CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
Investment Policy
POLICY
CODE NO.
PS-39
EFFECTIVE
DATE
09/14/1998
REVISED
DATE
2/24/2014
PAGE
Page 1 of 8
PURPOSE
The purpose of the policy is to outline the way in which public money will be invested by the City of
Shawnee. The policy identifies the objectives of the City and establishes procedures to reach these
objectives. These objectives are to ensure safety, maintain necessary liquidity and maximize return
on investment, in that order of priority.
LEGAL AUTHORITY
The legal authority for cities to invest public fund comes from K.S.A. 12-1675. The City will
conform to applicable state statutes while investing public funds.
K.S.A. 9-1401, Depositories; K.S.A. 9-1402, Securities for Deposits of Public Funds; K.S.A. 121675, Investment of Public Moneys; K.S.A. 75-4218, Pledge of Securities; K.S.A. 10-131,
Investment of proceeds of bonds or temporary notes.
DEFINITIONS
Active Funds: Money which is immediately required for purposes for which it was received or
collected.
Cash Flow: Cash receipts minus disbursements from a given asset, or group of assets, for a given
period. An analysis of the movement of cash through a venture as contrasted with the earnings of the
venture.
Certificate of Deposit: Instruments issued by banks that state specified sums have been deposited
for specified rates of interest. Certificates of deposit are required to be backed by acceptable
collateral securities as directed by state and local law.
City: City of Shawnee, Kansas.
Collateral: An asset pledged as security to ensure return of principal and accrued interest.
Credit Risk: The risk of loss due to failure of the security issuer or backer.
Delivery Vs. Payment: A type of securities transaction in which the purchaser pays for the
securities when they are delivered to either the purchaser or his/her custodian. Payment is made
simultaneously with the delivery of securities so the purchaser is never without either cash or
securities.
Diversification: A process of investing assets among a range of security types by sector, maturity
and/or quality rating.
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
Investment Policy
POLICY
CODE NO.
PS-39
EFFECTIVE
DATE
09/14/1998
REVISED
DATE
2/24/2014
PAGE
Page 2 of 8
Idle Funds: Money which is not immediately required for the purposes for which it was collected or
received.
Interest Rate Risk: The risk that the market value of securities in the portfolio will fall due to
changes in market interest rates.
Investment: Commitment of money to gain profit or interest, such as by purchasing securities.
Kansas Municipal Investment Pool (MIP): A public funds investment pool administered by the
Kansas State Treasurer and overseen by the Pooled Municipal Investment Board.
Liquidity: Refers to the ability of an instrument to be converted into cash rapidly without substantial
loss of value.
Market Value: The price at which a security is trading and could be purchased or sold on a given
day.
Maturity: The stated length of time until an investment reaches the end of its term.
Principal: The face amount or par value of a security.
Return on Investment: The amount gained on an investment in addition to the principal.
Repurchase Agreements: Contractual agreements between the City and banks where the issuer
receives cash and in turn provides securities to the City as collateral for cash.
Safekeeping: The holding of securities by a financial institution on behalf of the securities owners.
Safe & Sound Ratings: A bank comparison tool found on Bankrate.com. The Safe & Sound ratings
are: Superior, Sound, Performing, Below Peer Group, and Lowest Rated. Performing institutions will
generally receive a rating of Performing or Sound.
Security: Documents that can be traded for value; an instrument of ownership or debt used to
finance government and corporate entities.
Safety: Minimization of risk.
United States Treasury Securities: Short term (less than 2 year) obligations of the United States
government. This includes Treasury bills, notes and bonds.
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
POLICY
CODE NO.
PS-39
Investment Policy
EFFECTIVE
DATE
09/14/1998
REVISED
DATE
2/24/2014
PAGE
Page 3 of 8
Yield: The current rate of return on an investment security generally expressed as a percentage of the
security’s current price.
POLICY
Investments shall be made with the primary objective of safety, followed by liquidity, then rate of
return. The City's portfolio shall be sufficiently liquid to meet operating requirements which can be
reasonably anticipated.
I.
Scope
This Investment Policy applies to all public funds to be invested (excluding the City's
supplemental pension plan). Funds included in the Investment Policy are accounted for in the
Comprehensive Annual Financial Report and include:
1.
2.
3.
4.
5.
II.
General Fund
Special Revenue Funds
Debt Service Fund
Capital Project Funds
Trust and Agency Funds
Objectives
The primary objectives are safety, liquidity, and return on investment.
A. Safety
Safety is the foremost objective of the investment program. Investments shall be
undertaken in a manner that seeks to ensure the preservation of capital in the overall
portfolio. The objective will be to mitigate credit risk and interest rate risk.
1. Credit Risk
The City will minimize credit risk, which is the risk of loss due to failure of the
security issuer or backer by:
a. Limiting investments to the types of securities listed in Section VI of
this Investment Policy.
b. Pre-qualifying the financial institutions, intermediaries, and advisers
with which the City will do business in accordance with Section IV.
c. Diversifying the investment portfolio so that the impact of potential
losses from any one type of security from any one individual issuer will
be minimized.
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
POLICY
CODE NO.
PS-39
Investment Policy
EFFECTIVE
DATE
09/14/1998
REVISED
DATE
2/24/2014
PAGE
Page 4 of 8
2. Interest Rate Risk
The City will minimize interest rate risk, which is the risk that the market value of
securities in the portfolio will fall due to changes in market interest rates, by:
a. 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.
b. Investing operating funds primarily in shorter-term securities, money
market mutual funds, or similar investment pools and limiting the
average maturity of the portfolio in accordance with this policy.
B. Liquidity
The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that many be reasonably anticipated. This will be accomplished by
structuring the portfolio so that securities mature concurrently with cash needs to meet
anticipated demands. Furthermore, since all possible cash demands cannot be anticipated,
the investment portfolio will contain securities with active secondary resale markets. A
portion of the portfolio may be placed in investments which offer one-day liquidity for
short-term funds, such as repurchase agreements, sweep investment arrangements, or the
Kansas Municipal Investment Pool.
C. Return on Investment
The investment portfolio shall be designed with the objective of attaining a market rate of
return throughout budgetary and economic cycles, taking into account investment risk
constraints and liquidity needs. Return on investment is a lower priority than the safety
and liquidity objectives described above.
III.
Standards of Care:
A. Prudence
The standard of prudence to be used by investment officials shall be the "prudent person"
standard and shall be applied in the context of managing an overall portfolio. Investment
officers acting in accordance with written procedures and 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 appropriate action is taken to control adverse
developments.
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
Investment Policy
POLICY
CODE NO.
PS-39
EFFECTIVE
DATE
09/14/1998
REVISED
DATE
2/24/2014
PAGE
Page 5 of 8
B. Ethics and Conflicts of Interest
Employees involved in the investment process shall be prohibited from personal business
activity that could conflict with the proper execution and management of the investment
program, or that could impair their ability to make impartial decisions, according to KSA
75-4301a(a). They shall disclose any material interests in financial institutions according
to KSA 75-4305, as well as any personal financial/investment positions that could be
related to the performance of the investment portfolio. Employees shall not participate in
or act upon any matter involving a contract agreement between the City and such
business, regardless of whether the employee has filed the disclosure required by KSA
75-4305. They shall refrain from undertaking personal investment transactions with the
same individual with whom business is conducted on behalf of the City.
C. Delegation of Authority
Management responsibility for the Investment Policy is delegated to the Finance Director
with oversight by the City Manager. The authority to manage the City of Shawnee's
Investment Policy is derived from Kansas State statutes. This Investment Policy is to be
reviewed on an annual basis.
IV.
Authorized Financial Institutions and Depositors
A list of authorized financial institutions and depositories will be generated based on the
financial institutions and depositories in the City Clerk’s business license database. The
Finance Director will conduct an annual review of the financial condition of all qualified
financial institutions.
V.
Custody, Collateralization and Safekeeping
A. All deposits and investments will be executed on a delivery vs. payment method.
B. Collateralization will be required on all City investments other than obligations of the
United States. In order to anticipate market changes and provide a level of security for all
funds, the collateralization level will be based on the health of the institution backing the
investment.
1. The required collateral is 102% of market value of principal and accrued interest if
the bank has a Safe & Sound rating of Superior or Sound.
2. For banks with a Safe & Sound rating that is below Superior or Sound, the
collateral required is 110% of market value of principal and accrued interest.
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
Investment Policy
POLICY
CODE NO.
PS-39
EFFECTIVE
DATE
09/14/1998
REVISED
DATE
2/24/2014
PAGE
Page 6 of 8
3. FDIC insurance may be included in the calculation of full collateralization.
Collateral is valued at current market plus accrued interest. The allowable
securities for collateralization are specified in K.S.A. 9-1402.
C. Collateral will be held by an independent third party with whom the City has a custodial
agreement in accordance with K.S.A. 9-1405. A safekeeping receipt must be supplied to
the City, and collateral will be registered in the City's name. The City will retain all
safekeeping receipts of securities pledged as collateral. Safekeeping receipts of pledged
securities may be electronically transmitted to the City to accommodate timely investment
transactions.
VI.
Acceptable Investments:
In accordance with current statues, the following list represents the entire range of
investments which the City will consider:
a.
b.
c.
d.
e.
Collateralized Certificates of deposit
Kansas Municipal Investment Pool
United States Treasury bills, notes and bonds
Repurchase agreements involving securities listed in item VI.c.
Additional investments authorized for debt proceeds according to K.S.A. 10-131.
If the City intends to invest in repurchase agreements, there must be a signed Master
Repurchase Agreement on file before the City will enter into any repurchase agreements with
the issuer.
VII.
Investment Parameters
A. Diversification:
The City will diversify its investment portfolio by security type and institution if it is
economically feasible, in addition to:
1. Limiting investment in securities that have higher credit risk;
2. Investing in securities with varying maturities; and
3. Continuously investing a portion of the portfolio in readily available funds or
money market funds, overnight repurchase agreements or the Kansas Municipal
Investment Pool to ensure appropriate liquidity to meet ongoing obligations.
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
Investment Policy
POLICY
CODE NO.
PS-39
EFFECTIVE
DATE
09/14/1998
REVISED
DATE
2/24/2014
PAGE
Page 7 of 8
B. Investments and Bidding
The City pools monies from all available funds for investing. A letter stating the City's
investment procedures, which may include a copy of the Investment Policy, will be sent
to all authorized financial institutions as identified in section IV. This will afford the
institutions an opportunity to bid on the City's investments.
The City will review a cash flow projection based on past transactions and estimated
future cash needs. This projection will be updated and reviewed on a monthly basis. The
City uses these projections to develop the timing for needed investments. No investment
will extend beyond two years in any strategy developed.
When the Finance Director identifies that there are idle funds available for investment, a
notice of bid opportunity will be delivered to the authorized financial institutions. As
required by statute, the Kansas State Treasurer provides weekly benchmark investment
rates that financial institutions must meet or exceed. If none of the financial institutions
agree to pay the benchmark rate for certificates of deposit, the City can obtain quotes on
other allowable investments. At least two quotes must be obtained, unless bought at the
U.S. Treasury average auction rate. The toss of a coin will decide if there is a tie.
The maturity of investments will be matched with the cash requirements as identified in
the cash flow projection.
The interest from investments will be credited on an average monthly ending cash balance
of all funds.
C. Internal Control
The Finance Director shall establish and maintain specific investment procedures and
internal controls, including an annual process of independent review by an external
auditor. This review will strengthen internal control by verifying compliance with policies
and procedures.
D. Benchmarking
The City’s investments will be tracked against the effective Fed Funds rate, unless market
conditions warrant consideration by the Governing Body of a different benchmark.
VIII.
Reporting
A. An investment status report will be included in the City's monthly financial report.
CITY OF SHAWNEE
POLICY STATEMENT
SUBJECT:
Investment Policy
POLICY
CODE NO.
PS-39
EFFECTIVE
DATE
09/14/1998
REVISED
DATE
2/24/2014
PAGE
Page 8 of 8
B. The Finance Director will provide a monthly accounting to the City Manager comparing
the past month performance with performance standards identified at the annual review of
the Investment Policy.
IX.
Approval and Review
The Governing Body has adopted this policy. The Finance Director will review the policy on
an annual basis and bring any proposed changes to the Governing Body for consideration.
APPROVAL AND REVISION DATES
September 14, 1998, June 23, 2003, October 25, 2010
February 24, 2014
OTHER REFERENCE
September 9, 1998 Finance and Administration Committee Minutes, Agenda Item #6
September 14, 1998 City Council Minutes, Agenda 18f
June 23, 2003 City Council Minutes, Agenda Item 19
October 5, 2010 Finance and Administration Committee Minutes, Agenda Item 1
October 25, 2010 City Council Minutes, Agenda Item 10
February 24, 2014, City Council Minutes, Agenda Item H3
Jeff Meyers, Mayor
Vicki Charlesworth, City Clerk