HomeMy WebLinkAboutIR 7934 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7934
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To the Mayor and Members of the City Council
July 11, 1995
f X x . Subject: CHANGES IN THE PUBLIC FUNDS INVESTMENT ACT
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Huge losses in local government investment programs, particularly Orange County and
Odessa Junior College, led Texas legislators to propose changes in the State law governing
the investment of public funds. The Texas Legislature recently enacted a number of
amendments to the Public Funds Investment Act aimed at heading off future fiscal crises
tied to inappropriate investment practices. In many respects, these amendments reflect
procedures and guidelines already practiced by the City of Fort Worth. In 1991, staff
conducted an extensive review of the City's practices and controls with the help of an
external cash management expert. As a result of this review, staff proposed a new cash
management policy which defined controls and investment guidelines more clearly. The
new policy was substantially more conservative in its approach than what was permitted
under state law. The City Council adapted the Cash Management Rules and Regulations in
early 1992. Below are highlights of the recent changes in state law and the status of the
City's compliance efforts.
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Every entity must adopt an investment City Council adopted the Cash Management
policy setting maximum maturities for Rules and Regulations in March 1992
individual securities, a maximum weighted addressing all these items.
average maturity for the portfolio and a list
of eligible investments.
Every entity must adopt an investment An investment strategy statement is
strategy statement. included in the Cash Management Rules and
Regulations,but staff will prepare a separate
document for Council adoption.
Every entity must designate investment Council adopted Resolution No. 1719 on
officers by rule, order, ordinance or May 14, 1991, authorizing the Director of
resolution. Fiscal Services, the Assistant Director of
Fiscal Services and the City Treasurer to
conduct investment transactions.
Firms seeking to do business with entities Since adoption of the Cash Management
must provide a written statement certifying Rules and Regulations in 1992, all brokers
their representatives have reviewed the seeking the City's business have had to
entities' investment policies and have complete a certification form as now
implemented reasonable controls to outlined in state law.
preclude imprudent investment activities.
Each entity must conduct a compliance The external auditors have routinely
audit of investments in conjunction with its conducted compliance audits of the City's
annual financial audit. investment practices dur'
,y. n audit. a :, A
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ISSUED BY THE CITY MANAGER
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7934
GNpRTER�
a4,. ...bw To the Mayor and Members of the City Council
July 11, 1995
Page 2 of 2
Subject: CHANGES IN THE PUBLIC FUNDS INVESTMENT ACT
Each person responsible for investments In 1991 staff received extensive training in
must attend investment training within all areas of cash management in conjunction
twelve (12) months of assuming his duty. with the review of the City's investment
program conducted by a cash management
consultant. Staff will develop a curriculum
of seminars and training to attend annually.
Mortgage-backed derivatives known as The City's Cash Management Rules and
principal only (POs), interest only (lOs), and Regulations have never allowed investment
inverse floaters and collateralized mortgage in these types of derivative securities.
obligations (CMOs) with maturities
exceeding 10 years are no longer eligible
investments.
Reverse repurchase agreements must not The City's Cash Management Rules and
have a term exceeding 90 days. Money Regulations already included similar
received may not be invested in any restrictions on this type of transaction. In
security whose maturity exceeds the practice, the City does not engage in reverse
expiration date of the agreement. repurchase agreements.
Entities may invest in no-load bond mutual The City does not invest in bond mutual
funds with maturities not to exceed two funds because of the inherent fluctuations in
years and AAA ratings. their prices and the resulting threat to
principal.
Local government investment pools must be Staff was preparing to recommend this
continuously rated AAA orAAA-m by at change to the Cash Management Rules and
least one nationally recognized rating Regulations.
service to be an eligible investment.
Investment officers must submit at least The City Treasurer submits monthly
quarterly reports to the governing body and reports. The report has been expanded to
chief executive officer. provide additional information specificed
by state law.
As you can see, the City's Cash Management program has for several years included most
of the recent changes in state law. Amendments bringing City policies to full compliance
will be implemented in the next few weeks.
If there are any questions or if further information is desired, please contact me.
cou",J?4 ,
Bob Terrell
.f City Manager
ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS