Investment Policy Examples - Florida Government Finance Officers

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					Investment Overview:
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
Presentation Outline
   I.     Introductions                 FGFOA Moderator

   II.    Overview – Typical Florida    Jeff Larson
          Investment Policy – Small
          to Medium Sized Governments

   III.   Overview – Best Practices     Jeff Larson
          of Public Funds Investments

   IV..   Investment Approach:          Linda Senne
          City of Venice

   V.     Investment Approach           Jeff Yates
          City of Dunedin

   VI.    Panel Recommendations         Panel

   VII.   Appendix Material
II. “Typical” Florida Investment Policy

II. Investment Policy Samples

   Get samples from other organizations
       Colleagues
       Internet
       FGFOA web site
       GFOA sample investment policy
II: Policy Model
   Florida Government Finance Officers Association
       (407) 835-3471
       View Resources for Sample Documents

   Government Finance Officers Association
       (312) 977-9700
       Search for “Sample Investment Policy”

   Updated Comparable Florida Models:
        -- City of Dunedin   -- City of Venice
        -- Clay County       -- City of Treasure Island
        -- UCF               -- Osceola County Schools
        -- City of Tamarac   -- FGFOA Website, Your Local Chapter

II: Investment Policy Roadmap

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

II: Scope of Policy

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

II. Objectives
    Safety of principal
        Security type
        Limit risk exposure
    Liquidity
        Portfolio Structure
        Transparency
    Transparency – more important than yield
    Yield
        Market influenced
        Watch credit risk
II. Standards of Care
   Prudent investor rule
       “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.”

   Ethics policy
   Conflicts of interest
   Delegation of authority
Investment Instruments
   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
II: Investment Instruments
   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

II. Internal Control
   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
II: Reporting Requirements/Considerations

    Quarterly (?)
        City/County Manager, Superintendent, President or
        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?

III. “Best Practices” - Basic Rules of
     Public Funds Investments


III. Basic Rules of Public Funds

   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

III. Basic Rules of Public Funds

   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…?

III: Suitability
Key Issues and Recommendations Include:
   Everyone is different, there is no “copy-cat plan”...
   Understand what you, your boss, and elected officials
   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!

III: Diversification
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

III: Qualified Public Depository and
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”

III: Cash Flow Analysis

   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

   STABLE NAV                                                 VARIABLE NAV
       Goal is to maintain                                         Designed to fluctuate to
         $1 in/$1out                                                    increase yield
       Highest S&P rating is                                       Highest S&P rating is “AAAf”
           “AAAm”                                                   Highest S&P volatility rating is
       Short-term                                                      “S1+”
       WAM for LGIP is < 60 days                                   Medium to Long-term
       WAM for MMF is < 90 days                                    WAM is Bond Fund < 90 days
       SBA-A shares                                                FMIvT
       FLSAFE                                                      FLGIT
       Day-to-Day Fund                                             SPIA
       MMF’s                                                       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.
III: Stable NAV Options in Florida
                                                                                        SBA                     FAC & FACC                    Rule 2a-7
                                                            FLSAFE                    A Shares                Day-to-Day Fund            Money Market Funds

                       Fund Type                             LGIP                       LGIP                         LGIP                       2a-7 Fund

                  Finance Officer
                                                              Yes                         No                           No                             No
                  Directed Board
                 $1.00 Per Share
                                                              Yes                        Yes                          Yes                            Yes
                Stable Value Fund
               Market Value Pricing                        Weekly                     Weekly                           n/a                         varies

                          Rated                               Yes                        Yes                          Yes                          varies
                    12b-1 fees                                No                          No                           No                          varies
            Daily interest allocation                         Yes                         No                           n/a                          Yes
             Transaction Enabled
                                                              Yes                        Yes                          Yes                          varies
              Account Minimums                                 $0                         $0                       $10,000                         varies

                                                           1) Safety
                                                                                      1) Safety                  1) Liquidity
                      Investment                          2) Liquidity                                                                        follow s rule 2a-7
                                                                                     2) Liquidity           2) Stable share price
                       Objectives                      3) Transparency                                                                          requirements
                                                                                       3) Yield                    3) Yield
                                                            4) Yield

                                                                                 w w w
                         Website                       w w w
                                                                                                             w w w                   varies

                      Telephone                        (855)202-9650              (850) 488-7311              (850) 921-0808                       varies

                                          Prepared by: Larson Consulting Services, LLC, Orlando, Florida

 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.
 III: Variable NAV Options in Florida
                                                           Florida League of Cities          Florida League of Cities                FAC & FACC                       SPIA
                                                                0-2 High Quality                  1-3 High Quality                   FLGIT Fund                (State Treasurer)
                                                                                                                                                               Special Purpose
                              Fund Type                             Bond Fund                         Bond Fund                       Bond Fund
                         Finance Officer
                                                                         No                                No                               No                          No
                         Directed Board
                        $1.00 Per Share
                                                                         No                                No                               No                          No
                       Stable Value Fund
                      Market Value Pricing                          Bi-Monthly                        Bi-Monthly                        Monthly                  Monthly
                                  Rated                                 Yes                               Yes                              Yes
                                                                                                                                                               S&P unpublished
                            12b-1 fees                                   No                                No                               No                      No
                    Daily interest allocation                            No                                No                               No                      No
                     Transaction Enabled
                                                                         No                                No                               No                         Yes
                      Account Minimums                                $50,000                          $50,000                          $10,000                         $0

                                                                               1) Preserve Capital
                                                                                                                                        1) Safety              1) Realize maximum
                              Investment                     2) Total ROR Exceed T-Bill by 1%/Yr over 3 yr period
                                                                                                                                       2) Liquidity              earnings per F.S
                               Objectives                    3a) 0-2: Exceed ML 1Yr T-Note Index over 3 yr period
                                                                                                                                         3) Yield                    17.57(1)
                                                                     3b) 1-3: Exceed ML 1-3Yr Govt. Index

                                                                                                                                  w w w        w w w
                                Website                           w w w                  w w w
                                                                                                                                          flgit/                   fs_01.html
                              Telephone                          1.800.342.8112                    1.800.342.8112                  (850) 921-0808               (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.
   III: Operating funds can be allocated into different tiers
          •Core Funds                                                 • Each tier is distinct and
             Enhanced Cash Tier                                        can be benchmarked
             Short-Term Tier
$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

                                          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.
III: Investment Tools and Options –
              Portfolio Allocations By Time Horizon
                                                                                                      Short -Term Cash

                                                                Enhanced Cash

                                                                                                    Asset Backed Securities
                              Liquid Cash                                                           Mortgage Backed Securities
                                                             Corporate Notes
                                                                                                    Corporate Notes
      Return (%)

                                                             Taxable Municipals
                          Commercial Paper                                                          Taxable Municipals

                          Bankers Acceptances                Certificate of Deposits
                                                                                                    Certificates of Deposit
                          Certificate of Deposits            Repos (Collateralized)
                                                                                                    U.S. Gov. Agencies
                          LGIP’s and MMF’s                   U.S. Gov Agencies
                                                                                                    U.S. Treasuries
                          Repos (Collateralized)             U.S. Treasuries
                          U.S. Gov Agencies
                          U.S. Treasuries

                   More                                               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.
IV. City of Venice Investment Approach

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

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

    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
    City of Venice Finances
   Finance Director reports to City Manager
     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
City of Venice’s Approach

   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
   Working with PMA to Ladder our investments,
    Produce a Consolidated Report, Reduce
    Safekeeping Costs
City of Venice’s Approach

   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
City of Venice’s Approach
           Cash & Investments
              $55.6 Million



                                      Government Agencies
                                      FLSAFE - LGIP
                                      Bank Deposits
                                      SBA - LGIP

IV. Treasure Island’s Enhanced Approach

    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.
 IV. City of Treasure Island


            (1) Source – City of Treasure Island, Finance Department
City of Venice’s Focus

   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
V. City of Dunedin Investment Approach

   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
City of Dunedin Demographics
   Established in June 1899
   10 Square Miles
   Median Age 51.3 yrs
    City of Dunedin Finances

   Finance Director reports to City Manager
     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
City of Dunedin’s Approach

   Get CAFR’S up to Date
   Separate Operations and CIP
   Establish Reliable Cash Flows for Both
   Update Internal Tracking of Projects
City of Dunedin’s Focus

   Initially Majority of Funds at Local Bank, not
    earning a yield, above maximum % per old
    Investment Policy
   Investment Policy Updated with Consultant’s
   Diversification Phase I
   Cash Flow Analysis via PMA FL SAFE
   Diversification and Laddering Phase II –
    Competitive Bidding of QPD Bank CDs
City of Dunedin Summary
                       Portfolio Breakdown
                       As of March 31, 2012

                                              Bank Deposits
         Money                                (BOA) (Limit
                                              (Limit 50%)
      Markets (Limit                              50%)
          25%)                                   21.95%

                                              Pools (Limit
City of Dunedin Summary
                            Revised Portfolio Breakdown
                            Revised Portfolio Breakdown
                              Based on April 31, 2012
                             Based on March19, 2012

          Certificates of
             Deposit (1)                                  Bank Deposits
           (Limit 40%)                                    (BOA) (Limit
                                                          (Limit 50%)
             44.64%                                           50%)

            Money                                          Investment
            Markets                                       Pools (Limit
          (Limit 25%)                                         50%)
             7.52%                                           31.89%

  (1) Prebond proceeds/bank placement reimbursement of Interfund loans
VI: Recommendations

    Markets are Constantly Changing

    Everyone is Different, There is no Copy Cat Plan

    Understand What You, Your Boss, and Elected Officials

    DO NOT Invest In Anything That You Can Not Explain

    This is Not Your Money-Be A Fiduciary

VI: Recommendations

   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

VI: Recommendations

   Safety, Liquidity, Transparency, and Yield – Stay the
   Interest Rate Projections – Be realistic with your
   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


   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
 Jeffrey T. Larson                                                    Tel: 407.496.1597 |

       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.
                                                                           Tel: 941-486-2626
Linda Senne, CPA, CGFM                                          Email:
Chief Accountant
City of Venice

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.
Jeff Yates, MPA                                                  Tel: 727-298-3066
Finance Director                                       Email:
City of Dunedin

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
Other QPD Documents

   Sample Letter

   Identification and acknowledgement form
Schedule at a Glance
   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

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