This policy applies to the investment of short-term operating
funds. Longer-term funds, including investments of employees'
investment retirement funds and proceeds from certain bond issues,
are covered by a separate policy.
Except for cash in certain restricted and special funds, the
City of Maroa will consolidate cash balances from all funds to maximize
investment earnings. Investment income will be allocated to the various
funds based on their respective participation and in accordance with
generally accepted accounting principles.
The primary objectives, in priority order, of investment activities
shall be safety, liquidity and yield:
A. Safety. Safety of principal is the foremost objective of the investment
program. Investments shall be undertaken in a manner that seeks to
ensure the preservation of capital in the overall portfolio. The objective
will be to mitigate credit risk and interest rate risk.
(1) Credit risk. The City of Maroa will minimize credit risk, the risk
of loss due to the failure of the security issuer or backer, by:
(a)
Limiting investments to the safest types of securities.
(b)
Prequalifying the financial institutions, broker/dealers, intermediaries
and advisers with which the City of Maroa will do business.
(c)
Diversifying the investment portfolio so that potential losses
on individual securities will be minimized.
(2) Interest rate risk. The City of Maroa will minimize the risk that
the market value of securities in the portfolio will fall due to changes
in general interest rates by:
(a)
Structuring the investment portfolio so that securities mature
to meet cash requirements for ongoing operations, thereby avoiding
the need to sell securities on the open market prior to maturity.
(b)
Investing operating funds primarily in shorter-term securities,
money market mutual funds or similar investment pools.
B. Liquidity. The investment portfolio shall remain sufficiently liquid
to meet all operating requirements that may be reasonably anticipated.
This is accomplished by structuring the portfolio so that securities
mature concurrent with cash needs to meet anticipated demands (static
liquidity). Furthermore, since all possible cash demands cannot be
anticipated, the portfolio should consist largely of securities with
active secondary or resale markets (dynamic liquidity). A portion
of the portfolio also may be placed in money market mutual funds or
local government investment pools which offer same-day liquidity for
short-term funds.
C. Yield. The investment portfolio shall be designed with the objective
of attaining a market rate of return throughout budgetary and economic
cycles, considering the investment risk constraints and liquidity
needs. Return on investment is of secondary importance compared to
the safety and liquidity objectives described above. The core of investments
are limited to relatively low-risk securities in anticipation of earning
a fair return relative to the risk being assumed. Securities shall
not be sold prior to maturity, with the following exceptions:
(1) A security with declining credit may be sold early to minimize loss
of principal.
(2) A security swap would improve the quality, yield or target duration
in the portfolio.
(3) Liquidity needs of the portfolio require that the security be sold.