“4.003 county investment policies” presentation... · management chapter 2256 public funds...

Texas Counties at Their Best!

96th Annual County Judges and Commissioners Association of Texas Conference

October 8-11, 2018The Woodlands Waterway Marriott Hotel & Convention Center

96TH ANNUAL COUNTY JUDGES AND

COMMISSIONERS ASSOCIATION OF

TEXAS CONFERENCE

Wednesday, Oct. 10, 2018

1 – 1:50 p.m.

Montgomery Ballroom

“4.003 County

Investment Policies”

Mr. G. Murphy Davis, Chairman, Sentry

Management, Inc.

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SentryManagement,Inc.

County Investment Policies

Murphy Davis, Sr. CFA

10/10/2018

I.PublicFundsInvestmentAct

Title 10 General Government

Subtitle F. State and Local Contracts and Funds Management

Chapter 2256 Public Funds Investment

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2256.005InvestmentPolicies;InvestmentStrategies;InvestmentOfficer Investment Policy‐must be written to be compliant with the Act, but applicable to the county

Review and approve policies and strategies annually

Investment officer must be designated

Avoid conflicts of interest if possible

Note: Selection of third party entities for investments does not relieve the municipality(county) of responsibility for monitoring investments to assure compliance with the investment policy

III.2256.006StandardofCareAll investment funds are governed by:

1. Preservation and safety of principal

2. Liquidity

3. Yield

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IV.2256.007InvestmentTraining

An investment officer shall attend a training session not less than once each state biennium

New Investment Officers‐ Receive at least 10 hours of instruction related to responsibilities within 12 months of taking office.

VI.AuthorizedInvestmentsA. Guaranteed Obligations(full faith and credit) of the United

States or its agencies and instrumentalities

B. Obligations of states, agencies, counties, and cities of other political subdivisions of the state with a rating of A or better…or its equivalent.

C. Certificates of Deposit and Share Certificates…guaranteed by the FDIC or NCUSI insurance.

D. Repurchase Agreements‐fully collateralized with a defined terminations date

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VI.AuthorizedInvestments(Cont.)

E. Banker’s Acceptances‐must have a maturity date of 270 days or fewer

F. Commercial Paper

1. Stated maturity of 270 or fewer

2. Rated A‐1/P‐1 or higher

3. Irrevocable letter of credit from a US bank


G. Mutual Funds‐ No‐load mutual funds with several individual requirements per 2256.014

H. Guaranteed Investment Contracts‐multiple requirements per 2256.015

I. Investment Pools‐multiple requirements per 2256.016

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Note: Several additional(less utilized) investments are legal(approved) for Texas county investments per section 2256. While an investment option may be “legal”, its legality may have little to do with the suitability of the county considering the investment. Many times, more complicated investments increase potential risk to the county…”caveat emptor”

Chapter2256,GovernmentCode

009. Authorized Investments: Obligations of, or Guaranteed by Government Entities

The following are not Authorized Investments:

Interest only Mortgage‐Backed Collateral Securities

Principal only Mortgage‐Backed Collateral Securities

Collateralized Mortgage Obligation with a stated maturity greater than 10 years

Inverse Floater (indexed securities that adjust opposite to changes in a market index) Collateralized Mortgage Obligations

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The Public Funds Investment Act, Chapter 2256 of the Texas Government Code, requires the investment officer to prepare and submit a written report of investments to the governing body of the entity not less than quarterly

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SeePublicFundsInvestmentActComplianceChecklistattached

CurrentInvestmentMacroConsiderations

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TEDSpread8/2008‐8/2018

NewHomeSales8/2008‐8/2018

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CRYIndex8/2008‐8/2018

Eurovs.Dollar8/2008‐8/2018

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UnemploymentRate8/2008‐8/2018

LaborForceParticipation8/1973‐8/2018

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S&PIndex8/2008‐8/2018

FederalFundsRate8/2008‐8/2018

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10YearTreasury8/2008‐8/2018

COUNTY

INVESTMENT POLICY

OBJECTIVES:

The objectives of the County (the County) Investment Policy shall be:

To set forth methods, means, and goals of financial investment and debt

management operation for the County.

To insure the financial security and optimum liquidity of the County's funds at

all times.

To assist the County in achieving the maximum total investment of the

County's funds in a prudent manner at all times.

To assist the County in achieving the maximum interest yield on the County's

funds at all times through methods allowed under Federal and State Law and

in accordance with the current County's Bank Depository Contract.

STANDARD OF CARE:

The County's investments shall be made with judgment and care under

circumstances then prevailing that 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 and optimum liquidity required for operations in

the County. Safety shall be the first priority, adequate liquidity the second, and

yield, the third priority. Individual investments shall be made in a manner

consistent with this Policy.

INVESTMENT STRATEGY:

The County maintains portfolios which utilize the following investment strategy

considerations designed to address the unique characteristics of the fund groups

represented in the portfolios.

General Operating Funds

INVESTMENT POLICY

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The County's investment strategy for General Operating Funds shall be made to

ensure that anticipated cash flows are matched with adequate investment

liquidity.

Bond Operating Funds

The County shall utilize an investment policy for Bond Operating Funds to

generate a dependable revenue stream for the appropriate debt service funds

consistent with the County's Investment Policy and state law.

Debt Service Funds

The County shall utilize as the primary objective for the investment of Debt

Service Funds adequate liquidity to cover the debt service obligation of the

County on required payment dates. Investments shall not have a stated final

maturity date which exceeds the appropriate debt service payment date.

Special and Trust Funds

The County shall invest Special and Trust Funds in accordance with state law

and the County's Investment Policy to the maximum ability that such investments

may benefit the County directly, or utilize said funds in a method that such funds

may benefit the County indirectly.

County Clerk’s Trust Funds

County Clerk Trust funds are received by court order from either Commissioners

Court, County Courts at Law, or County Courts. These funds must be deposited

in the County depository and then invested according to the court orders. A

court order is required from the County Courts and County Courts at Law prior to

disbursement of the funds.

District Clerk Trust Funds

District Clerk Trust funds are received by court order from the District Courts.

These funds must be deposited in the County depository and then invested

according to the court orders. A court order is required from the District Courts

prior to the disbursement of the funds.

General Strategy

INVESTMENT POLICY

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The County's investment portfolio shall consist of a variety of securities which

may include any or all of the authorized investments listed in Authorized

Investments of this Policy.

It shall be the general practice of the County to utilize an investment strategy

based on Standard of Care, of this Policy, which also defines yield objectives, as

well as the Public Funds Investment Act, formerly Sub-chapter A of Chapter 2256

of the Texas Government Code (the Act). It is the County's intent to hold

purchased securities to the stated maturity date and to have invested in such a

manner to insure both the safety and liquidity of such transaction. In the event,

however, the need arises to sell securities before the stated maturity date, said

securities shall be analyzed to determine the appropriate time to liquidate said

securities and minimize any potential real or book value loss to the County.

RESPONSIBILITIES:

The County Treasurer is the Investment Officer (IO) and is responsible for

establishing operating policies which will ensure that investments are maintained

in a proper and prudent maturity distribution, represent sound extensions of

credit and are appropriate investments with regard to regulatory and legal

requirements. The IO will be accountable to the Commissioners Court. Ultimate

responsibility for management of the investment portfolio rests with the (IO). It is

expected that the IO may wish to delegate one or more of the specific investment

objectives. Sales from the portfolio must be approved by the IO and at least one

other member of the Commissioners Court.

Each month, the Commissioners Court shall review securities purchases and

sales of the previous period to determine their adherence to the Investment

Policy and applicable laws and regulations. Investment strategies should be

formulated with special regard to the County’s liquidity needs, cash flow

requirements, the projected economic environment, and policy guidelines as

established by the Investment Policy.

Summary information must be provided to the Commissioners Court on the

composition, size, quality, maturity, yield, and current market valuations for the

Investment Portfolio. Implementation of this policy is the responsibility of the

Investment Officer.

INVESTMENT POLICY

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AUTHORIZED INVESTMENTS:

In accordance with authorizing federal and state laws, the County's Depository

Contract, and appropriate approved collateral provisions, the County may utilize

the following types of investments for the County's funds:

The IO shall be required to diversify maturities. The IO, to the extent possible,

will attempt to match investments with anticipated cash flow requirements.

Matching maturities with cash flow dates will reduce the need to sell securities

prior to maturity, thus reducing market risk. Unless matched to specific

requirements, the IO may not invest more than 30% of the portfolio for a period

greater than two (2) years.

U.S. Treasury Securities

U.S. Treasury securities are direct obligations of the United States Government.

U.S. Treasury obligations are the highest quality and are the most liquid and

marketable of investment securities. Investments in this category will include

Treasury bills, Treasury notes, and Treasury bonds. U.S. Treasury bills are sold

on a discount basis and have initial maturities of three months, six months, and

one year. U.S. Treasury notes and Treasury bonds are coupon-bearing

instruments with initial maturities from two to ten years for notes and ten to thirty

years for bonds.

The average life of the U.S. Treasury securities portfolio will not exceed 2.5 years

and no individual security will exceed 5 years in maturity. Treasuries may

comprise up to 100% of the Investment Portfolio.

Federal Agencies

After U.S. Treasury securities, Federal agency securities are generally regarded

as the next highest quality investment suitable for the portfolio.

Federal agency obligations are usually acceptable for pledging and other

collateral requirements. Agencies generally offer a rate of return slightly higher

than direct U.S. Treasury securities. The spread difference in yield will be

effected by the general level of interest rate, markets, and economic conditions at

any given time. Consideration should be given to the spread relationship existing

when portfolio investment decisions are made.

Securities included in this category are debt issuance by the Federal Farm Credit

System (Farm Credits), Federal Home Loan Bank (FHLB), the Federal National

Mortgage Association (FNMA), the Student Loan Marketing Association (SLMA),

INVESTMENT POLICY

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the Federal Home Loan Mortgage Corporation (FHLMC or “Freddie Mac”), the

Government National Mortgage Association (GNMA or “Ginnie Mae”), and Small

Business Administration (SBA).

The average life of the U.S. agency section of the portfolio will not exceed 2.5

years and no individual security will exceed 5 years in maturity. U.S. agencies

may comprise up to 100% of the Investment Portfolio

Municipal Bonds

Any direct obligations of the State of Texas or its agencies and instrumentalities.

The IO shall consider prudent diversification of investment holdings per obligor.

Compliance with all legal and regulatory guidelines shall be adhered to in the

purchase and holding of securities. Taxable municipal obligation purchases may

be made but are subject to the same credit, maturity, and geographic distribution

requirements that may be applicable as dictated by the Investment Policy.

Credit information will be maintained sufficient for management of the County to

exercise an informed judgment in determining whether the securities should be

purchased and to enable regulators to determine that each security purchased

meets all statutory and regulatory requirements. Credit information sufficient for

the Commissioners Court to comply with all statutory and regulatory

requirements relating to the approval of each investment shall be provided. The

County shall retain all records relating to transactions in its investment portfolio

as may be required by statute or regulation.

Additional consideration will be given to the increased yield spread of taxable

municipals over all other taxable investment alternatives.

Various political subdivisions of state and local government issue debt through

municipal securities generally under two categories: general obligation (G.O.)

and revenue bonds.

G.O. bonds are issued for a variety of public financing needs. They are generally

regarded as the most credit worthy of municipal securities as they are backed by

the taxing authority of the issuing governmental entity.

Revenue bonds are issued to finance specific projects (i.e. water and/or sewer

revenues) and depend on the revenue or fee generated from the projects for

repayment of principal and interest.

Bonds with a minimum Moody’s Investor’s Service of A or Standard & Poor’s

Service rating of A shall be considered as eligible portfolio investments. An

exception may be made for local, well-known credit issues where the cost of

obtaining a credit rating by the issuing body is prohibitive.

INVESTMENT POLICY

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Geographical distribution of municipals is an effective method of diversifying the

County's overall credit risk and maximizing income potential.

The County will consider the following credit information on general obligation

municipals to be purchased:

1) Relationship of debt burden to property valuation.

2) Reasonableness of debt burden on a per capita basis.

3) Sinking fund provisions.

4) Historical trends of debt.

5) Future debt service requirements.

6) Assessed valuation, including basis of assessment.

7) Relationship of tax burden to property valuation.

8) Tax collection record.

9) Recent trends in tax rates.

10) Economic background.

11) Debt paying ability.

12) Population trends.

The County will consider the following credit information on revenue municipals

to be purchased:

1) The number of times gross revenues covers debt service (coverage).

2) The segregation of revenue funds from general funds.

3) The flow of revenues to specific reserve accounts.

4) Special covenants that may limit default remedies.

The average maturity of this section of the portfolio will be no greater than two

years and comprise no more than 25% of the Investment Portfolio.

Certificates of Deposit and Share Certificates

A certificate of deposit or share certificate is an authorized investment if the

certificate is issued by a depository institution that has its main office or a branch

office in this state and is guaranteed or insured by the Federal Deposit Insurance

Corporation or its successor or the National Credit Union Share Insurance Fund

or its successor); or secured by obligations described in the Act, including

mortgage-backed securities directly issued by, a federal agency or

instrumentality that have a market value of not less than the principal amount of

the certificates, but excluding those mortgage-backed securities of the nature

described by the Act; or secured in any other manner and amount provided by

law for deposits of the investing entity. Total collateralized Certificates of

Deposits may comprise 100% of the Investment Portfolio. The average maturity

of this section of the portfolio will be no greater than two years.

INVESTMENT POLICY

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In addition to the authority to invest funds in certificates of deposit under

Subsection (a), an investment in certificates of deposit made in accordance with

the following conditions is an authorized investment under this subchapter:

(1) the funds are invested by an investing entity through a

depository institution that has its main office or a branch office in this state and

that is selected by the investing entity;

(2) the depository institution selected by the investing entity under

Subdivision (1) arranges for the deposit of the funds in certificates of deposit in

one or more federally insured depository institutions, wherever located, forthe

account of the investing entity;

(3) the full amount of the principal and accrued interest of each of

the certificates of deposit is insured by the United States or an instrumentality of

the United States;

(4) the depository institution selected by the investing entity under

Subdivision (1) acts as custodian for the investing entity with respect to the

certificates of deposit issued for the account of the investing entity; and

(5) at the same time that the funds are deposited and the

certificates of deposit are issued for the account of the investing entity, the

depository institution selected by the investing entity under Subdivision (1)

receives an amount of deposits from customers of other federally insured

depository institutions, wherever located, that is equal to or greater than the

amount of the funds invested by the investing entity through the depository

institution selected under Subdivision (1). (per Public Funds Investment Act

Section 2256.010)

Repurchase Agreements

Fully collateralized repurchase agreements authorized under the Act, if the

repurchase agreement has a defined termination date; is secured by obligations

described by the Act; and requires the securities being purchased by the entity to

be pledged to the entity, held in the entity’s name, and deposited at the time the

investment is made with a third party selected and approved by the entity; and is

placed through a primary government securities dealer, as defined by the Federal

Reserve, or a financial institution doing business in the State of Texas.

“Repurchase agreement” means a simultaneous agreement to buy, hold for a

specified time, and sell back at a future date, obligations described by the Act at

a market value at the time the funds are dispersed of not less than 102% of the

principal amount of the funds dispersed. The term of the repurchase agreements

may not exceed 180 days.

INVESTMENT POLICY

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Not withstanding any other law, the term of any reverse security repurchase

agreement may not exceed 90 days after the date the reverse security repurchase

agreement is delivered. Money received by an entity under the terms of a reverse

security repurchase agreement shall be used to acquire additional authorized

investments, but the term of authorized investments acquired must mature not

later than the expiration date stated in the reverse security repurchase

agreement.

Total investment in repurchase and reverse repurchase agreements may not

exceed 25% of the Investment Portfolio.

Bankers’ Acceptances

Bankers’ Acceptances are an authorized investment under the Act, which has a

stated maturity of 270 days or fewer from the date of its issuance; will be, in

accordance with its terms, liquidated in full at maturity; is eligible for collateral

for borrowing from a Federal Reserve Bank; is accepted by a bank organized and

existing under the laws of the United States or any state, if the short-term

obligations of the bank, or of a bank holding company of which the bank is the

largest subsidiary, are rated not less than A-1+ or P-1 or an equivalent rating of at

least one nationally recognized credit rating agency. Such individual

transactions shall not exceed 5% of the total County's Investment Portfolio, and

all such endorsing banks shall come only from a list of entities who are

constantly monitored as to financial solvency.

Total Bankers’ Acceptances may not exceed 15% of the Investment Portfolio.

Commercial Paper

Commercial Paper with a stated maturity of 270 days or fewer from the date of

issuance; which is rated not less than A-1+ or P-1 or an equivalent rating by at

least two nationally recognized credit rating agencies or one nationally

recognized credit rating agency and is fully secured by an irrevocable letter of

credit issued by a bank organized and existing under the laws of the United

States or any state. Such transactions shall not exceed 15% of the total County's

Investment Portfolio with no more than 5% in any one name, and all such

providers of letters of credit shall come only from a list of entities who are

constantly monitored as to financial solvency.

INVESTMENT POLICY

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Mutual Funds

No-load money market mutual funds regulated by the Securities and Exchange

Commission which has a dollar-weighted average stated maturity of 90 days or

fewer and includes in its investment objectives the maintenance of a stable net

asset value of $1 for each share. A no-load mutual fund is an authorized

investment under this Subchapter if the mutual fund is registered with the

Securities and Exchange Commission; has an average weighted maturity of less

than two years; is invested exclusively in obligations approved by the Act; is

continuously rated as to investment quality by at least one nationally recognized

investment firm of not less than AAA or its equivalent; and conforms to the

requirements set forth in the Act, relating to the eligibility of investment pools to

receive and invest funds of investing entities. The County is not authorized to

invest in the aggregate more than 80% of its monthly average fund balance,

excluding bond proceeds and reserves and other funds held for debt service, in

money market mutual funds as set forth herein above, or mutual funds as herein

set forth above, either separately or collectively; invest in the aggregate more

than 15% of its monthly average fund balance, excluding bond proceeds and

reserves and other funds held for debt service, in mutual funds as herein above

described; invest any portion of bond proceeds, reserves and funds held for debt

service, in mutual funds herein described above; or invest its funds or funds

under its control, including bond proceeds and reserves and other funds held for

debt service, in any one mutual fund as herein set out above in an amount that

exceeds 10% of the total assets of the mutual fund.

Additionally, the County may invest in a public investment pool meeting the

requirements of the Act if the Commissioners Court authorizes the investment in

the particular pool. Investment in this type of pool may not exceed 70% of the

Investment Portfolio.

SAFEKEEPING AND COLLATERALIZATION:

The laws of the State and prudent treasury management require that all

purchased securities be bought on a delivery versus payment basis and be held

in safekeeping by either the County, an independent third party financial

institution, or the County's designated depository.

All safekeeping arrangements shall be designated by the IO and an agreement of

the terms executed in writing. The third party custodian shall be required to

issued safekeeping receipts to the County listing each specific security, rate,

description, maturity, cusip number, and other pertinent information. Each

safekeeping receipt will be clearly marked that the security is held for the County

or pledged to the County.

Collateralization shall be required on two types of investments:

INVESTMENT POLICY

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a) certificates of deposits over the FDIC insurance coverage.

b) repurchase agreements.

In order to anticipate market changes and provide a level of additional security

for all funds, the collateralization level required will be 102% of the market value

of the principal and accrued interest.

EVALUATION AND REPORTING:

The IO shall submit no less than quarterly reports to the Commissioners Court

containing sufficient information to permit an informed outside reader to evaluate

the investment program. At a minimum, this report shall contain:

Beginning and ending market value of the portfolio by market sector and

total portfolio,

Beginning and ending carrying (Book) value of the portfolio by market

sector and total portfolio,

Transactions which change market and book value, detail reporting on

each asset (book, market, and maturity dates at a minimum),

Overall current yield of the portfolio,

Overall weighted average maturity of the portfolio, and maximum maturities

in the portfolio.

The report will be prepared jointly by all involved in the investment activity and be

signed by the staff involved.

PRUDENCE: The standard of prudence to be used in the investment function shall be the

“prudent person” standard and shall be applied in the context of managing the

overall portfolio. This standard states:

“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 probable safety of their capital as well as the expected income to

be derived.”

INVESTMENT POLICY

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SECURITIES DEALERS/TRANSACTIONS: The County has employed Sentry Management, Inc. (SMI) to provide professional

investment advice for the County's investment portfolio and other related

investment areas such as asset/liability and interest rate risk analysis. SMI is

registered with the Securities and Exchange Commission, the Texas State

Securities Board and the Municipal Securities Rulemaking Board as an

investment adviser. SMI may be employed on a set fee basis only, and may not

act as a dealer.

The IO and Commissioners Court recognize the importance of receiving

objective, professional advice in management of the investment portfolio,

however it is explicitly understood the Commissioners Court, through the IO,

does not delegate responsibility for the portfolio to SMI. All acquisitions and/or

sales of securities will be directly at the discretion of the County.

SMI places dealers in competition on purchases and sales and maintains records

of each transaction. Transactions are done on a “best execution” basis which

precludes limiting any individual dealer’s securities’ volume with the County.

Setting maximum volume quotas could force the County to purchase or sell

securities at less than the best price and would not be in the best interest of the

County.

Further, SMI may not execute a transaction for the County without specific

authorization from the County.

The County may have transactions with any Federal Reserve Reporting

Government Dealer (Primary Dealer). The Federal Reserve requires all Primary

Dealers to maintain large capital and be financially solvent.

In addition to Primary Dealers, the County may have security transactions with

the dealers listed on Exhibit A. Current financial information is maintained by

SMI on the dealers listed on Exhibit A and is made available to the County.

Additionally, the County will maintain information on each dealer listed. The

County may purchase or sell any of the approved investments listed in the

Investment Policy from or to any of the approved securities dealers.

It shall be the Commissioners Court and the IO’s responsibility to review the

dealers’ financial condition. Considerations of each dealer will be the dealer’s

capital and financial strength and general reputation with other financial

institutions and investment dealers. Whenever available and possible, the

County will consider information from state or federal securities regulators and

securities industry self-regulatory organizations, such as the National

Association of Securities Dealers, concerning any formal enforcement actions

against the dealer, its affiliates or associated personnel.

INVESTMENT POLICY

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Every dealer with whom the County transacts business will be provided a copy of

this Investment Policy to assure that they are familiar with the goals and

objectives of the investment program. The broker/dealer will be required to

return a signed copy of the Certification Form certifying that the policy has been

received and reviewed.

To further insulate the County from dealer exposure, the County will permit

delivery-versus-payment settlement only on security transactions. Further, all

securities will be held in safekeeping at the County's primary depository bank or

another third party bank.

All personal securities transactions by the IO with the County's approved

securities dealers are prohibited unless specific Commissioners Court approval

is received prior to the transaction. Periodic review of personal transactions with

approved securities dealers will be performed by the Commissioners Court.

All of the County's records are available for unannounced, on-site inspection at

SMI offices by any representative of the County.

EXCEPTIONS TO POLICY:

It is anticipated that, in the course of business, it may be prudent to make

investment decisions which may differ from current operating policy when it is

impossible for the Commissioners Court to convene. In the event of this

occurrence, the IO and two members of the Commissioners Court or one member

of the Commissioners Court and the administrative assistant to the

Commissioners Court may act for the entire Commissioners Court. All actions

taken in the absence of all the Commissioners Court shall be reported in full to

the next regularly scheduled Commissioners Court Meeting. A permanent file of

all exceptions will be maintained by the IO.

Exhibit B lists Prohibited Investments which the County will not undertake.

This policy is intended to be flexible to deal with rapidly changing conditions in

the County's economic environment and the global bond and money markets.

Therefore, this policy can be amended by a majority vote of the Commissioners

Court. All policy changes shall be reported and approved at the next

Commissioners Court meeting.

This policy shall be reviewed by the Commissioners Court at least annually.

EXHIBIT B

PROHIBITED INVESTMENTS

Per 1995 Public Funds Investment Act

IO’s INTEREST ONLY STRIPPED SECURITIES WITH UNDERLYING

MORTGAGE-BACKED SECURITY COLLATERAL.

PO’s PRINCIPAL ONLY STRIPPED SECURITIES WITH UNDERLYING

MORTGAGE-BACKED SECURITY COLLATERAL.

CMO’s COLLATERALIZED MORTGAGE OBLIGATIONS WITH A MATURITY

GREATER THAN TEN (10) YEARS.

CMO’s COLLATERALIZED MORTGAGE OBLIGATIONS WHICH HAVE AN

INVERSE FLOATING RATE (COUPON).

Public Funds Investment Act Compliance Checklist (Texas Counties)

The following questionnaire should be used as a limited guide to evaluating the requirements of the Public Funds Investment Act

(Chapter 2256, Government Code). This checklist does not imply that an Investment Policy or Investment Program is in compliance

with the PFIA. Each entity should review its own investment program with its attorneys and auditors to determine its compliance

with the Act.

[Section 2256.005(a)(b)] - Policy items

Does entity have a written investment policy approved by your governing body? Present Not Present

Do the policies specifically identify a list of public funds in its custody (See CAFR)

which it has authority to invest individually or combined? Section 2256.002(3)(B) and

2256.002(9)

Present Not Present

Does the policy list the authorized investments for the investment of the entity’s funds? Present Not Present

Does the policy state the maximum stated maturity of any individual investment and, for

pooled fund groups, the maximum dollar-weighted average maturity?

Present Not Present

Does the policy include procedures to monitor the market price or rating changes of

investments and the requirement that all transactions, excluding investment pools and

mutual funds, be settled on a delivery versus payment basis?

Present Not Present

[Section 2256.005(c) and Section 2256.015(c)(2)] – Bidding

Has the entity adopted a requirement that bids for certificates of Deposit (statutory

MAY) must be solicited? (bidding optional unless policy indicates SHALL)

Present Not Present

Does the entity prior to purchasing bonds receive bids from at least three separate

providers (SHALL) with no material financial interest in the bonds from which proceeds

were received

Present Not Present

[Section 2256.005(d)] - Strategy Items

Has the entity adopted a written investment strategy for each fund or group of funds

under its control?

Present Not Present

Does the strategy describe the objectives for the fund using the priorities of suitability,

preservation and safety of principal, liquidity, marketability, diversification, and yield in

that order?

Present Not Present

[Section 2256.005(e)] - Policy & Strategy Review

Does the entity review the investment policy and investment strategy at least annually? Present Not Present

Does the entity adopt a written instrument stating that it has reviewed the policy and

strategy?

Present Not Present

[Section 2256.005(f-i)] - Investment Officers

Has the entity designated one or more officers or employees as Investment Officers? Present Not Present

Does the entity require its Investment Officer to disclose personal business relationships

with a business organization offering to sell investments to the organization and have

forms been completed?

Present Not Present

Does the entity require its Investment Officer to disclose whether he/she is related within

the second degree by affinity or consanguinity to an individual seeking to sell an

investment to the entity?

Present Not Present

[Section 2256.005(k-l)] - External Business Policy Certification

Has a written copy of the investment policy been presented to every business

organization offering to engage in an investment transaction with the entity, including

investment pools, banks, and investment management firms?

Present Not Present

Has a written instrument from each business organization been received acknowledging

that the investment policy has been received and reviewed and that procedures and

controls have been implemented to preclude unauthorized transactions? Present Not Present

Has a qualified representative as defined in Section 2256.002(10) of each business

organization signed the written instrument?

Present Not Present

[Section 2256.005(m-n)] – Compliance Audit

Is a compliance audit of management controls on investments and adherence to the

entity’s established investment policies performed in conjunction with the annual

financial audit?

Present Not Present


[Section 2256.008] - Investment Officer Training

Have the applicable training requirements been met by the Investment Officer and each

employee involved in the investment process?

Present Not Present

Has each investment officer attended a training session at least once every two years and

received training from an independent source approved by the governing body?

Present Not Present

Has the investment officer presented a report to the governing body on changes to the

Public Funds Investment Act, if any, within six months after the end of each regular

legislative session?

Present Not Present

Has the treasurer, the chief financial officer, and the investment officer attended at least

one training session containing at least 10 hours of instruction within 12 months after

taking office or assuming duties?

Present Not Present

Has each official attended a training session at least once every two years and received

at least 10 hours of instruction from an independent source approved by the governing

body or a designated investment committee?

Present Not Present

Has an independent source of investment training been approved by the governing body

or a designated investment committee?

Present Not Present

Investment Type Restrictions/Qualifications

Obligations Issued, Guaranteed, or Insured by the U.S. or its Agencies and

Instrumentalities, including letters of credit [Section 2256.009(a)(1)(4)]

None

Obligations Issued, Guaranteed, or Insured by the State of Texas or its Agencies and

Instrumentalities [Section 2256.009(a)(2)(4)]

None

Collateralized Mortgage Obligations [Section 2256.009(a)(3) and (b)(1-4)]* 10 yr. or less stated final maturity date

Cannot be either an Interest-Only or Principal-Only CMO

Cannot be an inverse floater

Obligations of States (other than Texas), Agencies, Counties, Cities and Other Political

Subdivisions [Section 2256.009(a)(5)]

Rated not less than A or its equivalent by at least one

nationally recognized investment rating firm

State of Israel Bonds [Section 2256.009(a)(6)] None

Certificates of Deposit (Section 2256.010) Issued by a depository institution that has its main office

or a branch office in Texas. Must be guaranteed or

insured by FDIC or National Credit Union Share

Insurance Fund and secured as described in the PFIA or

other applicable law.

Issued by one or more federally insured depository

institutions, wherever located, provided that the funds are

invested through a depository institution that has its main

office or branch office in Texas and that the full amount

of the principal and accrued interest of each certificate of

deposit is insured by the U.S. or an instrumentality of the

U.S. The depository institution through which the

entity’s funds are invested shall receive an amount of

deposits from customers of other federally insured

depository institutions that is equal to or greater than the

amount of funds invested.

Repurchase Agreements (Section 2256.011) Must be fully collateralized as described in the PFIA

Must have a defined termination date


Repurchase Agreements (Section 2256.011)-Continued Securities purchased must be pledged to the entity, held

in the entity’s name, and deposited with the entity or with

a third party selected and approved by the entity

Placed through a primary dealer or a financial institution

doing business in Texas

Reverse agreements must not exceed 90 days; securities

held as collateral must not mature later than the

agreement’s expiration date

Securities Lending Program (Section 2256.0115) Must be collateralized at not less than 100%, including

accrued income

Loans may be terminated at any time

Loans must be secured as described in the PFIA

Securities held as collateral must be pledged to the entity,

held in the entity’s name and deposited with the entity or

with a third party selected and approved by the entity

Placed through a primary dealer or a financial institution

doing business in Texas

Securities lending agreement may not have a term greater

than one year

Bankers’ Acceptances (Section 2256.012) 270 day or less stated maturity from date of issuance

Accepted by a bank rated not less than A-1 or P-1 or an

equivalent rating by at least one nationally recognized

rating agency

Commercial Paper (Section 2256.013) 270 day or less stated maturity from date of issuance

Rated not less than A-1 or P-1 or an equivalent by at least

two nationally recognized rating agencies, or;

Rated not less than A-1 or P-1 or an equivalent by one

nationally recognized rating agency plus fully secured by

an irrevocable letter of credit issued by a domestic bank

No-Load Money Market Mutual Fund [Section 2256.014 (a) and (c)] Registered with and regulated by the Securities and

Exchange Commission

Provide a prospectus and other information required by

the

Securities Exchange Act of 1934 or the Investment

Company Act of 1940

Must have a dollar-weighted average stated maturity of

90 days or less

Must include in its objectives maintenance of a stable net

asset value of $1 per share

Investing entity may not own more than 10% of the

fund’s total assets

Mutual Fund [Section2256.014 (b) and (c)] Registered with the Securities and Exchange Commission

Must have an average weighted maturity of less than two

years

Can only invest in obligations approved by the Act

Rated not less than AAA or its equivalent by at least one

nationally recognized investment rating firm


Mutual Fund [Section2256.014 (b) and (c)]-Continued Comply with information and reporting requirements for

investment pools as described in the Act

Amount limited to 15% of investing entity’s monthly

average fund balance, excluding bond proceeds, reserves,

and debt service funds.

Ineligible for investment of bond proceeds, reserves, and

debt service funds

Investing entity may not own more than 10% of the

fund’s total assets

Guaranteed Investment Contracts (Section 2256.015) Authorized for bond proceeds investment only

Must have a defined termination date

Must be secured by U.S. Government direct or agency

obligations approved by the Act in an amount equal to

the bond proceeds

Security must be pledged to the entity and deposited with

the entity or a third party

Term must be limited to five years from the date of bond

issuance, excluding reserves and debt service funds

Must comply with terms and conditions concerning

eligibility as an authorized investment as specified in

Section 2256.015(c) of the Act

Must receive bids from at least three separate providers

with no material financial interest in the bonds from

which proceeds were received as specified in Section

2256.015(c)(2) of the Act

Investment Pools [Section 2256.016] Governing body must authorize investment in pool

Can only invest in obligations approved by the Act

Provide an offering circular containing information

required by the Act

Provide investment transaction confirmations

Provide a monthly report containing information required

by the Act

Pool created to function as a money market mutual fund

must mark its portfolio to market daily and stabilize at a

$1 net asset value.

Must have an advisory board as specified by the Act

Rated not less than AAA or an equivalent rating by at

least one nationally recognized rating service.

[Section 2256.023] - Investment Reports

Is the investment report prepared jointly by all investment officer(s), investment

employees and submitted to the governing body at least quarterly?

Present Not Present

Do the reports contain the information required by the Act? Present Not Present

Does the report describe in detail the investment position of the entity on the date of the

report?

Present Not Present

Does the report include a summary statement of each pooled fund group that states the

beginning market value, additions and changes, ending market value, and accrued

interest?

Present Not Present

Does the report include book and market value of each separately invested asset at the

beginning and end of the reporting period by the type of asset and fund type invested?

Present Not Present

Does the report include the maturity date of each invested asset? Present Not Present

Does the report reflect the account or fund in the local government for which each

investment was acquired?

Present Not Present


[Section 2256.023] - Investment Reports-Continued

Does the report include a statement on the compliance of the investment portfolio of the

local government as it relates to the investment policy strategy and PFIA?

Present Not Present

Do all investment officers and all employee(s) involved in the investment process sign

the reports?

Present Not Present

It the report presented to the governing body within a reasonable time after the end of

the period?

Present Not Present

Do the reports include a statement of compliance of the investment portfolio with the

Act and the investment strategy?

Present Not Present

Does an independent auditor review the reports at least annually if your investments

include obligations other than money market mutual funds, investment pools, or

depository bank investment accounts and is it reported to the governing body by the

auditor?

Present Not Present

[Section 2256.003(b)] - Investment Management Firm

If the entity has contracted with an investment management firm to provide for the

investment and management of its public funds or other funds under its control, is the

investment management firm registered either under the Investment Advisers Act of

1940 or with the State Securities Board?

Present Not Present

Is the contract with the investment management firm limited to a maximum term of two

years with renewal or extension subject to approval of the governing body by order,

ordinance, or resolution?

Present Not Present

[Section 2256.025] - Qualified Brokers List

Has the governing body or designated investment committee adopted a list of qualified

brokers?

Present Not Present

Does the governing body or designated investment committee review, revise, and

approve the list at least annually?

Present Not Present

“4.003 county investment policies” presentation... · management chapter 2256 public funds...

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