95-21726 Reso
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RESOLUTION NO.
95-21726
A RESOLUTION OF THE MAYOR AND CITY
COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA,
ADOPTING A STATEMENT OF CITY OF MIAMI BEACH
INVESTMENT POLICY AND PROCEDURE FOR THE
INVESTMENT OF CITY FUNDS.
WHEREAS, the City of Miami Beach has followed investment policy and
procedures established by the Finance Department, as last presented to the Mayor and
Commission in 1985, as an informational item; and
WHEREAS, the Mayor and City Commission, in order to comply with the provisions
of State of Florida Senate Bill 2090, effective October 1, 1995, must now formally adopt
an investment policy statement, and the Administration would herein recommend, to that
end, that the investment of City funds hereinafter be governed in accordance with the
Statement of Investment Policy and Procedure, attached hereto as Exhibit "A".
NOW THEREFORE, BE IT RESOLVED BY THE MAYOR AND CITY
COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA, that the Mayor and City
Commission herein approve and adopt the attached Statement of Investment Policy and
Proced ure.
PASSED AND ADOPTED TH
DAY OF
1995.
Attest:
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City Clerk
By
Date
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CITY OF MIAMI BEACH
INVESTMENT POLICY
AND PROCEDURE
Presented to the Mayor and City Commission:
September 27, 1995
Prepared by:
Finance Department
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CITY OF MIAMI BEACH
INVESTMENT POLICY AND PROCEDURE
TABLE OF CONTENTS
SUBJECT
Background.................................................................................................................... .
General Overview............................................................................................................
Investment Objectives......................................................................................................
Investment Ethics.............................................................................................................
Authorized Investments....................................................................................................
Maturity & Liquidity Requirements....................................................................................
Portfolio Composition......................................................................................................
Master Repurchase Agreement........................................................................................
Investment Transaction Authority....................................................................................
Internal Controls..............................................................................................................
Investment Reporting.......................................................................................................
Record Keeping and Performance Measurement................................................................
Pension Investments........................................................................................................
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Back:round
The Florida Legislature passed CS/SB 2090 (CSIHB 1795) on May 4, 1995 (copy attached).
Among other provisions of this legislation each local government entity is required to create, adopt
and maintain comprehensive investment policies, incorporating fourteen required elements. The
investment policy is required to be adopted on or before October 1, 1995.
The City has operated under investment guidelines adopted in 1985 and subsequent Ordinances 87-
2588 and 92-2793 which authorized additional investment alternatives for the City. While existing
guidelines addressed most of the fourteen required elements of the recent legislation, a rewrite and
adoption of a new policy statement assures compliance with the new legislation.
This policy statement incorporates all required elements as well as internal policy and procedures
related to the City's investment process.
General Overview
The City of Miami Beach has established policies relating to the investment of excess funds. Excess
funds are defined as funds not required to meet short term expenditures of the City. Short term
expenditures are defmed as all daily operating expenditures excluding payroll and debt service. For
short term expenditures, the City maintains an overnight funds sweep program collateralized by Full
Faith and credit instruments of the U.S. Government and its Agencies with the City designated as
collateral beneficiary. The City complies with State of Florida "Public Deposits Law" Chapter 280
F.S. Chapter 280 insures the City against investment principal loss on Certificates of Deposit and
Demand Deposits in excess of $ 100,000 per institution. FDIC insurance covers demand deposits up
to $100,000 per institution. The City will only utilize Financial institutions qualified under Chapter
280, a listing of which is received by the City and reviewed, on a quarterly basis. The City also
complies with Chapter 280 by filing all required reports annually with the State.
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Investment Objectives
The City of Miami Beach governs its investing with the following objectives in order of importance:
1. Safety of capital
2. Liquidity of capital
3. Return on capital
Investment returns are important and can make a significant contribution to the City's operations and
capital projects. Therefore, every effort is made to select the most advantageous investment vehicle
and term of investment to maximize earnings. However, safety and liquidity, in that order, take
precedence over the return. In this regard, the City has designated, through ordinance, certain
investment types, determined to meet the criteria set out above. While the City's investment
philosophy and authorized investment types would be considered relatively conservative, the City has
been able, historically, to generate returns competitive with surrounding local governments while
maintaining a low risk posture.
Investment Ethics
The City of Miami Beach places all investments either through a bidding process or by direct purchase
through the "Investment Custodian". The "Investment Custodian" is an account established with the
trust department of a major commercial bank: selected through the bidding process. Direct purchases
consist of the following instruments which do not lend themselves to competitive bidding:
1. U.S. Treasury Bills
2. U.S. Treasury Notes
3. U.S. Government Agency Securities
In no case does the City invest funds or place idle funds in financial institutions as compensating or
courtesy balances.
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The formal bidding process for investment instruments, other than these noted above, consist of the
following procedures:
1. Maintain a bid list of approximately five major financial institutions qualified under
Chapter 280. This bid list is adjusted periodically to delete bidders who are non-
responsive or non-competitive over a period of time, replacing such institution( s) with
other qualified institutions which have expressed an interest to bid on City funds.
2. Place telephone calls to receive a bid from each institution on the bid list either on the
day of the transaction or the afternoon immediately preceding the transaction date.
3. Receive and note all bids on a standard form designed for this purpose and retain on
file for each transaction
4. Select the highest winning bid
5. Transfer funds in exchange for evidentiary receipt from winning bidder.
This process prevents any form of influence by either the City personnel or financial institution on the
selection of the institution chosen for purchase of City investments.
All investment purchases are to be made following the "Prudent Person's Rule" which states that
"Investments are made with judgement and care, under circumstances then prevailing, which persons
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 from the investment".
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Authorized Investments
The City has established authorized investment types through ordinances (87-2588 and 92-2793).
The authorized investments are as follows:
1. Time Deposits
2. Certificate of Deposit
3. U.S. Treasury Bills
4. U.S. Treasury Notes
5. U.S. Government Agency Securities which are rated in one of the two highest rating
categories by both Moody's Investors Service, Inc. and Standard and Poors
Corporation or their successors.
6. Municipal obligations which are fully insured and rated in one of the two highest
rating categories by both Moody's Investors Service, Inc. and Standard and Poors
Corporation or their successors.
7. Fixed T errn Repurchase Agreements
8. Overnight Repurchase Agreements
9. Bankers Acceptances
10. Commercial Paper with a rating of A-lor P-1 only, rated by a recognized finance
rating agency.
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All repurchase agreements are fully collateralized in the City's name with a third party custodian.
Derivatives (defined as a financial instrument the value of which depends on, or is derived from, the
value of one or more underlying assets or index of asset values) shall only be utilized if specifically
authorized as part of the investment plan and the Finance Director or his designee has sufficient
understanding/expertise to do so. Reverse Repurchase Agreements (an agreement between an
investor and a security dealer whereby dealer agrees to buy back the security at a specified price in
the future; the market for "Repos" is unregulated and uninsured) will be limited to transactions in
which the proceeds will be used to provide liquidity.
Any investment which is not issued in "Book Entry Only" form is physically held by the City in a
secure vaulted area and surrendered only when invested funds and earnings are received by the City
at maturity.
Maturity and Liquidity Requirements
The City times it's investment maturities to cover the following major expenditures.
1. Biweekly Payrolls
2. Periodic Debt Service Payments
3. Capital Project Needs
Each event is covered in chronological order by choosing a maturity date closest to the need and
selecting the highest yielding authorized investment type for the event. In the case of capital projects,
where exact expenditures timing is usually not available, the City invests equal sums providing a
maturity each month to cover all capital expenditures. Any unused capital investment funds will then
be invested out one year to maximize return potential.
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The City's investment policy includes a "hold to maturity" philosophy. This philosophy protects the
City from loss of principal due to fluctuation in market value. By investing to defined event dates,
there is no need to sell investments prior to maturity.
As mentioned earlier, the City maintains an overnight investment program of approximately
$7,000,000 which provides funds necessary to cover daily operating expenses, excluding items #'s
1- 3 above. Interest yields on this investment are competitive though somewhat lower then longer
term instruments.
Portfolio Composition
The City does not limit exposure to a particular investment type but does limit the amount of funds
held by anyone financial institution to ten percent (10%) of the total investment portfolio. The
exception to this rule is the City's investment custodial account described earlier. As the custodial
account is maintained by the trust department of a major financial institution in the City's account and
name and has the intended purpose of safekeeping the majority of the City's securities, there is no
limit placed on the percent of the portfolio which can be held.
Limitation of investment type by assigning a percentage would severely limit the City's ability to
maximize its earning potential after initial considerations of safety and risk.
In many investment programs, diversity of investment types is highly desirable. Such diversity is
necessary in cases where securities are traded frequently and not held to maturity and where volatile
securities are traded. As the City holds its investments to maturity and does not trade volatile
securities, further diversification of the portfolio is not currently required as long as the
aforementioned investment philosophy is practiced. Should the City change investment philosophy,
trade actively or increase risk, appropriate diversification policy would need to be established.
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Master Repurchase Agreement
A "Master Repurchase Agreement" has been developed, reviewed and accepted by the City and is
part of the contract established with the City's main depository bank. This agreement is a standard
PSA form agreement offering all recommended protection to the City. This agreement remains in
effect for the duration of the contract with the City's main depository. Should the City engage in any
fixed term repurchase agreements, the City would assure that any master repurchase agreement
signed with a banking institution fully meets PSA standards.
Investment Transaction Authority
The Finance Director has designated the Assistant Finance Director as the individual responsible for
managing the City's investments. The Assistant Finance Director discusses upcoming maturities with
the Finance Director if there is a question as to new maturity target dates or type of investment
vehicle to be used. Based on these discussions, the Assistant Finance Director executes the
transaction and completes an "Investment Transaction Report" for each investment transaction. The
Finance Director then reviews and approves the Investment Transaction Report. The fully executed
Investment Transaction Report contains all information pertinent to the investment and contains the
approval signatures of both the Finance Director and Assistant Finance Director. Funds related to
each investment are transferred according to authorized funds transfer procedures and limits
established under the provisions of the City's contract with it's main depository bank.
Internal Controls
The City has established a number of internal controls to prevent loss of funds by fraud, employee
error, misrepresentation by third parties, or imprudent actions by employees of the City. The internal
controls are as follows:
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1. Investment transactions authority is limited to specific person's within the Finance
Department
2. Wife transfer offunds authority is restricted to specific individuals with specific dollar
limits within the Finance Department. Also, all non-repeat type wire transfers require
confirmation authorization by a second individual specified in wire authority
documents executed with the City's main depository
3. All investment transactions require the approval of the Finance Director and Assistant
Finance Director on the Investment Transactions Report for each investment
4. A monthly report titled "Investments by BankslFunds" is prepared by the Assistant
Finance Director and distributed to the Finance Director early in the subsequent
month for review. In addition, a Financial Analyst in the Finance Department receives
a copy of this report and agrees investments to the City's general ledger on a monthly
basis, signing off on agreement with the report
5. An Account Clerk II in the Finance Department reconciles the City's general
depository amount on a monthly basis. Investments generated during a month are
recorded to the City's general ledger. The reconciliation of the bank account would
reveal any difference in investment transaction recording and the actual movement of
funds through the City's main depository account.
6. Each month, the Assistant Finance Director agrees outstanding investments on the
custodial statements to the City's records
7. Each year both internal audit and the City's external auditors review existing internal
controls as well as investment transactions on a test basis.
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Investment Reporting
As discussed previously, the Finance Department maintains several types of information and reports
on investments. The records relating to investments are as follows:
1. Investment Transaction Report - A recording/approval form for each investment
transaction, both active and matured investments. This form also indicates all bids
obtained where applicable.
2. Investment bid sheet, where applicable, for each investment
3. Investment Log - a document listing, in chronological maturity order, pertinent
information on each investment
4. Investments by BankslFunds report generated monthly and agreed to the City's
general ledger
5. Annual summarization of average investment returns which is subjected to external
audit for reasonableness of average stated yield for the fiscal year.
Record Keeping and Performance Measurement
Comprehensive records of each investment transaction are maintained in the Finance Department.
These records include bid sheets where applicable, investment transaction reports, investment bank
advices, the annual investment log, and an annual compilation of total returns for the preceding fiscal
year by City fund type (i.e., General Fund, Capital Projects, Enterprise, Internal Service, etc.).
Annually, the City's external auditors review the calculation of investment yields prepared by Finance
for comparison to comparable yields generated by the types of investments held by the City to indices
and comparative data they maintain. They then determine the reasonableness of the average yield
calculated by Finance. If no problem is indicated, Finance then compares its average annual yield to
yields of surrounding local governments when such information becomes available.
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While yields is not the primary concern of the City's investor, it should be noted that the City has
consistently enjoyed an average yield competitive with other major local governmental entities while
assuming lower risk.
Pension Investments
The City does not manage the cash or investments of the City's four pension systems. Each pension
system has elected or appointed members to its pension Board of Trustees who exercise oversight
over money managers engaged to manage pension fund investments in accordance with policies and
guidelines established by each pension system. The Boards, therefore, have oversight authority over
investments for pension systems and the City does not actively participate in this process.
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CITY HALL 1700 CONVENTION CENTER DRIVE MIAMI BEACH FLORIDA 33139
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CITY OF MIAMI BEACH
OFFICE OF THE CITY MANAGER TELEPHONE: (305) 673-7010
FAX: (305) 673-n82
COMMISSION MEMORANDUM NO. '7 ~D -CJ 5
TO:
Mayor Seymour Gelber and
Members of the City Commission
DATE: September 27,1995
FROM: Jose Garcia-Pedrosa
City Manager
SUBJECT: ADOPTION OF CITY MIAMI BEACH STATEMENT OF INVESTMENT
POLICY AND PROCED RE
ADMINISTRATION RECOMMENDATION:
The Administration recommends that the City Commission approve the adoption of this Statement
of City of Miami Beach Investment Policy and Procedure.
BACKGROUND:
State of Florida Senate Bill 2090 was recently passed and signed into law by the Governor. This bills
requires each Florida governmental entity to formally adopt an investment policy covering fourteen
areas prior to October 1, 1995. This bill outlines the topics which must be incorporated into the
policy statement, all of which have been addressed in this policy statement.
ANAL YSIS:
Adoption of a fonnalized Statement of Invesbnent Policy and Procedure at this time is both desirable
and necessary to comply with requirements of State Law.
CONCLUSION:
The enclosed Statement of Investment Policy and Procedure should be adopted at this time and will
supersede all previous Statement of Investment Policy and Procedure.
JGP:RWS:cp
DATE
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AGENDA ITEM