[R.O. 2012 §140.010; Ord. No. 88-6-4, 6-1988]
In general, the cash management activities of the City of Excelsior Springs shall be conducted in a manner which is consistent with the prevailing prudent manner business practices which may be applied by other organizations of similar size and financial resources.
Investments of the City, or funds held in its possession in a fiduciary capacity, shall be made with the exercise of that judgment and care, under circumstances then prevailing, which men of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital, as well as the probable income to be derived.
The Director of Finance shall be authorized and required to promulgate administrative rules and policies, consistent with the tenets of the City Charter, relating to the cash management and investment policies of the City, and in compliance with appropriate and prevailing State Statutes.
Such rules and policies shall be designed in the best interests of the City and its general populace, and shall not afford special advantage to any individual or corporate member of the financial or investment community.
Expenses incurred for banking or financial services shall be scrutinized in the same competitive manner as are other expenditures of City monies.
Financial institutions which serve as depositories of City funds shall meet the City's established criteria for overall financial strength, adequate capitalization, and appropriate liquidity, in addition to fully complying with prevailing State Statutes.
Securities dealers with whom the City conducts business shall be subject to established guidelines and criteria.
The City will limit its purchase of investment securities to those of the highest quality, including, but not limited to fully-collateralized time deposits in banks and savings and loan associations which are chartered and headquartered within the State, deposits in the State's Local Government Investment Pool, direct obligations of the United States government, obligations of United States government agencies, or purchases of such investment securities under the terms of repurchase agreements.
Such investments will be made in accordance with prevailing cash management and investment policies which are promulgated and administered by the Director of Finance. From time to time, such policies will be refined and amended by the Director of Finance to reflect current conditions prevailing in the cash management and investment marketplace, thereby allowing the City to maintain an appropriate posture relative to the contemporary financial marketplace.
[R.O. 2012 §140.020; Ord. No. 88-6-4, 6-1988]
Under the authority of the City Manager of the City of Excelsior Springs (as established and amended through the passage of ordinance and resolution of the governing body), the Director of Finance is authorized and required to make rules and regulations and to establish administrative policies and procedures relating to the cash management and investment policies of the City. To this end, this statement of policies has been prepared.
It is anticipated that this policy statement will be reviewed and evaluated on a regular basis, to ensure that the policies and procedures expressed herein are responsive to the prevailing cash management and investment environment. Since this environment is subject to constant change, care must be taken to ensure that such responsiveness is maintained. This policy statement will, therefore, be appropriately revised, amended, expanded, and purged on a continuing basis.
If any changes are contemplated which substantially alter the intent and purpose of these policies, other than to effect further administrative or procedural efficiencies, the Director of Finance will discuss such changes with the City Manager.
[R.O. 2012 §140.030; Ord. No. 88-6-4, 6-1988]
In general, the cash management and investment activities of the City of Excelsior Springs shall be conducted in a manner which is consistent with prevailing prudent business practices which may be applied by other organizations of similar size and financial resources, in compliance with appropriate State Statutes.
Investments of the City, or of funds held in its possession in a fiduciary capacity, shall be made with the exercise of that judgement and care, under circumstances then prevailing, which men of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital, as well as the probable income to be derived.
Rules and policies promulgated by the Director of Finance shall be designed in the best interest of the City and its citizens, and shall not afford special financial advantage to any individual or corporate member of the financial or investment community.
Expenses incurred for banking or financial services shall be treated in the same competitive manner as other expenditures of City funds.
Financial institutions which serve as depositories of City funds shall comply with all prevailing provisions of State Statutes, and shall meet the City's established criteria for overall financial strength, adequate capitalization, and appropriate liquidity.
Securities dealers with whom the City conducts business shall be subject to established guidelines and criteria.
The City will limit its purchase of investment securities to those which are of the highest quality, including, but not limited to, fully-collateralized time deposits in banks and savings and loan associations which are chartered and headquartered within the State, deposits in the State's Local Government Investment Pool, direct obligations of the United States government, obligations of United States government agencies, or the purchase of such U.S. government of agency securities under the terms of repurchase agreements.
[R.O. 2012 §140.040; Ord. No. 88-6-4, 6-1988]
The Department of Finance is committed to the overall success of the City's cash management programs. These programs address a variety of cash management issues, including:
The design and implementations of reliable and effective cash-flow forecasting methodologies which will assist Finance Department personnel in the determination of the amounts of cash available for investment, the time period for which the funds may be invested with a reasonable level of confidence, and a measure of the volatility of specific forecasts, which will allow viable determination of the required liquidity which must characterize the specific investments.
The design and implementation of appropriate "revenue acceleration" programs, aimed at enhancing the speed at which monies are collected and deposited.
The design and implementation of suitable "controlled disbursement" programs, which will ensure that City expenses are met in a timely manner, but not in such a way as to jeopardize the earning capacity of the City's cash management portfolio.
The utilization of modern and efficient techniques for the physical movement of money, taking advantage of the technological and operational procedures which have evolved in recent years.
The design of investment policies which will allow the City to maximize its interest earnings, while at the same time establishing policies and procedures which will ensure the total safety of all funds entrusted to the care and control of the Finance Department.
The design and implementation of banking relationships which are both favorable to the City and responsive to the day-to-day requirements of the City's complex financial operations.
The design and implementation of appropriate policies and procedures with regard to the proper and effective use of City's municipal credit authority.
[R.O. 2012 §140.050; Ord. No 88-6-4, 6-1988]
The statement, "Investments . shall be made with the exercise of that judgement and care, under circumstances then prevailing, which men of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived," imposes a wide variety of responsibilities upon the Department of Finance. These responsibilities include, but are not limited to: The need for prudence and care in the selection of appropriate investment securities; the need for rational criteria for the selection of financial institutions and securities dealers with whom the City conducts business; and a distinct concentration upon the maximization of investment yield within the parameters of the other listed responsibilities. To meet these responsibilities, the Department of Finance has established the following policies and procedures for cash investment:
Investment instruments. The Director of Finance, or designee, shall invest the temporarily idle funds of the City in those investment instruments which are listed below:
Fully-collateralized Certificates of Deposit issued by qualified commercial banks and savings and loan associations located within the State. The term "qualified" is explained more fully in Subsection (2) hereof.
Deposits in the State's "Local Government Investment Pool", only if authorized by State Statutes.
Direct obligations of the United States government, including such instruments as Treasury Bills, Treasury Notes, and Treasury Bonds.
Other "direct obligations", while fully guaranteed by the "full faith and credit" of the United States government, enjoy less active secondary markets than the more traditional bills, notes, and bonds. Therefore, the Finance Department will currently refrain from purchasing such instruments as SBA loans, AID bonds, "stripped" Treasury Bonds, etc., unless special circumstances prevail which suggest their appropriate use for specific investments. The "special circumstances" will be fully documented at the time of their purchase and the City Council will be notified.
Obligations of U.S. Government agencies, including such instruments as Federal Home Loan Bank bonds, Government National Mortgage Association bonds, or a variety of "Federal Farm Credit" bonds.
Purchases of the "direct" or "agency" securities mentioned in paragraphs (3) and (4) above, under the terms of a repurchase agreement which meets the procedures established in part (c) of this Subsection.
In no event will any investment vehicle be selected and utilized until the Director of Finance is fully convinced that departmental personnel have full familiarity with the nature and nuances of the specific investment vehicle. Furthermore, the Director of Finance will endeavor to make available whatever professional training is necessary to assist departmental personnel in the performance of their cash management duties and responsibilities.
Generally, the City will only invest in "money market instruments", which are defined as very credit worthy, highly liquid investments with maturities of one year or less. Although there may be certain circumstances in which longer-term securities are utilized, such as investments of long-term sinking fund contributions, or maturity-matched construction funds, the general use of long-term securities shall be avoided.
(Such instruments are generally inappropriate to the City's cash management operations, since the purchase of such securities infers certain level of "speculation", given the significant "market risks" which characterize long-term investments.)
Criteria for selection of financial intermediaries. Although the City's policies for the purchase of investment securities are designed to ensure complete safety, accompanied by appropriate liquidity and competitive yields, the "providers" of such securities must also meet specific financial and operational standards.
Deposits in commercial banks and savings and loan associations, whether they be time deposits, demand deposits, or deposits in special interest-bearing accounts, ("NOW", "Super-NOW", etc.), shall only be made in banks which qualify to accept public-sector deposits which are protected under the terms of Chapter 110, RSMo.
However, certain "sweep" or "automatic repo" accounts, and certain funds held under the terms of a "trust agreement" arrangement may not be protected under the provisions of Chapter 110, RSMo.
Furthermore, the City has no desire to "test" such program as FDIC or FSLIC insurance, nor does it wish to have to establish its legal right to securities held by financially-insolvent brokers or securities dealers. There are a sufficiently large number of financial institutions and securities dealers which are of impeccable financial standing. As a result, the City does not choose to do business with "marginal" or financially-weak institutions.
Therefor, financial intermediaries which conduct business with the City of Excelsior Springs shall be subject to the following types of selection criteria:
Commercial banks. Deposits of City monies in commercial banks may only be made with institutions which possess the overall financial strength, capitalization, and liquidity to reasonably ensure the safety and availability of such monies. To assess the overall financial strength of potential depositories, the City will utilize third-party rating agencies to perform periodic reviews of various commercial banks, relying upon their reports to determine the appropriateness of the depository.
Currently, the City uses the services of Prudent Man Analysis, Inc. (PMA) to rate the strength of the commercial banks with which the City does business. Inasmuch as PMA utilizes overall ratings of one (1) through five (5), (one (1) being strongest. five (5) being weakest), the City's current policy is to seek depositories with a PMA rating of one (1) or two (2). Banks with ratings of three (3) shall be eligible to serve as a depository, but must be periodically and substantively reviewed. Banks rated in the four (4) or five (5) category will not qualify to receive City monies.
Savings and loan associations. Deposits of City monies in savings and loan associations shall be subject to the same rating criteria which are applied to commercial banks. Their acceptability as depositories will be judged on the third-party ratings of such organizations as PMA or its counterparts.
Securities dealers. There are currently thirty-six (36) major investment banking firms which are listed by the market Reports Division of the Federal Reserve Bank of New York as the thirty-six (36) "primary" securities dealers. These dealers are unique within the United States government securities industry in that they both "report" and are "regulated" in an industry which is typically "non-reporting" and "unregulated".
Included on this "blue chip" list are major securities firms (Prudential-Bache, Dean Witter Reynolds, Merrill Lynch, Smith Barney, etc.) and some of the world's largest banks (Bank of America, Citibank, Manufacturers Hanover, Northern Trust, etc.).
Current Department of Finance policy is to restrict transactions relating to the purchase and sale of U.S. Government securities to this list of "primary" securities dealers. Such policy, therefor, will preclude the City from doing business with other brokers and dealers whose financial strength and operational capabilities cannot be confidently determined, given the absence of "reporting" and "regulation" requirements.
This policy may seem unduly restrictive. However, the City policy is to "err on the side of prudence", rather than accept event the smallest risk of loss of principal or interest.
Procedures for the delivery and possession of securities. It provides insufficient protection for the City to simply limit its cash investments to those listed in (a) of this Subsection. To ensure total protection, the City has established delivery and possession procedures which will be followed in every case. Specifically:
All ownership of securities shall be evidenced by an acceptable safekeeping receipt issued by a third-party financial institution which is acceptable to the City, or by a safekeeping receipt from the Federal Reserve Bank.
All investment (or divestment) transactions will be implemented on a "delivery vs. payment" (or "payment vs. delivery") basis. In the absence of acceptable delivery, the City will refuse to enter the transaction.
Repurchase agreements will meet the aforementioned delivery criteria, and will be accompanied by an acceptable "haircut" (i.e., excess of market value of securities over principal amount of investment.)
Furthermore, securities purchased under the terms of a repurchase agreement shall generally have maturity dates of ten (10) years or less, and shall be "wirable" instruments through the U.S. Federal Reserve System.
From time to time, the City may choose to "reverse" certain of its portfolio securities under the terms of a "reverse repurchase agreement". However, this authority shall be severely restricted.
The primary rationale for "reversing" is to provide short-term liquidity which is less costly than permanent liquidation of a portfolio security. This method can be utilized to "temporarily liquidate" many types of securities, including CDs, U.S. government obligations, U.S. agency obligations, etc.
(In the case of local CDs, a "temporary reverse" or "reverse to maturity" may allow the City to legally avoid any "early withdrawal penalties", thereby preserving the City's investment capital. In the case of government or agency securities, a "temporary reverse" may allow the City to avoid liquidation of a desirable instrument in a "disadvantageous" marketplace.
However, the City will not utilize "reverse" as a tool to effect "margined purchases" of investment securities, nor as an action which will essentially " disguise" or "cover up" unrecognized portfolio losses. Finally the City will not utilize "reverses" to engage in any types of "speculative" investment transactions.
All wire transactions required to implement the aforementioned purchase and sale transactions shall be supported by written instructions to the City's bank, unless the timely preparation of such written instructions would hinder the orderly completion of the transaction itself. In such cases, the City will prepare follow-up letters confirming the oral (typically telephonic) instructions, and forward such written instructions to the bank without undue delay.
The Finance Department will, from time to time, recommend to the governing body various financing opportunities which should be of ultimate financial and operational benefit to the City and its taxpayers. The Department will constantly monitor the City's existing and potential financing alternatives to ensure that full advantage is being taken of the special tax-exempt municipal financing authority the City.