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Home My WebLink AboutIR 7587 • INFORMAL REPORT TO CITY COUNCIL MEMBERS N0_7587 March 3. 1992 To the Mayor and Members of the City Council 3ljy�jJa TExt� * Subject: Cash Management Policie On September 24, 1991, (M&C C-13070) the City Council authorized the City Manager to execute an agreement with The American Center for Cash Management Studies to assist in evaluating and strengthening the City's cash management policies and procedures. The need for this review resulted from the loss of a key staff member early in 1991, the lack of familiarity on the part of remaining staff with the technical details of the City's cash management operation, and the decision to expand the role of the City Treasurer and streamline the Treasury function. The Council also requested that the consultant address which of the cash management functions could potentially be privatized. The American Center performed a preliminary evaluation of the City's current cash management operations in May and June of 1991. A copy of this evaluation and a proposal for a more comprehensive project was presented to the City Council on September 24. This project, which included staff training and education, review and revision of the City's cash management policies and procedures, design of additional support documentation, review of the City's investment portfolio and the beginning phase in the development of a banking service RFP, is essentially complete. Mr. Robert Gross of the American Center will be presenting a report to the Council on March 3 outlining project accomplishments and recommendations of the Cash Management Task Force. The Statement of Cash Management Policy being presented to the Council for adoption represents a different approach to expressing the Council's policies relative to the City's cash management and investment programs. Rather than 45 pages of intertwined polices, procedures, guidelines, forms and examples, the aim of the Policy Statement is to present the Council's intent and direction in one page of clear and concise statements. The policy proposed for Council adoption mandates the following: 1 ) The absolute safety and integrity of the City's financial assets. 2) Compliance with all local, state and federal laws and professional standards. 3) Utilization of competitive bidding practices with outside financial intermediaries whenever practicable. 4) Written standards and guidelines for the City's cash management operations. 5) Prudent investment guidelines and standards. [ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS -- INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7587 March Page 2 of 4 " `Rican To the Mayor and Memben of the City Council Joy(. .�'; Subject: Cash Management Policies The policy further instructs the City Treasurer, subject to the approval of the City Manager and the Director of Fiscal Services, to promulgate and maintain a written Statement of Cash Management Rules and Regulations. The Rules and Regulations are designed to provide a general insight into the City's approach to managing its short-term investments as well as to provide detailed rules, regulations and procedures for selecting financial intermediaries, making investments, safekeeping investment securities and reporting performance. While there are similarities between the City's existing investment policy and the proposed Rules and Regulations, there are some differences: 1) The Rules and Regulations provide for a more restrictive list of eligible investments. For example, mortgage-backed securities and "invented" securities such as CMO's are specifically excluded in the Rules and Regulations. The longest allowable maturity is reduced from 7 to 5 years. However, the maximum average maturity of the portfolio has been increased to 2 years from 1 1/2 years. The investment portfolio will continue to be primarily invested in Treasury notes and bills, U. S. Agency securities, commercial paper and repurchase agreements as it has been generally invested in the past. 2) Rather than using staff to evaluate financial ratios and indicators of the financial strength of banks interested in doing business with the City, a private rating service will be utilized to assess the financial strength of depositories. Also, eligible financial Institutions will be required to demonstrate an acceptable rating under the Community Reinvestment Act. 3) Transactions relating to the purchase and sale of U.S. Government securities will be restricted to the approximately 40 "primary' security dealers. These firms include the major securities firms and the world's largest banks. An expanded Broker/Dealer Questionnaire and Certification will ensure that the City deals with a qualified individual as a broker/dealer. 4) Criteria for selecting other investment advisors have also been specified. An Investment Advisor Questionnaire and Certification will provide evidence of an individual's capabilities to provide technical support services to the City. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS — INFORMAL. REPORT TO CITY COUNCIL. MEMBERS No. 7587 March 3, 1992 ••••`",� Page 3 of 4 Vito. To the Mayor and Members of the City Council 9 Subject: Cash Management Policies 5) The diversification guidelines have been simplified in recognition of the quality of eligible investments, the use of competitive bidding in selecting dealers and depositories, and the maintenance of an overnight "repo" equal to 5-10°x6 of the portfolio to ensure necessary liquidity. 6) The arbitrage rebate regulations promulgated by the U. S. Treasury Department have been changed in recent years to allow commingling of bond proceeds for arbitrage compliance purposes. Based on a recommendation from First Southwest Company, the City's financial advisor, the City has changed its arbitrage compliance approach from a specific bond issue portfolio method to primarily a pooled funds method. Using a consolidated portfolio, it is no longer necessary to maintain several separate bond portfolios to track arbitrage earnings as described in the existing investment policy. 7) The Rules and Regulations provide more detailed safekeeping procedures to establish absolute ownership of securities. Additional documents have been designed to ensure the security and protection of City-owned securities. a) A new Master Repurchase Agreement has been designed. This Agreement is patterned after the Public Securities Association's Master Repurchase Agreement, but it specifically prohibits the seller (i.e. the securities firm) from physically holding purchased securities in its own possession for safekeeping purposes. The new Agreement specifies all "repo" transactions will be done on "payment versus delivery" or "delivery versus payment" basis. This has been the City's policy, but it is now being incorporated into the document executed with securities dealers. b) A Master Collateral Agreement has been designed to specify the type of collateral to be maintained by the City's bank to secure City deposits. c) A Lead Bank Custodial Agent Agreement has been prepared to specify the safekeeping services expected from the City's bank. d) A Third-Party Custodial Agent Agreement has been designed to support a repurchase agreement done with the City's bank to provide an overnight "sweep account" which will ensure all uninvested funds earn interest. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7587 March 3, 1992 .•"' Page 4of4 a►r To the Mayor and Mernben of the City Council y Subject: +r:s Cash Management Policies e) A Safekeeping Receipt has been developed which will assure the City's ownership of securities held by the bank in safekeeping. Copies of the proposed Statement of Cash Management Rules and Regulations and the Statement of Cash Management Policy, along with the recently-developed documents will be presented and discussed at the March 3rd work session. The Statement of Cash Management Policy will be scheduled for adoption by the Council on March 12. In addition to the Rules and Regulations, the City Treasurer is developing a Procedures Manual which will describe in detail the step-by-step procedures for obtaining the daily bank balance, determining the investable balance, making an overnight investment, recording the investment in the Investment management information system, buying and selling securities, preparing month-end reports, etc. The Procedures Manual will provide "how-to" instructions for staff involved in the cash management and Investment program. Additional staff members are being trained, familiarized with the Rules and Regulations and the Procedures Manual, and given the opportunity to gain experience in the cash management and Investment process in order to provide redundancy and back-up in the City treasury function. The City's existing investment policy has served it well. However, changes in personnel, organizational structure, individual duties and responsibilities, and federal regulations, as well as the current cash management and investment environment, suggest a need to clarify and simplify the Council's policy aims while updating, modifying and refining the administrative procedures being utilized in the cash management program. David Ivory City Manager OW ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS