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Resolution 2012-31 RESOLUTION NO. 2012--3l— RESOLUTION APPROVING A REVISED INVESTMENT POLICY WHEREAS, the City Council of the United City of Yorkville has considered and discussed the importance of updating the United City of Yorkville Investment Policy, and WHEREAS, the text of the United City of Yorkville Investment Policy the City Council now desires to adopt is set forth on the attached Exhibit "A" which is incorporated herein, and WHEREAS, it has been determined to be in the best interests of the United City of Yorkville to repeal the previous Investment Policy, approved on December 16, 1999 as Resolution No. 1999-40, and adopt a revised policy titled United City of Yorkville Investment Policy in the form attached hereto in Exhibit "A". NOW THEREFORE BE IT RESOLVED, by the Mayor and City Council of the United City of Yorkville, Kendall County, Illinois, that the Investment Policy in the form set forth on Exhibit "A" attached hereto and incorporated herein is hereby adopted as the Investment Policy of the City and the previous Investment Policy heretofor adopted by the City Council is hereby repealed in its entirety. Passed by the City Council of the United City of Yorkville, Kendall County, Illinois this day of , A.D. 2012. CITY CLERK Resolution No. 2012- -31 Page 1 CHRIS FUNKHOUSER DIANE TEELING LARRY KOT JACKIE MILSCHEWSKI CARLO COLOSIMO \ MARTY MUNNS ROSE ANN SPEARS KEN KOCH Approved by me, as Mayor of the United City of Yorkville, Kendall County, Illinois, this 3 day of ECEA468R- , A.D. 2012. MAYOR Resolution No. 2012- '7J Page 2 Exhibit A United City of Yorkville Investment Policy I. Purpose It is the policy of the United City of Yorkville (the City)to invest public funds in a manner which will maximize return, minimize risk,meet the daily cash flow needs of the City and conform to all applicable federal, state and/or local statutes governing the investment of public funds. II. Scope This policy covers all funds governed by the City Council. It does not include the investment of employee retirement funds, which is governed by other policies. A. Pooling of Funds Except for cash in certain restricted and special funds, the City will consolidate cash and reserve 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. III. Objectives The City will invest idle funds based on the following objectives: 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. i). Credit Risk - The City will minimize credit risk, the risk of loss due to the failure of the security issuer or backer by: • Limiting investments to the safest types of securities. • Pre-qualifying the financial institutions, brokers, intermediaries and advisers with which the City will do business. • Diversifying the investment portfolio so potential losses on individual securities will be minimized. ii). Interest Rate Risk—The City will minimize interest rate risk, which is risk that the market value of securities in the portfolio will fall due to changes in market interest rates, by: • Structuring the investment portfolio so that securities mature to meet cash flow requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity. • Investing operating funds primarily in shorter-term securities, money market mutual funds, or similar investment pools. 1 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 re-sale markets (dynamic liquidity). Alternatively, a portion of the portfolio 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,taking into account the investment risk constraints and liquidity needs. Return on investment is of secondary importance compared to the safety and liquidity objectives described above. The cores of investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities shall generally be held until maturity. D. Local Considerations Where possible, funds may be invested for the betterment of the local economy. The City may accept a proposal from an eligible institution which provides a reduced rate of interest that such institution documents the use of deposited funds for community development projects. The portfolio shall be reviewed quarterly as to its effectiveness in meeting the City's needs for safety, liquidity, rate of return, diversification and its general performance. IV. Standards of Care A. Prudence The standard of prudence to be used by investment officials shall be the"prudent person" standard and shall be applied in the context of managing an overall portfolio. The City Treasurer, Director of Finance or their designee, acting in accordance with this policy and any other written procedures pertaining to the administration and management of City assets and exercising due diligence, shall be relieved of personal responsibility, if any, for credit risk or market price changes of a particular security,provided that deviations from expectations are timely noted and appropriate action is taken to control and prevent further adverse developments. The"prudent person" standard states that, "Investments shall be made with judgment 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 safety of their capital as well as the probable income to be derived. B. Ethics and Conflicts ofhiterest Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, 2 or that could impair their ability to make impartial decisions. Such individuals shall disclose to the City Treasurer any material financial interests in financial institutions that conduct business within the City, and they shall further disclose any personal financial investment positions that could be related to the performance of the investment portfolio. In addition, such individuals shall subordinate their personal investment transactions to those of the investment portfolio, particularly with regard to the timing of purchases and sales. C. Delegation of Authority Authority to manage the investment program is granted to the City Treasurer and Director of Finance, who shall act in accordance with established procedures and internal controls for the operation of the investment program consistent with this investment policy. No person may engage in an investment transaction except as provided under the terms of this policy. The City Treasurer and Director of Finance shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate or any other person involved in such transactions for the City. V. Authorized Financial Institutions,Depositories and Brokers/Dealers The Director of Finance shall maintain a list of financial institutions authorized to provide investment and depository services and provide them with a copy of the City's investment policy. All authorized financial dealers and institutions shall,prior to receiving City funds,provide the Director of Finance with an affirmative statement that they have read the City's investment policy and agree to conform to its requirements. These institutions shall comply with all qualifications and requirements as set forth in Illinois Compiled Statutes (30 ILCS 235/6) as well as any and all other laws, statutes, and fiduciary responsibilities not mentioned within this policy. VI. Suitable and Authorized Investments The City may invest in any type of security allowed by Illinois law, notably 30 Illinois Complied Statues 235 (30 ICS 235). A summary of allowable investments is as follows: A. Passbook savings account. B. Now, Super Now, and Money Market Accounts. C. Commercial Paper-issuer must be a U.S. Corporation with more than$500 million in assets,rating must be within three highest classifications by two standard rating services,must mature within 270 days of purchase, and such purchase cannot exceed 10% of the corporations'outstanding obligations. D. Local Government Investment Pools (i.e. The Illinois Funds and Illinois Metropolitan Investment Fund(IMET). E. Money Market Mutual Funds -registered under the Investment Company Act of 1940, provided the Portfolio is limited to bonds,notes, certificates,treasury bills, or other securities which are guaranteed by the federal government as to principal and interest. F. Repurchase Agreement collateralized by U.S. Treasury securities. 3 G. Certificates of Deposit, Time Deposits and Certificate of Deposit Account Registry Service (CDARS). H. Constituting direct obligations of any bank as defined by the Illinois Banking Act and only those insured by the Federal Deposit Insurance Corporation(FDIC). 1. Legally issuable by savings and loan associations incorporated under the laws of the State of Illinois or any other state or under the laws of the United States and only in those savings and loan associations insured by the FDIC. J. Bonds,notes, certificates of indebtedness,Treasury bills or other securities which are guaranteed by the full faith and credit of the United States of America as to principal and interest. VII. Safekeeping and Custody A. Delivery vs. Payment All trades of marketable securities will be executed by delivery vs.payment (DVP)to ensure that securities are deposited in an eligible financial institution prior to the release of funds. B. Safekeeping of Securities Third party safekeeping is required for all securities. To accomplish this, the securities can be held at the following locations: • A Federal Reserve Bank or its branch office. • At another custodial facility generally in a trust department through book-entry at the Federal Reserve,unless physical securities are involved. • By an escrow agent of the pledging institution. • A financial institution on the Illinois State Treasurer's approval list of safekeeping banks. Safekeeping will be documented by an approved written agreement. This may be in the form of a safekeeping agreement,trust agreement, escrow agreement, or custody agreement. C. Collateralization Funds on deposit (e.g., checking accounts, certificates of deposit, etc.)in excess of FDIC limits shall be secured by the deposit of marketable U.S. government or other approved securities or surety bonds issued by top-rated insurers, having a value of at least 110%of the deposits. Collateral is required as security whenever deposits exceed the insurance limits of the FDIC. The collateral required to secure City funds must be held in safekeeping and pursuant to written collateral agreements, which would prohibit the release or substitution of pledged assets without proper written notification and authorization of the City Treasurer. Repurchase agreements must also be collateralized in an amount of 105%of market value of principal and accrued interest. Collateral shall be held at an independent,third party institution in the name of the United City of Yorkville. The third party institution shall comply with all qualifications and requirements as set forth in the Illinois Complied Statutes 30 ILCS 235/6. 4 D. Internal Controls The City Treasurer and Director of Finance are responsible for establishing and maintaining an internal control structure designed to insure that the invested assets of the City are protected from loss,theft or misuse. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The controls shall be designed to prevent the loss of public funds arising from fraud, employee error,misrepresentation by third parties, unanticipated changes in financial markets and imprudent actions by authorized investment officers. The system of internal controls and operational procedures shall be documented in writing and made available to individuals authorized to invest funds on behalf of the City. The internal controls shall address the following points: • Separation of transaction authority from accounting and recordkeeping • Custodial safekeeping • Avoidance of physical delivery securities • Clear delegation of authority to subordinate staff members • Written confirmation of transactions for investments and wire transfers • Dual authorizations of wire transfers • Development of a wire transfer agreement with lead bank and third-party custodian VIII. Investment Parameters A. Diversification It is the policy of the City to diversify its investment portfolio. Investments shall be diversified to eliminate the risk of loss resulting in over concentration in a specific maturity, issuer, or class of securities. Diversification strategies shall be determined and revised periodically by the City Treasurer and Director of Finance. B. Maximum Maturities To the extent possible,the City shall attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow,the City will not directly invest in securities maturing more than five(5)years from the date of purchase. Reserve funds may be invested in securities exceeding five(5)years if the maturities of such investments are made to coincide as nearly as practicable with the expected use of funds. The intent to invest in securities with longer maturities shall be disclosed in writing to the City Council. IX. Reporting A report of the City's investment portfolio shall be presented to the City Council at the end of each fiscal quarter. The report should include the date of purchase, maturity,type of investment, firm invested, yield, interest rate and comparison to the benchmark(s) set forth in this policy. A. Performance Standards The City's investment portfolio shall be designed with the objective of regularly meeting or exceeding a selected performance benchmark, which could be the average return on three-month 5 U.S. Treasury bills, Illinois Funds rate, Illinois Metropolitan Investment Fund (IMET) Convenience Fund rate or the average rate of Fed funds. B. Marking to Market The market value of the portfolio shall be calculated at least quarterly and a statement of the market value of the portfolio shall be issued at least quarterly. In defining market value, the City will follow applicable GASB pronouncements. X. Approval of Investment Policy The investment policy shall be formally approved and adopted by the City Council of the United City of Yorkville and reviewed annually. 6