ORDER NO.30508
KERB COUNTY INVESTMENT POLICY
Came to be heard this the 10th day of September, 2007, with a motion made by
Commissioner Williams, seconded by Commissioner I,ctz. "hhe Court
unanimously approved by vote of 4-0-0 to:
Approve of the Investment Policy as presented by the Auditor and the County
Treasurer.
~~so~
1~ ~~
COMMISSIONERS' COURT AGENDA REQUEST
PLEASE FURNISH ONE ORIGINAL AND TEN (10) COPIES OF THIS
REQUEST AND DOCUMENTS TO BE REVIEWED BY THE COURT
MADE BY: Jeannie Hargis
MEETING DATE: September 10, 2007
OFFICE: County Auditor
TIME PREFERRED:
SUBJECT: Consider, discuss and take appropriate action on Kerr County Investment
Policy.
EXECUTIVE SESSION REQUESTED: (PLEASE STATE REASON)
NAME OF PERSON ADDRESSING THE COURT: Jeannie Hargis
ESTIMATED LENGTH OF PRESENTATION:
IF PERSONNEL MATTER -NAME OF EMPLOYEE:
Time for submitting this request for Court to assure that the matter is posted in
accordance with Title 5, Chapter 551 and 552, Government Code, is as follows:
Meeting scheduled for Mondays
THIS REQUEST RECEIVED BY:
THIS RQUEST RECEIVED ON:
@ .M.
All Agenda Requests will be screened by the County Judge's Office to determine if adequate
information has been prepared for the Court's formal consideration and action at time of Court
Meetings. Your cooperation will be appreciated and contribute towards your request being
addressed at the earliest opportunity. See Agenda Request Rules Adopted by Commissioners'
Court.
5:00 PM previous Tuesday
Kerr County, Texas
Investment Policy
Court Order 30508
Date
1. General Policy
It is the policy of Kerr County (the "County") to administer its funds and the investment of those funds,
as its highest public trust. The funds shall be invested in a manner, which provides for maximum safety
of principal through risk management and diversification while meeting the County's daily cash needs.
The investment of the County's funds should provide a reasonable investment return. The earnings from
investment will be used in a manner that best serves the interests of the County.
The County shall administer its investment activities in conformance with the Public Funds Investment
Act, Chapter 2256, Texas Government Code (the °Act"), the Public Funds Collateral Act (Texas
Government Code, Chapter 2257) and in conformance with any applicable state and federal regulations,
applicable bond resolution requirements, and this Investment Policy.
2. Scope
This Investment Policy governs the investment of all financial assets of the County as accounted for in
the County's Comprehensive Annual Financial Report. This includes the available financial assets of the
following funds:
a. general fund,
b. special revenue fund,
c. trust and agency funds, to the extent not required by law or existing contract to be kept
segregated and managed separately,
d. debt service fund, including reserve and sinking funds, to the extent not required by law or
existing contract to be kept segregated and managed separately, and
e. any new fund created by the County, unless specifically exempted from this Policy by the County
or by law.
3. Goals and Objectives
Investment of County funds shall be governed by the following investment objectives, in their order of
priority:
Safety
Safety of principal is the foremost objective of the investment program of the County.
Investments shall be undertaken in a manner that seeks to ensure the preservation of capital and
avoids security defaults or erosion of market values. To attain this objective, diversification is
required in order that potential losses on individual securities do not exceed the income
generated from the remainder of the portfolio.
Liquidity
The County's investment portfolio will remain sufficiently liquid to enable the County to meet all
operating requirements that might be reasonably anticipated. Ongoing cash flow analysis will be
used to identify changing liquidity needs. A reasonable amount of demand deposits or other
liquid investments should be maintained to avoid the need to liquidate securities prior to
maturity.
To the extent possible, the County will attempt to match its investment maturities with
anticipated liabilities and cash flow requirements. Unless matched to a specific cash flow
requirement, the County will not directly invest in any securities maturing more than three (3)
year from the date of purchase. Such specific cash flow requirements would include operating
funds, construction funds, and debt service funds.
To reflect the cash flow requirements and risk tolerance levels of the County, the weighted
average maturity of the overall portfolio shall not exceed six (6) months.
c. Diversification
In order to minimize investment and market risk, the County will diversify its investments by
market sector (security type) and maturity. The portfolio will be designed to avoid unreasonable
risks within one market sector or from an individual financial institution.
d. Yield
The County's investment portfolio shall be designed with the objective of attaining a reasonable
rate of return throughout budgetary and economic cycles, commensurate with the County's
investment risk constraints and the cash flow characteristics of the portfolio. The portfolio(s) risk
shall be measured periodically against a benchmark based on cash flow analysis and the
authorized portfolio structure. The overall portfolio shall have a maximum weighted average
maturity of six (6) months. To measure the overall risk of the portfolio, a benchmark of the six-
month Treasury Bill shall be reported.
Effective cash management is recognized as essential to good fiscal management. Cash management is
defined as the process of managing monies in order to ensure maximum cash availability. The County
shall maintain a cash management program, which includes collection of accounts receivable, prudent
investment of its available cash, disbursement of payments in accordance with invoice terms and the
management of banking services.
4. Investment Strategy
The portfolio will be designed on projected cash flows to provide for all anticipated liquidity needs of the
County. Investments are to be chosen in a manner, which promotes portfolio diversity, by market sector,
credit and maturity. The choice of high-credit quality government investments and high-grade, money
market instruments are designed to assure the marketability of those investments should liquidity needs
arise. The investment process shall be designed to produce a reasonable return commensurate with low-
risk securities and designed to meet cash flow demands.
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The County may commingle its funds for maximum investment efficiency and maintain an internal
investment pool for use by all funds under this Policy. The unique needs of each fund in the pool will be
recognized in the management of the funds. All County funds will be included in the pool unless
otherwise required by the County Council, state or federal regulations, or applicable bond resolution
requirements.
a. Operating funds and commingled pools containing operating funds have as their
primary objective to assure that anticipated cash flow needs are met with adequate
investment liquidity. The secondary objective is to obtain a reasonable yield with minimal
volatility. This may be accomplished by purchasing high credit quality securities matched to
known liabilities. A maximum dollar weighted average maturity of six (6) months will be
established based on the stated final maturity date of each security.
b. Debt service funds shall be invested to ensure adequate funding for each consecutive debt
service payment. Funds shall be invested in such a manner so as not to exceed an 'unfunded"
debt service date with the maturity of any investment. (An unfunded debt service date is
defined as an interest or principal payment date that does not have cash or investment
maturities targeted to satisfy said payment.) The maximum dollar weighted average maturity of
such funds shall be six (6) months.
c. Capital project or special purpose funds shall have as their primary objective to assure
that anticipated cash flows are matched with adequate investment liquidity. These portfolios
should include at least 10% in liquid securities to allow for flexibility and unanticipated
project outlays. The stated final maturity dates or securities held should not exceed the
estimated project completion date.
5. Investment Officers
The County Treasurer is authorized by Commissioner's Court to administer the investment activities of the
County and, is designated as Investment Officer for the purposes of this Policy. Upon recommendation
of the Commissioners Court, the Court may designate one or more additional qualified employees, or an
SEC Registered Investment Adviser, as Investment Officer(s). The designation of additional Investment
Officers shall be by court order, or award of contract. Authority and designation as Investment Officer is
effective until rescinded by the Commissioner's Court (Court Order) or until termination of employment.
All Investment Officers shall be familiar with this Policy and its underlying procedures. No Investment
Officer may engage in an investment transaction except as provided under the terms of this Policy and
the procedures established by the Commissioner's Court.
A trading resolution is established by adoption of this Investment Policy authorizing the Investment
Officer(s) to engage in investment transactions on behalf of the County. The persons so authorized to
transact business are also authorized to approve wire transfers used in the process of investing.
Training
All Investment Officer(s) shall attend ten (10) hours of training in accordance with the Act within twelve
(12) months of assuming responsibilities and attend ten (10) hours of training each successive two-year
period. Training shall be provided or endorsed by the Government Finance Officers Association of Texas,
the Government Treasurers Organization of Texas, or the Texas Municipal League. Training should
include topics such as investment controls, security risk, market risks, diversification of the investment
portfolio, and compliance with State laws.
6. Standard of Care
The standard of care to be used by the County's Investment Officers shall be the ~~prudent person
standard" and shall be applied in the context of managing the overall portfolio, rather than a
consideration as to the prudence of a single investment. The standard states:
Investments shall be made with judgment and care, under prevailing circumstances, that
a person of prudence, discretion, and intelligence exercise in the management of their
own affairs, not for speculation but for investment, considering the probable safety of the
capital as well as the probable income to be derived.
Investment Officers acting in accordance with the Investment Policy and exercising due diligence, shall
be relieved of personal liability for an individual security's credit risk or market price change, provided
deviations from expectations are reported in a timely manner and appropriate action is taken to control
adverse developments.
7. Standard of Ethics
Investment Officers shall act as custodians of the public trust and avoid any transaction that might
involve a conflict of interest or the appearance of a conflict of interest, or any activity that might
otherwise discourage public confidence. Investment Officers shall refrain from personal business activity
that could conflict with proper execution of the investment program or that could impair their ability to
make impartial investment decisions.
An Investment Officer who has a personal or business relationship with an individual or organization
seeking to sell an investment to the County shall file a disclosure statement with the Texas Ethics
Commission and the Commissioner's Court in accordance with the Act.
8. Investment Advisors and Broker/Dealers
The County recognizes that all investment decisions regarding the County's portfolio are ultimately the
responsibility of the Commissioner's Court and its Investment Officers. However, all investment advisors
and broker/dealers conducting business with the County shall make every reasonable effort to adhere to
the spirit, philosophy, and specific terms of this Investment Policy. All investment advisors and
broker/dealers shall avoid recommending or suggesting transactions outside the spirit, philosophy, and
specific terms of this Investment Policy.
The county shall not enter into any investment transaction with an investment advisor or broker/dealer
prior to receiving the written instrument described below.
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a. Broker/Dealers
A list of not less than five broker/dealers shall be maintained to assure a competitive process.
Investment Officers will establish the criteria, monitor the service, and evaluate the broker/dealers based
on their:
1. adherence to the County's policies and strategies,
2. transaction pricing,
3. responsiveness to the County's requests for service and information,
4. the quality of communications, and
5. understanding of the inherent fiduciary responsibility of public funds.
Financial institutions and broker/dealers who desire to transact business with the County must supply the
following documents to the Investment Officer or Investment Adviser (as applicable):
^ Current year audited financial statements
• National Association of Securities Dealers (NASD) certification and NASD's Central Depository
Registration (CRD) number.
• Proof of Texas State Securities registration.
Broker/dealers shall also provide timely trade documentation and confirmations.
Certification
Before transacting any business with the County, the County Treasurer shall present broker/dealers, or
any firm attempting to sell financial transactions to the County, with a current copy of the County's
Investment Policy and an authorized representative of the firm shall, in writing to the County, certify
substantially to the effect that:
1. the firm and representative has received and reviewed the County's Investment Policy, and
2. the firm has implemented reasonable procedures and controls to preclude investments with
the County not authorized by the Policy.
If material changes are made to the Investment Policy and updated copy shall be provided to the
authorized broker/dealers for re-certification.
b. Investment Adviser
Investment advisers shall be required to be registered with the U.S. Security and Exchange Commission
and shall provide their SEC ADV Form to the County on an annual basis.
The County Treasurer shall present investment advisers with a current copy of the County's Investment
Policy and an authorized representative of the firm shall, in writing, certify substantially to the effect that:
1. the applicable advisers have received and reviewed the County's Investment Policy, and
2. the firm has implemented reasonable procedures and controls to preclude investments with
the County not authorized by the Policy.
The County shall not enter into any investment transaction with an investment advisor or broker/dealer
prior to receiving the written instrument described above.
9. Authorized Investments
Authorized investments under this Policy shall be limited to the instruments listed below and as further
described by the Act.
a. Obligations of the United States Government, its agencies and instrumentalities, excluding mortgage
backed securities, with a stated final maturity not to exceed three (3) years.
b. Fully collateralized or insured certificates of deposit from banks doing business in Texas with a final
stated maturity not to exceed twelve (12) months. Certificates of deposit shall be:
1. guaranteed or insured by the Federal Deposit Insurance Corporation or its successor, or
2. secured by obligations as defined by this Policy, and
3. governed by a written Depository Agreement that complies with federal and state regulations for
properly securing a pledged security interest.
c. Commercial paper rated Al/P1 or its equivalent by two (2) nationally recognized rating agencies and
with a final stated maturity not to exceed ninety (90) days.
d. SEC registered money market mutual funds, striving to maintain a $1 net asset value, continuously
rated not less than AAA or equivalent by at least one nationally recognized rating firm.
e. Constant-dollar, Texas Local Government Investment Pools, approved by resolution of the
Commissioner's Court and conforming in every respect to the Act.
The County shall not invest, in the aggregate, more than 75 percent of its monthly average fund
balance, excluding bond proceeds and reserves and other funds held for debt service, in approved
investment pools.
The County shall not invest its funds, including bond proceeds and reserves and other funds held for
debt service, in any investment pool where the County's investment exceeds 5 percent of the total
assets of the pool.
f. Fully collateralized repurchase agreements transacted with a primary securities dealer as defined by
the Federal Reserve, under a written Bond Market Association Master Repurchase Agreement, with a
defined termination date, secured by obligations as defined by this Policy held by an independent
third party custodian approved by the County, and with a stated final maturity not to exceed ninety
(90) days.
This authorization includes flexible repurchase agreements (~~flex repos") to be utilized only in the
investment of bond proceeds with a stated final maturity not to exceed the expenditure plan on the
bond proceeds.
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g. Fully collateralized or insured demand deposit accounts at authorized County depositories, under the
provisions of a written collateral/depository agreement.
Unauthorized Securities
The County is not authorized to invest in the following securities:
1. Interest-Only mortgaged backed securities (IO) whose payment represents only the coupon
payments on outstanding principal balances of underlying mortgage.
2. Principal only mortgage backed securities (PO) whose payment represents only the principal
stream from underlying mortgages.
3. Collateralized mortgage obligations (CMO) with a stated final maturity date of greater than ten
(10) years.
4. Collateralized mortgage obligations the interest rate of which is determined by an index that
adjusts opposite to the change in a market index.
If additional types of securities are approved for investment by public funds by state statute, they will not
be eligible for investment by the County until this policy has been amended and the amended version
adopted by the Commissioner's Court.
Delivery versus Payment
All security transactions shall be transacted on a delivery versus payment (DVP) basis through the
County's depository bank in order to assure that the County has total control of its investments and its
funds at all times.
Competitive Bidding
All investment transactions, including certificates of deposit, will be made on a competitive basis to
assure that the County is receiving fair market prices.
10. Collateralization
Consistent with the requirements of the Act and the Pubic Funds Collateral Act, the County shall require
collateral on all repurchase agreements and all time and demand deposits above the limits of federal
insurance.
Time and Demand Deposits -Pledged Collateral
Financial institutions serving as County depositories will be required to execute a Depository Agreement
with the County outlining, among other conditions, collateral conditions and limitations. The Agreement
shall define the County's rights to the collateral in case of default, bankruptcy or closing.
Collateral authorized by the County will be limited to the following
1. Obligations of the US Government, its agencies and instrumentalities, including mortgage
backed securities, which pass the bank test.
2. Obligations of any US state, their agencies and instrumentalities, and municipalities rated A
or better by two nationally recognized rating agencies.
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Collateral pledged to the County must be maintained with a margin of 102% of the time or demand
amounts being collateralized. The banking institution shall be held contractually liable for monitoring and
maintaining the required margins at all times. All collateral shall be held by an independent third party
banking institution outside the holding company of the pledging bank. A clearly marked evidence of
ownership (safekeeping receipt) must be provided to the County for all securities pledged and must
clearly state that the security is pledged to the County. Substitution of collateral shall only be made after
prior written approval by the County.
The pledging institution shall be responsible for providing a monthly report on pledged collateral listing at
a minimum, the security description, cusip, par value, maturity date, and current market value.
Repurchase Agreement -Owned Collateral
Collateral under a repurchase agreement is owned by the County. It will be held by an independent third
party safekeeping agent approved by the County under an executed Bond Market Master Repurchase
Agreement. Collateral with a market value totaling 102% of the principal and accrued interest is required
and the counter-party is responsible for the monitoring and maintaining of collateral and margins at all
times.
11. Safekeeping and Custody of County Owed Securities
The laws of the State, this Policy, and prudent treasury management require that all securities be settled
on a delivery versus payment basis and be held in safekeeping by an independent third party financial
institution approved by the County. The County shall contract with its banking services depository or
another financial institution(s) for the safekeeping of any securities owned by the County. The designated
Custodian will be responsible for the clearing and safekeeping of all security trades and will provide a
monthly report of holdings. All securities held by the Custodian on behalf of the County shall be
evidenced by a safekeeping receipt.
The purchase of individual securities shall be executed on a "delivery-versus-payment" (DVP) basis
through the County's Safekeeping Agent. The DVP method prevents the County's funds from being
released until the County has received, through the Safekeeping Agent, the securities purchased.
12. Diversification
Diversification by security types shall be established by the following maximum percentages of
investment type to the total County investment portfolio:
Obligations of the US Government	90
Obligations of US Agencies/Instrumentalities	80
Certificates of Deposit	30
Limitation by banking institution	10
Commercial Paper	20
Limitation by issuer	5
Money Market Mutual Funds	70
Limitation by ownership in fund	5
Constant Do//ar Texas Investment Pools	90
Limitation by ownership of pool	5
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Maximum percentages listed above are to be based on amortized book value.
13. Internal Control
The County Treasurer shall maintain a system of internal controls over the investment activities of the
County and his/her subordinate employees. The controls shall be designed to address fraud, employee
error, misrepresentation by third parties, unanticipated market changes, and imprudent actions. Controls
deemed most important would include: control of collusion, separation of duties, custody and
safekeeping, delegation of authority, securities losses and remedial actions, and documentation on all
transactions.
The County's internal controls over investment activities, and quarterly investment reports, shall be
reviewed annually by the County's independent auditor as part of the annual audit process. Any
irregularities or suggestions for improvement shall be reported to the Commissioner's Court.
Cash Flow Forecasting
Cash flow forecasting is a control designed to protect and sustain cash flow requirements of the County.
The Investment Officer will maintain a cash flow forecasting process designed to monitor and forecast
cash positions for investment purposes.
14. Reporting
The County Treasurer will submit monthly investment reports to the Court, and not less than quarterly,
the County Treasurer shall report to Commissioner's Court regarding the County's investment activities
for the quarter in compliance with the Act. The reports shall contain sufficient information to permit an
informed outside reader to evaluate the performance of the investment program. At a minimum the
report shall include:
- description of each investment and depository position.
- book and market values at the beginning and end of the reporting period
- additions, and changes to the market value during the period
- book value and market value of each separately invested asset at the beginning and end of
the reporting period market sector and fund
- maturity date of each separately invested asset
- account, fund, or pooled group fund for which each investment was acquired.
- earnings for the period
- overall yield for the portfolio(s) in comparison to its benchmark yield for the period
Market prices for market value calculations shall be obtained from independent sources. The quarterly
report shall be signed by the Investment Officer and Investment Adviser as applicable.
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15. Depositories
The County will designate one banking institution through a competitive process at least every five years
as its central banking services provider according to local government code. In selecting a depository,
the services, cost of services, credit worthiness, earnings potential, and collateralization of each financial
institutions shall be considered. This institution will be used for normal banking services including
disbursements, deposits, and safekeeping of securities.
Depository agreements, executed in accordance with FIRREA (Financial Institutions Resource and
Recovery Act), will be established before funds are transferred.
Other banking institutions from which the County may purchase certificates of deposit will also be
designated as depositories and must execute a written depository (collateral) contract in accordance with
the provisions of this Policy.
16. Policies and Strategy Review
The Commissioner's Court shall review and adopt the County Investment Policy and incorporated strategy
not less than annually. The Commissioner's Court shall adopt a written instrument by court order stating
that it has reviewed the Policy and strategy and the adoption of the court order shall record any changes
made.
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