Municipal Code

CHAPTER 232 Village Treasurer

232.01 Investment policy.

CROSS REFERENCES
Village Treasurer as separate office - see CHTR. Ch. III, §12
Election and term - see CHTR. Ch. III, §13
Duties - see CHTR. Ch. III, §16
Village Treasurer as Village accountant - see CHTR. Ch. IX, §2
Collection of taxes - see CHTR. Ch. IX, §4; CHTR. Ch. X,
§§15 et seq.

232.0 1 INVESTMENT POLICY.
(a) Definitions. As used in this section:
(1) "Bank investment pools." See "Mutual fund."
(2) "Bankers acceptances" means a draft or bill of exchange accepted by a bank or trust company. The accepting institution guarantees payment of the bill, as well as the issuer.
(3) "Bonds, securities and other obligations of the United States" means investment vehicles such as Treasury Bills, Treasury Notes, Treasury Bonds, "Ginny Mae" Mortgage Securities, etc.
(4) "Certificate of Deposit (CD)" means a time deposit with a specific maturity evidenced by a certificate.
(5) "Commercial paper" means a short term debt instrument issued by entities with a stated interest rate and term.
(6) "Derivatives" means a financial instrument created from or whose value depends on (is derived from) the value of one or more underlying assets or indexes of asset values.
(7) "Master repurchase agreements" means a written contract covering all future transactions between the parties in repurchase agreements that establishes each party's rights in transactions. A master agreement will often specify, among other things, the right of the buyer-lender to liquidate the underlying securities in the event of default by the seller-borrower.
(8) "Mutual fund" means pooled funds which diversify investments accumulated and managed by one entity.
(9) "Rating services" means recognized organizations that rate the investment grade, quality and relative risk of financial instruments (i.e. Moody's, Standard and Poor's, etc.).
(10) "Repurchase agreement" means a security sold to an investor with an agreement by the seller to repurchase it at a fixed price on a fixed date. A reverse repurchase would involve the investor selling the agreement to another third party (a bank or broker).

(b) Investment Policy.
(1) Scope. This investment policy applies to all cash and financial assets held by the Village of Franklin (the Village) other than pension fund assets.
(2) Objectives. The primary objectives, in priority order, of investment activities shall be:
A. Safety. The primary objective of the Village's investment activity is the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk.
1. Credit risk. Credit risk shall be mitigated by limiting investments to the safest type of securities. The investment portfolio shall be sufficiently diversified to minimize potential losses on individual securities.
2. Interest rate risk. The investment portfolio shall be structured to ensure that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to liquidate prior to maturity. Operating funds shall be invested primarily in shorter term securities.
B. Liquidity. The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated.
C. Return on investment. Subject to the foregoing constraints of safety and liquidity, the Village will strive to maximize the yield from the investment portfolio.
(3) Standards of care.
A. Responsibilities of Treasurer. Daily management for the investment program is the responsibility of the Treasurer as custodian of Village funds (see Charter Chapter III, Section 16). No person may engage in an investment transaction except as provided under terms of the Village Charter, this policy and procedures established by the Treasurer.
B. Prudence. The standard of prudence to be used by investment officials shall be the "prudent person" standard applied in the context of managing the overall portfolio. 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.
C. Ethics and conflicts of interest. Officers involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or could impair their ability to make impartial decisions. Investment officials shall disclose any material interests in financial institutions with which they conduct business. Officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of their entity.
(4) Safekeeping and custody.
A. Authorized financial dealers and institutions. The Treasurer will maintain a list of financial institutions, which have been ratified by the Village Council on an annual basis, to provide investment and depository services. In addition, a list will also be maintained of approved security broker/dealers selected by creditworthiness who maintain an office in the State of Michigan (the State) or who are "primary" dealers or regional dealers that qualify under Securities and Exchange Commission Rule 15C3-1 (uniform net capital rule). No deposit of public funds shall be made except in a qualified public depository as established by State law.
All financial institutions and broker/dealers being considered for inclusion on the list must supply the Treasurer with the following: Audited financial statements for the most recent fiscal year; quarterly or interim financial statements as published; certification of having read the Village's investment policy and pertinent State statutes; a signed statement agreeing to comply with the terms of this investment policy regarding the buying and selling of securities; proof of National Association of Security Dealers certification; and proof of state registration, where applicable.
An annual review of the financial condition and registration of qualified institutions/dealers will be conducted by the Treasurer. Information indicating a loss or prospective loss of capital on existing investments must be shared with the Village Council immediately upon notification.
B. Internal controls. The Treasurer shall establish and maintain a system of internal controls which is designed to ensure that the financial assets of the Village are protected from loss, theft or misuse. Required elements of the system of internal controls shall include the timely reconciliation of all bank accounts, and trust receipt documentation.
Internal controls will also encompass these additional items:
Transfer of all funds (purchases, sales, etc.).
Separation of functions, including transaction authority and accounting and record keeping.
Custodial safekeeping.
Avoidance of physical delivery securities.
Written confirmation of telephone transactions.
Specific guidelines regarding securities losses and remedial action.
Identification of authorized investment officials.
Documentation of transactions by the investment official.
Bank deposits should be made with sufficient frequency to ensure adequate safeguarding of negotiable instruments. Deposits should be made when necessary as monies are received but no less than at weekly intervals. Any single negotiable instrument, check or draft, or accumulation of the same, that exceeds ten thousand dollars ($10,000) in amount should be, as practical, deposited in the bank by the next business day.
Periodically, but not less than every two years, independent certified public accountants, in connection with their audit of the Village financial statements, shall review the system of internal controls with respect to investments.
C. Third-party custodial agreements. All securities purchased by the Village shall be held in safekeeping by a third-party custodial bank or other third-party custodial institution, chartered by the United States government or the State of Michigan, and no withdrawal of such securities, in whole or in part, shall be made from safekeeping except by the Treasurer as authorized by the Village Charter and this policy.
The Village will execute third-party custodial agreement(s) with its bank(s) and depository institution(s). Such agreements will include letters of authority from the Village, details as to responsibilities of each party, notification of security purchases, sales, delivery, repurchase agreements and wire transfers, safekeeping and transactions costs, procedures in case of wire failure or other unforeseen mishaps, including liability of each party.
Securities will be held by a third-party custodian designated by the Treasurer and evidenced by safekeeping receipts, including securities which act as collateral for repurchase agreements.
(5) Authorized and suitable investments.
A. Investment types. The Village is empowered by State statute (Act 239 of the Public Acts of 1988, being M.C.L.A. 129.91, as amended) to invest in the following types of securities:
1. Bonds, securities and other obligations of the Unites States, or an agency or instrumentality of the United States in which principal and interest is fully guaranteed by the United States, including securities issued or guaranteed by the government national mortgage association.
2. Certificates of deposit, savings accounts, deposit accounts or depository receipts of a bank or savings and loan which is a member of the Federal Deposit Insurance Corporation or a credit union which is insured by the National Credit Union Administration, but only if the bank, savings and loan or credit union is Michigan based, having a physical building in Michigan, is licensed by the State of Michigan and is eligible to be a depository of surplus funds belonging to the State under section 5 or 6 of Act 105 of the Public Acts of 1855, as amended, being M.C.L.A. 21.143 and 21.144.
3. United States government or Federal agency obligation repurchase agreements.
4. Bankers acceptances of United States banks.
5. No more than fifty percent of the funds available for investment at the time of the purchase in any one fund may be invested in commercial paper rated at the time of purchase within the two highest classifications established by not less than two standard rating services and which matures not more than 270 days after the date of purchase;
6. Obligations of the State of Michigan or any of its political subdivisions that, at the time of purchase, are rated as investment grade by not less than one standard rating service;
7. Mutual funds registered under the Investment Company Act of 1940, 15 U.S.C. 80A-1 to 80A-3 to 80A-64, with authority to purchase only investment vehicles that are legal for direct investment by a public corporation. However, a mutual fund is not disqualified as a permissible investment solely by reason of either of the following:
a. The purchase of securities on a when-issued or delayed delivery basis.
b. The ability to lend portfolio securities as long as the mutual fund receives collateral at all times equal to at least 100 percent of the value of the securities loaned.
c. The limited ability to borrow and pledge a like portion of the portfolio's assets for temporary or emergency purposes.
8. Obligations described in paragraphs (B)(5)A.1. to 7. hereof if purchased through an interlocal agreement under the Urban Cooperation Act of 1967, Act 7 of the Public Acts of 1967 (Ex Sess), being M.C.L.A. 124.501 to 124.512.
9. Investment pools organized under the Surplus Funds Investment Pool Act, 1985, Act 121 of the Public Acts of 1985, being M.C.L.A. 129.111 to 129.118.
10. Investment pools organized under the Local Government Investment Pool Act, being M.C.L.A. 129.141 to 129.150.
11. Any other investment which is authorized for investment by the State Treasurer as fiduciary for a public employee retirement system by amendment of Act 314 of the Public Acts of 1965, being M.C.L.A. 38.1121, and by Act 55 of the Public Acts of 1982, being M.C.L.A. 38.1121.
B. Limitations. The Treasurer is restricted to investments which meet the statutory restrictions above and limitations on security issuers as detailed below:
1. Repurchase agreements shall be negotiated only with dealers or financial institutions with whom the Village has negotiated a master repurchase agreement or with the Village's primary bank. Repurchase agreements must be signed by the Village President, the Village Clerk and the bank or dealer and must contain provisions similar to those outlined in the Public Security Association's model master repurchase agreement.
2. When reasonable and practical, investment of bond proceeds or funds pledged for bond repayment must be fully insured, fully collateralized or otherwise protected from loss of principal and interest, and maturities must assure the availability of funds on the dates for principal and interest repayment specified in the bond covenants.
3. Investments in commercial paper are restricted to those which have, at the time of purchase, the top investment rating provided by any two nationally recognized rating agencies. Commercial paper held in the portfolio which subsequently receives a reduced rating shall be closely monitored and sold immediately if the principal invested may otherwise be jeopardized.
4. Certificates of deposit shall be purchased only from financial institutions which qualify under State law and are consistent with OAG, 1983, No 6168 (July 11, 1983).
5. Investments will be diversified by security type and institution as considered appropriate by the Treasurer and consistent with this policy.
6. To the extent possible, the Village will attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the Village will not directly invest in securities maturing more than five years from the date of purchase.
7. The Treasurer is prohibited from investing in derivatives, derivative-type instruments or reverse repurchase agreements that may be allowed under State statute.
(6) Investment Performance and Reporting. The Treasurer will submit a monthly investment status report to the Village Council and the Village Finance Committee that provides the principal and type of investment by fund, annualized yield, market price, maturity date and a summary report of cash and investments maintained in each financial institution.
A statement of the market value of the portfolio shall be issued by the Treasurer to the Village Council and the Village Finance Committee at least quarterly.
Material deviations from projected investment strategies shall be reported immediately to the Budget Director, the Village President and Village Council at large.
(7) Policy Adoption and Amendment. This investment policy and any amendments hereto shall be adopted by resolution of the Village Council. This policy shall be reviewed on an annual basis by the Village Council. (Res. 98-155. Passed 8-26-98.)