each year.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF
THE CITY OF CORPUS CHRISTI, TEXAS:
SECTION 1. Section V. A. 4 of the City Investment Policy is hereby
amended to increase maximum amount allowed in each local government investment
pool from $50,000,000 to $65,000,000, and to allow for up to a two-day increase in
maximum amount upon notification to Investment Committee. A copy of the amended
City Investment Policy is attached and incorporated as an Exhibit. The City Investment
Policy is reviewed and adopted as amended.
ATTEST:
THE CITY OF CORPUS CHRISTI
Armando Chapa
City Secretary
Mayor
Approved this I~'--- day of ~'~<~c~-~--,J*~,~ , 2002
James R. Bray, Jr., City Attorney
Lisa Aguilar
Assistant City Attorney
Corpus Christi, Te. xas
The above resolution was passed by the following vote:
Samuel L. Neal, Jr.
Brent Chesney
Javier D. Colmenero
Henry Garrett
Bill Kelly
Rex A. Kinnison
,John Longoria
Jesse Noyola
Mark Scott
INVESTMENT POLICY
Investment Policy - Resolution No. 025151
Approved on December 17, 2002
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TABLE OFCONTENTS
Page
1. INTRODUCTION ........................................................................................................................... 2
II. PURPOSE ....................................................................................................................................... 2
III. DEFINITIONS ................................................................................................................................ 3
IV. INVESTMENT OBJECTIVES ....................................................................................................... 4
V. AUTHORIZED INVESTMENTS AND MAX1MUM TERM ....................................................... 6
VI. INVESTMENT MIX AND STRATEGIES .................................................................................... 9
VII. RESPONSIBILITY AND CONTROLS ....................................................................................... 11
VIII. COMPETITIVE SOLICITATION ................................................................................................ 12
IX. AUTHORIZED INSTITUTIONS ................................................................................................. 13
X. PLEDGED COLLATERAL .......................................................................................................... 13
XI. SAFEKEEPING ............................................................................................................................ 14
XII. W1RE AND ELECTRONIC SERVICES ...................................................................................... 15
XIII. INFORMATION REPORTING/EVALUATION ......................................................................... 15
XIV. BANKING SERVICES ................................................................................................................. 16
XV. GENERAL PROVISIONS ............................................................................................................ 16
APPENDICES
B.
C.
D.
E.
F.
G.
PUBLIC FUNDS INVESTMENT ACT ......' ................................................................................. 18
LIST OF AUTHORIZED CITY REPRESENTATIVES .............................................................. 29
CITY'S CODE OF ETHICS ORDINANCE ................................................................................. 30
CITY'S INDEMNIFICATION ORDINANCE ............................................................................. 43
WIRE AND ELECTRONIC SERVICES ...................................................................................... 45
INVESTMENT POLICY RESOLUTIONS .................................................................................. 46
RESOLUTION 024679 .................................................................................................................. 49
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I. INTRODUCTION
The City of Corpus Christi shall invest all available monies in compliance with this Investment Policy as
authorized by the Public Funds Investment Act.
Effective cash management is recognized as essential to good fiscal management. An aggressive cash
management program will be pursued to maximize interest earnings as a viable and material revenue source.
The City's portfolio shall be designated and managed in a manner responsive to the public trust and consistent
with local, state, and federal law.
Investments shall be made with the primary objective of.'
· Preservation of capital and protection of principal;
· Maintenance of sufficient liquidity to meet operating needs;
· Security of city funds and investments;
· Diversification of investments to minimize risk while maximizing interest earnings; and
· Maximization of return on the portfolio.
Earnings from investments will be used in a manner that will best serve the interests of the City of Corpus
Christi.
11. PURPOSE
A. Authorization
This Investment Policy is authorized by the City Council (see Appendix F) in accordance
with Chapter 2256, Subchapter A of the Government Code - The Public Funds Investment
Act (see the attached and incorporated Appendix A).
B. Scope
This Investment Policy applies to activities of the City, excluding pension funds, with regard
to investing the financial assets of Funds, including, but not limited to:
General Funds
Special Revenue Funds
Enterprise Funds
Internal Service Funds
Special Purpose Funds (within the control of Investment Officers)
Capital Improvement Funds (Bond Proceeds, Bond Reserves and Debt Service,
Interfund Transfer and Commercial Paper)
In addition to this policy, the investment of Bond Funds, Debt Service, and Reserve Funds
shall be managed by their governing ordinances and Federal Law, including the Tax Reform
Act of 1986 and subsequent legislation.
C. Review and Amendment
This Policy shall be reviewed annually by the City Council on or before December 31 of
each calendar year subsequent to its adoption. Amendments must be authorized by the City
Council. The City Council shall adopt a written instrument by ordinance or resolution stating
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that it has reviewed the Investment Policy. The written instrument so adopted shall record
any changes made to the Investment Policy.
IlL DEFINITIONS
Director of Financial Services - The Director of Financial Services is the Municipal Finance Officer
responsible for City investments.
Director of Financial Services Designee ~ Controller or Chief Accountant.
Excess Cash Balances - Collected bank balances not needed to pay estimated check clearings.
Investment Officers - City Treasurer and Investment Analyst.
Investment Portfolio - All City monies being invested under authority of the Investment Officers.
Institution - Any firm, bank, bankholding company, broker or dealer who provides quotes for either the
pumhase or sale of investments.
Third Party Safekeeping Institution - Any Institution not affiliated with Institution delivering the Investment.
Investment - All authorized Securities listed in Item V. Authorized investments and maximum term
investments approved by the Investment Committee include U.S. Treasuries, U.S. Agencies, Repurchase
Agreements, Local Government Investment Pool, and Collateralized Certificates of Deposit.
Failed Transaction - An Investment, which an Institution fails to deliver the City's Third Party Safekeeping
Institution.
Collateral - Securities pledged by an Institution to safeguard City assets; the City requires either U.S.
Treasuries or U.S. Agencies Securities so that the market values can be readily determined at any point in
time.
Authorized City Representative - Officers authorized to transact as set out in the attached and incorporated
Appendix B on behalf of the City (City Treasurer, Controller, Chief Accountant, and Director of Financial
Services).
Reserve Funds - Funds designated by Council for specific purposes, which have not been appropriated for
spending.
Securities - Approved Investments designated by the Investment Committee to be held in the Investment
Portfolio or acceptable to be pledged as Collateral to secure the monies of the City.
Special Purpose Funds - Monies of non-profit corporations that Investment Officers are permitted to invest;
includes such entities as the Corpus Christi Health Facilities Development Corporation, Coastal Bend Health
Facilities Development Corporation, Corpus Christi Housing Finance Corporation, Corpus Christi
Community Improvement Corporation, HOME Project, First Time Home Buyer, Corpus Christi Industrial
Development Corporation, and Corpus Christi Crime Control and Prevention District.
Authorized Selling Group - Primary dealer and regional firms that have been selected by the underwriter to
sell their securities. Each authorized member of a selling group will offer the issue at the price authorized by
the governmental agency.
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Qualified Representative - A person, who holds a position with a business organization, who is authorized to
act on behalf of the business organization, and who is one of the following:
(A)
For a business organization doing business that is regulated by or registered with a securities
commission, a person who is registered under the roles of the National Association of
Securities Dealers;
(B)
For a state or federal bank, a savings bank, or a state or federal credit union, a member of the
loan committee for the bank or branch of the bank or a person authorized by corporate
resolution to act on behalf of and bind the banking institution; or
(c)
For an investment pool, the person authorized by the elected official or board with authority
to administer the activities of the investment pool to sign the written instrument on behalf of
the investment pool.
(D)
For an investment management firm registered under the Investment Advisers Act of 1940
(15 U.S.C. Section 80b-1 et seq.) or, if not subject to registration under that Act, registered
with the State Securities Board, a person who is an officer or principal of the investment
management firm.
IV. INVESTMENT OBJECTIVES
A. Preservation and Safety of Principal
Investments of the City shall be undertaken in a manner that seeks to ensure the preservation
of capital in the overall Investment Portfolio.
B. Liquidity
The City's Investment Portfolio must be structured in a manner, which maintains the
liquidity necessary to pay obligations as they become due. Sufficient cash flows must be
maintained by rapidly depositing monies and timing disbursements. Generally, Investments
are matched to specific cash flow requirements such as payrolls, debt service payments, and
other payables. Liquidity is also achieved by investing in Investments with active secondary
markets or in Local Government Pools with stable net asset values.
It is imperative that the Investment Portfolio and Excess Cash Balances be protected with
sufficient Collateral at 102% of current market values so that monies are available as needed.
C. Return on Investments
The City's Investment Portfolio shall be designed with the objective of regularly exceeding
the average yield of the following benchmarks in a manner consistent with the principles of
this policy described in IV.A and B.
Operating Funds - Six-Month Constant Maturity Index
Capital Improvement Funds - Three-Month Constant Maturity Index
Core Funds - One-Year Constant Maturity Index
Special Funds Three-Month U.S. Treasury Bill Yield
However, it must be recognized that during a declining market, satisfying this objective may
not be practical until Investments mature and can be re-invested.
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For bond issues to which arbitrage restrictions apply, the primary objectives shall be to
obtain satisfactory market yields and to minimize the costs associated with investing such
monies.
D. Diversification
Diversification is required because of differing liquidity needs of the City and is employed as
a way to control risk. Diversification minimizes the risk to the overall Investment Portfolio
of potential losses on individual Securities and enhances the safety of the Investment
Portfolio.
Through the solicitation of competitive proposals, the City shall allocate and diversify its
Investments through various Institutions. The following types of Investments will be
solicited from approved Institutions:
U.S. Treasuries
U.S. Government Agencies
Repumhase Agreements - through a Third Party Safekeeping Institution Agreement,
which includes an approved primary dealer doing business in Texas as required by
the PFIA.
Public Funds Investments Pools - through participation agreements; and
Certificates of Deposit - through approved local banks.
Money Market
The City recognizes that investment risks can result from default risk and market price risks
due to various technical and fundamental economic factors, and other complications, leading
to temporary illiquidity.
To control market price risks, volatile Investments shall be avoided. To control default risk,
the only acceptable method of payment will be on a delivery versus payment-basis for all
transactions, except investment pool funds and repurchase agreements.
Delivery versus Payment provides for payment to Institutions at the time the Investments are
recorded in book entry form at the City's Third Party Safekeeping Institution, currently
maintained at the Federal Reserve. For certificates of deposit, sufficient Collateral at 102%
of current market values must be pledged to protect all City monies or monies under its
control that exceed Federal Deposit Insurance Corporation (FDIC) coverage; the Collateral
must be safekept at a Third Party Safekeeping Institution not affiliated with the bank or bank
holding company providing the certificate of deposit.
V. AUTHORIZED INVESTMENTS AND MAXIMUM TERM
The City of Corpus Christi is authorized to invest in:
A. Authorized Investments
Obligations of the United States or its agencies and instrumentalities, which currently
include:
1. Short-term U.S. Treasuries: Maximum Term
a. U.S. Treasury Bills ............................................................. up to 365 days
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b. U.S. Treasury Coupon Notes ................................................. up to 3 years
c. U.S. Treasury Notes and Strips ........................................... up to 3 years*
*see Section V.B.3.
2. U.S. Agencies: Maximum Term
a. Federal Home Loan Bank ...................................................... up to 2 years
b. Federal National Mortgage Association ................................ up to 2 years
c. Federal Farm Credit ............................................................... up to 2 years
d. Federal Home Loan Mortgage Corporation .......................... up to 2 years
e. Student Loan Marketing Association .................................... up to 2 years
3. Repurchase Agreements ......................................................... up to 365 days
Repurchase agreements fully collateralized at 102% with a defined maturity date
placed with a primary government dealer and safekept at a Third Party Safekeeping
Institution, as provided under the provisions of the PSA (Public Securities
Association) master repurchase agreement. An executed agreement between the
City, primary government dealer and Third Party Safekeeping Institution will be on
file before the City will enter into a tri-party repurchase agreement.
Weekly monitoring by the City's Investment Officers of all Collateral underlying
repurchase agreements is required. More frequent monitoring may be necessary
during periods of market volatility.
Reverse repurchase agreements are not a permitted Investment.
4. Local Government Investment Pool ...................................................... daily
Investments made on behalf of the City by a public funds investment pool duly
created to function as a money market mutual fund that marks its portfolio to market
daily and, to the extent reasonably possible, which stabilizes its portfolio to market
daily and, to the extent reasonably possible, which stabilizes its portfolio at a $1 net
asset value. If the ratio of the market value of the Pool's portfolio divided by the
book value of the portfolio is less than 99.50% or greater than 100.50%, the Pool's
portfolio holdings shall be sold as necessary to maintain the ratio between 99.50%
and 100.50%.
No more than $65,000,000 may be invested in each local government investment
pool at any time. The Director of Financial Services or designee may allow for up
to a two-day increase in maximum amounts upon notification to Investment
Committee.
The public funds investment pool must be continuously rated no lower than AAA or
AAA-m or at an equivalent rating by at least one nationally recognized rating
service with a weighted average maturity no greater than 90 days.
5. Collateralized Certificates of Deposit .......................................... up to 1 year
Certificates of deposit or other instruments issued by state and national banks
domiciled in Texas that are:
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a. Guaranteed or insured by the Federal Deposit Insurance
Corporation or its successor; or
Secured by obligations that are described by Section V,
Subdivision A.I (a) through A.2 (e).
Certificates of deposit must be fully collateralized at 102% of their market
value. The City requires the bank to pledge U.S. Treasuries or U.S.
Agencies as collateral. (Collateral Mortgage Obligations will not be eligible
as Collateral-see X.C.). The Investment Officers will monitor adequacy of
collateralization on a weekly basis.
Weighted Average Maturity
In order to minimize risk of loss to the Investment Portfolio due to interest rate fluctuations,
Investment maturities will not exceed the anticipated cash flow requirements of the Funds.
Maturity guidelines by Fund are as follows:
The maximum term for any Investment other than Reserve Funds is three years. The
weighted averaged days to maturity shall be less than 365 days for Investments, other
than Reserve Funds.
1. Operating Funds
The weighted average days to maturity of Investments, other than Reserve Funds,
shall be 365 days or less. The Investment Officers ~vill monitor the maturity level
and make changes as appropriate.
2. Capital Improvement Funds (Bond Proceeds, Bond Reserves, and Debt Service)
The Investment maturity of that portion of the City Portfolio that represents Capital
Improvement Funds (bond proceeds, reserve funds, and debt service) shall be
determined considering:
The anticipated cash flow requirements of the Capital Improvement Funds;
and
The "temporary period" as defined by Federal tax law during ~vhich time
bond proceeds may be invested at an unrestricted yield. After the expiration
of the temporary period, bond proceeds subject to yield restriction shall be
invested considering the anticipated cash flow requirements of the Capital
Improvement Funds.
Before an Investment can be made of bond proceeds from all bond issues affected
by the Tax Reform Act of 1986, a careful yield analysis must be performed to
comply with the Tax Reform Act. Also, an annual rebate calculation must be
performed to determine if the City is required to rebate interest at the end of each
respective bond issue's five-year term.
Beginning on the anniversary of the third year for the respective bond issues, all
bond proceeds will be yield restricted as required by the Tax Reform Act.
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3. Reserve Funds: Established by Operative Bond Funds or by the City Council.
The following Reserve Funds may be invested up to seven years in U.S. Treasuries:
Maximum
Choke Canyon Fund 4050 ......................................................... $2,000,000
Debt Service Fund 2010 ............................................................ $4,000,000
Utility Refunding Fund 4100 .................................................... $5,975,000
City monies governed by this Policy may not be invested in other investments
permitted by law unless (I) such investments are specifically authorized for the
investment of these monies by an ordinance adopted by the City Council issuing
bonds or other debt obligations or (ii) this Policy is amended to permit such
investment.
C. Methods to Monitor Investment Market Price
The City monitors the market price of investments by obtaining this information from the
Bloomberg system or the Tele-Rate system which is made available through the City's
authorized institutional brokers. The City may also obtain market price information from
other nationally recognized sources of financial information such as the Wall Street Journal.
VI. INVESTMENT MIX AND STRATEGIES
A. Investment Mix
A minimum of 15% of the total Investment Portfolio shall be held in Investments with
maturity dates of 90 days or less for liquidity. U.S. Treasuries/Agencies may be purchased
for longer-term maturities (greater than one year) but shall not exceed 40% of the total
Investment Portfolio to preserve liquidity.
Daily Investment reports shall specifically address whether stated Investment mix
requirements are being met. Unless approved by the Investment Advisory Committee, the
target percentages specified shall not be exceeded for temporary periods greater than thirty
(30) days without the Investment Officers taking corrective action.
B. Strategies
Investment strategies for Operating Funds and Capital Improvement Funds have as their
primary objective the assurance that anticipated cash flows are matched with adequate
investment liquidity. The secondary objective is to create an Investment Portfolio structure,
which will experience minimal volatility during economic cycles. To accomplish this
strategy, the City will purchase high quality, short-to-medium-term investments which will
compliment each other.
To pay for anticipated disbursements, investments will be laddered to correspond with the
projected cash needs of the City. Some Investments are acquired on the short end of the
yield curve (90 days or less) to meet immediate cash needs. A few Investments are
purchased on the intermediate part of the yield curve (1-3 years) to lock in higher interest
rates when rates are projected to decline due to the economic cycle of the economy. The
dollar weighted average investment maturity of 365 days or less will be calculated using the
stated final maturity dates of each investment.
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Co
Investment strategies for debt service funds shall have as the primary objective the assurance
of investment liquidity adequate to cover the debt service obligations on the required
payment date. Investments purchased shall not have a stated final maturity date that exceeds
the debt service payment date.
Investment strategies for debt service reserve funds shall have as the primary objective the
ability to generate a dependable revenue stream to the appropriate debt service fund from
investments with a low degree of volatility. In accordance with the bond ordinance specific
to an individual bond issue, which sets out the maximum investment term, Investments
should be of high quality, with short-to-intermediate-term maturities.
Investment strategies for Special Purpose Funds will have as their primary objective the
assurance that anticipated cash flows are matched with adequate Investment liquidity.
These investment portfolios shall include highly liquid investments to allow for flexibility
and unanticipated project outlays. The stated final maturity dates of Investments held shall
not exceed the estimated project completion date.
Achieving Investment Return Objectives
Investment selection shall be based on legality, appropriateness, liquidity, and risk/return
considerations. Monies designated for immediate expenditure should be passively invested.
Passive investment provides for:
Liquidity to pay upcoming disbursements (payroll, debt service, payments, payables,
etc.)
2. Maximizing investment terms under the current budget; and
3. Structuring the Investment Portfolio on a "laddered" basis.
The remaining portion of the Investment Portfolio may be invested actively and the reasons
for doing so are:
Active investment provides for:
The ability to improve yields in the Investment Portfolio by riding the yield curve
during business cycle recovery and expansion periods. Interest rates on longer
maturities typically exceed those on shorter maturities. Therefore, longer maturities
(that can be held to maturity, if necessary) are purchased in anticipation of selling
later at the same or lower interest rate, improving the total return during the holding
period.
The ability to improve market sector diversification by swapping out of one
investment into another for a better total return, to realign for disbursement
projections, or to extend or shorten maturity depending on economic forecasts. The
City Manager, or his designee, is required to approve any investment that must be
sold at a loss. All gains and losses will be reported to the City Council and
Investment Committee on a quarterly basis.
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VII. RESPONSIBILITY AND CONTROLS
A. Authority to Invest
The authority to invest City funds and the execution of any documentation necessary to
evidence the investment of City funds is granted to the Director of Financial Services. The
City Treasurer and the Investment Analyst are the designated Investment Officers
responsible for the daily operation of the investment program. All investments will be
approved in writing by the Director of Financial Services or Designee (excluding Investment
Officers).
The City Council may contract with an investment management firm registered under the
Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State
Securities Board to provide for the investment and management of public funds or other
funds under its control. A contract made under authority of this subsection may not be for a
term longer than two years. A renewal or extension of the contract must be made by the City
Council by ordinance or resolution.
B. Establishment of Internal Controls
The City Treasurer will establish a system of internal controls over the Investment activities
of the City and document such controls in the Investment Procedures Manual. These internal
controls shall be approved by the Director of Financial Services.
C. Prudent Investment Management
Investments shall be made with the same judgment and care, under prevailing circumstances,
that a person of prudence, discretion, and intelligence would exercise in the management of
the person's own affairs, not for speculation, but for investment, considering the probable
safety of capital and the probable income to be derived. Prudent investment is to be judged
by the Investment Portfolio as a whole, not on individual Investments.
If liquidation is necessary due to a pool losing its AAA rating or for other reasons,
liquidation will be done in a prudent manner consistent with the investment objectives of this
policy and as provided in 2256.021 of the Government Code.
Investment of monies shall be governed by the following investment objectives in order of
priority:
1. preservation and safety of principal;
2. liquidity; and
3. yield.
The designated Investment Officers shall perform their duties in accordance with the adopted
Investment Policy and Procedures set forth in the Investment Procedures Manual.
Investment Officers acting in good faith and in accordance with these policies and
procedures shall be relieved of personal liability. The Investment Committee and Officers
are indemnified as provided by City Ordinance attached and incorporated as Appendix D.
D. Standards of Ethics
The Investment Committee and City Treasurer will comply with the City's Code of Ethics
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Ordinance attached and incorporated as Appendix C which requires disclosure of financial
interests by April of each year.
The designated Investment Officers and all members of the Investment Committee shall
adhere to the City's Ethics Ordinance. To the extent required by section 2256.005(I) of the
Government Code, the Investment Committee and City Treasurer shall make such filings as
required by law.
E. Training and Education
Recognizing that the training and education of Investment Officers contributes to efficient
and effective investment management, the City requires its Investment Officers to obtain
appropriate professional training. Such training is currently required by, and shall be
obtained in accordance with Section 2256.008 of the Government Code Public Funds
Investment Act. The Investment Committee approves investment-training seminars
presented by the following organizations:
Government Finance Officers Association
Government Finance Officers Association of Texas
Government Treasurers Organization of Texas
Municipal Treasurers Association
Texas Municipal League
If the Investment Officer desires to attend an investment-training seminar presented by
another organization for training credit, such seminar must be approved by the City Manager
or his designee.
VIII. COMPETITIVE SOLICITATION
Except for repurchase agreements and public funds investment pools, any new issue
investment will be purchased through an Authorized Selling Group or directly through the
issuer.
For any Investment pumhased or sold through the secondary market, the City will obtain at
least three proposals from Authorized Institutions.
Any Institution authorized to participate in the City's investment program must meet
Collateral pledge requirements outlined in Section IV.D. of these guidelines and must submit
annual financial reports.
IX. AUTHORIZED INSTITUTIONS
All institutions who seek to sell an authorized Investment to the City are required to
complete the questionnaire approved by the Investment Committee and furnish supporting
documentation required by the Investment Committee. Securities shall only be purchased
through those Institutions approved by the Investment Committee.
Investments shall only be made with those Institutions who have executed a written
instrument in a form acceptable to the City, executed by a Qualified Representative of the
Institution, and substantially to the effect that the Institution has:
1. Received, thoroughly reviewed and acknowledged, in writing, receipt and
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understanding of the City's Investment Policy, and;
Acknowledged that the Institution has implemented reasonable procedures
and controls in an effort to preclude investment transactions conducted
between the Institution and the City that are not authorized by the City's
Investment Policy.
Investments shall only be made with those Institutions who have met the qualifications and
standards established by the City's Investment Committee and set forth in the Investment
Procedures Manual.
The Investment Committee shall, at least annually, review, revise, and adopt a list of
qualified brokers that are authorized to engage in investment transactions with the City.
The City Treasurer will request the Investment Committee to authorize deletion of
Institutions for:
Slow response time;
Less than competitive pricing;
Little or no information on technical or fundamental expectations based on
economic indicators;
Failed transactions or continuing operational difficulties; or
Unwillingness to continue to abide the provisions listed in IX.A.; or
Other reasons as approved by the Investment Committee.
X. PLEDGED COLLATERAL
The market value of pledged Collateral must be at least 102% of the principal plus accrued interest for Excess
Cash Balances, certificates of deposit, and repurchase agreements. Evidence of proper collateralization in the
form of original safekeeping receipts held at a Third Party Safekeeping Institution not affiliated with the
Institution pledging the Collateral will be approved by the City Treasurer and will be maintained in the City's
Treasurer Office. An authorized City Representative (See Appendix B) will approve and release all pledged
collateraI.
A. Collateral Substitution
Collateralized Investments and certificates of deposit often require substitution of Collateral.
Any Institution must contact the Investment Officers for approval and settlement. The
substituted collateral's value will be calculated and substitution approved if its value is equal
to or greater than the required collateral value. Substitution is allowable for all transactions,
but should be limited, to minimize the City's potential administrative problems.
B. Collateral Reductions
Should the collateral's market value exceed the required amount, any Institution may request
approval from the Investment Officer to reduce collateral. Collateral reductions may be
permitted only if the City's records indicate that the collateral's market value exceeds the
required amount.
C. Prohibited Securities
Investment securities described in Section 2256.009(b), Government Code, shall not be
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XI.
XII.
XIlI.
eligible for use as collateral of City monies governed by this Policy.
SAFEKEEPING
A. Third Party Safekeeping Agreement
The City shall contract with a Bank or Banks for the safekeeping of Securities either owned
by the City as a part of its Investment Portfolio or held as Collateral to secure certificates of
deposit, repurchase agreements, or Excess Cash Balances.
B. Safekeeping of Certificate of Deposit Collateral
All Collateral securing bank and savings and loan deposits must be held by a Third Party
Safekeeping Institution approved by the City, or Collateral may be held at the Federal
Reserve Bank.
C. Safekeeping of Repurchase Agreement Collateral
Repurchase Agreement Collateral is restricted to U.S. Treasuries and must be delivered to a
Third-Party Safekeeping Institution with which the City has established a third-party
safekeeping agreement.
WIRE AND ELECTRONIC SERVICES
Wire and electronic services are to be provided as referenced in the City's Depository
Services agreement, portions of which are attached and incorporated as Appendix E. The
City requests applications for depository services every three to five years.
INFORMATION REPORTING/EVALUATION
The City Treasurer and Investment Analyst are hereby designated as the Investment Officers
and are responsible for the daily operation of the Investment program and will report to the
Investment Committee on a quarterly basis.
A. Investment Committee Consists of:
City Manager
Deputy City Manager
Assistant City Managers
Director of FinanciaI Services
City Attorney
Director of Management and Budget
The Investment Committee will be responsible for monitoring, reviewing, and making
recommendations regarding the City's Investment program to the City Council. Reports will
be provided to the City Council by the Investment Officers no less than quarterly, as required
by the Public Funds Investment Act.
B. Internal Reporting/Evaluation
The following reports are to be submitted on a:
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Daily basis to the Director of Financial Services or Designee (Excluding Investment
Officers):
Cash Position by Bank Account
Collateral Position
Investment Portfolio (Including Purchases/Maturities)
2. Quarterly Reporting to Investment Committee and City Council.
Executive Summary
Schedules
g.
h.
i.
j.
k.
1.
p.
q.
t.
Combined Investment Report of Market Versus Book Values
Combined Portfolio Composition
Individual Portfolio Composition
Cash and Equivalents
U.S. Treasuries
Investments Greater than One Year
Combined Summary of Investment Transactions
Combined Summary of Portfolio Activity
Combined Investment Portfolio - Weighted Average Maturity
lncome Received from Investments
Combined Analysis of Gains on Sale of Securities
Aggregate Activity per Broker
Analysis of Excess Coverage
Comparison of Investment Returns to Benchmarks
Combined Summary of Investment Transactions - Lake Texana Project
Summary of Portfolio Activity - Lake Texana Project
Weighted Average Maturity - Lake Texana Project
Trade Journal
Trade Journal
Approved Institutional Brokers
Glossary
Compliance Statement
Quarterly Investment Committee Meeting Agenda and Minutes
External Reporting/Evaluations
On a quarterly basis, the City's main depository and all applicable Institutions providing
certificates of deposit in excess of FDIC coverage will provide to the Investment Officer for
review a copy of the balance sheet and income statement for the Call Report. All Institutions
will provide annual audited financial statements. Any local government investment pools
must provide reports and disclosure statements as required by the Public Funds Investment
Act.
D. Record Retention
The City follows the guidelines of retaining records for seven years from City's current fiscal
year, as recommended in the Texas State Library Municipal Records Manual or may be
authorized by the City's local records management guidelines.
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XIV. BANKING SERVICES
Ail depository services are provided in the City's main depository agreement. Other services
such as credit cards, direct deposit of payroll or other services may be administered through
separate agreements. To aggressively invest Excess Cash Balances, controlled
disbursements accounts, zero balance accounts and other cash management tools may he
employed.
XV. GENERAL PROVISIONS
Audits and Inspections. During regular business hours and as often as the Investment
Officers deem necessary, the Institution providing certificates of deposit will make available
for examination by the City Manager, his duly authorized agent, accountant, or legal
representative, such records and data to assure the pledge of Collateral, availability of
Collateral, and financial stability of the Institution.
Compliance with Laws. Each Institution agrees to comply with all federal, state, and local
laws, roles, regulations, and ordinances. The personnel or officers of such Institution shall
be fully qualified and authorized under federal, state, and local law to perform the services
set out under this Policy. Each Institution shall permit the Investment Officers to audit,
examine, and make excerpts or transcripts from such records and to make audits of all
contract, invoices, materials, and other data relating to applicable Investments.
Performance Audits. The City's Annual External Financial Audit shall include a
compliance audit of management controls on Investments and adherence to this Policy. If
the City invests in other than money market mutual funds, investment pools or accounts
offered by its depository in the form of certificates of deposit or money market accounts, the
quarterly reports prepared by Investment Officers for the City Council must be formally
reviewed at least annually by an independent auditor. The results of the review must be
reported to the City Council by that auditor.
Investment Policy Resolution. The resolution authorizing this Investment Policy is
attached and incorporated as Appendix F "Investment Policy
Resolutions."APPENDIX A
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CHAPTER 2256. PUBLIC FUNDS INVESTMENT
SUBCHAPTER A. AUTHORIZED INVESTMENTS FOR GOVERNMENTAL ENTITLES
§ 2256.001. Short Title
This chapter may be cited as the Public Funds Investment Act.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, eff. Sept. 1, 1995.
§ 2256.002. Definitions
In this chapter:
(1) "Bond proceeds" means the proceeds from the sale of bonds, notes, and other obligations issued by an
entity, and reserves and funds maintained by an entity for debt service purposes.
(2) "Book value" means the original acquisition cost of an investment plus or minus the accrued amortization
or accretion.
(3) "Funds" means public funds in the custody ora state agency or local government that:
(A) are not required by law to be deposited in the state treasury; and
(B) the investing entity has authority to invest.
(4) "Institution of higher education" has the meaning assigned by Section 61.003, Education Code.
(5) "Investing entity" and "entity" mean an entity subject to this chapter and described by Section 2256.003.
(6) "Investment pool" means an entity created under this code to invest public funds jointly on behalf of the
entities that participate in the pool and whose investment objectives in order of priority are:
(A) preservation and safety of principal;
(B) liquidity; and
(C) yield.
(7) "Local government" means a municipality, a county, a school district, a district or authority created under
Section 52(b)(1) or (2), Article III, or Section 59, Article XVI, Texas Constitution, a fresh water supply
district, a hospital district, and any political subdivision, authority, public corporation, body politic, or
instrumentality of the State of Texas, and any nonprofit corporation acting on behalf of any of those entities.
(8) "Market value" means the current face or par value of an investment multiplied by the net selling price of
the security as quoted by a recognized market pricing source quoted on the valuation date.
(9) "Pooled fund group" means an internally created fund of an investing entity in which one or more
institutional accounts of the investing entity are invested.
(10) "Qualified representative" means a person who holds a position with a business organization, who is
authorized to act on behalf of the business organization, and who is one of the following:
(A) for a business organization doing business that is regulated by or registered with a securities commission,
a person who is registered under the rules of the National Association of Securities Dealers;
(B) for a state or federal bank, a savings bank, or a state or federal credit union, a member of the loan
committee for the bank or branch of the bank or a person authorized by corporate resolution to act on behalf
of and bind the banking institution;
(C) for an investment pool, the person authorized by the elected official or board with authority to administer
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the activities of the investment pool to sign the written instrument on behalf of the investment pool; or
(D) for an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C.
Section 80b-1 et seq.) or, if not subject to registration under that Act, registered with the State Securities
Board, a person who is an officer or principal of the investment management firm.
(11 ) "School district" means a public school district.
(12) "Separately invested asset" means an account or fund of a state agency or local government that is not
invested in a pooled fund group.
(13) "State agency" means an office, department, commission, board, or other agency that is part of any
branch of state government, an institution of higher education, and any nonprofit corporation acting on behalf
of any of those entities.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, elf. Sept. 1, 1995; Acts 1997, 75th Leg., ch. 1421, § 1, elf.
Sept. 1, 1997; Acts 1999, 76th Leg., ch. 1454, § 1, eff. Sept. 1, 1999.
§ 2256.003. Authority to Invest Funds; Entities Subject to This Chapter
(a) Each governing body of the following entities may purchase, sell, and invest its funds and funds under its
control in investments authorized under this subchapter in compliance with investment policies approved by
the governing body and according to the standard of care prescribed by Section 2256.006:
(1) a local government;
(2) a state agency;
(3) a nonprofit corporation acting on behalf of a local government or a state agency; or
(4) an investment pool acting on behalf of two or more local governments, state agencies, or a combination of
those entities.
(b) In the exercise of its powers under Subsection (a), the governing body of an investing entity may contract
with an investment management firm registered under the Investment Advisers Act of 1940 (15 U.S.C.
Section 80b-1 et seq.) or with the State Securities Board to provide for the investment and management of its
public funds or other funds under its control. A contract made under authority of this subsection may not be
for a term longer than two years. A renewal or extension of the contract must be made by the governing body
of the investing entity by order, ordinance, or resolution.
(c) This chapter does not prohibit an investing entity or investment officer from using the entity's employees
or the services ora contractor of the entity to aid the investment officer in the execution of the officer's duties
under this chapter.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, eff. Sept. 1, 1995; Acts 1999, 76th Leg., ch. 1454, § 2, eff.
Sept. 1, 1999.
§ 2256.004. Applicability
(a) This subchapter does not apply to:
(1) a public retirement system as defined by Section 802.001;
(2) state funds invested as authorized by Section 404.024;
(3) an institution of higher education having total endowments of at least $95 million in book value on May 1,
1995;
(4) funds invested by the Veterans' Land Board as authorized by Chapter 161, 162, or 164, Natural Resources
Code;
(5) registry funds deposited with the county or district clerk under Chapter 117, Local Government Code; or
(6) a deferred compensation plan that qualifies under either Section 401(k) or 457 of the Internal Revenue
Code of 1986 (26 U.S.C. Section 1 et seq.), as amended.
(b) This subchapter does not apply to an investment donated to an investing entity for a particular purpose or
under terms of use specified by the donor.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, eft2 Sept. 1, 1995; Acts 1997, 75th Leg., ch. 505, § 24, elf.
Sept. 1, 1997; Acts 1997, 75th Leg., ch. 1421, § 2, eff. Sept. 1, 1997; Acts 1999, 76th Leg., ch. 62, § 8.21, elf.
Sept. 1, 1999; Acts 1999, 76th Leg., ch. 1454, § 3, elf. Sept. 1, 1999.
§ 2256.005. Investment Policies; Investment Strategies; Investment Officer
(a) The governing body of an investing entity shall adopt by rule, order, ordinance, or resolution, as
appropriate, a written investment policy regarding the investment of its funds and funds under its control.
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(b) The investment policies must:
(1) be written;
(2) primarily emphasize safety of principal and liquidity;
(3) address investment diversification, yield, and maturity and the quality and capability of investment
management; and
(4) include:
(A) a list of the types of authorized investments in which the investing entity's funds may be invested;
(B) the maximum allowable stated maturity of any individual investment owned by the entity;
(C) for pooled fund groups, the maximum dollar-weighted average maturity allowed based on the stated
maturity date for the portfolio;
(D) methods to monitor the market price of investments acquired with public funds; and
(E) a requirement for settlement of all transactions, except investment pool funds and mutual funds, on a
delivery versus payment basis.
(c) The investment policies may provide that bids for certificates of deposit be solicited:
( 1 ) orally;
(2) in writing;
(3) electronically; or
(4) in any combination of those methods.
(d) As an integral part of an investment policy, the governing body shall adopt a separate written investment
strategy for each of the funds or group of funds under its control. Each investment strategy must describe the
investment objectives for the particular fund using the following priorities in order of importance:
(1) understanding of the suitability of the investment to the financial requirements of the entity;
(2) preservation and safety of principal;
(3) liquidity;
(4) marketability of the investment if the need arises to liquidate the investment before maturity;
(5) diversification of the investment portfolio; and
(6) yield.
(e) The governing body of an investing entity shall review its investment policy and investment strategies not
less than annually. The governing body shall adopt a written instrument by rule, order, ordinance, or
resolution stating that it has reviewed the investment policy and investment strategies and that the written
instrument so adopted shall record any changes made to either the investment policy or investment strategies.
(f) Each investing entity shall designate, by rule, order, ordinance, or resolution, as appropriate, one or more
officers or employees of the state agency, local government, or investment pool as investment officer to be
responsible for the investment of its funds consistent with the investment policy adopted by the entity. If the
governing body of an investing entity has contracted with another investing entity to invest its funds, the
investment officer of the other investing entity is considered to be the investment officer of the first investing
entity for purposes of this chapter. Authority granted to a person to invest an entity's funds is effective until
rescinded by the investing entity, until the expiration of the officer's term or the termination of the person's
employment by the investing entity, or if an investment management firn~, until the expiration of the contract
with the investing entity. In the administration of the duties of an investment officer, the person designated as
investment officer shall exercise the judgment and care, under prevailing circumstances, that a prudent person
~vould exercise in the management of the person's own affairs, but the governing body of the investing entity
retains ultimate responsibility as fiduciaries of the assets of the entity. Unless authorized by law, a person may
not deposit, withdraw, transfer, or manage in any other manner the funds of the investing entity.
(g) Subsection (f) does not apply to a state agency, local government, or investment pool for which an officer
of the entity is assigned by law the function of investing its funds.
Text of subsec. (h) as amended by Acts 1997, 75th Leg., ch. 685, SS 1
(h) An officer or employee ora commission created under Chapter 391, Local Government Code, is ineligible
to be an investment officer for the commission under Subsection (f) if the officer or employee is an
investment officer designated under Subsection (f) for another local government.
Text of subsec. (h) as amended by Acts 1997, 75th Leg., ch. 1421, § 3
(h) An officer or employee ora commission created under Chapter 39 I, Local Government Code, is ineligible
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to be designated as an investment officer under Subsection (f) for any investing entity other than for that
commission.
(i) An investment officer of an entity who has a personal business relationship with a business organization
offering to engage in an investment transaction with the entity shall file a statement disclosing that personal
business interest. An investment officer who is related within the second degree by affinity or consanguinity,
as determined under Chapter 573, to an individual seeking to sell an investment to the investment officer's
entity shall file a statement disclosing that relationship. A statement required under this subsection must be
filed with the Texas Ethics Commission and the governing body of the entity. For purposes of this subsection,
an investment officer has a personal business relationship with a business organization if:
(1) the investment officer owns 10 percent or more of the voting stock or shares of the business organization
or owns $5,000 or more of the fair market value of the business organization;
(2) funds received by the investment officer from the business organization exceed 10 percent of the
investment officer's gross income for the previous year; or
(3) the investment officer has acquired from the business organization during the previous year investments
with a book value of $2,500 or more for the personal account of the investment officer.
(j) The governing body of an investing entity may specify in its investment policy that any investment
authorized by this chapter is not suitable.
(k) A written copy of the investment policy shall be presented to any person offering to engage in an
investment transaction with an investing entity or to an investment management firm under contract with an
investing entity to invest or manage the entity's investment portfolio. For purposes of this subsection, a
business organization includes investment pools and an investment management firm under contract with an
investing entity to invest or manage the entity's investment portfolio. Nothing in this subsection relieves the
investing entity of the responsibility for monitoring the investments made by the investing entity to determine
that they am in compliance with the investment policy. The qualified representative of the business
organization offering to engage in an investment transaction with an investing entity shall execute a written
instrument in a form acceptable to the investing entity and the business organization substantially to the effect
that the business organization has:
(1) received and reviewed the investment policy of the entity; and
(2) acknowledged that the business organization has implemented reasonable procedures and controls in an
effort to preclude investment transactions conducted between the entity and the organization that are not
authorized by the entity's investment policy, except to the extent that this authorization is dependent on an
analysis of the makeup of the entity's entire portfolio or requires an interpretation of subjective investment
standards.
(1) The investment officer of an entity may not acquire or otherwise obtain any authorized investment
described in the investment policy of the investing entity from a person who has not delivered to the entity the
instrument required by Subsection (k).
(m) An investing entity other than a state agency, in conjunction with its annual financial audit, shall perform
a compliance audit of management controls on investments and adherence to the entity's established
investment policies.
(n) Except as provided by Subsection (o), at least once every two years a state agency shall arrange for a
compliance audit of management controls on investments and adherence to the agency's established
investment policies. The compliance audit shall be performed by the agency's internal auditor or by a private
auditor employed in the manner provided by Section 321.020. Not later than January I of each even-
numbered year, a state agency shall report the results of the most recent audit performed under this subsection
to the state auditor. A state agency also shall report to the state auditor other information the state auditor
determines necessary to assess compliance with laws and policies applicable to state agency investments. A
report under this subsection shall be prepared in a manner the state auditor prescribes.
(o) The audit requirements of Subsection (n) do not apply to assets of a state agency that are invested by the
comptroller under Section 404.024.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, eff. Sept. 1, 1995; Acts 1997, 75th Leg., ch. 685, § 1~ elf.
Sept. 1, 1997; Acts 1997, 75th Leg., ch. 1421, § 3, elf. Sept. I, 1997; Acts 1999, 76th Leg., ch. 1454, § 4, elf.
Sept. 1, 1999.
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§ 2256.006. Standard of Care
(a) Investments shall be made with judgment and care, under prevailing circumstances, that a person of
prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for
speculation, but for investment, considering the probable safety of capital and the probable income to be
derived. Investment of funds shall be governed by the following investment objectives, in order of priority:
(1) preservation and safety of principal;
(2) liquidity; and
(3) yield.
(b) In determining whether an investment officer has exercised prudence with respect to an investment
decision, the determination shall be made taking into consideration:
( 1 ) the investment of ali funds, or funds under the entity's control, over which the officer had responsibility
rather than a consideration as to the prudence of a single investment; and
(2) whether the investment decision was consistent with the written investment policy of the entity.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, eff. Sept. 1, 1995.
§ 2256.007. Investment Training; State Agency Board Members and Officers
(a) Each member of the governing board of a state agency and its investment officer shall attend at least one
training session relating to the person's responsibilities under this chapter within six months after taking office
or assuming duties.
(b) The Texas Higher Education Coordinating Board shall provide the training under this section.
(c) Training under this section must include education in investment controls, security risks, strategy risks,
market risks, diversification of investment portfolio, and compliance with this chapter.
(d) An investment officer shall attend a training session not less than once in a two-year period and may
receive training from any independent source approved by the governing body of the state agency. The
investment officer shall prepare a report on this subchapter and deliver the report to the governing body of the
state agency not later than the 180th day after the last day of each regular session of the legislature.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, elf. Sept. 1, 1995; Acts 1997, 75th Leg., ch. 73, § I, eff. May
9, 1997; Acts 1997, 75th Leg., ch. 1421, § 4, elf. Sept. 1, 1997; Acts 1999, 76th Leg., ch. 1454, § 5, elf. Sept.
1, 1999.
§ 2256.008. Investment Training; Local Governments
(a) Except as provided by Subsection (b), the treasurer, the chief financial officer if the treasurer is not the
chief financial officer, and the investment officer of a local government shall:
(1) attend at least one training session from an independent soume approved by the governing body of the
local government or a designated investment committee advising the investment officer as provided for in the
investment policy of the local government and containing at least 10 hours of instruction relating to the
treasurer's or officer's responsibilities under this subchapter within 12 months after taking office or assuming
duties; and
(2) except as provided by Subsection (b), attend an investment training session not less than once in a two-
year period and receive not less than 10 hours of instruction relating to investment responsibilities under this
subchapter from an independent source approved by the governing body of the local government or a
designated investment committee advising the investment officer as provided for in the investment policy of
the local government.
(b) An investing entity created under authority of Section 52(b), Article III, or Section 59, Article XVI, Texas
Constitution, that has contracted with an investment management firm under Section 2256.003(b) and has
fewer than five full-time employees or an investing entity that has contracted with another investing entity to
invest the entity's funds may satisfy the training requirement provided by Subsection (a)(2) by having an
officer of the governing body attend four hours of appropriate instruction in a two-year period. The treasurer
or chief financial officer of an investing entity created under authority of Section 52(b), Article 111, or Section
59, Article XVI, Texas Constitution, and that has fewer than five full-time employees is not required to attend
training required by this section unless the person is also the investment officer of the entity.
(c) Training under this section must include education in investment controls, security risks, strategy risks,
market risks, diversification of investment portfolio, and compliance with this chapter.
(d) Not later than December 31 each year, each individual, association, business, organization, governmental
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entity, or other person that provides training under this section shall report to the comptroller a list of the
governmental entities for which the person provided required training under this section during that calendar
year. An individual's reporting requirements under this subsection are satisfied by a report of the individual's
employer or the sponsoring or organizing entity of a training program or seminar.
Amended by Acts 1995, 74th Leg., ch. 402, § I, elf. Sept. 1, 1995; Acts 1997, 75th Leg., ch. 1421, § 5, eff.
Sept. 1, 1997; Acts 1999, 76th Leg., ch. 1454, § 6, elf. Sept. 1, 1999.
§ 2256.009. Authorized Investments: Obligations of, or Guaranteed by Governmental Entities
(a) Except as provided by Subsection (b), the following are authorized investments under this subchapter:
(1) obligations of the United States or its agencies and instrumentalities;
(2) direct obligations of this state or its agencies and instrumentalities;
(3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United
States, the underlying security for which is guaranteed by an agency or instrumentality of the United States;
(4) other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or
backed by the full faith and credit of, this state or the United States or their respective agencies and
instrumentalities;
(5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to
investment quality by a nationally recognized investment rating firm not less than A or its equivalent; and
(6) bonds issued, assumed, or guaranteed by the State of Israel.
(b) The following are not authorized investments under this section:
(1) obligations whose payment represents the coupon payments on the outstanding principal balance of the
underlying mortgage-backed security collateral and pays no principal;
(2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage-
backed security collateral and bears no interest;
(3) collateralized mortgage obligations that have a stated final maturity date of greater than 10 years; and
(4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts
opposite to the changes in a market index.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, elf. Sept. 1, 1995; Acts 1999, 76th Leg., ch. 1454, § 7, elf.
Sept. l, 1999.
§ 2256.010. Authorized Investments: Certificates of Deposit and Share Certificates
A certificate of deposit is an authorized investment under this subchapter if the certificate is issued by a state
or national bank domiciled in this state, a savings bank domiciled in this state, or a state or federal credit
union domiciled in this state and is:
(1) guaranteed or insured by the Federal Deposit Insurance Corporation or its successor or the National Credit
Union Share Insurance Fund or its successor;
(2) secured by obligations that are described by Section 2256.009(a), including mortgage backed securities
directly issued by a federal agency or instrumentality that have a market value of not less than the principal
amount of the certificates, but excluding those mortgage backed securities of the nature described by Section
2256.009(b); or
(3) secured in any other manner and amount provided by law for deposits of the investing entity.
Amended by Acts 1995, 74th Leg., ch. 32, § 1, elf. April 28, 1995; Acts 1995, 74th Leg., ch. 402, § 1, elf.
Sept. 1, 1995; Acts 1997, 75th Leg., ch. 1421, § 6, elf. Sept. 1, 1997.
§ 2256.011. Authorized Investments: Repurchase Agreements
(a) A fully collateralized repurchase agreement is an authorized investment under this subchapter if the
repurchase agreement:
(1) has a defined termination date;
(2) is secured by obligations described by Section 2256.009(a)(1); and
(3) requires the securities being purchased by the entity to be pledged to the entity, held in the entity's name,
and deposited at the time the investment is made with the entity or with a third party selected and approved by
the entity; and
(4) is placed through a primary government securities dealer, as defined by the Federal Reserve, or a financial
institution doing business in this state.
(b) In this section, "repurchase agreement" means a simultaneous agreement to buy, hold for a specified time,
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and sell back at a future date obligations described by Section 2256.009(a)(1), at a market value at the time
the funds are disbursed of not less than the principal amount of the funds disbursed. The term includes a direct
security repurchase agreement and a reverse security repurchase agreement.
(c) Notwithstanding any other law, the term of any reverse security repurchase agreement may not exceed 90
days after the date the reverse security repurchase agreement is delivered.
(d) Money received by an entity under the terms ora reverse security repurchase agreement shall be used to
acquire additional authorized investments, but the term of the authorized investments acquired must mature
not later than the expiration date stated in the reverse security repurchase agreement.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, cfr. Sept. 1, 1995.
§ 2256.012. Authorized Investments: Banker's Acceptances
A bankers' acceptance is an authorized investment under this subchapter if the bankers' acceptance:
(1) has a stated maturity of 270 days or fewer from the date of its issuance;
(2) will be, in accordance with its terms, liquidated in full at maturity;
(3) is eligible for collateral for borrowing from a Federal Reserve Bank; and
(4) is accepted by a bank organized and existing under the laws of the United States or any state, if the short-
term obligations of the bank, or of a bank holding company of which the bank is the largest subsidiary, are
rated not less than A-I or P 1 or an equivalent rating by at least one nationally recognized credit rating
agency.
Amended by Acts 1995, 74th Leg., ch. 402, § l, eff. Sept. 1, 1995.
§ 2256.013. Authorized Investments: Commercial Paper
Commercial paper is an authorized investment under this subchapter if the commercial paper:
(1) has a stated maturity of 270 days or fewer from the date of its issuance; and
(2) is rated not less than A 1 or P-I or an equivalent rating by at least:
(A) two nationally recognized credit rating agencies; or
(B) one nationally recognized credit rating agency and is fully secured by an irrevocable letter of credit issued
by a bank organized and existing under the laws of the United States or any state.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, elf. Sept. 1, 1995.
§ 2256.014. Authorized Investments: Mutual Funds
(a) A no-load money market mutual fund is an authorized investment under this subchapter if the mutual
fund:
(1) is registered with and regulated by the Securities and Exchange Commission;
(2) provides the investing entity with a prospectus and other information required by the Securities Exchange
Act of 1934 (15 U.S.C. Section 78a et seq.) or the Investment Company Act of 1940 ( 15 U.S.C. Section 80~
1 et seq.);
(3) has a dollar-weighted average stated maturity of 90 days or fewer; and
(4) includes in its investment objectives the maintenance of a stable net asset value orS1 for each share.
(b) In addition to a no-load money market mutual fund permitted as an authorized investment in Subsection
(a), a no-load mutual fund is an authorized investment under this subchapter if the mutual fund:
(1) is registered with the Securities and Exchange Commission;
(2) has an average weighted maturity of less than two years;
(3) is invested exclusively in obligations approved by this subchapter;
(4) is continuously rated as to investment quality by at least one nationally recognized investment rating firm
of not less than AAA or its equivalent; and
(5) conforms to the requirements set forth in Sections 2256.016(b) and (c) relating to the eligibility of
investment pools to receive and invest funds of investing entities.
(c) An entity is not authorized by this section to:
(1) invest in the aggregate more than 15 percent of its monthly average fund balance, excluding bond
proceeds and reserves and other funds held for debt service, in mutual funds described in Subsection (b);
(2) invest any portion of bond proceeds, reserves and funds held for debt service, in mutual funds described in
Subsection (b); or
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(3) invest its funds or funds under its control, including bond proceeds and reserves and other funds held for
debt service, in any one mutual fund described in Subsection (a) or (b) in an amount that exceeds 10 percent
of the total assets of the mutual fund.
Amended by Acts 1995, 74th Leg., ch. 402, 8 l, eff. Sept. 1, 1995; Acts 1997, 75th Leg., ch. 1421, 8 7, eff.
Sept. 1, 1997; Acts 1999, 76th Leg., ch. 1454, § 8, eff. Sept. 1, 1999.
§ 2256.015. Authorized Investments: Guaranteed Investment Contracts
(a) A guaranteed investment contract is an authorized investment for bond proceeds under this subchapter if
the guaranteed investment contract:
(1) has a defined termination date;
(2) is secured by obligations described by Section 2256.009(a)(I ), excluding those obligations described by
Section 2256.009(b), in an amount at least equal to the amount of bond proceeds invested under the contract;
and
(3) is pledged to the entity and deposited with the entity or ~vith a third party selected and approved by the
entity.
(b) Bond proceeds, other than bond proceeds representing reserves and funds maintained for debt service
purposes, may not be invested under this subchapter in a guaranteed investment contract with a term of longer
than five years from the date of issuance of the bonds.
(c) To be eligible as an authorized investment:
(1) the governing body of the entity must specifically authorize guaranteed investment contracts as an eligible
investment in the order, ordinance, or resolution authorizing the issuance of bonds;
(2) the entity must receive bids from at least three separate providers with no material financial interest in the
bonds from which proceeds were received;
(3) the entity must purchase the highest yielding guaranteed investment contract for which a qualifying bid is
received;
(4) the price of the guaranteed investment contract must take into account the reasonably expected drawdown
schedule for the bond proceeds to be invested; and
(5) the provider must certify the administrative costs reasonably expected to be paid to third parties in
connection with the guaranteed investment contract.
Amended by Acts 1995, 74th Leg., ch. 402, 8 1, elf. Sept. 1, 1995; Acts 1997, 75th Leg., ch. 1421, § 8, eff.
Sept. 1, 1997; Acts 1999, 76th Leg., ch. 1454, 88 9, 10, eff. Sept. 1, 1999.
§ 2256.016. Authorized Investments: Investment Pools
(a) An entity may invest its funds and funds under its control through an eligible investment pool if the
governing body of the entity by rule, order, ordinance, or resolution, as appropriate, authorizes investment in
the particular pool. An investment pool shall invest the funds it receives from entities in authorized
investments permitted by this subchapter.
(b) To be eligible to receive funds from and invest funds on behalf of an entity under this chapter, an
investment pool must furnish to the investment officer or other authorized representative of the entity an
offering circular or other similar disclosure instrument that contains, at a minimum, the following
information:
(1) the types of investments in which money is allowed to be invested;
(2) the maximum average dollar-weighted maturity allowed, based on the stated maturity date, of the pool;
(3) the maximum stated maturity date any investment security within the portfolio has;
(4) the objectives of the pool;
(5) the size of the pool;
(6) the names of the members of the advisory board of the pool and the dates their terms expire;
(7) the custodian bank that will safekeep the pool's assets;
(8) whether the intent of the pool is to maintain a net asset value of one dollar and the risk of market price
fluctuation;
(9) whether the only source of payment is the assets of the pool at market value or whether there is a
secondary source of payment, such as insurance or guarantees, and a description of the secondary source of
payment;
(10) the name and address of the independent auditor of the pool;
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(11) the requirements to be satisfied for an entity to deposit funds in and withdraw funds from the pool and
any deadlines or other operating policies required for the entity to invest funds in and withdraw funds from
the pool; and
(12) the performance history of the pool, including yield, average dollar-weighted maturities, and expense
ratios.
(c) To maintain eligibility to receive funds from and invest funds on behalf of an entity under this chapter, an
investment pool must furnish to the investment officer or other authorized representative of the entity:
(1) investment transaction confirmations; and
(2) a monthly report that contains, at a minimum, the following information:
(A) the types and percentage breakdown of securities in which the pool is invested;
(B) the current average dollar-weighted maturity, based on the stated maturity date, of the pool;
(C) the current percentage of the pool's portfolio in investments that have stated maturities of more than one
year;
(D) the book value versus the market value of the pool's portfolio, using amortized cost valuation;
(E) the size of the pool;
(F) the number of participants in the pool;
(G) the custodian bank that is safekeeping the assets of the pool;
(H) a listing of daily transaction activity of the entity participating in the pool;
(1) the yield and expense ratio of the pool;
(J) the portfolio managers of the pool; and
(K) any changes or addenda to the offering circular.
(d) An entity by contract may delegate to an investment pool the authority to hold legal title as custodian of
investments purchased with its local funds.
(e) In this section, "yield" shall be calculated in accordance with regulations governing the registration of
open-end management investment companies under the Investment Company Act of 1940, as promulgated
from time to time by the federal Securities and Exchange Commission.
(f) To be eligible to receive funds from and invest funds on behalf of an entity under this chapter, a public
funds investment pool created to function as a money market mutual fund must mark its portfolio to market
daily, and, to the extent reasonably possible, stabilize at a $1 net asset value. If the ratio of the market value of
the portfolio divided by the book value of the portfolio is less than 0.995 or greater than 1.005, portfolio
holdings shall be sold as necessary to maintain the ratio between 0.995 and 1.005.
(g) To be eligible to receive funds from and invest funds on behalf of an entity under this chapter, a public
funds investment pool must have an advisory board composed:
(1) equally of participants in the pool and other persons who do not have a business relationship with the pool
and are qualified to advise the pool, for a public funds investment pool created under Chapter 791 and
managed by a state agency; or
(2) of participants in the pool and other persons who do not have a business relationship with the pool and are
qualified to advise the pool, for other investment pools.
(h) To maintain eligibility to receive funds from and invest funds on behalf of an entity under this chapter, an
investment pool must be continuously rated no lower than AAA or AAA-m or at an equivalent rating by at
least one nationally recognized rating service.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, elf. Sept. 1, 1995; Acts 1997, 75th Leg., ch. 1421, § 9~ elf.
Sept. 1, 1997.
§ 2256.017. Existing Investments
An entity is not required to liquidate investments that were authorized investments at the time of purchase.
Added by Acts 1995, 74th Leg., ch. 76, § 5.46(a), elf. Sept. 1, 1995; Acts 1995, 74th Leg., ch. 402, § 1, elf.
Sept. 1, 1995. Amended by Acts 1997, 75th Leg., ch. 1421, § 10, eff. Sept. 1, 1997.
§ 2256.019. Rating of Certain Investment Pools
A public funds investment pool must be continuously rated no lower than AAA or AAA-m or at an equivalent
rating by at least one nationally recognized rating service or no lower than investment grade by at least one
nationally recognized rating service with a weighted average maturity no greater than 90 days.
Added by Acts 1995, 74th Leg., ch. 402, § 1, eff. Sept. 1, 1995. Amended by Acts 1997, 75th Leg., ch. 1421,
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§ 11, eft'. Sept. 1, 1997.
§ 2256.020. Authorized Investments: Institutions of Higher Education
In addition to the authorized investments permitted by this subchaptcr, an institution of higher education may
purchase, sell, and invest its funds and funds under its control in the following:
(1) cash management and fixed income funds sponsored by organizations exempt from federal income
taxation under Section 501(0, Internal Revenue Code of 1986 (26 U.S.C. Section 501(f));
(2) negotiable certificates of deposit issued by a bank that has a certificate of deposit rating of at least 1 or the
equivalent by a nationally recognized credit rating agency or that is associated with a holding company
having a commemial paper rating of at least A-l, P 1, or the equivalent by a nationally recognized credit
rating agency; and
(3) corporate bonds, debentures, or similar debt obligations rated by a nationally recognized investment rating
firm in one of the two highest long-term rating categories, without regard to gradations within those
categories.
Added by Acts 1995, 74th Leg., ch. 402, § 1, eft: Sept. 1, 1995.
§ 2256.0201. Authorized Investments; Municipal Utility
(a) A municipality that owns a municipal electric utility that is engaged in the distribution and sale of electric
energy or natural gas to the public may enter into a hedging contract and related security and insurance
agreements in relation to fuel oil, natural gas, and electric energy to protect against loss due to price
fluctuations. A hedging transaction must comply with the regulations of the Commodity Futures Trading
Commission and the Securities and Exchange Commission. If there is a conflict between the municipal
charter of the municipality and this chapter, this chapter prevails.
(b) A payment by a municipally owned electric or gas utility under a hedging contract or related agreement in
relation to fuel supplies or fuel reserves is a fuel expense, and the utility may credit any amounts it receives
under the contract or agreement against fuel expenses.
(c) The governing body of a municipally owned electric or gas utility or the body vested with power to
manage and operate the municipally owned electric or gas utility may set policy regarding hedging
transactions.
(d) In this section, "hedging" means the buying and selling of fuel oil, natural gas, and electric energy futures
or options or similar contracts on those commodity futures as a protection against loss due to price
fluctuation.
Added by Acts 1999, 76th Leg., ch. 405, § 48, elf. Sept. 1, 1999.
§ 2256.021. Effect of Loss of Required Rating
An investment that requires a minimum rating under this subchapter does not qualify as an authorized
investment during the period the investment does not have the minimum rating. An entity shall take all
prudent measures that are consistent with its investment policy to liquidate an investment that does not have
the minimum rating.
Added by Acts 1995, 74th Leg., ch. 402, § 1, elf. Sept. 1, 1995.
§ 2256.022. Expansion of Investment Authority
Expansion of investment authority granted by this chapter shall require a risk assessment by the state auditor
or performed at the direction of the state auditor.
Added by Acts 1995, 74th Leg., ch. 402, § 1, elf. Sept. 1, 1995.
§ 2256.023. Internal Management Reports
(a) Not less than quarterly, the investment officer shall prepare and submit to the governing body of the entity
a written report of investment transactions for all funds covered by this chapter for the preceding reporting
period.
(b) The report must:
(1) describe in detail the investment position of the entity on the date of the report;
(2) be prepared jointly by all investment officers of the entity;
(3) be signed by each investment officer of the entity;
(4) contain a summary statement, prepared in compliance with generally accepted accounting principles, of'
each pooled fund group that states the:
(A) beginning market value for the reporting period:
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(B) additions and changes to the market value during the period;
(C) ending market value for the period; and
(D) fully accrued interest for the reporting period;
(5) state the book value and market value of each separately invested asset at the beginning and end of the
reporting period by the type of asset and fund type invested;
(6) state the maturity date of each separately invested asset that has a maturity date;
(7) state the account or fund or pooled group fund in the state agency or local government for which each
individual investment was acquired; and
(8) state the compliance of the investment portfolio of the state agency or local government as it relates to:
(A) the investment strategy expressed in the agency's or local government's investment policy; and
(B) relevant provisions of this chapter.
(c) The report shall be presented not less than quarterly to the governing body and the chief executive officer
of the entity within a reasonable time after the end of the period.
(d) If an entity invests in other than money market mutual funds, investment pools or accounts offered by its
depository bank in the form of certificates of deposit, or money market accounts or similar accounts, the
reports prepared by the investment officers under this section shall be formally reviexved at least annually by
an independent auditor, and the result of the review shall be reported to the governing body by that auditor.
Added by Acts 1995, 74th Leg., ch. 402, § 1, eft: Sept. I, 1995. Amended by Acts 1997, 75th Leg., ch. 1421,
§ 12, elf. Sept. 1, 1997.
§ 2256.024. Subchapter Cumulative
(a) The authority granted by this subchapter is in addition to that granted by other law. Except as provided by
Subsection (b), this subchapter does not:
(1) prohibit an investment specifically authorized by other law; or
(2) authorize an investment specifically prohibited by other law.
(b) Except with respect to those investing entities described in Subsection (c), a security described in Section
2256.009(b) is not an authorized investment for a state agency, a local government, or another investing
entity, notwithstanding any other provision of this chapter or other law to the contrary.
(c) Mortgage pass-through certificates and individual mortgage loans that may constitute an investment
described in Section 2256.009(b) are authorized investments with respect to the housing bond programs
operated by:
(1) the Texas Department of Housing and Community Affairs or a nonprofit corporation created to act on its
behalf;
(2) an entity created under Chapter 392, Local Government Code; or
(3) an entity created under Chapter 394, Local Government Code.
Added by Acts 1995, 74th Leg., ch. 402, § 1, elf. Sept. 1, 1995.
§ 2256.025. Selection of Authorized Brokers
The governing body of an entity subject to this subchapter or the designated investment committee of the
entity shall, at least annually, review, revise, and adopt a list of qualified brokers that are authorized to engage
in investment transactions with the entity.
Added by Acts 1997, 75th Leg., ch. 1421, § 13, elf. Sept. 1, 1997.
§ 2256.026. Statutory Compliance
All investments made by entities must comply with this subchapter and all federal, state, and local statutes~
roles, or regulations.
Added by Acts 1997, 75th Leg., ch. 1421, § 13, elf. Sept. 1, 1997.
SUBCHAPTER B. MISCELLANEOUS PROVISIONS
§ 2256.051. Electronic Funds Transfer
Any local government may use electronic means to transfer or invest all funds collected or controlled by the
local government.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, eff. Sept. l, 1995.
§ 2256.052. Private Auditor
Notwithstanding any other law, a state agency shall employ a private auditor if authorized by the legislative
audit committee either on the committee's initiative or on request of the governing body of the agency.
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Amended by Acts 1995, 74th Leg., ch. 402, § 1, elf. Sept. l, 1995.
§ 2256.053. Payment for Securities Purchased by State
The comptroller or the disbursing officer of an agency that has the power to invest assets directly may pay for
authorized securities purchased from or through a member in good standing of the National Association of
Securities Dealers or from or through a national or state bank on receiving an invoice from the seller of the
securities showing that the securities have been purchased by the board or agency and that the amount to be
paid for the securities is just, due, and unpaid. A purchase of securities may not be made at a price that
exceeds the existing market value of the securities.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, eft'. Sept. 1, 1995; Acts 1997, 75th Leg., ch. 1423, § 8.67,
elf. Sept. 1, 1997.
§ 2256.054. Delivery of Securities Purchased by State
A security purchased under this chapter may be delivered to the comptroller, a bank, or the board or agency
investing its funds. The delivery shall be made under normal and recognized practices in the securities and
banking industries, including the book entry procedure of the Federal Reserve Bank.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, eff. Sept. 1, 1995; Acts 1997, 75th Leg., ch. 1423, § 8.68,
ell5 Sept. I, 1997.
§ 2256.055. Deposit of Securities Purchased by State
At the direction of the comptroller or the agency, a security purchased under this chapter may be deposited in
trust with a bank or federal reserve bank or branch designated by the comptroller, whether in or outside the
state. The deposit shall be held in the entity's name as evidenced by a trust receipt of the bank with which the
securities are deposited.
Amended by Acts 1995, 74th Leg., ch. 402, § 1, elf. Sept. 1, 1995; Acts 1997, 75th Leg., ch. 1423, § 8.69,
elf. Sept. 1, 1997.
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