How to Approach From a Small to Medium
Government’s Perspective – Given Limited Staff,
Time, and Experience
FGFOA Annual Conference
May 8, 2012
10 - 11:40am
Jeff Larson, MBA, Larson Consulting Services
Jeff Yates, MPA, City of Dunedin
Linda Senne, CPA, City of Venice

I.
Introductions
II.
III.
Overview – Typical Florida
Investment Policy – Small to Medium Sized Governments
Overview – Best Practices of Public Funds Investments
IV..
V.
VI.
VII.
Investment Approach:
City of Venice
Investment Approach
City of Dunedin
Panel Recommendations
Appendix Material
FGFOA Moderator
Jeff Larson
Jeff Larson
Linda Senne
Jeff Yates
Panel

 Get samples from other organizations
 Colleagues
 Internet
 FGFOA web site
 GFOA sample investment policy

 Florida Government Finance Officers Association


(407) 835-3471 www.fgfoa.org
View Resources for Sample Documents
 Government Finance Officers Association


(312) 977-9700 www.gfoa.org
Search for “Sample Investment Policy”
 Updated Comparable Florida Models:
-- City of Dunedin
-- Clay County
-- UCF
-- City of Tamarac
-- City of Venice
-- City of Treasure Island
-- Osceola County Schools
-- FGFOA Website, Your Local Chapter
5

 State/Local Laws (F.S. 218.415)
 Scope/Objectives
 Standards of Care
 Investment Instruments
 Internal Controls
 Reporting
 Policy Approval
6

 Value of Investment Portfolio
 Fund Types
 General
 Special revenue
 Enterprise
 Exclusions Typically Include:

Pension trust funds
 Debt service reserve funds, bond proceeds
7

 Safety of principal
 Security type
 Limit risk exposure
 Liquidity
 Portfolio Structure
 Transparency
 Transparency – more important than yield
 Yield
 Market influenced
 Watch credit risk



“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 probable income to be derived.”




 Types
 List Allowable Investments

 Florida Statutes 218.415
Ratings Credit criteria (Moody’s, S&P)
 Establish acceptable minimums
 Limits
 Maturity restrictions may vary by fund
 Maximum maturity

 Types – Maximum %
 U.S. Treasuries and Agencies
 Government Securities
 State and Local Governments
 Local Government Investment Pool (LGIP)
 State Board of Administration – A or Prime Fund

Money Market Funds


Repurchase Agreements
CD’s and Bank Deposits (“QPD”)
 Corporate Securities, Commercial Paper
 Other; Derivatives
11

 Investment officer is responsible for maintaining internal control structure
 Key issues:
 Collusion
 Separation of activities



Transaction confirmations
Wire transfer authority
Record to General Ledger
 Review and monitoring





Quarterly (?)


City/County Manager, Superintendent, President or
Executive
City Council/Board of County Commissioners
School Board, or other Board
 Investment Advisory Committee (if applicable)
Annual – Audit Report
Based on your Policy – You Should Tailor
Who is the “Investment Officer” Per F.S. 218.415?
13

14

 Suitability




Risk return tolerance
Industry rules demand: “know your client”
Objectives and your responsibility –
Understand the investment
Unique characteristics and today’s challenge –
“Limited Time” to analyze and manage
 Diversification
15

 How do I get started if I inherited this
“Investment Officer” role?


QPD – What does it mean?
What is a “yield curve”?


Should I be expected to predict interest rates?
Key questions often include…?
16

Key Issues and Recommendations Include:





Everyone is different, there is no “copy-cat plan”...
Understand what you, your boss, and elected officials understand
DO NOT invest in anything that you can not explain in 5 minutes or less or summarize on one page
Keep it simple and at your risk tolerance level
Ability to monitor and report - Do not create extra work unless your finance/treasury department has unlimited staff and not enough to do!
17

Key Issues and Recommendations Include:






Set objectives and then keep it simple!
Do not keep all of your eggs in one basket
Similar to a person wanting to diversify their personal investment portfolio - only shorter term
Always err on being conservative, and LIQUID
Protect principal versus chasing yield
Use maximum % and minimum ratings for various investment alternatives to force diversification
18

What Does It Mean?





Florida Statutes 280
Collateral backing bank's obligation to pay in addition to bank's own credit standing
“Joint and several” support agreement among banks
State puts responsibility on YOU to have original collateral letter on file (see Appendix example)
“Trust but verify”
19

 Liquidity
 Money market, LGIP investments
 0-90 days

Banks
 Enhanced cash
 90 days to 18 months
 Short-term tier (1-5 years)
 Reserves - longer term; 18 months to 5 years
20

 STABLE NAV

Goal is to maintain
$1 in/$1out
 Highest S&P rating is
“AAAm”
 Short-term

WAM for LGIP is < 60 days

WAM for MMF is < 90 days
 SBA-A shares
 FLSAFE


Day-to-Day Fund
MMF’s
 VARIABLE NAV


Designed to fluctuate to increase yield
Highest S&P rating is “AAAf”
 Highest S&P volatility rating is
“S1+”
 Medium to Long-term

WAM is Bond Fund < 90 days

FMIvT
 FLGIT
 SPIA
 The Core Fund
Source: Prepared by Larson Consulting Services, LLC ,Orlando, Florida, market options available to
Florida Governments constantly change. This is not intended to be a complete list.
21

Fund Type
Finance Officer
Directed Board
$1.00 Per Share
Stable Value Fund
Market Value Pricing
Rated
12b-1 fees
Daily interest allocation
Transaction Enabled
Website
Account Minimums
Investment
Objectives
FLSAFE
LGIP
Yes
Yes
Weekly
Yes
No
Yes
Yes
$0
1) Safety
2) Liquidity
3) Transparency
4) Yield
SBA
A Shares
LGIP
No
Yes
Weekly
Yes
No
No
Yes
$0
1) Safety
2) Liquidity
3) Yield
FAC & FACC
Day-to-Day Fund
LGIP
No
Yes n/a
Yes
No n/a
Yes
$10,000
1) Liquidity
2) Stable share price
3) Yield
Website
Telephone w w w .flsafe.org
(855)202-9650 w w w .sbafla.com/ pool/
(850) 488-7311 w w w .flclerks.com/
(850) 921-0808
Prepared by: Larson Consulting Services, LLC, Orlando, Florida
Rule 2a-7
Money Market Funds
2a-7 Fund
No
Yes varies varies varies
Yes varies varies follow s rule 2a-7 requirements varies varies
The information contained herein is not guaranteed but was obtained from sources we believe to be reliable. Market options for Florida Governments constantly changing, not intended to be a complete list. No information in this document should be construed as a recommendation. Investors should independently evaluate each investment alternative based upon the needs, risk tolerance and suitability of their government entity. Check website or call entity for more information.
22

Fund Type
Finance Officer
Directed Board
$1.00 Per Share
Stable Value Fund
Market Value Pricing
Rated
12b-1 fees
Daily interest allocation
Transaction Enabled
Website
Account Minimums
Florida League of Cities
0-2 High Quality
Florida League of Cities
1-3 High Quality
Bond Fund Bond Fund
No
No
Bi-Monthly
Yes
No
No
No
$50,000
No
No
Bi-Monthly
Yes
No
No
No
$50,000
Investment
Objectives
1) Preserve Capital
2) Total ROR Exceed T-Bill by 1%/Yr over 3 yr period
3a) 0-2: Exceed ML 1Yr T-Note Index over 3 yr period
3b) 1-3: Exceed ML 1-3Yr Govt. Index
FAC & FACC
FLGIT Fund
Bond Fund
No
No
Monthly
Yes
No
No
No
$10,000
1) Safety
2) Liquidity
3) Yield
SPIA
(State Treasurer)
Special Purpose
Fund
No
No
Monthly
Yes
S&P unpublished
No
No
Yes
$0
1) Realize maximum earnings per F.S
17.57(1)
Website
Telephone w w w .fmivt.com
1.800.342.8112
w w w .fmivt.com
1.800.342.8112
w w w .flclerks.com/ flgit/
(850) 921-0808 w w w .fltreasury.org/ fs_01.html
(850) 413-2779
Prepared by: Larson Consulting Services, LLC, Orlando, Florida
The information contained herein inot guaranteed but was obtained from sources we believe to be reliable. Market options for Florida Governments constantly changing, not intended to be a complete list. No information in this document should be construed as a recommendation. Investors should independently evaluate each investment alternative based upon the needs, risk tolerance and suitability of their government entity. Check website or call entity for more information.
23

III: Operating funds can be allocated into different tiers
•Core Funds

Enhanced Cash Tier

Short-Term Tier
• Each tier is distinct and can be benchmarked
$4.8 M
$4.0 M
$3.2 M
Liquidity Tier (0–90 Days, WAM)
$2.4 M
$1.6 M
Enhanced Cash Tier (90 Days–1 Year)
$800 K
0
Short-Term Tier (1–5 Years)
Jan Feb March April May June July Aug Sept Oct Nov Dec
Prepared by Larson Consulting Services, LLC, Orlando, Florida, For Discussion Purposes only.
24

Short -Term Cash
Enhanced Cash
Liquid Cash
More
Commercial Paper
Bankers Acceptances
Certificate of Deposits
LGIP’s and MMF’s
Repos (Collateralized)
U.S. Gov Agencies
U.S. Treasuries
Corporate Notes
Taxable Municipals
Certificate of Deposits
Repos (Collateralized)
U.S. Gov Agencies
U.S. Treasuries
Asset Backed Securities
Mortgage Backed Securities
Corporate Notes
Taxable Municipals
Certificates of Deposit
U.S. Gov. Agencies
U.S. Treasuries
Liquidity Less
Source: Prepared by Florida Management and Administrative Services, Orlando, Florida, For Discussion Purposes.
* Some securities require additional approval. 218.415 (16) h - Other investments authorized by law or by ordinance for a county or a municipality or local government.
**Not all securities are suitable for every public entity. Each entity has their own unique risk tolerances .
26

IV. City of Venice Investment Approach



Overview of Venice
 Location
 Demographics
Finance Department’s Role -
 Reporting and investments
City of Venice’s approach



In Sarasota County – SW Florida
Located ½ way between Tampa & Fort Myers
 Incorporated in 1927
 In 2012 Celebrating its 85 th Anniversary
 Well known for its beautiful beaches
 Population – Approx. 22,176

Governmental Services
Police Information Systems
Fire Parks & Recreation
Finance Public Works
Community Development: Engineering, P&Z, Bldg
 Enterprise Funds
Water & Sewer Solid Waste
Stormwater Airport


 Annual Budget - $ 80.2 million
 Cash & Investment portfolio – Approx. $55.6 million
 Limited resources (i.e. personnel and time)
 Finance Personnel
 2000: 17 persons 2012: 12 persons
 Budget
 2000: $41.4 M 2012: $80.2 M

 Amount at local operating bank, tied to services
 Other sources of liquidity include AAAm rated money market funds, AAAm FL SAFE LGIP,
Bank QPD’s
 Analyze cash flows by fund, but invest on pooled basis
 Working with PMA to Ladder our investments,
Produce a Consolidated Report, Reduce
Safekeeping Costs

 Cash & Investments Consist of Approx:
 $28.3M Bank Deposits & Money Market Funds
 $22.0M Government Agencies
 $ 5.0M FLSAFE – LGIP
 $ 0.3M SBA – LGIP
 Balances vary month to month
 Quarterly Updates to City Council

Cash & Investments
$55.6 Million
0%
40%
51%
Government Agencies
FLSAFE - LGIP
Bank Deposits
SBA - LGIP
9%



New Finance Director met with bank representatives, then City’s Financial Advisor
 Discovered City bank accounts established many years ago with no current rationale or logic
Updated Investment Approach in 2011-2012 with FA’s Help, FL SAFE/PMA Support
(1) Source – City of Treasure Island, Finance Department, Active Portfolio changes but basic structural diversification and investment options continue.

$502,040
(1) Source – City of Treasure Island, Finance Department

 Stay with Permitted Investments
 Too Small to Have an Independent IA Firm
 Working on: Leverage Cash Flow Analysis and
Fixed Income Investment Program (FIIP) via FL
SAFE team
 Leverage Competitive Bidding Platform of PMA and Leverage Wider Range of Broker Dealers or
QPD Banks

 Overview
 In Pinellas County, North of Clearwater
 35,000 Population, Largely Residential Community
 Finances
 Reporting and investments


Challenges and Lessons Learned
City of Dunedin’s approach

 Established in June 1899
 10 Square Miles
 Median Age 51.3 yrs


 Budget – Approximately $84.7 million
 Investment portfolio – Approximately $ 30 million
 Limited resources (i.e. personnel, experience and time)
 Finance Personnel
 2000: 25 persons 2012: 19 persons
 Budget
 2000: $1.4 million 2012: $2 million








Initially Majority of Funds at Local Bank, not earning a yield, above maximum % per old
Investment Policy
Investment Policy Updated with Consultant’s
Help
 Diversification Phase I
 Cash Flow Analysis via PMA FL SAFE
 Diversification and Laddering Phase II –
Competitive Bidding of QPD Bank CDs

Portfolio Breakdown
As of March 31, 2012
Money
Markets (Limit
25%)
27.17%
Bank Deposits
21.95%
Government
Investment
Pools (Limit
50%)
50.89%

Certificates of
Deposit
(1)
(Limit 40%)
44.64%
Bank Deposits
15.94%
Money
Markets
(Limit 25%)
7.52%
Government
Investment
Pools (Limit
50%)
31.89%
(1) Prebond proceeds/bank placement reimbursement of Interfund loans

 Markets are Constantly Changing

Everyone is Different, There is no Copy Cat Plan

Understand What You, Your Boss, and Elected Officials
Understand

DO NOT Invest In Anything That You Can Not Explain
 This is Not Your Money-Be A Fiduciary
46


Keep It Simple and At Your Risk Tolerance Level
 Ability To Monitor and Report- Do Not Allow Investments or Process to Merely Create Extra Work

Seek Assistance, as Needed, with Investment Policy
Review and Cashflows

Remember Suitability and Diversification

Stay True to Key Objectives
47


Safety, Liquidity, Transparency, and Yield – Stay the course

Interest Rate Projections – Be realistic with your expectations

Defined Investment Plan – Develop Cash Flows

Look for opportunities to maximize investment duration
 Identify factors you control – timing, diversification of investments, execution

Utilize and/or consider all investment options

Time Deposits, Collateral, FDIC insurance, Insured Money Market Account and local government investment pool

Use Ladders
48

 Jeff Larson, MBA


President, Larson Consulting Services
Banking and Investment Experience, Over 29 years
 Linda Senne
 Chief Accountant, CPA, CGFM, City of Venice
 Jeff Yates
 Finance Director, MPA, City of Dunedin

President, Larson Consulting Services
Tel: 407.496.1597 | jlarson@larsonconsults.com
Based in Orlando, and as President of Larson Consulting Services (“LCS”), an independent SEC and MSRB registered financial advisory firm, Jeff has successfully closed a wide range of municipal project finance and corporate financings totaling over $6 billion. Florida projects have ranged from negotiating and structuring transportation/road improvement programs, higher education project financings, multiple utility acquisitions, extensive water and wastewater capital expansions, investments support services, economic development and redevelopment initiatives, utility enterprise restructurings, refinancing and restructuring, downtown redevelopment, CRA TIF financings, debt and lease purchase private placements, multiple public/private partnership project finance issues, multiple phased Charter School financing, and a $240 Million University / Developer PPP Project financing. In May of 2011, Jeff and FMAS was asked by the
AAAm rated FL SAFE Local Government Investment Pool (“LGIP”), to serve as its Administrator and Executive
Director. He has served many Florida governments since 1992 as an Investment Banker, Financial Consultant,
Administrator, or Financial Advisor.
Mr. Larson received his MBA degree on an academic scholarship from Emory University, Atlanta, Georgia, in
1982. As part of his MBA graduate work, Mr. Larson worked, studied and taught in Germany and Austria and was a
Fulbright Scholar at the Johannes Kepler University in Linz, Austria. He received an A.B. in Business Administration with honors in 1980 from Franklin & Marshall College, Lancaster, PA. Mr. Larson’s professional licenses with the State of Florida, FINRA (previously the National Association of Securities Dealers (NASD)), and New York Stock Exchange
(NYSE) include a Series 7 General Securities, Series 63, Series 53 Municipal Principal, Series 24 FINRA General
Securities Principal and Series 9 and 10 General Securities Sales Supervisor licenses.
Jeff is a frequent speaker at industry conferences including the annual FGFOA, FCCMA, Florida Bond Buyer,
FICPA, Florida Redevelopment Association (FRA), Florida Bar Association, Florida League of Cities, Ernst & Young
Professional Development Conference, FGFOA Webinars, FINRA, Regional FGFOA Chapter meetings, FGFOA Career
Seminars, Smith’s National Investor Conference, Annual FGFOA Institute (School of Governmental Finance) and Special
District conferences on topics ranging from “the Bond Issuance Process”, “Best Practices in Debt Management”, “Best
Practices in Investment Management”, “Planning and Capital Financing”, to “Public-Private Partnership Financings.” Jeff has also served as a member of the FGFOA Annual Conference Program Committee for over 15 years.
51

Chief Accountant
City of Venice
Tel: 941-486-2626
Email: lsenne@ci.venice.fl.us
Linda Senne is currently the Chief Accountant for the City of Venice. Prior to January 1, 2011, she was the Deputy Financial Services Director/Controller for the City of Cape Coral. Ms. Senne started in 2001 as the Controller for the City of Cape Coral managing the City’s Financial
Management System including accounting, financial reporting, treasury, cash management and investments, debt issues, payroll, grant coordination, capital assets, capital construction projects, and customer billing services. Ms. Senne was the Project Manager for the JD Edwards
EnterpriseOne v9.0 Financial Management Software System implementation and the Kronos
HRIS/Payroll System implementation. Ms. Senne was also instrumental in leading the Accounting
Division in early implementing GASB 34, the biggest change in the history of financial reporting for governmental entities. Ms. Senne worked for the Office of the State Auditor in North Dakota for
13 years prior to joining the City of Cape Coral. While working for the State of North Dakota she was selected by the National Auditor’s Association to be on the quality review team for the State’s of Rhode Island and Alabama. Linda has served on the FGFOA Host Committee for a number of years, has been the SWFGFOA Chapter President, and a SWFGFOA Board Member since 2006.
Linda was selected by the participants to be a board member with FL SAFE, which is an AAAm rated Local Government Investment Pool in Florida. She was selected to be the Vice Chairman of the FL SAFE Board in 2012. Linda attended Moorhead State University –Minnesota where she earned a B.S. in Accounting and has been a Certified Public Accountant since 1988.

Finance Director
City of Dunedin
Tel: 727-298-3066
Email: jyates@dunedinfl.net
Jeffrey A. Yates started work as the City’s Finance Director on March 15, 2010.
Mr. Yates previously served as Chief Financial Officer for the City of Kansas City,
Missouri, from 2008 to 2010, the City of Lubbock, Texas from 2005 to 2008 and as
Director of Fiscal Policy and Strategic Planning for Lubbock from 2004 to 2005.
Before arriving in Lubbock, Yates worked as a Budget Officer for the City of
Portsmouth, VA. Mr. Yates also has taught economics, accounting, business management, ethics, government and leadership courses. Jeff has served on various committees for the GFOA, and is currently on the Board of the Gulfcoast Chapter,
FGFOA, and was selected to be the Secretary Treasurer of FL SAFE LGIP in 2012. He was a speaker at the 2011 FGFOA Annual Conference on “An Update on Public
Finance Markets”, and at a Gulfcoast FGFOA Eight Hour Seminar on “Best Practices in Investment Management”. Mr. Yates and his wife, Jennifer, have two children,
Jayden and Jonathan. Mr. Yates enjoys reading, photography and professional sports.
Mr. Yates has a bachelor’s degree in social science and education from Liberty
University and a master’s degree in public administration from Regent University, with additional graduate course work in economics and accounting




53

54

55

56

 2:00 p.m. - 2:50 p.m.
Statewide Chart of Accounts Project – Elwood McElhaney
 2:00 p.m. - 2:50 p.m.
Gimmie A Budget Light Please! – Brenda Raver
 2:00 p.m. - 2:50 p.m.
Ethics Review – Peggy McGarrity
 2:00 p.m. - 2:50 p.m.
Career Development: Building the Next Finance Director – Mark Fostier, Binh
Nguyen, Diane Reichard and Jamie Roberson
 2:00 p.m. - 2:50 p.m.
Pension Risk Management and Asset Allocation – Kevin SigRist

 3:10 p.m. – 4:50 p.m.
Are You Audit-Ready? – Deborah Garringer and Bill Spinelli
 3:10 p.m. – 4:50 p.m.
Fraud, Internal Controls and Segregation of Duties for Small Governments –
Angela Balent and C. Michelle Blackstock
 3:10 p.m. – 4:50 p.m.
Preserving Your Reserves – Jason Brown
 3:10 p.m. – 4:50 p.m.
Yikes! You’ve Been Hacked! – Princessa Brown
 3:10 p.m. – 4:50 p.m.
Review of the Dodd-Frank Act – Jim Reilly and Ravi Subbaraya