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City Of Seattle Statement Of Investment Policy

TABLE OF CONTENTS:

1. POLICY

It shall be the policy of the City of Seattle to manage investments to achieve these financial objectives: To preserve principal, while maintaining liquidity to meet the City's need for cash and maximizing income. Investment decisions should further the City's social policies established by ordinance or policy resolutions of the City Council. A City social policy shall take precedence over furthering the City's financial objectives when expressly authorized by City Council resolution, except where otherwise provided by law or trust principles. 

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2. SCOPE

This investment policy applies to all financial resources of the City of Seattle, other than funds of The Seattle City Employees Retirement System managed by its Executive Director or contractual investment managers; Deferred Compensation Plan funds managed externally; and such funds excluded by law, bond indenture or other Council-approved covenant.

These funds are accounted for by the City's Department of Executive Administration, Accounting Services Division, as represented in the City of Seattle Comprehensive Annual Financial Report and include:

General Fund
Special Revenue Funds
Debt Service Funds (unless prohibited by bond indentures)
Capital Project Funds
Enterprise Funds
Internal Service Funds Trust and Agency Funds
Any new Fund created, unless exempted by the City Council

Funds held by the Office of the State Treasurer, State of Washington and the King County Department of Finance during tax collection periods shall be governed by their respective investment policies, and are not subject to the provisions of this policy. 

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3. STANDARDS

Investments shall be made with judgment and care - under investment and economic 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. 

A.  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 under prevailing economic conditions at the moment of investment commitments. Investment officials, acting in accordance with written procedures and the 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.

B.   In determining whether an investment official has exercised prudence with respect to an investment decision, the determination shall be made taking into consideration the investment of all funds over which the official had responsibility rather than a consideration as to the prudence of a single investment and, whether the investment decision was consistent with the written investment policy of the entity.

Any person involved in the investment process shall refrain from personal business activities which could conflict with the proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Investment personnel shall disclose, during an annual examination by the City's Ethics and Election Commission (discussed in Section 6.K below), any material financial interest that could be related to the performance of the City's investment portfolio.

Bonding or insurance for all staff involved in the investment process shall be required, and such requirements shall apply to those individuals authorized to place orders to purchase or sell investment instruments. The City's Risk Manager shall establish specific levels of liability. 

Securities shall not be purchased with trading or speculation (such as anticipating an appreciation of capital value through immediate changes in market interest rates) as the dominant criterion for the selection of the security. However, as long as the original investments can be justified by their ordinary earning power, trading in response to changes in market value is a requisite of ongoing portfolio management.

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4. AUTHORIZED INVESTMENTS

As contemplated in Revised Code of Washington (RCW) 35.39.032, the Director of Executive Administration of the City of Seattle, under the supervision of the Mayor and consistent with policy direction given by the Director of Finance, is authorized on behalf of the City to invest all moneys in the City Treasury which in the judgment of the Director are in excess of current City needs in:

A.  Investment deposits with qualified public depositories as defined in RCW 39.58.

B.  Certificates, notes, bonds or bills of the United States, or other obligations of the United States or its agencies, or of any corporation wholly owned by the government of the United States.

C. Obligations of government-sponsored enterprises which are eligible as collateral for advances to member banks as determined by the Board of Governors of the Federal Reserve System. (These include, but are not limited to, Federal Home Loan Bank, Federal Home Loan Mtg. Corp., Federal Farm Credit Bank, Federal National Mortgage Association debt securities.)

D. Bankers' Acceptances purchased in the secondary market and having received the highest rating on the accepting bank’s short-term obligations and one of the two (2) highest ratings on long-term debt by at least two (2) nationally recognized statistical rating organizations. Bankers' Acceptances shall not have a maturity longer than 180 days from purchase.

E. Commercial Paper purchased in the secondary market and having received the highest rating by at least two (2) nationally recognized statistical rating organizations. Commercial Paper shall not have a maturity longer than 180 days from purchase, and shall adhere to the guidelines published in Attorney General of Washington Opinion 1993, No.8.

F.  General obligation bonds or warrants of this state or any other state, or general obligation or utility revenue bonds or warrants of the City or of any other city or town purchased in the secondary market and having received one (1) of the two (2) highest ratings (Aaa/Aa) by at least two (2) nationally recognized statistical rating organizations.

G. Repurchase Agreements and Reverse Repurchase Agreements structured with securities eligible for purchase (as defined in B through E above), provided that a Master Repurchase Agreement has been executed with the contra-party.

H. Public funds investment account known as the Local Government Investment Pool (LGIP) in the State Treasury.

I.  In other investments authorized by law.

The City may operate a securities lending program similar to that instituted by the Washington State Treasurer's Office and other municipal corporations in the State of Washington.

The Treasury Director may select one or more firms to provide securities lending management services. Securities lending services will include, but not be limited to: 

A. ensuring all loans of coupon-bearing securities be supported by cash collateral valued at not less than 102% of market value of the securities, including accrued interest;

B.  ensuring all loans of non coupon-bearing securities be supported by cash collateral valued at not less than 102% of market value of the securities, but not to exceed par;

C. ensuring that the investment of cash collateral be only in securities authorized in this policy, and that the restrictions on investments found in Sections 4 and 5 of this policy also apply to investments made by a securities lending agent;

D. ensuring that the collateral accepted in a bonds borrowed transaction conforms to the collateral requirements of this policy;

E. ensuring next day liquidity for all securities on loan, as required;

F. providing indemnification against borrower insolvency; and,

G. providing monthly accounting, performance, compliance, and management reports.

The services of a securities lending agent will be obtained through an evaluation of competitive proposals submitted in response to a regularly issued Request for Proposals (RFP).

Securities purchased by the agent are to be held by the master custodian, acting as an independent third party, in its safekeeping or trust department.

All securities transactions are to be conducted on a delivery-versus-payment (DVP) basis only.

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5. INVESTMENT OBJECTIVES

The preservation of principal shall be the paramount objective of the investment program of the City of Seattle. Investments shall be selected in a manner that will attempt to ensure the safety of the City's capital. This will be accomplished through a program of diversification and matu­rity limitations more fully discussed below. Proceeds from the issuance of tax-exempt debt securities shall be invested, recorded and reported in the manner set forth by the U.S. Treasury Department and the Internal Revenue Service so as to preserve the tax-exempt status of the debt securities.

Diversification will be accomplished by adhering to the following schedule:

Type of Securities Maximum Holding
U.S. Treasury Bills, Certificates, Notes and Bonds 100%  of portfolio
U.S. Government Agency Securities (1) 100% of portfolio
20% per agency
Certificates of Deposit (2) 25% of portfolio
10% per bank
Bankers' Acceptances (2) 25% of portfolio
10% per bank
Commercial Paper (2) (3) 25% of portfolio
5% per issuer
Municipal Bonds or Warrants  10% of portfolio
5% per issuer
Repurchase Agreements Term and Overnight Term only 50% of portfolio
25% of portfolio
75% of Capital (4)  per dealer
Reverse Repurchase Agreements (5) 20% of portfolio
75% of Capital (4)   per dealer
Mortgage Backed Securities (6) 25% of portfolio
Derivative-based Securities (7) 5% of portfolio
Local Governement Investment Pool  50% of portfolio

                     Footnotes:

(1) U.S. Government Agency Discount Notes and Medium Term Notes maturing less than one year from date of purchase are treated as money market instruments and shall not apply toward maximum Agency limitations.

(2) The limitation shall include liabilities of all types of investment instruments from any single issuing bank or financial institution. It shall also include securities issued separately by any subordinate bank or institution.

(3) Legal limit.

(4) Regulatory Capital as defined in Securities and Exchange Commission Rule 15C3-1 (uniform net capital rule).

(5)Reverse Repurchase Agreements shall not exceed 10% of the portfolio when used expressly for cash management purposes. When used to maximize return, the maturity shall not exceed ninety (90) days and the securities purchased with the proceeds of a Reverse Repurchase transaction shall closely approximate, but not exceed, the maturity of the Reverse Repo.

(6)U.S. Government Agency REMICs, CMOs and Pass-Thru securities shall not apply toward maximum Agency limitations.

(7)Limitation shall apply to all derivative-based securities, whether U.S. Government Agency or Mortgage Backed securities. Interest rates may fluctuate based on generally recognized reference rates or the relation­ship of rates, and shall specifically exclude such structures as “inverse floaters,” “interest only” and “principal only.”

The investment program will be administered in a manner that will ensure adequate cash flow to meet reasonably anticipated liquidity needs. Purchases shall attempt to match, but should not exceed, the anticipated need for the funds. To further ensure the satisfaction of these needs, securities purchased will have a maximum maturity no longer than fifteen (15) years, with the exception of investments for the Fire Pension Actuarial - Administration Fund which shall have a maximum maturity limit of the year 2018, and the average maturity of all securities owned should be no longer than five (5) years.

No transaction needs to be instituted when the maturity or call of a security causes the average life of the portfolio or maximum holdings per category to exceed their limits. Any transactions after such infraction shall work toward returning to compliance.

The investment portfolio shall be designed with the objective of attaining the best feasible rate of return, throughout budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow needs of the City.

The City’s selection of portfolio management is active as opposed to passive. Active management uses investment strategies designed to increase portfolio value by exceeding average rates of return normally achieved using passive management. The basis used by the Director of Investments to determine whether market returns are being achieved shall be a benchmark repre­sentative of the makeup of the investment portfolio, and will be subject to change as the structure of the portfolio changes.

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6. DELEGATION OF AUTHORITY

Seattle City Ordinance 110749, as amended, empowers the Director of Executive Administration with the investment responsibility for the City. There is created within the Department of Executive Administration, a Treasury Service Division, and an Investment Section. The Director of Investments is responsible for day-to-day investment decisions, activities and the development and maintenance of written administrative procedures for the operation of the investment program, consistent with these policies.

The Director of Investments shall report to the Director of Executive Administration at agreed-upon intervals, on investment activities. The Director of Finance and the Director of Executive Administration, along with the Director of Investments, shall meet monthly and discuss adherence to this policy, data on investments being held in the portfolio and the returns on the City's invest­ments during the preceding period. A copy of the report shall be provided to the Chair of the City Council's Finance and Budget Committee.

An Assistant to the Director of Investments will be trained to assist and provide relief for the Director of Investments in the day-to-day placement of investments.

The written administrative procedures will provide for:

A. Competitive bids and offerings of securities to be purchased or sold.

B. Formats for monthly, quarterly and annual reports to be provided to the Director of Executive Administration, the Director of Finance, the Mayor and the City Council.

C. Comparison of confirmations.

D. Establishment of benchmarks for performance measurement.

E. Pro-ration of investment income from pooled investments to participating Funds.

F. Compliance with generally accepted accounting principles of the Government Accounting Standards Board.

G. Review of investment activities by the Director of Executive Administration.

H. Review of investment activities by an exter­nal committee composed of professional in­vestment persons located in Seattle.

I. Establishment of a system of written internal controls, designed to detect fraud, error, misrepresentation or imprudent actions.

J. Review of investment operations by the City Auditor and by the State Examiner.

K. Annual review of investment practices in specific areas of interest to the City Elections and Ethics Commission.

L. A Desk Procedures Manual to include:
   
    1. Purpose
    2. Organizations Affected
    3. Legal Authority
    4. Policies
    5. Responsibilities (Job Descriptions)
    6. Processing Investment Transactions
    7. Eligible Security Dealers & Financial Institutions
    8. Securities Descriptions
    9. Glossary
    10. Bibliography & References
    11. Appendices (Forms and Software Listings)

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7. SECURITY DEALERS AND FINANCIAL INSTITUTIONS

The Director of Investments will maintain a list of security dealers and financial institutions authorized to provide investment services to the City of Seattle.

The security dealers and financial institutions may include "primary" dealers or regional dealers that qualify under Securities and Exchange Commission Rule 15C3-1 (uniform net capital rule) and Investment Departments of local banks, all of which have been subjected to the following evaluation: 

A. Financial condition, strength and capability to fulfill commitments.

B. Overall reputation with other dealers and investors.

C. Regulatory status of the dealer.

D. Background and expertise of the individual representative.

Individuals representing firms doing business with the City shall receive a copy of this policy, and shall certify that they have read it and understand the provisions therein. A copy of such certification, along with financial statements (both current and annual audited), shall be kept on file in the Investment Section.

The selection of the City's "concentration" bank (primary depository) will be made through a competitive process involving the use of Request for Proposals (RFPs), and shall be limited to those institutions qualifying under RCW 39.58 and having sufficient capital to support the activity of the City.

Banks having a deposit relationship with the City shall provide the Division with appropriate financial statements on a timely basis.

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8. PAYMENT AND SAFEKEEPING

All transactions will be accomplished with authorized security dealers and financial institutions on a delivery-versus-payment (DVP) basis. Securities will be held at the City's Safekeeping Agent, which shall be selected through a competitive process (RFP), or that agent's representative in New York City, or in its' account at the Federal Reserve Bank.

Collateral will be required on Repurchase Agreements, and shall be delivered to the City's Safekeeping Agent as described above, or through a Triparty arrangement in which the proper documents delineating the responsibilities of the parties have been executed. Any required margin (the amount by which the market value of the securities collateralizing the transaction exceeds the transaction value) will be determined at the time of the transaction, as specified in the Master Repurchase Agreement. Such collateral shall be revalued on a periodic basis, in transactions that are represented as Term Repurchase Agreements, in order to maintain market protection.

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9. POLICY ADOPTION AND REVISION

The City's Investment Policy shall be presented to the City Council Finance, Budget Committee for review annually, and such Committee shall acknowledge any significant revisions.

Any deviation from the above policy considerations must be confirmed by the Director of Executive Administration and Director of Finance.


Director of Investments: Rod Rich Rod.Rich@seattle.gov

Assistant to the Director of Investments: Kellie Craine Kellie.Craine@seattle.gov


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