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#6 Discuss and act on proposed amendments to Council Policy #68 regarding investments CLERK-TREASURER'S OFFICE MEMORANDUM November 4, 2011 TO: City Council FROM : Jean Ann Wulf, City Clerk-Treasurer SUBJECT: Discussion and 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 City holds significant tax funds from December through February and staff would like to expand our investment limits for municipal commercial paper. Staff Recommendation Staff recommends the Council adopt the amendments to City Council Policy Statement No. 68 regarding Investments. City Manager Recommendation The City Manager concurs with the recommendation. This could result in a $2,000 to $4,000 difference in the current market, but could have a greater effect when interest rates move upward. Suggested Motion I move to adopt the attached amended City Council Policy Statement No. 68 regarding Investments. Analysis The Assistant City Manager and Clerk-Treasurer met with representatives from JP Morgan, the City’s financial advisor, to discuss short term strategies for investing our tax collections. The City receives tax monies between December and February. During this time period, the City has an average balance of $18.5M in tax dollars. Currently, tax collections would be invested in our money market account with JP Morgan. The rate of return on this account is .15% and is collateralized with the Federal Reserve. Our financial advisors suggested that we redefine our investment policy on commercial paper to allow for the purchase of municipal commercial paper (John Hopkins, San Diego Water, and University of Indiana etc.). Municipal commercial paper is sold in minimum blocks of $1,000,000 and we are precluded from this investment because of the limits placed on commercial paper. Therefore, we would like to divide commercial paper into two categories: commercial paper and municipal commercial paper. The investment limits would remain the same for commercial paper ($500,000) and expand for municipal commercial paper from $500,000 to $1,000,000. We anticipate that we would earn approximately $2,000-$4,000 in additional interest income during tax collection season. In addition, it would allow us more flexibility throughout the year in investment opportunities. cc: Eric Levitt, City Manager Jay Winzenz, Asst. City Manager/ Director of Administrative 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 Revised 1/12/10 Effective Date 1/12/10 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 designee of the City Manager, 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 designee of the City Manager. 4. Prudence. The standard of prudence to be used by the designee of the City Manager shall be the “prudent person” and shall be applied in the context of managing the overall investment portfolio. The designee of the City Manager, 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 Revised 1/12/10 Effective Date 1/12/10 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) Certificate of Deposit Account Registry Service ( (g) Securities of CDARS); an open-end management investment company 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 to $500,000 per issuer; (b) municipal commercial paper shall be limited in size to $1,000,000 per issuer; (b) (c) no more than 40% of the estimated average annual portfolio may be invested beyond 24 months; (c) (d) no more than 60% of the portfolio may be invested in the following categories: commercial paper or bank certificates of deposit and CDARSand (d) (e) local bank balances are restricted to Wisconsin financial ; institutions and shall be fully insured or collateralized. 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 Revised 1/12/10 Effective Date 1/12/10 Specific Subject: Investment of City Funds Cancellation Date Supersedes No. 8. Safekeeping. All investment securities purchased by the City shall be (a) 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 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 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 designee of the City Manager shall submit semi-annual 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.