CITY OF GREENFIELD

Purpose

The purpose of this document is to specify the policies and guidelines that provide for the prudent and productive investment of funds.

The City of Greenfield authorizes the Treasurer to act as the custodian and investment officer of City funds and to invest the following funds in accordance with this policy, the provisions of Massachusetts General Laws ("MGL") Chapter 44, Sections 54, 55 and other applicable state statutes.

· General Fund

· Enterprise Funds

· Capital Projects Fund

· Debt Service Funds

· Special Revenue Funds

· Stabilization Funds

· Trust Funds

· State and Federal Grants Fund*

Any other funds deemed to be public funds for the City of Greenfield

* The investment procedures of grant funds are subject to grant or contractual terms.

I. The Investment of General Funds, Special Revenue Funds, Enterprise Funds, and
Capital Projects Funds

A. Scope

This section of the policy applies only to short term operating funds such as general funds, special revenue funds, enterprise funds, bond proceeds and capital project funds. Section two will deal with trust funds, and any other funds with special circumstances such as stabilization funds.

B. Objectives

Massachusetts General Laws, Chapter 44, section 55B requires the municipal/district treasurer to invest all public funds except those required to be kept un-invested for purposes of immediate distribution. Modern banking systems enable the public treasurer to maintain even these funds in interest bearing form until the date a disbursement order clears through the banking system.

The state law further requires that invested funds are to be placed at the highest possible rate of interest reasonably available, taking account of safety, liquidity and yield. Therefore, these guidelines are intended to further the objective of securing the highest return that is consistent with safety of principal while meeting the daily cash requirements for the operation of the entity's business.

Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital through the mitigation of credit risk and interest rate risk. These risks shall be mitigated by the diversification and prudent selection of investment instruments, and choice of depository. Credit risk is the risk of loss due to the failure of the security issuer or backer. Interest rate risk is the risk that the market value of the security will fall due to changes in general interest rates.

Liquidity is the next most important objective. The overall investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. Since all possible cash demands cannot be anticipated, the treasurer shall carry out investment activities in a manner that provides for meeting unusual cash demands without the liquidation of investments that could result in forfeiture of accrued interest earnings, and loss of principal in some cases.

Yield is the third, and last, objective. Investments shall be undertaken so as to achieve a fair market average rate of return, taking into account safety and liquidity constraints as well as all legal requirements.

C. Investment Instruments

Note: Public investments in Massachusetts are not protected through provisions in State law. Therefore, they are largely uncollateralized. Many banking institutions are willing to put up collateral, albeit at a cost to the entity of a lower interest rate. The Treasurer negotiates for the highest rates possible, consistent with safety principles.

The Treasurer may invest in the following instruments:

· Massachusetts State pooled fund: Unlimited amounts (Pool is liquid)

· The Massachusetts Municipal Depository Trust (MMDT), an investment pool for state, local, county and other independent governmental authorities, is under the auspices of the State Treasurer and currently managed by Fidelity Investments. It invests in Bankers Acceptances, Commercial Paper of high quality, Bank Certificates of Deposit, Repurchase agreements (Repos), and U. S. Treasury Obligations. It has Federal Deposit Insurance Corporation (F.D.I.C.) pass-through insurance on the C.D.'s and takes delivery on the Repos and Treasuries. Under Government Accounting Standards Board Regulation (GASB III), it is not considered an uncollateralized product.

· U. S. Treasuries that will be held to maturity: Unlimited amounts (Up to one year maturity from date of purchase)

· U.S. Agency obligations that will be held to maturity. Unlimited amounts (Up to one year maturity from date of purchase)

· Bank accounts or Certificates of Deposit, hitherto termed C.D.'s. (Up to one year) which are fully collateralized through a third party agreement.

· Bank accounts and C.D.'s (Up to one year) insured by F.D.I.C. up to $250,000 limit. All bank accounts and C.D.'s in one institution are considered in the aggregate to receive the insurance coverage. In some cases Banking Institutions carry additional insurance, Depository Insurance Fund of Massachusetts (D.I.F.M): Contact banking representative for amounts of coverage.

Unsecured bank deposits of any kind such as other checking, savings, money market, or Certificates of Deposit accounts at Banks that do not fit the above categories. These investments are subject to the following limitations: These investments will be limited to no more than 5% of an institution's assets and no more than 10% of a municipality's cash. Their credit worthiness will be tracked by Veribanc, Sheshunoff, or other bank credit worthiness reporting systems. They will be diversified as much as possible. C.D.'s will be purchased for no more than three months and will be reviewed frequently.

Money Market Mutual Funds that are registered with the Securities and Exchange Commission that have received the highest possible rating from at least one nationally recognized statistical rating organization and as otherwise referenced in the Massachusetts General Law Chapter 44 Section 55.

D. Diversification

Diversification should be interpreted in two ways: in terms of maturity as well as instrument type and issuer. The diversification concept should include prohibition against over concentration of maturities as well as concentration in a specific institution. With the exception of U.S. Treasury obligations or investments fully collateralized by U.S. Treasuries or agencies, and State pools (MMDT), no more than 10% of the City's investments shall be invested in a single financial institution.

E. Authorization

The Treasurer has authority to invest municipality funds, subject to the statutes of the Commonwealth Massachusetts General Law Chapter 44 Section 55,55A, & 55B.

E1. Authorized Financial Dealers and Institutions

Financial institutions should be selected first and foremost with regard to safety. The Treasurer’s office shall subscribe to and use one or more of the recognized bank rating services, such as Veribanc or Sheshunoff. Brokers should be recognized, reputable dealers.

When using the Veribanc rating service the Treasurer may invest in such banks that show a green rating in a particular quarter. If a rating is yellow the Treasurer should contact the appropriate banking institution and request in writing an explanation of the change in rating and the expected time table for it to be changed to green.

If for a second quarter such rating has not been corrected, the Treasurer should consider removing all funds that are not collateralized, or carries some form of depositors insurance.

If a rating moves to red all money should be immediately collateralized or covered by some form of depositors insurance or be removed from the banking institution.

Any brokerage houses and broker/dealers, wishing to do business with the municipality, are to supply the following information to the Treasurer upon request:

Audited financial statements

• Proof of National Association of Security Dealers certification
• A statement that the dealer has read the municipality's investment policy and will comply with it
• Proof of credit worthiness (minimum standards: at least five years in operation and a minimum capital of 10 million dollars)

• An annual review of the financial condition and registration of qualified financial institutions and broker/dealers will be conducted by the investment officer.

F. Restrictions

Chapter 44, Section 55 set forth the several restrictions that the Treasurer must be aware of when making investment selections.

A Treasurer shall not at any one time have on deposit in a bank or trust company an amount exceeding 60% of the capital and surplus of such bank or trust company, or banking company, unless satisfactory security is given to it by such bank or trust company, or banking company for such excess.

The treasurer shall not make a deposit in any bank, trust company or banking company that he/she is associated as an officer or employee or has been the same for any time during the three years immediately preceding the date of any such deposit.

All securities shall have a maturity from date of purchase of one year or less.

Purchases under an agreement with a trust company, national bank or banking company to repurchase at not less than original purchase price of said securities on a fixed date shall not exceed ninety days.

G. References

Massachusetts General Law Chapter 44, Section 55

Massachusetts General Law Chapter 44, Section 55A

Massachusetts General Law Chapter 44; Section 55B

II. The Investment of Trust Funds, Stabilization Funds and
Community Preservation Act.

This section of the policy applies only to funds that could be invested long term, i.e. trust funds, stabilization funds, community preservation funds.

A. Scope

This policy applies to all accounts that are designated as Trust Funds, Stabilization Funds, Community Preservation Funds. These funds include all accounts that are received as scholarships and perpetual care receipts.

All accounts will be maintained separately receiving their proportionate interest and any realized and unrealized gains or losses. Trust Funds may be co-mingled and invested in any instruments allowed by the Commonwealth of Massachusetts list of Legal Investments Legal issued by the Banking Commissioner each July. Each trust fund must be accounted for separately. Chapter 44 Section 54 sets forth that Treasurers may invest in instruments that are legal for savings banks. This list of investments is included in the Commonwealth of Massachusetts List of Legal Investments, Chapter 167 Section 15A.

B. Authority

Massachusetts General Law Chapter 44, section 54 pertains to the investment of Trust Funds. All trust funds shall fall under the control of the City Treasurer unless otherwise provided or directed by the donor.

C. Objective

Massachusetts General Laws, Chapter 44, section 55B requires the City Treasurer to invest all public funds except those required to be kept un-invested for purposes of immediate distribution.

This section also requires that invested funds are to be placed at the highest possible rate of interest reasonably available, taking account of safety, liquidity and yield. Therefore, these guidelines are intended to further the objective of securing the highest return that is consistent with safety of principal while meeting the daily cash requirements for the operation of the entity's business.

Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital through the mitigation of credit risk and interest rate risk. These risks shall be mitigated by the diversification and prudent selection of investment instruments, and choice of depository. Credit risk is the risk of loss due to the failure of the security issuer or backer. Interest rate risk is the risk that the market value of the security will fall due to changes in general interest rates.

Liquidity is the next most important objective. The overall investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. Since all possible cash demands cannot be anticipated, the treasurer shall carry out investment activities in a manner that provides for meeting unusual cash demands without the liquidation of investments that could result in forfeiture of accrued interest earnings, and loss of principal in some cases.

Yield is the third, and last, objective. Investments shall be undertaken so as to achieve a fair market average rate of return, taking into account safety and liquidity constraints as well as all legal requirements.

D. Investment Instruments

M.G.L. Chapter 44 section 54 states that money should be deposited into savings bank, trust companies incorporated under the laws of the commonwealth, banking companies incorporated under the laws of the commonwealth which are members of the Federal Deposit Insurance Corporation, or national banks, or invested in participation units in a combined investment fund under section thirty-eight A of chapter twenty-nine, or in a paid–up shares and accounts of and in co-operative banks, or in shares of savings and loan associations or in share or savings deposits of federal savings and loan associations doing business in the commonwealth.

Additionally the City of Greenfield may invest such funds in securities, other than mortgages or collateral loans, which are legal for the investment of funds of savings banks under the laws of the commonwealth; provided, that not more than fifteen percent of any such trust funds shall be invested in bank stocks and insurance company stocks, nor shall more than one and one-half percent of such funds be invested in the stock of any one bank or insurance company. Refer to the Commonwealth of Massachusetts List of Legal Investments.

The Treasurer may invest in the following instruments:

• U. S. Treasuries that maybe sold prior to maturity: Unlimited amounts (With no limit to the length of maturity from date of purchase)
• U.S. Agency obligations that maybe sold prior to maturity. Unlimited amounts (With no limit to the length of maturity from date of purchase)
• Bank accounts or Certificates of Deposit, hitherto termed C.D.'s. Unlimited amounts (With no limit to the length of maturity from date of purchase), which is fully collateralized through a third party agreement.
• Bank accounts and C.D.'s (With no limit to the length of maturity from date of purchase), fully insured by F.D.I.C. and in some cases also Depository Insurance Fund of Massachusetts (D.I.F.M): $250,000 limit. All bank accounts and C.D.’s in one institution are considered in the aggregate to receive the insurance coverage.

Unsecured bank deposits of any kind such as other checking, savings, money market, or Certificates of Deposit accounts at Banks that do not fit the above categories. These investments are subject to the following limitations: These investments will be limited to no more than 5% of an institution's assets and no more than 10% of a municipality's cash. Their credit worthiness will be tracked by Veribanc, Sheshunoff, or other bank credit worthiness reporting systems. They will be diversified as much as possible.

• Common and preferred stock that are listed in the List of Legal Investments.
• Investment Funds that are listed in the List of Legal Investments.
• All other items not separately identified here that are listed in the List of Legal Investments.

E. Legal References

Massachusetts General Law Chapter 44, Section 54

Massachusetts General Law Chapter 44, Section 55A

Massachusetts General Law Chapter 44, Section 55B

III. Reporting Requirements

On an annual basis a report containing the following information will be prepared by the Treasurer and made available for review:

· A report of the account types (i.e. general fund, trust funds, stabilization) including fund balances, investment return information and summary of income received as of the end of the reporting period.

· The municipal treasurer shall include in the report a brief statement of general market and economic conditions and other factors that may affect the City's cash position.

· The report should demonstrate the degree of compliance with the tenets set forth in the Investment Policy.

IV. Internal Controls

The investment officer is responsible for establishing and maintaining an internal control system designed to ensure that the assets of the City are protected from loss due to employee error, fraud, and misrepresentation by third parties or imprudent actions by employees and officers. The internal control structure shall be designed to provide reasonable assurance that these objectives are met.

Accordingly, the investment officer shall establish a process for an annual independent review by an external auditor to assure compliance with policies and procedures. The internal controls shall address the following points:

· Control of collusion

· Separation of transaction authority from accounting and recordkeeping

· Custodial safekeeping of all funds received.

· Avoidance of physical delivery securities

· Clear delegation of authority to subordinate staff members

· Written confirmation of transactions for investments and wire transfers

· Development of a wire transfer agreement with the lead bank and third-party custodian

A. Delegation of Authority

Management responsibility for the investment program is hereby delegated to the Treasurer, who shall establish written procedures for the operation of the investment program consistent with this investment policy. Procedures should include references to custody, repurchase, wire transfer, and bank security agreements, and banking service contracts. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Treasurer. The Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.

V. Ethics

The Treasurer and Assistant Treasurer shall refrain from personal business activity that could conflict with proper execution of the investment policy, or which could impair their ability to make impartial investment decisions. The Treasurer shall disclose in writing to the Mayor any material financial interests in financial institutions with whom they conduct business. They shall further disclose any large personal financial/investment positions that could be related to the performance of the investment portfolio, particularly with regard to the time of purchase and sales.

Standards of Care

The standard of prudence to be used by the Treasurer shall be the “Prudent Person” standard and shall be applied in the context of managing an overall portfolio. The Treasurer 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 the purchases and sale of securities is carried out in accordance with the terms of this policy.

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.

In addition this section would also apply to M.G.L. Chapter 44 Section 55A which refers to the liability of the Treasurer for losses due to bankruptcy.

Posted: Tue, Apr 10, 2018 03:11 PM
Updated Tue, Apr 10, 2018 12:00 AM