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INVESTMENT POLICY AND ADMINISTRATION 1 Effective cash management is recognized as essential to good fiscal management. This is particularly true as mounting costs and expanding programs have placed ever increasing pressures on local governmental revenues. The extent to which local governments can obtain investment returns on funds not immediately needed for current operational needs can help to reduce this pressure. Temporary idle funds are usually the result of the following conditions: 1. Operating revenues received in advance of operational needs. 2. Proceeds of bonds or temporary notes which are issued in advance of the time for which payments for capital projects are required. 3. Trust and agency funds which are held in trust for an extended period to pay for disbursements over a period of years. It is the policy of the City of Lewiston that available funds be invested to the maximum extent possible at the highest possible rates obtainable at the time of investment in conformance with the legal and administrative guidelines outlined herein. LEGAL ASPECTS Title 30-A Section 5706 through 5717 of the Maine Revised Statutes Annotated authorizes Treasurers to deposit or invest municipal funds by direction of the municipal officers. All investment instruments allowed in this policy must be expressly authorized by Maine Statutes. SCOPE This investment policy applies to all the financial assets of the City of Lewiston. These funds are accounted for in the City's annual financial report and include the following: General Fund; Special Revenue Funds which are established to account for resources obtained and expended for specific purposes; Capital Project Funds which are established to account for resources obtained and expended for the acquisition and construction of major capital facilities; Enterprise Funds in which the activity is intended to be self-supporting based on user charges; all Trust and Agency Funds which are established to account for assets held by the City in a fiduciary capacity as trustee. All transactions involving the financial assets and related activities of all the foregoing funds shall be administered in accordance with the provisions of these policies. INVESTMENT OBJECTIVES The following investment objectives shall apply in the management of funds: 1. Investments shall be made with judgement 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. 2. Primary concern shall be given to the preservation of capital and the protection of investment principal. 3. The portfolio shall remain sufficiently liquid to enable the City to meet operational requirements which may be reasonably anticipated. 4. The City will strive to maximize the return on its investments but will avoid assuming unreasonable investment risk. ---PAGE BREAK--- INVESTMENT POLICY AND ADMINISTRATION 2 5. The City will diversify its investments to avoid incurring unreasonable and avoidable risks regarding specific security type or individual institutions. 6. All participants in the investment process shall seek to act responsibly as custodians of the public trust. The overall program shall be designed and managed with a degree of professionalism that is worthy of the public trust. INVESTMENT PRINCIPLES Investment of the City's funds shall be conducted in a manner consistent with the following principles: 1. The City may purchase only legally authorized investments pursuant to 30-A, M.R.S.A., Section 5706 through 5717. 2. In order to maintain liquidity, the maturity date of investments shall not be beyond the time the City anticipates it will need the funds. In the case of operating funds, investments shall have maturities of two years or less with no more than 20 average portfolio beyond one year. In the case of long-term funds, such as certain special revenue funds and trust and agency funds, i.e. workers' compensation, endowment funds, loan pool funds, maturities shall not exceed ten (10) years. 3. Deposit and investment of funds in local banks can only be made in financial institutions that are insured by the FDIC. Any funds deposited or invested above the $100,000 insurance limit should be collateralized by the financial institutions, whenever possible or the excess funds should be placed with another financial institution. 4. Cash balances in all demand deposit accounts shall not exceed compensating balances whenever possible. The Treasurer shall strive to invest at least 95 % all available funds on a daily basis. 5. Repurchase agreements can only be obtained from financially stable financial institutions. Repurchase agreements must be collateralized by U.S. Government securities with a market value equal to or greater than the principal amount of the repurchase agreement. INVESTMENT INSTRUMENTS AUTHORIZATION The following is a list of the types of investments authorized: 1. United States Treasury Obligations a. Treasury Bills - A non-interest bearing discount security issued by the U.S. Treasury to finance the national debt. Most bills are issued to mature in three months, six months or one year. b. Treasury Notes - Intermediate term coupon bearing U.S. Treasury securities having initial maturities of from one to ten years. Interest on these coupon securities is paid every six months. 2. U.S. Government Agency Securities These interest bearing obligations issued by various federal agencies must be owned by the City. The rate of return cannot be based or derived from other factors or indexes. ---PAGE BREAK--- INVESTMENT POLICY AND ADMINISTRATION 3 Federally operated agencies include: a. Export-Import Bank of the United States b. Farmers Home Administration (Fm.H.A.) c. Federal Housing Administration d. General Services Administration e. Government National Mortgage Association (G.N.M.A.) f. Small Business Administration 3. U.S. Government-sponsored Corporations - Instrumentalities These securities, issued by various government sponsored corporations, are to fund various lending programs. The City must own the underlying instrument of these securities. The rate of return cannot be based or derived from other factors or indexes. The federally sponsored agencies include the following: a. Federal Land Banks b. Federal Intermediate Credit Banks c. Federal Home Loan Banks d. Federal National Mortgage Association (F.N.M.A.) 4. Certificates of Deposit (CD) Certificates of Deposit issued by commercial banks are a time deposit with a specific maturity evidenced by a certificate. Insurance coverage is provided for deposits up to $100,000 by the Federal Deposit Insurance Corporation. Investment in certificates shall not exceed, in principal, the amount covered by insurance at any single financial institution. 5. Repurchase Agreements (REPO) Repurchase agreement is a short term instrument tailored to specific maturities. A holder of securities sells these securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. These investments must be collateralized by obligations of the Federal government in amounts equal to the City's investment. 6. Mutual Funds Investments in the shares of an investment company registered under the United States Investment Company Act of 1940, whose shares are registered under the United States Securities Act of 1933 and provided that the investments of the fund are limited to obligations of the Federal Government or repurchase agreements secured by obligations of the Federal Government. LIMITATIONS The City will not directly invest in corporations or governments that have policies which jeopardize the human rights of individuals. INTERNAL CONTROLS The Director of Finance shall establish a system of internal controls, which shall be documented in writing. The internal controls shall be reviewed periodically by the internal auditor of the City. The controls shall be instituted to prevent possible loss 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 City. ---PAGE BREAK--- INVESTMENT POLICY AND ADMINISTRATION 4 REPORTING The Finance Director shall submit quarterly an investment report to the Administrator and City Council. The report shall summarize the investment strategies employed in the most recent quarter, describe the portfolio in terms of types of investment securities, maturities, risk and a comparison of investment carrying value and market value. A summary of the purchases and sales of investments during the quarter and the return on the investments for the quarter. An annual report shall be submitted to the Administrator and City Council summarizing the quarterly information and include suggestions for improvements that might be made in the investment program. EFFECTIVE APPLICATION This policy shall apply to all investments purchased after the date of adoption of this policy by the City Council. This policy is not meant to apply to instruments purchased prior to the date of adoption. SAVINGS CLAUSE If any section, sentence, clause or phrase of this policy is held, for any reason to be inoperative, void or invalid, the validity of the remaining portion of this resolution shall not be affected thereby, it being the intention of the City Council in adopting this resolution, that no portion thereof, or provision herein, shall become inoperative or fail by reason of the invalidity of any other portion and, the City Council does hereby declare that it would have severally passed and adopted the provisions contained herein separately and apart from one and other.