#5 Action on proposed amendments to Council policy on investments
CLERK-TREASURER'S OFFICE MEMORANDUM
December 30, 2009
TO: City Council
FROM : Jean Ann Wulf, City Clerk-Treasurer
SUBJECT: Action on Proposed Amendments to the City Council Policy
Statement No. 68 Regarding Investments
Summary
Staff recommends that the City Council adopt the proposed amendments to City
Council Policy Statement No. 68 regarding Investments. The primary focus of
the revisions is to address Councilmember Perrotto’s request to allow staff more
flexibility and latitude in making investment decisions and to make small
housekeeping changes.
Staff Recommendation
Staff recommends the Council adopt the amendments to City Council Policy
Statement No. 68 regarding Investments.
City Manager Recommendation
The City Manager supports the proposed policy changes by Administrative
Services.
Suggested Motion
I move to adopt the attached amended City Council Policy Statement No. 68
regarding Investments.
Request
Councilmember Perrottorequested that the City review the Investment Policy to
maximize interest earnings. He felt that the staff should have more flexibility on
investments and the guidelines within the policy should be expanded. In
addition, staff has taken this opportunity to update our policy with minor
housekeeping changes.
Analysis
The proposed changes in the Investment Policy are split into two sections. The
first section provides substantive changes and the second section provides minor
housekeeping changes.
Substantive Changes to the Investment Policy:
5. Investments
We eliminated the Wisconsin Investment Trust (WIT) investment category.
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The fund invested in long term securities but allowed municipalities to
withdraw their funds on a daily basis. With only $40 million in the fund,
withdrawal of funds created unacceptable fluctuation in returns.
Therefore, we ceased investing in this fund in 2006.
We added Certificate of Deposit Account Registry Service (CDARS) as an
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investment category to our policy. Even though it is considered a
certificate of deposit and allowed under our existing policy, we felt that it
was appropriate to list this category separately because it is becoming a
larger part of our portfolio.
We added municipal, county and school notes and bonds that are rated at
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the highest or second highest rating category assigned by a nationally
recognized rating agency. This is allowed under our existing policy but not
specifically listed. We believe that this type of investment would add yield
to our portfolio and provide us with another investment opportunity in the
2-5 year range.
We added unrated municipal, county and school notes and bonds that are
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issued by a jurisdiction in Rock County and backed by the full faith and
credit of the taxing authority. We require that the jurisdiction has been
rated at the highest or second highest rating category assigned by a
nationally recognized rating agency within the last 12 months. This is
allowed under our existing policy but not specifically listed. We believe
that this would offer us an opportunity to invest locally and add yield to our
portfolio.
6. Safety
Additional language was added to insure that credit risk and rate risk is
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minimized. Credit risk is the potential loss from a single issuer. Rate risk
is the market value gain or loss from holding a specific security.
7. Diversification
Commercial paper shall be limited to a maximum of $500,000 per single
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issuer. Typically, we limit our purchase to $500,000 but would like to
formalize this administrative policy.
The percentage allowed to be invested beyond 24 months is changed
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from 20% to 40% of the portfolio. In addition, the percentage is based
upon our average annual portfolio instead of the lowest investment
balance that occurs during the year. This change will significantly
increase our ability to invest in longer term securities, when appropriate.
The percentage allowed to be invested in commercial paper, bank
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certificates and CDARS was increased from 40% to 60% of the portfolio.
We have found that the CDARS provides the City with the best investment
opportunity given the current investment environment and we would like to
expand our portfolio into this area.
Housekeeping Changes:
The policy delegates investment authority to the Director of Finance and
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Administration. The Administration has reorganized since the policy was
adopted and it should now reflect that the Assistant City Manager/Director
of Administrative Services is the appointed responsible person. (Policy
Reference: 3. Delegation of Authority, 4. Prudence, 10. Reporting)
Credit risk and interest rate risk was added to emphasis the City will
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minimize potential losses from a single issuer and be aware of maturity
dates on our securities. (Policy Reference: 6. Safety)
The policy requires an annual report on our investment portfolio. We are
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recommending changing this to semi-annual reports. In addition, we are
suggesting that the 90 day U.S. Treasury bill be used as a bench mark on
performance. (Policy Reference: 10. Reporting)
cc: Eric Levitt, City Manager
Jay Winzenz, Asst. City Manager/ Director of Administrative Services
CITY OF JANESVILLE Policy No. 68
Page 1 of 3
CITY COUNCIL POLICY STATEMENT
Date Issued 2/20/90
Revised 5/12/97
General Subject: Investments Revised 5/08/00
Revised 12/13/05
Effective Date 12/13/05
Specific Subject: Investment of
City Funds Cancellation Date
Supersedes No.
PURPOSE
To identify objectives, assign responsibilities, and establish a policy to ensure
continuous prudent investment of available City funds.
STATEMENT OF POLICY
1. Scope. This policy applies to all cash and investments of the City of
Janesville. These assets are accounted for in the City’s annual audit report and
include: General Fund, Special Revenue Fund, Capital Project Funds, Enterprise
Funds, Funds, and the Debt Service Fund, and shall be administered in
Fiduciary
Fiduciary
accordance with the provisions of this policy.
2. Legality. All investments made by the City shall be in compliance with
Wisconsin State Statutes which grant general authority for making investments
with municipal funds and which extend such authority to investment in savings
banks.
3. Delegation of Authority. Management’s responsibility for the City’s
investment program is hereby delegated to the Director of Finance and
Administration Assistant City Manager/Director of Administrative Services, who
shall establish written procedures for the operation of the investment program.
No person may engage in an investment transaction except as provided under the
terms of this policy and the procedures established by the Director of Finance and
Administration Assistant City Manager/Director of Administrative Services.
4. Prudence. The standard of prudence to be used by the Director of Finance
and Administration Assistant City Manager/Director of Administrative Services
shall be the “prudent person” and shall be applied in the context of managing the
overall investment portfolio. The Director of Finance and Administration Assistant
City Manager/Director of Administrative Services, acting in accordance with
written procedures and exercising due diligence, shall be relieved of personal
responsibility for an individual security’s credit risk or price market change,
provided that deviations are reported in a timely fashion and appropriate action is
taken to control these adverse developments.
CITY OF JANESVILLE Policy No. 68
Page 2 of 3
CITY COUNCIL POLICY STATEMENT
Date Issued 2/20/90
Revised 5/12/97
General Subject: Investments Revised 5/08/00
Revised 12/13/05
Effective Date 12/13/05
Specific Subject: Investment of
City Funds Cancellation Date
Supersedes No.
5. Instruments. Investment of the City's funds may be invested in those
instruments stated in Wisconsin State Statutes which include, but are not limited
to: (a) U.S. Treasury securities; or securities ex guaranteed as
plicitly and implicitly
to principal and interest by the federal government; (b) certificates of deposit fully
insured or collateralized at commercial banks, credit unions and savings banks;
(c) commercial paper rated A-1/P1; (d) repurchase agreements collateralized by
U.S. Treasury securities or securities guaranteed as to principal and interest by
the federal government;(e) the State of Wisconsin Local Government Investment
Pool; (f) the Wisconsin Investment Trust Certificate of Deposit Account Registry
Service ( (g) Securities of an open-end management investment company
CDARS);
or investment trust fully insured or collateralized by U.S. Treasury or Federal
securities;
(h) municipal, county or school notes or bonds rated at the highest or
second highest rating category assigned by a nationally recognized rating agency; (i)
municipal, county or school notes or bonds issued by a jurisdiction in Rock County
and backed by the full faith and credit of the taxing authority. The taxing authority
shall have been rated at the highest or second highest rating assigned by a
nationally recognized rating agency with in the last 12 months.
6. Safety. Investments shall be undertaken in a manner that seeks to ensure
the preservation of capital. In order to attain this objective, diversification of our
overall portfolio is required.
The objective will be to mitigate credit risk and rate
risk.
7. Diversification. Investments shall be diversified to eliminate the risk of loss
resulting from over concentration of assets in a specific maturity, a specific issuer,
and/or a specific class of securities. In lieu of indicating specific investment
amounts: (a) commercial paper shall be limited in size so
to $500,000 per issuer
that in case of default, the portfolio’s annual investment income will exceed a loss
on a single issuer's securities; (b) no more than 20% of the
40%estimated average
portfolio may be invested beyond 24 months; (c) no more than 40% of
annual60%
the portfolio may be invested in the following categories: commercial paper or
bank certificates of deposit and (d) local bank balances are restricted
and CDARS;
to Wisconsin financial institutions and shall be fully insured or collateralized.
8. Safekeeping. All investment securities purchased by the City shall be (a)
CITY OF JANESVILLE Policy No. 68
Page 3 of 3
CITY COUNCIL POLICY STATEMENT
Date Issued 2/20/90
Revised 5/12/97
General Subject: Investments Revised 5/08/00
Revised 12/13/05
Effective Date 12/13/05
Specific Subject: Investment of
City Funds Cancellation Date
Supersedes No.
held in third-party safekeeping by an institution designated as primary agent, (b)
held by a third party trust company or bank in the brokerage firm’s name for the
benefit of the City with 100% of the investment insured or (c) held by the City of
Janesville. The primary agent shall issue a safekeeping receipt to the City listing
the specific instrument, rate, maturity, and other pertinent information.
9. Credit Risk. The investment policy provides limits as to the type and grade
of City investments. The State of Wisconsin Local Government Investment Pool
and the Wisconsin Investment Trust are is not registered with the Securities and
Exchange Commission, but operates under the statutory authority of Wisconsin
State Statutes Chapter 25. The City of Janesville acknowledges that the
Wisconsin Local Government Investment Pool and the Wisconsin Investment Trust
are is not rated and accepts this credit risk. State Statutes limit investments in
debt securities to the highest or second highest rating category. The City limits
investment securities to the highest or second highest rating category. This limit
includes investments in mutual funds.
10. Reporting. The Director of Finance and Administration Assistant City
Manager/Director of Administrative Services shall submit an annual
semi-
investment report. Such report shall summarize the investment portfolio in terms
of securities held, maturities, and amounts invested. Furthermore, this report
shall indicate the annual investment return, as compared to the amount
budgeted.
The City shall use the U.S. 90 day Treasury bill as our benchmark on
performance.