CBF(LOCAL) - REVENUE SOURCES: INVESTMENTS
The Executive Director or other person designated by Board resolution shall serve as the investment officer of the ESC and shall invest ESC funds as directed by the Board and in accordance with the ESC's written investment policy and generally accepted accounting procedures. All investment transactions except investment pool funds and mutual funds shall be executed on a delivery versus payment basis.
Approved Investment Instruments
From those investments authorized by law and described further in CBF(LEGAL), the Board shall permit investment of ESC funds in only the following investment types, consistent with the strategies and maturities defined in this policy:
- Obligations of, or guaranteed by, governmental entities as permitted by Government Code 2256.009.
- Certificates of deposit and share certificates as permitted by Government Code 2256.010.
- Fully collateralized repurchase agreements permitted by Government Code 2256.011.
- A securities lending program as permitted by Government Code 2256.0115.
- Banker's acceptances as permitted by Government Code 2256.012.
- Commercial paper as permitted by Government Code 2256.013.
- No-load money market mutual funds and no-load mutual funds as permitted by Government Code 2256.014.
- A guaranteed investment contract as an investment vehicle for bond proceeds, provided it meets the criteria and eligibility requirements established by Government Code 2256.015.
- Public funds investment pools as permitted by Government Code 2256.016–.019.
The main goals of the investment program are to ensure its safety and to maximize financial returns within current market conditions in accordance with this policy. Investments shall be made in a manner that ensures the preservation of capital in the overall portfolio and offsets, during a 12-month period, any market price losses resulting from interest rate fluctuations by income received from the balance of the portfolio. No individual investment transaction shall be undertaken that jeopardizes the total capital position of the overall portfolio.
In accordance with Government Code 2256.005(b)(3), the quality and capability of investment management for ESC funds shall be in accordance with the standard of care, investment training, and other requirements set forth in Government Code Chapter 2256.
Liquidity and Maturity
Any internally created pool fund group of the ESC shall have a maximum dollar weighted maturity of 180 days. The maximum allowable stated maturity of any other individual investment owned by the ESC shall not exceed one year from the time of purchase. The Board may specifically authorize a longer maturity for a given investment, within legal limits.
The ESC's investment portfolio shall have sufficient liquidity to meet anticipated cash flow requirements.
The investment portfolio shall be diversified in terms of investment instruments, maturity scheduling, and financial institutions to reduce risk of loss resulting from overconcentration of assets in a specific class of investments, specific maturity, or specific issuer.
Monitoring Market Prices
The investment officer shall monitor the investment portfolio and shall keep the Board informed of significant declines in the market value of the ESC's investment portfolio. Information sources may include financial/investment publications and electronic media, available software for tracking investments, depository banks, commercial or investment banks, financial advisers, and representatives/advisers of investment pools or money market funds. Monitoring shall be done monthly or more often as economic conditions warrant by using appropriate reports, indices, or benchmarks for the type of investment.
Monitoring Rating Changes
In accordance with Government Code 2256.005(b), the investment officer shall develop a procedure to monitor changes in investment ratings and to liquidate investments that do not maintain satisfactory ratings.
Funds / Strategies
Investments of the following fund categories shall be consistent with this policy and in accordance with the strategy defined below.
Investment strategies for operating funds (including any commingled pools containing operating funds) shall have as their primary objectives safety, investment liquidity, and maturity sufficient to meet anticipated cash flow requirements.
Investment strategies for agency funds shall have as their objectives safety, investment liquidity, and maturity sufficient to meet anticipated cash flow requirements.
Safekeeping and Custody
The ESC shall retain clearly marked receipts providing proof of the ESC's ownership. The ESC may delegate, however, to an investment pool the authority to hold legal title as custodian of investments purchased with ESC funds by the investment pool.
Sellers of Investments
Prior to handling investments on behalf of the ESC, a broker/dealer or qualified representative of a business organization must submit required written documents in accordance with law. [See Sellers of Investments, CBF(LEGAL)]
Representatives of brokers/dealers shall be registered with the Texas State Securities Board and must have membership in the Securities Investor Protection Corporation (SIPC) and be in good standing with the Financial Industry Regulatory Authority (FINRA).
Soliciting Bids for CDs
In order to get the best return on its investments, the ESC may solicit bids for certificates of deposit in writing, by telephone, or electronically, or by a combination of these methods.
Interest Rate Risk
To reduce exposure to changes in interest rates that could adversely affect the value of investments, the ESC shall use final and weighted average maturity limits and diversification.
The ESC shall monitor interest rate risk using weighted average maturity and specific identification.
A system of internal controls shall be established and documented in writing and must include specific procedures designating who has authority to withdraw funds. Also, they shall be designed to protect against losses of public funds arising from fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of the ESC. Controls deemed most important shall include:
- Separation of transaction authority from accounting and recordkeeping and electronic transfer of funds.
- Avoidance of collusion.
- Custodial safekeeping.
- Clear delegation of authority.
- Written confirmation of telephone transactions.
- Documentation of dealer questionnaires, quotations and bids, evaluations, transactions and rationale.
- Avoidance of bearer-form securities.
These controls shall be reviewed by the ESC's independent auditing firm.
In addition to the quarterly report required by law and signed by the ESC's investment officer, a comprehensive report on the investment program and investment activity shall be presented annually to the Board. This report shall include a performance evaluation, which may include, but not be limited to, comparisons to 91-day U.S. Treasury Bills, six-month U.S. Treasury Bills, the Fed Fund rate, the Lehman bond index, and rates from investment pools.
The annual report shall:
- Include a review of the activities and total yield for the preceding 12 months;
- Suggest policies, strategies, and improvements that might enhance the investment program; and
- Propose an investment plan for the ensuing year.