1291 ORDINANCE NO, 1291 (#24 - 06)
AN ORDINANCE PROVIDING CREATION OF JMC 53.10; FOR THE
ADOPTION OF AN INVESTMENT POLICY FOR THE CITY OF JACKSONVILLE,
ARKANSAS; AND, FOR OTHER PURPOSES.
WHEREAS, the City of Jacksonville's recent audit report recommended
adoption of a formal policy regarding investment of operating funds so as to
maximize interest earnings while meeting all requirements to preserve the safety
of the principal and provide adequate cash flow.
NOW, THEREFORE, BE IT ORDAINED AND ENACTED BY THE CITY
COUNCIL OF THE CITY OF JACKSONtang ARKANSAS, THAT:
SECTION ONE: Jacksonville Municipal Code §3.10.010 is hereby created
and shall include the following:
JMC § 3.10.010 PURPOSE AND SCOPE
The purpose of the City of Jacksonville's Investment Policy is to provide guidelines
for investment of City of Jacksonville operating funds to preserve the safety of
principal, to maintain adequate cash flow, and to maximize interest earnings. This
policy applies to the investment of City of Jacksonville operating funds not needed
for immediate expenditures. This policy does not govern the investment of
employee retirement or pension funds or proceeds of bond issues.
SECTION TWO: Jacksonville Municipal Code § 3.10.020 is hereby created
and shall include the following:
JMC § 3.10.020 STANDARDS /OBJECTIVES
A. Investments will be made within the constraints of applicable state
laws and this policy, taking into consideration liquidity needs of the City.
Investment decisions will be made with judgment and care, under circumstances
then prevailing, which persons of prudence, discretion, and intelligence would so
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.
B. Investment of the funds of the City of Jacksonville shall be directed
to the primary objective of safety of principal; the secondary objective shall be
maintaining adequate cash flow; and, the final objective shall be maximizing
investment yield.
C. Except for cash in certain restricted and special funds, the City may
consolidate moneys from individual funds to maximize interest earnings.
Investment income will be allocated to the various funds based on each fund's
participation.
SECTION THREE: Jacksonville Municipal Code § 3.10.030 is hereby created
and shall include the following:
JMC § 3.10.030 DEFINITIONS
Accrued Interest - The accumulated interest due on a bond as of the last interest
payment made by the issuer.
Agency - A debt security issued by a federal or federally sponsored agency. Federal
agencies are backed by the full faith and credit of the U.S. Government. Federally
sponsored agencies (FSA) are backed by each particular agency with a market
perception that there is an implicit government guarantee. An example of federal
ORDINANCE NO. 1291 (#24 — 06)
PAGE TWO
agency is the Government National Mortgage Association (GNMA). An example of
a FSA is the Federal National Mortgage Association (FNMA).
Collateralization - Process by which a borrower pledges securities, property, or
other deposits for the purpose of securing the repayment of a loan and /or security.
Credit Risk - The risk to an investor that an issuer will default in the payment of
interest and /or principal on a security.
Delivery Versus Payment (DVP) - A type of securities transaction in which the
purchaser pays for the securities when they are delivered either to the purchaser
or his /her custodian.
Fair Value - The amount at which an investment could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
Federal Funds (Fed Funds) - Funds placed in Federal Reserve banks by
depository institutions in excess of current reserve requirements. These depository
institutions may lend fed funds to each other overnight or on a longer basis. They
may also transfer funds among each other on a same -day basis through the Federal
Reserve banking system. Fed funds are considered to be immediately available
funds.
Federal Funds Rate - Interest rate charged by one institution lending federal
funds to the other.
Government Securities - An obligation of the U.S. government, backed by the full
faith and credit of the government. These securities are regarded as the highest
quality of investment securities available in the U.S. securities market. See
"Treasury Bills, Notes, and Bonds."
Interest Rate Risk - The risk associated with declines or rises in interest rates
which cause an investment in a fixed- income security to increase or decrease in
value.
Investment Company Act of 1940 Federal legislation which sets the standards
by which investment companies, such as mutual funds, are regulated in the areas
of advertising, promotion, performance reporting requirements, and securities
valuations.
Investment Policy - A concise oncise and clear statement of the objectives and
parameters formulated by an investor or investment manager for a portfolio of
investment securities.
Liquidity - An asset that can be converted easily and quickly into cash.
Market Risk - The risk that the value of a security will rise or decline as a result
of changes in market conditions.
Market Value - Current market price of a security.
Maturity - The date on which payment of a financial obligation is due. The final
stated maturity is the date on which the issuer must retire a bond and pay the face
value to the bondholder. See "Weighted Average Maturity."
ORDINANCE NO. 1291 (#24 — 06)
PAGE THREE
Money Market Mutual Fund - Mutual funds that invest solely in money market
instruments (short -term debt instruments, such as Treasury bills, commercial paper,
bankers' acceptances, repos and federal funds).
Mutual Fund - An investment company that pools money and can invest in a
variety of securities, including fixed- income securities and money market
instruments. Mutual funds are regulated by the Investment Company Act of 1940
and must abide by the following Securities and Exchange Commission (SEC)
disclosure guidelines:
1. Report standardized performance calculations;
2. Disseminate timely and accurate information regarding the fund's holdings,
performance, management and general investment policy.
3. Have the fund's investment policies and activities supervised by a board of
trustees, which are independent of the adviser, administrator or other vendor
of the fund.
4. Maintain the daily liquidity of the fund's shares.
5. Value their portfolios on a daily basis.
6. Have all individuals who sell SEC - registered products licensed with a self -
regulating organization (SRO) such as the National Association of Securities
Dealers (NASD).
7. Have an investment policy governed by a prospectus which is updated and
fi led by the SEC annually.
Principal - The face value or par value of a debt instrument. Also may refer to the
amount of capital invested in a given security.
Prudent Person Rule - An investment standard outlining the fiduciary
responsibilities of public funds investors relating to investment practices.
Repurchase Agreement (repo or RP) - An agreement of a party to sell securities
at a specified price to a second party and a simultaneous agreement of the first
party to repurchase the securities at a specified price or at a specified later date.
Reverse Repurchase Agreement (Reverse Repo) - An agreement of one party
to purchase securities at a specified price from a second party and a simultaneous
agreement by the first party to resell the securities at a specified price to the second
party on demand or at a specified date.
Rule 2a - 7 of the Investment Company Act - Applies to all money market
mutual funds and mandates such funds to maintain certain standards, including a
13- month maturity limit and a 90 -day average maturity on investments, to help
maintain a constant net asset value of One Dollar ($1.00).
Safekeeping - Holding of assets (e.g., securities) by a fi nancial institution.
Treasury Bills - Short-term U.S. government non - interest bearing debt securities
with maturities of no longer than One year and issued in minimum denominations
of Ten Thousand Dollars ($10,000.00). Auctions of Three (3) and Six (6) month
ORDINANCE NO, 1291 (#24 — 06)
PAGE FOUR
bills are weekly, while auctions of One year bills are monthly. The yields on these
bills are monitored closely in the money markets for signs of interest rate trends.
,. Treasury Notes - Intermediate U.S. government debt securities with maturities of
One (1) to Ten (10) years and issued in denominations ranging from One Thousand
Dollars ($1,000.00) to One Million Dollars ($1,000,000.00) or more.
Treasury Bonds - Long -term U.S. government debt securities with maturities of
Ten (10) years or longer and issued in minimum denominations of One Thousand
Dollars ($1,000.00).
SECTION FOUR: Jacksonville Municipal Code § 3.10.040 is hereby created
and shall include the following:
JMC § 3.10.040 DELEGATION OF AUTHORITY /RESPONSIBILITY
A. Management of the investment of City funds regulated by this policy
shall be the responsibility of the Mayor, the City Clerk/Treasurer, and the Finance
Director. The Mayor, City Clerk/Treasurer, and /or the Finance Director may
delegate authority for investment transactions. The Mayor, City Clerk/Treasurer,
and /or the Finance Director may, by proper procurement procedures, contract for
the services of an asset manager, an investment advisor, or other expert advisor(s)
to invest all or a portion of the City funds regulated by this Policy.
B. The Mayor, City Clerk/Treasurer, and the Finance Director and their
designees are authorized to: open and close accounts with financial institutions in
the name of the City; make wire transfers of funds for the City; make deposits of
funds for the City; execute collateral, depository, and investment agreements for the
City; and, take any other such actions needed to carry out their responsibilities for
the depositing and investing of the City's funds as authorized by statutes and this
Policy.
C. The Mayor, the City Clerk/Treasurer, the Finance Director, and other
City employees assigned to manage the investment portfolio, acting within the
intent and scope of this Investment Policy, shall be relieved of personal
responsibility for an individual security's credit risk or market risk. Officers and
employees involved in the investment process shall refrain from personal business
activities that conflict with proper execution of the investment program or impair
their ability to make impartial investment decisions.
D. The Mayor, City Clerk/Treasurer, and the Finance Director shall
establish operating procedures to implement this Investment Policy.
SECTION FIVE: Jacksonville Municipal Code § 3.10.050 is hereby created
and shall include the following:
JMC § 3.10.050 AUTHORIZED INVESTMENTS
A. The City will invest only in book entry securities.
B. The City may, without limitation, invest in the following instruments,
provided, however, that at no time shall assets of the City be invested in any
" instrument or security not authorized for investment by ACA § 14 -58 -309,
ACA § 23 -47 -401, or by ACA § 19 -8 -301 et. seq., as they may from time to
time be amended:
ORDINANCE NO. 1291 (#24 — 06)
PAGE FIVE
1. Direct obligations of the United States Government;
2. Obligations the principal and interest of which are fully secured,
insured, or covered by commitments or agreements to purchase by the
United States Government or an agency or instrumentality created by an act
of the United States Congress and authorized thereby to issue such
commitments or agreements;
3. Obligations the principal and interest of which are fully secured,
insured, or covered by commitments or agreements to purchase by the
United States Government or an agency or instrumentality created by an act
of the United States Congress and authorized thereby to issue such
commitments or agreements;
4. Pre - refunded municipal bonds, the principal and interest of which are
fully secured by the principal and interest of a direct obligation of the United
States Government;
5. Certificates of deposit with banks authorized by State law to receive
deposits of public funds;
6. Repurchase agreements that are fully collateralized by direct
obligations of the United States Government, provided that any such
repurchase agreement shall provide for the taking of delivery of such
collateral directly or through an authorized custodian;
7. Securities of, or other interest in, any open -end type investment
company or investment trust registered under the Investment Company Act
of 1940, and which is defined as a "money market fund" under 17 CFR
270.2a -7, provided that the portfolio of such investment company or
investment trust is limited principally to United States Government
obligations and, provided further that any such investment company or
investment trust shall take delivery of such collateral either directly or
through an authorized custodian; and,
8. Local Government Trusts
C. Other Provisions
1. Any Arkansas state legislative action that provides for additional
investment vehicles or further restricts investment vehicles will be
incorporated into the City's Investment policy and will supersede any
previous language.
2. The City will be allowed to hold to maturity any investments existing
at the time of enactment of this policy. Reinvestment of such funds
will be in accordance with this policy.
3. The Mayor and the Finance Director may set additional limitations on
the parameters for various types and concentration of investments.
Operating procedures will define requirements to implement this
policy.
SECTION SIX: Jacksonville Municipal Code § 3.10.060 is hereby created
and shall include the following:
JMC § 3.10.060 INVESTMENTS NOT AUTHORIZED
The following investment vehicles, though authorized by ACA § 14 -58 -309, are not
considered suitable investments for City funds:
A. Warrants of political subdivision of the State of Arkansas and municipalities
thereof having maturities not exceeding One (1) year;
B. The sale of federal funds with a maturity of not more than One (1) business
day;
ORDINANCE NO. 1291 (#24 — 06)
PAGE SIX
C. Industrial development bonds for corporate obligors issued through any state
of the United States or any political subdivision thereof;
D. Revenue bond issues of any state of the United States or any municipality or
any political subdivision thereof;
E. Securities or other interests issued, assumed or guaranteed by the
International Bank for Reconstruction and Development, the Inter - American
Development Bank, the European Bank for Reconstruction and Development,
the Asian Development Bank or the African Development Bank; or,
F. Uninsured demand, savings, or time deposits or accounts of any depository
institution chartered by the United States, any state of the United States, or
the District of Columbia.
SECTION SEVEN: Jacksonville Municipal Code § 3.10.070 is hereby created
and shall include the following:
JMC § 3.10.070 INVESTMENT PARAMETERS
A. Diversification
City investments regulated by this Policy shall be diversified by:
1. Limiting investments to avoid over concentration in securities from a
specific issuer to Five Percent (5 %) of the cost basis of the City's
portfolio at the time of purchase, a limit of Fifteen Percent (15 %) of
the cost basis of the City's portfolio will apply to each business sector
as defined by any recognized rating agency (excluding US Treasury
securities and collateralized certificates of deposit);
2. Investing in securities with varying maturities; and,
3. Continuously investing a portion of the portfolio in readily available
funds to ensure that appropriate liquidity is maintained.
B. Maximum Maturities
The City will attempt to match investment maturities with cash flow
requirements and will utilize investments in readily available funds, when
needed, to meet ongoing obligations. The City anticipates a range of maturities
of Ninety (90) days to Five (5) years. The City will invest in securities maturing
more than five years from the date of purchase only when the funds are easily
defined to be used after Five (5) years.
SECTION EIGHT: Jacksonville Municipal Code § 3.10.080 is hereby created
and shall include the following:
JMC § 3.10.080 SAFEKEEPING /COLLATERALIZATION
A. Investment of City funds, including cash held for investment, managed under
contract of services by an asset manager, investment advisor, or other expert
advisor(s) will be placed with a third party custodian approved by the City.
All trades, where applicable, will be executed by Delivery vs. Payment to
ensure that securities are deposited in an eligible financial institution prior to
the release of funds.
B. The custodian will make reports as requested by the City or advisor(s) and
will be accountable for the assets held by the custodian for the City's
account.
C. Collateralization will be maintained as required by State law and procedures
established by the City. Demand deposits, time deposits, repurchase
agreements, and any other investments requiring collateralization shall be
000x°' 71
ORDINANCE NO. 1291( #24 — 06)
PAGE SEVEN
collateralized at a level of One Hundred Two Percent (102 %) of the market
value of principal and accrued interest, less the amount insured by the FDIC.
SECTION NINE: All Ordinances or parts of Ordinances and Resolutions
in conflict herewith are hereby repealed to the extent of said conflict.
SECTION TEN: This Ordinance shall take effect from and after its date
of passage pursuant to and by applicable law.
APPROVED AND ADOPTED THIS 1 & DAY OF SEPTEMBER, 2006.
CITY OF JACKSONVILLE, ARKANSAS
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TOMMY SWAIM, AM YOR � �
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SUSAN %AVITT, CITY C ' RK
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ROBER E. BAM: RG, CITY ATT•' NEY