NORTHEAST OHIO REGIONAL SEWER DISTRICT INVESTMENT POLICY December 2009 (Revision of September 2000 Investment Policy)
TABLE OF CONTENTS PREFACE... i I. INVESTMENT RESPONSIBILITIES A. Legal and District Requirements...1 1. Investment Authority 2. Investment Reporting 3. Authorized Investments 4. Collateral Requirements 5. Rate of Return 6. Delegation and Restriction of Investment Authority 7. Arbitrage 8. Sales of Securities B. District Investment Portfolio Structure...10 1. Pooled and Segregated Funds 2. Portfolio Stratification II. INVESTMENT OBJECTIVES A. Safety of Capital...11 B. Maintenance of Adequate Liquidity...11 C. Optimal Return on Investments...11 D. Prudence and Ethical Standards...12 III. INVESTMENT POLICIES A. Policies to Ensure Safety of Principal...12 1. Reducing Credit Risk a. Acceptable Investments b. Approved Brokers/Dealers/Financial Institutions c. Safekeeping of Investments d. Delivery versus Payment e. Collateralization f. Portfolio Diversification g. Master Repurchase Agreement 2. Limiting Interest Rate Risk B. Policies to Ensure Adequate Liquidity...16 1. Star Ohio Investments 2. Certificates of Deposit and Repurchase Agreements 3. Security Marketability C. Policies to Achieve Investment Return Objectives...17 1. Portfolio Management 2. Portfolio Maturity Management 3. Competitive Bidding D. Policies to Ensure Ethical and Prudent Action...18 1. Internal Controls 2. Prudent Investment Management 3. Standard of Ethics 4. Training and Education E. Depositories...18 IV. EXEMPTIONS AND AMENDMENTS TO THE POLICY A. Exemptions from the Policy...19 B. Amendments to the Policy...19 i
Northeast Ohio Regional Sewer District Investment Policy Preface December 2009 Purpose The Northeast Ohio Regional Sewer District, giving due regard to the safety and risk of various types of investments, shall invest the maximum available funds in conformance with the legal and administrative guidelines set forth in this policy statement. These policies are designed to ensure the prudent management of public funds, the availability of operating and capital funds when needed, and an investment return competitive with comparable funds and financial market indices. Effective cash management is recognized as essential to good fiscal management. An aggressive cash management and investment policy will be pursued to take advantage of investment interest as a significant supplement to the District s basic sources of revenue to meet operating and capital demands. This will serve to moderate the District s user charge rates and amounts of borrowed funds. The District s portfolio shall be designed and managed in a manner responsive to the public trust and consistent with state law. Scope This investment policy governs the overall administration and investment management of the Northeast Ohio Regional Sewer District through the following accounts: 1) Operating Account 2) Insurance Reserve Account 3) Equipment Replacement Reserve Account 4) Capital Account Any practice not clearly authorized under these policies is prohibited. Objectives Investments shall be made with the following primary objectives, in order of priority: Preservation of capital and protection of principal. The safeguarding of principal shall be the foremost objective of the investment program. Security of District funds and investments. All investments will be held with a custodian. Maintenance of sufficient liquidity. In an effort to ensure that the District s portfolio will be sufficiently liquid to meet current and anticipated operating requirements, a cash flow analysis will be performed on an ongoing basis. Investments shall be made so that the maturity date is compatible with cash flow needs. Reasonable diversification of investments to minimize risk. The portfolio shall be i
managed to avoid undue concentration of ownership in a single issue by a single issuer or type of securities or maturities. Maximization of return on the portfolio. Investments shall be undertaken to produce an acceptable rate of return after first considering safety of principal and liquidity and the prudent investor standard. Investment Strategy The portfolio will be divided into long and short term segments. It is the District's policy to earn a rate of return using a blended benchmark consisting of two indices: one-third (1/3) 91 day Merrill Lynch T-bill Index and two-thirds (2/3) Merrill Lynch 1-3 Year Government Index. The long term segment of the portfolio (1-5 years) will be actively managed and performance measured against the Merrill Lynch Government Index, 1-3 year. The short term segment (inside one year) of the portfolio will be measured against the 91- day Merrill Lynch T-bill Index. This policy statement is an update and revision of the Investment Policy adopted in September 2000 by the Board of Trustees. While some of the details have been changed for clarification and more efficient application, the policy still adheres to the prudent person concept and statutory requirements. PRUDENT INVESTOR STANDARD The prudent investor standard is a standard of conduct whereby any person authorized to make investment decisions on behalf of the District acts with care, skill, prudence and diligence under the circumstances then prevailing, including but not limited to, the general economic conditions and the anticipated needs of the District, that a prudent person acting in the capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and meet the liquidity needs of the District. docs\lph\inves1685 7/31/12 ii
NORTHEAST OHIO REGIONAL SEWER DISTRICT I. INVESTMENT RESPONSIBILITIES INVESTMENT POLICY JANUARY, 2009 A. Legal and District Requirements 1. Investment Authority a. State Law The Northeast Ohio Regional Sewer District was organized pursuant to Chapter 6119 of the Ohio Revised Code (O.R.C.) and has powers of self-government, including the power to invest its funds. That chapter also allows the District to set investment standards that differ from the investment requirements spelled out in Chapter 135 of the O.R.C. b. District By-Laws The authority to invest and deposit District funds is delegated to the Director of Finance under the District By-Laws. The Director of Finance shall have care and custody of all District funds and shall deposit or invest them as required by law. 2. Investment Reporting a. State Law There are no requirements for investment reporting in Chapter 6119 of the O.R.C. b. District By-Laws There is no specific requirement concerning investment reporting in the District By-Laws. It is implied by the requirement that the Director of Finance provide the Board of Trustees an account of transactions and also of the financial condition of the District. Monthly the Cash and Investment Administrator will submit a report of investment transactions to the Director of Finance that includes 3
investment date, cost, maturity, earnings and effective yield to maturity of each investment. The Director of Finance shall prepare an investment report at least quarterly to the Board of Trustees and the Finance Committee, including a management summary describing the current investment portfolio and transactions made over the last quarter. The report will include such items as a list of individual securities held at the end of the investment period by maturity date, average weighted yield to maturity of the portfolio as compared to selected benchmarks, and the percentage of the total portfolio which each type of investment represents. 3. Authorized Investments Ohio statutes authorize depositories and define allowable investment programs for governmental entities. This Investment Policy, which outlines investment practices and authorities, is compiled to provide guidance in addition to State legislation. a. State Law Sections 6119.151 and 6119.16 and, by reference, certain sections of Chapter 135 of the O.R.C. contain the primary investment regulations under State law. The statutes provide for investment of governmental funds and permit the following authorized investments, identified by security type: (1) U.S. Treasury Obligations. United States Treasury bills, notes, or any other obligation or security issued by the United States Treasury or any other obligation guaranteed as to principal and interest by the United States Treasury or any book entry, zero coupons United States treasury security that is a direct obligation of the United States. (2) Federal Agency Obligations. Bonds, notes, debentures, or other obligations or securities issued by any federal government agency or instrumentality, including but not limited to, the federal national mortgage associations (FNMA), federal home loan bank (FLHB), federal farm credit bank(ffcb), federal home loan mortgage corporation (FHLMC), government national mortgage association (GNMA), and student loan marketing association (SLMA). All federal agency securities shall be direct issuances of 4
federal government agencies or instrumentalities. (3) Bonds and other obligations of the state. (4) Foreign Notes. Debt interests rated at the time of purchase in the three highest categories by two nationally recognized standard rating services and issued by foreign nations diplomatically recognized by the United States government. All interest and principal shall be denominated and payable in United States funds. The investments shall not exceed in the aggregate one per cent (1%) of the total average portfolio, must be backed by the full faith and credit of that foreign nation, have no prior history of default, and the debt interest matures no later than five years after purchase. (5) Certificates of deposit issued by state and national banks or savings and loan associations located in the State of Ohio, collateralized and secured as described in part 4 below. (6) Corporate Notes. Up to fifteen per cent (15%) of the total average portfolio in notes issued by corporations that are incorporated under the laws of the United States and that are operating within the United States, or by depository institutions that are doing business under authority granted by the United States or any state and that are operating within the United States, the notes are rated in the second highest or higher category by at least two nationally recognized standard rating services at the time of purchase; and, the notes mature not later than two years after purchase. (7) Commercial paper notes issued by a corporation incorporated under the laws of the United States or any state, provided that such companies have assets exceeding $500 million dollars; eligible commercial paper shall also be rated in the highest classification (at the time of purchase) by at least two nationally recognized standard rating services. The aggregate value of the notes cannot exceed ten per cent (10%) of the aggregate value of the outstanding commercial paper of the issuing corporation. The notes will mature no later than one hundred eighty days (180 days) after purchase. (8) Bankers Acceptances issued of any bank insured by the Federal Deposit Insurance Corporation, whether a domestic 5
bank or a federally chartered domestic branch office of a foreign bank if the following requirements are met: 1. The maturity is no greater than one hundred eighty (180) days. 2. The securities are eligible for purchase by the Federal Reserve System. 3. The issuer is rated in the highest category by one of two nationally recognized rating agencies. 4. The amount invested in any single issuer will not exceed five percent (5%) of the District s total average portfolio on the date of purchase. Note: The District Director of Finance or his/her designee shall complete additional training required for making these types of investments. (9) No-load money market mutual funds, as defined in 135.14 (B)(5), rated in the highest category by at least one nationally recognized rating agency, investing exclusively in the same types of eligible securities as defined in Division B(1) or B(2) under 135.14 ORC, and repurchase agreements secured by such obligations. Eligible money market funds shall comply with 135.01 ORC, regarding limitations and restrictions. (10) Repurchase Agreements with any eligible institution mentioned in section 135.03 ORC, or any eligible securities dealer pursuant to division (M) of this section, except that such eligible securities dealers shall be restricted to primary government securities dealers. Repurchase agreements executed with eligible broker/dealer will settle on a delivery vs. payment basis with repurchase collateral held at a qualified custodian or agent, designated by the District. Eligible repurchase collateral is restricted to securities listed in division (B)(1) or (B)(2) under 135.14 ORC. Prior to the execution of any repurchase transaction, a master repurchase agreement will be signed by the District and the eligible parties. The agreement has a term to maturity of no greater than thirty (30) days. (11) State Pool. State of Ohio Local Agency Investment Pool (STAR Ohio), pursuant to section 135.45 ORC. 6
(12) The use of derivative securities, as defined in 135.14(C) is expressly prohibited. All eligible investments will mature within five years from the date of settlement, unless the investment is matched to a specific obligation or debt of the District and the investments is specifically approved by the Districts Director of Finance. For certificates of deposit the maximum length of maturity is one year. b. District Resolutions Sections 6119.151 and 6119.16 of the O.R.C. permit the kinds of investments the District can make to be restricted or expanded from those in Chapter 135 by the most current Board of Trustees resolution authorizing the sale of water resource revenue bonds. The District has availed itself of this provision and its eligible investments are defined in the most current bond resolution. 4. Collateral Requirements a. State Law To qualify as a Depository a bank or savings and loan must collateralize District deposits under Section 135.18 of the O.R.C. with any of the following types of securities: (1) Obligations of the United States or its agencies and instrumentalities for which the full faith and credit of the United States is pledged. (2) Other obligations, the principal of and interest on which are fully or partially guaranteed by the United States. (3) Direct obligations of the State of Ohio or its agencies. (4) Obligations of any taxing subdivision of the State of Ohio for which the full faith and credit of the issuing subdivision is pledged and which is not in default. (5) Bonds of other states which have not defaulted at any time within the preceding ten years. (6) Obligations guaranteed by the Ohio student loan commission. 7
b. District By-Laws and Resolutions 5. Rate of Return It is the District's policy to accept as collateral on bank deposits and certificates of deposits all securities outlined in Section 135.18 of the O.R.C., except as modified by the most current resolution authorizing the sale of water resource revenue bonds. At the discretion of the Director of Finance, any security may be refused as collateral if concerns exist regarding its collectibility or marketability. a. State Law Except with regard to interim funds placed with a Depository, State law imposes no specific requirement that the District invest to obtain the highest yield. Interim funds placed with a Depository must be awarded to the institution providing the highest return. b. District By-Laws District By-Laws do not contain a reference to required rates of return. It is the District's policy to earn a rate of return using a blended benchmark consisting of two indices: one-third (1/3) 91 -day Merrill Lynch T-bill Index and two-thirds (2/3) Merrill Lynch 1-3 Year Government Index. 6. Delegation and Restriction of Investment Authority Responsibility and authority for investment transactions resides with the Director of Finance, who is fully authorized to buy, sell, and trade investments in accordance with the goals and objectives of this policy. Finance personnel designated by the Director of Finance shall obtain quotes, consummate transactions, and monitor safekeeping arrangements and transactions; there shall be frequent reporting to and monitoring of these personnel by the Director of Finance. An investment advisor(s) shall be engaged at the District s discretion. 7. Arbitrage The Tax Reform Act of 1986 requires, generally, that any yield from investing post-1986 tax exempt bond proceeds and debt service funds that exceeds the bond yield be rebated to the U. S. Treasury. These arbitrage rebate provisions require that the District compute earnings on investments from each issue of bonds on an annual basis to determine if a rebate is 8
required. To determine its arbitrage position, the District is required to calculate the actual yield earned on the investment of the funds and compare it to the yield that would have been earned if the funds had been invested at a rate equal to the yield on the bonds sold by the District. The rebate provisions state that periodically (not less than once every five years, and not later than sixty days after maturity of the bonds), the District is required to pay the U.S. Treasury a rebate of any excess earnings. The District's investment position relative to the arbitrage restrictions is to pursue the maximum yield on applicable investments while ensuring the safety of capital and liquidity. Because the District shall have the use of any excess earnings until payment to the U.S. Treasury, it is a fiscally sound position to maximize yield and to rebate excess earnings, if necessary. The District will take all actions permitted by law to avoid the requirement of rebate compliance if the cost of such actions does not exceed that of rebate compliance. The District will also examine and pursue all measures legally available to minimize the adverse financial impact of the rebate requirements. 8. Sale of Securities No investments should be made unless they can be reasonably expected to be held till maturity. Securities may be redeemed or sold under the following conditions: 1) To provide needed liquidity 2) To restructure the portfolio to reduce risk 3) To increase the expected return of the portfolio. Such transactions may be referred to as a sale and purchase or a bond swap. For purposes of this section redeemed shall also mean called in the case of a callable security. In no instance shall a sale of securities be used for speculative purposes. Should a security held in the portfolio be downgraded below the minimum criteria included in this Investment Policy, the Director of Finance shall authorize the investment advisor to sell such security in such a manner to minimize losses on the sale of such security. If the security is downgraded to a level that is less than investment grade the Director of Finance shall authorize the investment advisor to sell such affected security immediately. If the security matures within 60 days of the rating change, the Director of Finance may choose not to sell the security. 9
B. District Investment Portfolio Structure 1. Pooled and Segregated Funds The District maintains a pool of investments comprised of commingled funds from legally unrestricted sources such as the Operating Account, Capital Projects Account, the Insurance Reserve, Equipment Replacement Reserve and similar accounts or reserves. Certain funds that must remain segregated are escrow accounts, such as those for contractors retainage, any Bond Project Account and the Trust and Agency Reserve. Proceeds from future issues of additional water resource revenue bonds or other borrowings shall be segregated for purposes of tracking arbitrage earnings, if any, required to be rebated. 2. Portfolio Stratification The portfolio shall be structured to diversify investments to reduce the risk of loss resulting from over concentration of assets in a specific maturity, a specific issuer or a specific type of investment. Depending upon the availability of investable funds and the foreseeable need for these funds, they shall be placed in one or more of the following investment vehicles with the maximum percentages of the total average portfolio permitted in each eligible investment are as follows: a. U. S. Treasury and Federal Agencies 100% maximum b. Certificates of Deposit Limited to 30% of investment portfolio c. Star Ohio and Money Market Mutual Funds 100% maximum d. Commercial Paper Limited to 10% of investment portfolio e. Corporate Notes Limited to 15% of investment portfolio f. Bankers Acceptances Limited to 5% for a single issuer 10
g. Repurchase Agreements Limited to 50% of investment portfolio h. Foreign Notes Limited to 1% maximum i. Checking Accounts and Cash on Hand These balances shall be kept to an absolute minimum, consistent with the District's policy of maximizing its return on available funds. Further means to increase the level of investable funds shall be developed within the constraints of fiscal prudence, statutory requirements and District policy. Portfolio percentage limitations for each category of investment are applicable only at the date of purchase. Should an investment percentage of portfolio limitations be exceeded due to an incident such as a fluctuation in portfolio size, the Director of Finance is not required to sell the affected securities. II. INVESTMENT OBJECTIVES A. Safety of Capital The Northeast Ohio Regional Sewer District has as its foremost objective to ensure the safety of principal, considering the portfolio as a whole. Specific policies describing the manner in which the District ensures safety of principal are presented in Section III.A, "Policies to Ensure Safety of Principal". B. Maintenance of Adequate Liquidity The District's investment portfolio must be structured in a manner which will provide the liquidity necessary to pay obligations as they become due. Specific policies by which the District ensures maintenance of adequate liquidity are described in Section III.B, "Policies to Ensure Adequate Liquidity". C. Optimal Return on Investments Consistent with State law and with the District's convenants and obligations under its bond indentures, the District shall seek to optimize return on investments within the constraints of safety and liquidity. The objective of the District shall be to exceed the average rate of return on the three-month U.S. Treasury bill or another appropriate performance measure, as determined by the Director of Finance. Progress on this objective will be reported to the Board of Trustees on a quarterly basis. Specific policies regarding investment rate of return are presented in Section III.C, "Policies to 11
Achieve Investment Return Objectives". D. Prudence and Ethical Standards The standard of prudence used by the District shall be the "prudent person" rule and shall be applied in the context of managing the overall portfolio. The prudent person rule is restated below for District policy purposes: In acquiring, investing, reinvesting, exchanging, retaining, selling and managing property for any trust heretofore or hereafter created, the Northeast Ohio Regional Sewer District and its employees will exercise the judgment and care under the circumstances then prevailing which persons of prudence, discretion and intelligence exercise in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety for their capital. Specific policies describing the District's prudence and ethical standards are found in Section III.D, "Policies to Ensure Ethical and Prudent Action." III. INVESTMENT POLICIES A. Policies to Ensure Safety of Principal Ensuring safety of principal is accomplished by limiting two types of risk: (1) credit risk and (2) interest rate risk. Credit risk is the risk of loss associated with the failure of a security issuer or backer. Interest rate risk is the risk that the value of the portfolio will decline due to an increase in the general level of interest rates. 1. Reducing Credit Risk a. Acceptable Investments The District may purchase only those investments approved as eligible investments by resolution or law. The Director of Finance, however, may prohibit purchase of specific instruments because of current market conditions. The District will not invest in a derivative instrument, which is any security, obligation, trust account, or other instrument that is created from an issue of the United States treasury or is created from an obligation of a federal agency or instrumentality or is created from both a Treasury instrument and an agency instrument. An eligible investment described above with a variable interest rate payment, based upon a single interest payment or single index comprised of other eligible investments provided above is not a 12
derivative, provided that such variable rate investment has a maximum maturity of two years. b. Approved Brokers/Dealers/Financial Institutions It is the policy of the District to purchase securities only from those institutions included on a District approved list of broker/dealers and banks. These may include primary dealers or regional dealers that qualify under SEC Rule 15c3-1 (uniform net capital rule). The Director of Finance shall make all decisions regarding where and how to invest District funds. The Director of Finance and Executive Director shall sign all investment-related agreements on behalf of the District. The District will limit certificates of deposit to those Ohio financial institutions which qualify as depositories under Chapter 135 of the O.R.C. c. Safekeeping of Investments 1) Security Safekeeping Agreement: The District shall contract with a bank or banks for the safekeeping of securities either owned by the District as part of its investment portfolio or held as collateral to secure repurchase agreements. The custodian must be a third party in any transaction and a trust or similar department which will not commingle District investments with the custodian s other investments. 2) Handling of District-Owned Securities and Certificates of Deposit Collateral: All securities owned by the District shall be held by its safekeeping agent, except the collateral for certificates of deposit of financial institutions. The collateral for certificates of deposit of financial institutions will be registered in the District's name at the Federal Reserve Bank or a third-party bank. 3) Handling of Repurchase Agreement Securities: All securities which serve as collateral for repurchase agreements with broker/dealers must be delivered to a custodian with whom the District has established a safekeeping agreement. 4) Security Transfers: Any authorization to release District securities must be in written form by the Director of Finance. 13
5) Verification of Security: Verification of collateral will be part of the District's annual independent audit. 6) Each eligible financial institution and securities dealer conducting investment business with the District must sign a copy of the investment policy acknowledging that: a. In the case of an eligible financial institution or securities dealer initiating transactions with the District, that it will abide by the policy; b. In the case of an eligible financial institution or securities dealer executing transactions initiated by the District, that it has received and comprehends the policy. d. Delivery versus Payment It is the policy of the District that all securities rendered for payment will be sent "delivery versus payment" (DVP) through the Federal Reserve System. By so doing, District funds are not released until the District s custodian has received the securities purchased through the Federal Reserve wire. e. Collateralization Consistent with the requirements of State law, it is the policy of the District to require full collateralization of all District investments other than obligations of the U.S. Government, its agencies and instrumentalities. The District considers repurchase agreements as simultaneous sales and purchases of securities rather than as collateralized loans. However, securities underlying repurchase agreements, if any, are referred to as "collateral" for the purposes of this policy statement. Certificates of deposit, plus accrued interest, up to $100,000 (currently set at $250,000) per institution do not need to be collateralized pursuant to this policy as long as FDIC insurance is provided. 1) Allowable Collateral: This policy specifies allowable securities for collateralization of certificates of deposit. The District will accept as collateral for certificates of deposit securities outlined in Section I.A.4.b. Collateral underlying repurchase agreements is limited to U.S. Treasury and agency obligations, which are eligible for wire transfer (i.e., book entry) to the District's depository through the Federal Reserve 14
System. 2) Collateral Levels: Collateral shall be valued at current market on the date of valuation. Certificates of Deposit are to be fully collateralized in excess of the FDIC insurance. Repurchase agreement collateral, which may include accrued interest, must be maintained at no less than 102% of the repurchase agreement investment if the collateral is U.S. Treasury and agency securities maturing within one year and 102% of the repurchase agreement investment if the collateral is U.S. Treasury and agency securities maturing from one to five years. 3) Monitoring Collateral Adequacy: a) Certificates of Deposit: The District requires at least month-end reports with market values of pledged securities from all financial institutions with which the District has deposits. Periodic confirmations of the collateral will be requested of its custodians. b) Repurchase Agreements: It is the District's policy to require daily monitoring by investment personnel of all collateral underlying repurchase agreements. 4) Collateral Calls: If the collateral pledged for a certificate of deposit falls below the amount of the deposit, plus accrued interest, less FDIC insurance, the institution will be notified and will be required to pledge additional securities within two business days. If the value of the securities underlying a repurchase agreement falls below the margin maintenance levels specified above, the District will request additional collateral unless the repurchase agreement is scheduled to mature within five business days or the amount is deemed to be immaterial. 5) Collateral Substitution: Collateralized investments occasionally require substitution of collateral. Any broker or financial institution requesting substitution must contact the Director of Finance for approval and settlement, unless such substitution has been provided for in their agreement with the District. The substituted collateral's value will be calculated and the substitution approved if its value is equal to or greater 15
than the original collateral. Substitution is allowable for all transactions but should be limited to minimize potential administrative problems. The Director of Finance may limit substitution and assess appropriate fees if substitution becomes excessive or abusive. f. Portfolio Diversification To protect the District s investment portfolio and fulfill the objectives of this policy, market risk shall be minimized by diversification of investment types. g. Master Repurchase Agreement It is the policy of the District to require each issuer of repurchase agreements to sign a Master Repurchase Agreement. An executed copy of this agreement must be on file before the District will enter into any repurchase agreements with an issuer. 2. Limiting Interest Rate Risk The longer the maturity of a financing instrument, the greater its price volatility. Since the District s policy is to hold an instrument to maturity, such volatility should not be a major factor. Of greater concern is the probability favorable credit trends will be missed. Therefore, it is the District's policy to limit any investment to a maximum of five years as specified by the Ohio Revised Code. The targeted weighted average maturity for the overall District portfolio is not more than two years. No investment of debt service deposits, excluding sinking funds, shall have a maturity exceeding the next principal and interest payment date, unless the payments are fully funded. If fully funded, investments can be made to the next unfunded payment date. B. Policies to Ensure Adequate Liquidity The policies set forth in this section will maintain the liquidity necessary to meet the District's demands for cash. 1. StarOhio Investments Except for monies in District checking accounts, deposits at StarOhio will serve as the primary source of funds from short-term, liquid District investments. Funds will be wire-transferred to a District bank account from StarOhio on a timely basis. 16
2. Certificates of Deposit and Repurchase Agreements Because no secondary market exists for certificates of deposit, the maximum maturity for certificates of deposit shall be 365 days, except for contractor escrow investments which can be for a maximum of one year if requested by the contractor. Terms for repurchase agreements are subject to the most current Board approved resolution authorizing the sale of water resource revenue bonds. 3. Security Marketability U.S. Government and agency obligations with active secondary markets will be purchased, where possible and desirable. Marketability requirements and the extent thereof shall be determined by the Director of Finance. C. Policies to Achieve Investment Return Objectives The policies set forth in this section will enable the District to achieve the yield objectives established for the portfolio. 1. Portfolio Management The District will not make investments for the purpose of trading or speculation. Investments will be made with the thought of endeavoring to hold until maturity. However, when the District s financial condition warrants the sale of an instrument a trade shall be executed. 2. Portfolio Maturity Management When structuring the maturity composition of the portfolio, current and expected interest rates and yields shall be evaluated. 3. Competitive Bidding The District will require competitive offers for all investment purchases other than StarOhio and Treasury Direct purchases. At least three offers, if possible, must be contacted for all types of investments. All offers received will be documented and filed for auditing purposes. In the case of tie offers, the Director of Finance will authorize the investment advisor to give the highest consideration to local institutions. 17
D. Policies to Ensure Ethical and Prudent Action 1. Internal Controls An aggressive system of internal controls will be maintained over the investment activities of the District and all transactions will be documented in writing. The Director of Finance may designate staff members in Finance to be responsible for executing individual transactions. 2. Prudent Investment Management It is the District's policy that investment personnel perform their duties in accordance with the policies and procedures set forth in this manual. Investment personnel acting in good faith and in accordance with State statutes and these policies and procedures shall be relieved of personal liability. 3. Standards of Ethics Due to the position of trust associated with the investment function, all personnel involved in investment transactions shall be expected to follow significantly higher than normal ethical standards in the performance of their duties. Only persons whose integrity is not questionable will be permitted to make investment decisions. All employees are prohibited from directly or indirectly benefiting from any District investment transaction or relationship. 4. Training and Education E. Depositories It is the District's policy to provide periodic training in investments for all investment personnel through courses and seminars offered by the Governmental Finance Officers Association, other appropriate professional organizations and, when available, the Ohio Auditor of State and/or Treasurer of State. If necessary, due to concentration of efforts in this field, the District shall provide to investment personnel the necessary training to receive appropriate professional certifications. The District will, through a request for proposals process, designate one or more banks as its primary depository (ies) for active deposits. This centralization is designed to maximize investment capabilities and minimize banking cost. The depository designation does not limit investment activity to one financial institution 18
and as many shall be utilized as will most benefit the District. Considerations the District will use to select the bank will include: 1. Full service capabilities 2. Regulatory net worth equal to more than twice the District's average daily funds for the last fiscal year 3. Submission of financial statements and availability schedules 4. Collateralization of the total District funds on deposit in the bank 5. Qualification on financial status according to standards set by the District 6. Staff experience Obtaining competitive proposals on the District's depository specifications will be the responsibility of the Director of Finance. Selection of the depository(ies) shall be based on the institutions offering the most favorable terms and conditions for the handling of District active and interim funds and services available to the District. Depository contracts are required by State law to be renewed every five years beginning in 2001. IV. EXEMPTIONS FROM AND AMENDMENTS TO THE POLICY A. Exemptions from the Policy Any investment currently held that does not meet the policy guidelines are exempted from the policy. At maturity or liquidation, however, such moneys shall be reinvested in accordance with the policy. B. Amendments to the Policy The policy shall be reviewed on an annual basis by the Director of Finance and Cash and Investment Administrator to determine if amendments to the policy are required either due to further amendments to the Uniform Depository Act, the Ohio Revised Code or due to furthering the best interests of the District in connection with managing its investment portfolio. 19