2.02.05 SALT LAKE CITY CORPORATION TREASURER'S OFFICE INVESTMENT POLICY

RESPONSIBLE CITY AGENCY: Finance Department – Treasurer’s Office

KEYWORDS: Financial Assets, Investment Portfolio, Securities, Liquidity, Rate of Return

I.  Policy

It is the policy of Salt Lake City Corporation (the “City”) to invest public funds in accordance with principles of sound treasury management and in compliance with state and local laws, regulations, and other policies governing the investment of public funds, specifically, and according to the terms and conditions of the Utah State Money Management Act of 1974 and Rules of the State Money Management Council as currently amended (the “Act”), whose provisions are hereby incorporated as part of this policy. 

Furthermore, the following investment objectives stated in order of priority shall be met when depositing and investing public funds:

A.  Legality;

B.  Safety of principal;

C.  Need for liquidity;

D.  Maximum yield on investments consistent with the first three objectives;

E.  Maturity of investments, so that the maturity date of the investment does not exceed the anticipated date of the expenditure of funds or as required by the Act.

II. Scope

This investment policy applies to all financial assets, investment activities, and debt issues of the City, as accounted for in the City’s Comprehensive Annual Financial Report (CAFR), including trustee-held bond funds which are invested under the direction of the City Treasurer. 

Bond and note proceeds and all funds pledged or otherwise dedicated to the payment of principal and interest of those bonds and notes shall be invested either in accordance with the applicable terms of the borrowing instruments, or if silent or less restrictive, then in accordance with Section 51-7-11 Authorized Deposits or Investments of Public Funds of the Act.

Employees’ retirement funds as well as funds in deferred compensation plans are excluded from this policy.

Except for cash in certain restricted and special funds, the City may consolidate cash and reserve balances from all funds (pooling of funds) to maximize investment earnings and to increase efficiencies with regard to investment pricing, safekeeping and administration.

Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles.

III.   Prudence

The standard of prudence to be used by the City investment officials shall be the “prudent person” standard and shall be applied in the context of managing an overall investment portfolio.

“Prudent person” rule is as following:

Investments shall be made with judgment and care under circumstance then prevailing at the time the investment is selected, which persons of prudence, discretion, and intelligence would 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.

The City Treasurer and the Investment Analyst assigned to manage the investment portfolio, acting in accordance with written procedures and this investment policy and exercising due diligence, shall be relieved of personal responsibility for an individual security’s credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and any liquidation or sale of securities is carried out in accordance with the terms of this policy.

Any person involved in the investment process shall refrain from personal business activities which could conflict with the proper execution of the investment program, or which could impair their ability to make impartial investment decisions.

Securities shall not be purchased with trading or speculation (such as anticipation of appreciation of capital value through immediate changes in market interest rates) as the dominant criterion for the selection of the security. However, as long as the original investments can justify their ordinary earning power, trading in response to changes in market value is a requisite of ongoing portfolio management.

IV. Objective

Legality, safety, liquidity, yield and maturity are of primary concern. The City Treasurer has a responsibility in the investment of public funds to seek the highest rate of return available in the market consistent with the primary requirements of legality, safety and liquidity.

A.  Legality

One of the main objectives of this investment policy is conformance with federal, state and other legal requirements.

B.  Safety

Safety of principal and preservation of capital is the foremost objective of the Salt Lake City investment program. Investments shall be selected in a manner that will attempt to ensure the safety of the City’s capital.

Investments will be diversified by security type, industry, issuer, and maturity date to spread potential investment risk.

Proceeds from the issuance of tax-exempt debt securities shall be invested, recorded and reported in the manner set forth by the U.S. Treasury Department and the Internal Revenue Service so as to preserve the tax-exempt status of the debt securities.

The objective is to mitigate credit risk and interest rate risk. Each investment transaction shall seek to ensure that capital losses are avoided, whether from securities default, broker-dealer default or erosion of market value.

Credit Risk is the risk of loss due to the failure of the security issuer. Credit risk will be mitigated by:

1.  Limiting investments to the safest types of securities;

2.  Diversifying the investment portfolio so that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio;

3.  Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisers with which the City will do business.

Market Risk – market risk is the risk factor that the market value of securities in the portfolio will fall due to market influence such as changes in general interest rates. Market risk may be minimized by:

1.  Investing operating funds in short-term securities;

2.  Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity.

C.   Liquidity

The City 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). Since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets (dynamic liquidity).

A portion of the portfolio may be placed in money market mutual funds or the Utah State Treasurer’s Pool which offer same-day liquidity for short-term funds.

D.  Rate of Return

The investment portfolio shall be designed with the objective of attaining the best feasible rate of return, throughout budgetary and economic cycles, commensurate with the investment risk constraints, legal requirements and the cash flow needs of the City.

Securities shall generally be held until maturity with the following exceptions:

A.  A security with declining credit may be sold early to minimize potential loss of principal.

B.  Liquidity needs of the portfolio require that the security be sold.

C.  A security with declining market value may be sold early if a prudent alternative is available to buy in its place.

Funds held for future capital projects should be invested in securities that reasonably can be expected to produce enough incomes to offset inflationary construction cost increases. However, such funds never shall be exposed to market price risks or default risks that would jeopardize the assets available to accomplish their stated objective.

Maturity: The remaining term to maturity of an investment may not exceed the period of availability of the funds to be invested and the investment of City funds will not be of a speculative nature.   

V. Delegation of Authority

The authority for investing public funds is granted to the City Treasurer under Title 2 Chapter 2.08.025 of the City Code and in accordance with Utah Code Title 10, Chapter 6 - Uniform Fiscal Procedures Act for Utah Cities, Section 141.

Responsibility for the operation of the investment program is designated to the City Treasurer, who shall act in accordance with established written procedures and internal controls for the operation of the investment program consistent with this investment policy.

Finance directors in other areas of the City may make investment decisions, however all investment decisions will be reviewed by the City Treasurer.

The Investment Analyst is responsible for day-to-day investment decisions, activities and the development and maintenance of written administrative procedures for the operation of investment program, consistent with these policies.  

The Investment Analyst shall report to the City Treasurer on investment activities.

No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the City Treasurer. The City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.

VI. Ethics and Conflicts of Interest

The City Treasurer and the Investment Analyst should refrain from personal business activity that could conflict with the proper execution and management of the investment program, or which could impair their ability to make impartial investment decisions.

The City Treasurer and the Investment Analyst shall refrain from undertaking personal investment transactions with the same individuals with whom business is conducted on behalf of their entity.

The investment program shall be designed and managed with a degree of professionalism worthy of the public trust.

VII.  Authorized Financial Dealers and Institutions

Financial institutions and investment brokers/dealers who desire to become qualified bidders or qualified depositaries must be certified through the State of Utah and meet all requirements imposed by the Utah State Department of Financial Institutions and the requirements of the Utah Money Management Council, and Act (rule 16).

The City may use investment advisers to conduct investment transactions on its behalf as permitted by statute, Rules of the Money Management Council and local ordinance or policy. Investment advisers must be certified by the Director of the Utah State Division of Securities of the Department of Commerce.

City funds shall only be deposited with a qualified depositary. Only qualified depositaries as certified by Utah’s commissioner of financial institutions are eligible to receive and hold deposits of public funds (Rule 12 State Money Management Council). Investment transactions shall only be conducted through certified depositaries, certified dealers, or directly with issuers of the investment securities (UCA 51-7-1, et seq). 

The City Treasurer will maintain a list of financial institutions authorized to provide investment services. In addition, a list will be maintained of approved security broker/dealers selected by credit worthiness. These may include “primary” dealers or regional dealers that qualify under Securities and Exchange Commission Rule 15C3-1 (uniform net capital rule). The Utah Money Management Council issues a list of certified dealers quarterly, and a list of qualified depositories authorized by state statue to conduct transactions with public treasurers.

Transactions involving authorized deposits or investments of public funds may be conducted only through issuers of securities authorized by Section 51-7-11 (3) of the Act, qualified depositaries included in the current state list, and certified dealers included in the current state list. The City shall seek to obtain competitive bids from at least three such brokers or financial institutions on all purchases of investment instruments on the secondary market.

All securities purchased from a certified dealer including those purchased through a certified investment adviser are required to be delivered to the City Treasurer or to the City’s safekeeping bank.

The City Treasurer may use a qualified depositary bank for safekeeping securities.

VIII.   Authorized and Suitable Investments

The City may place public money in investments/deposits authorized by the Utah Money Management Act (U.C.A. 51-7-11). Any revisions or extensions of U.C.A. 51-7-11 will be assumed to be part of this policy immediately upon being enacted. The list of authorized and suitable investments in the Act shall be strictly interpreted.  Any deviation from this list must be pre-approved by the City’s Investment Committee. A summary grid of the authorized and suitable investments can be found in the Appendix.

Maturity restrictions shall be calculated from settlement date to maturity date and shall not exceed five years.  For investment securities that can be redeemed prior to maturity (i.e. bonds with a put option), the redemption date will be considered the effective maturity date for the bonds. The City Treasurer shall ensure that all purchases and sales of securities are settled within 15 days of the trade date for outstanding issues and 30 days for new issues.

Diversification restrictions by security type and issuer, and credit rating requirements are applicable only on the date of purchase of the investment and are applicable to the total portfolio.

Any investment currently held that does not meet the guidelines of this policy shall be exempt from the requirements of this policy. Any investment that is downgraded to a level that is below the minimum ratings described herein may be sold or held at the City’s discretion. The Portfolio will be brought back into compliance with the Policy as soon as is practical. At maturity or liquidation, such monies shall be reinvested only as provided by this policy.

In addition, the City will not directly invest in the fossil fuel industry.

IX. Maximum Maturities

To the extent possible, the City shall attempt to match its investments with anticipated cash flow requirements. Because of inherent difficulties in accurately forecasting cash flow requirements, a portion of the portfolio should be continuously invested in readily available funds such as the Utah State Treasurer’s Investment Pool, money market funds or overnight repurchase agreements to ensure that appropriate liquidity is maintained in order to meet ongoing obligations. Please see the Authorized and Suitable Investments Summary in the Appendix for more detail regarding Maximum Maturities.  

X. Diversification

The City will diversify its investment portfolio in a way that reduces overall portfolio risks while attaining average market rates of return.

The investments shall be diversified by:

A.  Limiting investments to avoid overconcentration in securities from a specific issuer or business sector (excluding U.S. Treasury securities);

B.  Limiting investments in securities that have higher credit risks;

C.  Investing in securities of varying maturities;

D.  Continuously investing a portion of the portfolio in readily available funds such as local government investment pools, money market funds or overnight repurchase agreements to ensure that appropriate liquidity is maintained in order to meet ongoing obligations.

Diversification strategies shall be determined and revised periodically by the City Investment Committee for all funds except for those funds specifically identified in the Executive Deferred Compensation Fund (Fund 98-00980). The following general policies and constraints shall apply:

E.  Portfolio maturities shall be staggered to avoid undue concentration of assets in a specific maturity sector.

F.  Maturities selected shall provide for stability of income and reasonable liquidity.

For cash management funds:

G.  Liquidity shall be assured through practices ensuring that the next disbursement date and payroll date are covered  through maturing investments, money market accounts or marketable U.S. Treasury bills;

H.  Positions in securities having potential default risk (e.g., commercial paper) shall be limited in size so that in case of default, the portfolio’s annual investment income will exceed a loss on a single issuer’s securities;

I.   The City Treasurer shall establish strategies and guidelines for the percentage of the total portfolio that may be invested in securities other than repurchase agreements, Treasury bills or insured/collateralized certificates of deposit. The City Treasurer shall conduct a quarterly review of these guidelines and evaluate the probability of market and default risk in various investment sectors as part of its considerations.

All funds pledged or otherwise dedicated to the payment of interest and principal of bonds issued by the City must be invested in accordance with the terms of the borrowing instruments applicable to such bonds, or if none of those provisions are applicable, in accordance with section 51-7-11 of the Money Management Act, as currently amended.

Please see the Authorized and Suitable Investments Summary in the Appendix for more detail regarding Diversification.

XI. Investment Pools/Mutual Funds

The City will seek to obtain the following from the Utah Public Treasurers’ Investment Fund or similar qualified pool/fund prior to any investing with the pool:

A.  Quarterly holdings statement of all investments held in the pool/fund;

B.  Monthly statement detailing all transactions on each investment account held by the City;

C.  A current copy, at least annually, of the State Money Management Act and rules of the State Money Management Council;

D.  A copy of the approved list of depositary institutions that have been qualified as depositaries to receive public funds;

E.  A copy of the listing of Certified Dealers and their Agents who are certified to execute transactions for public funds.

XII.  Collateralization

In the state of Utah, the collateralization of public funds is not required but might be allowed under certain rules that are issued pursuant to Sections 51-7-18.1 (5) of State Money Management Act.

XIII.   Safekeeping and Custody

All security transactions, 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. Securities will be held by a third-party custodian as evidenced by safekeeping receipts issued to the City Treasurer within three business days following the purchase.

A third-party custodian has to be certified by the Utah Money Management Council and designated by the City Treasurer.

XIV. Internal Controls

The Treasurer is responsible for establishing and maintaining an internal control structure designed to ensure that the 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 concept of reasonable assurance recognizes that:

A.  The cost of control should not exceed the benefits likely to be derived.

B.  The valuation of costs and benefits requires estimates and judgments by management.

Accordingly, the City shall establish a process for an annual independent review by an external auditor to assure compliance with these policies and procedures.

The internal controls shall address the following points:

C.  control of collusion;

D.  separation of transaction authority from accounting and recordkeeping;

E.  custodial safekeeping;

F.  avoidance of physical delivery of the securities;

G.  clear delegation of authority to subordinate staff members;

H.  written confirmation of transactions for investments and wire transfers

XV.   Performance Standards

The investment portfolio will be managed in accordance with the parameters specified within this policy.

A series of appropriate benchmarks shall be established by the City Treasurer against which portfolio performance shall be compared on a regular basis. The benchmark standard for rate of return of the City portfolio will be the average rate of return on similar investments and portfolios such as BofA Merrill Lynch 1-3 Year U.S. Treasury Index or the BofA Merrill Lynch 1-5 Year U.S. Treasury Index.

The portfolio should obtain a market average rate of return during a market/economic environment of stable interest rates.

In keeping with the State of Utah statues and the City’s investment strategy, funds will be placed for investment and not speculation (i.e. passive investment strategy).

XVI. Reporting

The Investment Analyst shall review and render monthly investment reports to the City Treasurer that provide a clear picture of the status of the current investment portfolio and transactions made over the last reporting period. The reports shall include the face amount of the cash investment, the classification of the investment, the name of the institution or entity, the rate of interest, the maturity date, the current market value. The report should include the G/L account balances in the Investment Fund and associated earnings.

The list of investments and deposits is provided semi-annually to the Utah Money Management Council for compliance review as required by 51-7-15 of the Money Management Act.

The investment portfolio and deposits are included in the Comprehensive Annual Financial Report for the City.

XVII.  Investment Policy Adoption

Investment policies are developed by the City Treasurer and reviewed with the City Investment Committee. The City Investment Committee has the authority to adjust provisions of this order as necessary. The Committee is responsible for the prudent review of the City’s Investment Policy within the boundaries of the Utah Money Management Act (UCA 51-7-1).

This policy shall be reviewed on an annual basis. Any changes must be approved by the City Investment Committee.

The Investment Committee consists of the City Treasurer; the Finance Director; the Investment Analyst; the Debt Manager; the Public Utilities Finance Director; the Airport Finance Director and the Chief of Staff.

Authorized and Suitable Investments Summary

The table below provides a summary of the authorized investments of the City, and is either in accordance with, or more restrictive than, Utah State Law 51-7-11 “Authorized deposits or investments of public funds”.  This summary does not include the Utah Public Treasurers' Investment Fund, which is an authorized investment of the City.

This summary applies to all City portfolios in the aggregate.

Credit criteria herein refer to the credit rating at the time the security is purchased and include intermediate rating categories.  For example, “AA” includes ratings of AA+, AA and AA- for Standard & Poor's and Fitch, and Aa1, Aa2 and Aa3 for Moody's Investors Service.  Ratings are required by one NRSRO, unless otherwise specified.  Rating Restrictions shown below reflect Standard & Poor’s credit ratings, however, the equivalent from Moody’s Investors Service or Fitch ratings is acceptable.

* with qualified depositories using collateral consisting of:

(i)  Government National Mortgage Association mortgage pools;

(ii)  Federal Home Loan Mortgage Corporation mortgage pools;

(iii)  Federal National Mortgage Corporation mortgage pools;

          (iv)  Small Business Administration loan pools;

          (v)  Federal Agriculture Mortgage Corporation pools; or

          (vi)  other investments authorized by this section;

** with certified dealers, permitted depositories, or qualified depositories using collateral consisting of:

          (i)  Government National Mortgage Association mortgage pools;

          (ii)  Federal Home Loan Mortgage Corporation mortgage pools;

(iii)  Federal National Mortgage Corporation mortgage pools;

          (iv)  Small Business Administration loan pools; or

          (v)  other investments authorized by this section;

† (i)  270 days or fewer for paper issued under 15 U.S.C. Sec. 77c(a)(3); or

   (ii) 365 days or fewer for paper issued under 15 U.S.C. Sec. 77d(2);

†† NRSRO = Nationally Recognized Statistical Rating Organizations

∆ (B) are senior unsecured or secured obligations of the issuer, excluding covered bonds;

(C) are publicly traded;

(D) are repriced at least semiannually; and

(E) have a remaining term to final maturity not to exceed three years or are subject to a hard put at par value or better, within 365 days;

∆∆ (4) A public treasurer shall ensure that all public funds invested in deposit instruments are invested with qualified depositories within Utah, except:

(b) reciprocal deposits, subject to rules made by the council under Subsection  51-7-18(2);

51-7-18 (2) The council may:

(a) recommend proposed changes in statutes governing the deposit and investment of public funds to the Legislature;

(b) make rules governing:

(i) the financial reporting requirements of qualified depositories in which public funds may be deposited;

(ii) the conditions and procedures for maintaining and revoking a financial institution's designation as a qualified depository;

(iii) the definition of depository capital;

(iv) the conditions for maintaining deposits at a permitted depository;

(v) the conditions and procedures for maintaining and revoking a primary reporting dealer's or a broker dealer's designation as a certified dealer;

(vi) certified investment advisers who deal with public treasurers, including establishing standards and requirements for the use, qualification, and regulation of certified investment advisers;

(vii) the conditions and procedures for maintaining and revoking a federal covered adviser's or an investment adviser's designation as a certified investment adviser;

(viii) the conditions and procedures by which public treasurers may deposit and invest public funds;

(ix) quality criteria for corporate obligations;

(x) the conditions and procedures by which public entities may use interest rate contracts authorized by Subsection 51-7-17(3); and

(xi) other rules necessary to carry out its functions, powers, duties, and responsibilities under this chapter.

EFFECTIVE DATE (DATE SIGNED BY MAYOR): OCTOBER 9, 2015