HomeMy WebLinkAbout2011-002 RESOLUTION NO. 2011-002
A RESOLUTION OF THE CITY OF ARLINGTON REPLACING RESOLUTION NO. 709
AND ADOPTING REVISED FINANCIAL POLICIES FOR THE CITY
WHEREAS, the National Advisory Council on State and Local Budgeting Practices
recommends budget practices, including the development of a series of financial policies; and
WHEREAS the Arlington City Council has reviewed and deliberated on the
recommended revisions to the financial policies and finds that it is in the best interest of the city
to adopt financial policies;
NOW, THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF
THE CITY OF ARLINGTON:
Section 1. The "Financial Management Policies" dated February 7, 2011 are hereby
adopted as the financial policies and practices of the City. The City Council further
encourages the Mayor to utilize such policies in preparation of the budget.
Section 2. This resolution shall take effect immediately upon passage thereof.
APPROVED by the Mayor and City Council of the City of Arlington this 7th day of
February, 2011.
CITY OF ARLINGTON
Margar rson
Mayor
ATTEST:
Ct
Kristkranfeld
City k
APPROVED AS TO FORM:
St en J. P iffl
Cit orney
RESOLUTION NO. 2011-002
Financial Management Policies
City of Arlington
Adopted 2/7/2011
CITY OF ARLINGTON, WASHINGTON
OPERATING POLICIES
Table of Contents
OPERATING POLICIES
Purpose, objectives.....................................................................4
Reserve Fund Policies..................................................................5
Revenue Policies........................................................................6
Expenditure Policies ....................................................................7
Accounting and Financial Reporting.................................................8
BudgetPolicies...........................................................................9
Purchasing..............................................................................10
Cost Allocation.........................................................................11
DEBT MANAGEMENT POLICY............................................................13
INVESTMENT POLICY........................................................................15
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CITY OF ARLINGTON, WASHINGTON
OPERATING POLICIES
Purpose:
The Comprehensive Financial Management Policy assembles all of the City's financial policies
in one document. They are the tools to ensure that the City is financially able to meet its
immediate and long-term service objectives. The individual policies contained herein serve as
guidelines for both the financial planning and internal financial management of the City.
The City of Arlington is accountable to its citizens for the use of public dollars. Municipal
resources must be wisely used to ensure adequate funding for the services, public facilities, and
infrastructure necessary to meet the community's present and future needs. These policies
safeguard the fiscal stability required to achieve the City's goals and objectives.
Objectives:
In order to achieve its purpose, the Financial Management Policies have the following objectives
for the City's fiscal performance.
A. To guide the City Council and management policy decisions that have significant impact.
B. To set forth-operating principles that minimize the cost of government and financial risk.
C. To employ balanced and fair revenue policies that provide adequate funding for desired
programs.
D. To maintain appropriate financial capacity for present and future needs.
E. To promote sound financial management by providing accurate and timely information
on the City's financial condition.
F. To protect the City's credit rating and provide for adequate resources to meet the
provision of the City's debt obligations on all municipal debt.
G. To ensure the legal use of financial resources through an effective system of internal
controls.
H. To promote cooperation and coordination with other governments and the private sector
in the financing and delivery of services.
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CITY OF ARLINGTON, WASHINGTON
OPERATING POLICIES
Reserve Fund Policies
Adequate reserve levels are a necessary component of the City's overall financial management
strategy and key factor in external agencies' measurement of the City's financial strength.
a. The City will strive to maintain a Program Development Fund(rainy day fund)with a target
balance of eight percent(8%)of the total General Fund budgeted taxes and Licenses&
Permits. These operating reserves are maintained to address temporary revenue shortfalls;
payment of approved expenditures due to cash flow shortage; reserves for expenditures
deemed necessary by the Mayor and City Council; temporary short-term interfund loans, and
other unanticipated expenses as approved by the City Council. An annual contribution will be
budgeted from General Fund resources as available to maintain the target reserve level.
1) This "reserve" shall be in addition to the maintenanceing of one-month operating cash
within the General Fund itself.
b. It will be the policy of the City to maintain a Capital Facilities/Building Fund to provide
funding for future facilities including debt repayment, less proprietary fund projects. The use
of any funds within the Capital Facilities/Building Fund will be as approved by the City
Council.
c. Contributions to Program Development and Capital Facilities/Building Funds will be made
from available funds as identified in the annual budget, or amended budget at the end of the
year. The Finance Director shall make a recommendation to the Council with regard to
transfers to reserve funds. The Council, by motion (and amending the budget by ordinance as
necessary) shall authorize the transfers, as the Council shall determine to be appropriate at
that time.
d. All expenditures drawn from reserve accounts shall require prior Council approval unless
previously specifically authorized by the City Council for expenditure in the annual budget.
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CITY OF ARLINGTON, WASHINGTON
OPERATING POLICIES
Revenue Policies
a. To the extent possible, a diversified and stable revenue system will be maintained to shelter
public services from short-run fluctuations in any one revenue source. Trends analyzing the
dependence on distinct revenue sources shall be included in the budget documents for
consideration by the Council.
b. Revenue forecasts shall be realistically estimated and based on the best information
available. The City will follow a vigorous policy of collecting revenues.
c. Revenue forecasts will assess the full spectrum of resources that can be allocated for public
services. Each year the Council shall review potential sources of revenue as part of the
annual budget process.
d. Short-term (anticipated less than one year) economic downturns and temporary gaps in cash
flow: Expenditure reductions or restrictions may be imposed. Council may approve a
contribution from the Program Development Fund or interfund loans to address temporary
downturns in City revenues. Interfund loans may also be utilized to cover temporary gaps in
cash flow.
e. Long-term (greater than one year) revenue downturns: Deficit financing and borrowing to
support on-going operations is not the policy of the City as a response to long-term revenue
shortfalls. Revenue forecasts will be revised. Expenses will be reduced to conform to the
revised long-term revenue forecast or revenue increases will be considered.
f. All potential grants shall be carefully examined for matching requirements. Some grants
may not be accepted if the local matching funds cannot be justified. Grants may also be
rejected if programs must be continued with local resources after grant funds are exhausted.
g. The City shall develop and maintain a comprehensive list of various fees and charges. Fees
may be set at levels sufficient to cover the entire cost of service delivery(such as in
"Enterprise Funds"), or the service may be subsidized, as Council deems appropriate. The
City will systematically review user fees and rates and consider adjustments as necessary to
take into account the effects of additional service costs and inflation. Rate studies shall be
conducted to ensure that the rates will continue to support direct and indirect costs of
operations, administration, plant maintenance, debt service, depreciation of capital assets,
and moderate system extensions. Based on a market analysis, fees for similar services in
other communities may also be considered. The criteria used to evaluate recommended
target rates (equity, cost recovery policy, market demand, etc) shall be included in the staff
report during the review. Such review should be scheduled periodically and be incorporated
into the budget process for possible action by the City Council.
h. The City will review contracts and leases, which result in revenues to the city on a timely
basis in order to provide for careful evaluation by the City Council.
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CITY OF ARLINGTON, WASHINGTON
OPERATING POLICIES
Expenditure Policies
a. The City will only propose operating expenditures, which can be supported from on-going
operating revenues. Before the City undertakes any agreements that would create fixed on-
going expenses, the cost implications of such agreements will be fully determined for current
and future years. Capital expenditures may be funded from one-time revenues, but the
operating budget expenditure impacts of capital expenditures will be reviewed for
compliance with this policy provision.
b. Department heads are responsible for managing their budgets within the total appropriation
for their department.
c. The City will maintain expenditure categories according to state statute and administrative
regulation.
d. The City will assess funds for services provided internally by other funds. The estimated
direct and indirect costs of service will be budgeted and charged to the fund performing the
service. Interfund service fees charged to recover these costs will be recognized as revenue
to the providing fund. A review of the method for determining the amount of the interfund
assessment will be reviewed periodically.
e. Emphasis is placed on improving individual and work group productivity rather than adding
to the work force. The City will invest in technology and other efficiency tools to maximize
productivity. The City will hire additional staff only after the need of such positions has
been demonstrated and documented.
f. All compensation planning and collective bargaining will focus on the total cost of
compensation,which includes direct salary, health care benefits, pension contributions,
training allowance, and other benefits of a non-salary nature, which are a cost to the City.
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CITY OF ARLINGTON, WASHINGTON
OPERATING POLICIES
Accounting,Auditing and Financial Reporting
The City will maintain a system of financial monitoring, control, and reporting for all
operations and funds in order to provide effective means of ensuring that overall City
goals and objectives are met.
Accounting Records and Reporting. The City will maintain its accounting records in
accordance with state and federal regulations. Budgeting, accounting and reporting will conform
to Budgeting, Accounting and Reporting System (BARS) for Governments as prescribed by the
Washington State Auditor.
Auditing. The State Auditor will annually perform the City's financial and compliance
Audit. Results of the annual audit will be provided to the Council in a timely manner.
Simplified Fund Structure. To the extent possible, the City will minimize the number
of Funds.
The Finance Department will develop, maintain, and consistently seek to improve cash
management systems which ensure the accurate and timely accounting, investment, and
security of all cash assets. All cash received by City departments will be deposited
with the Finance Department prior to the end of each business day(unless a department has a
secure place to hold it over night and can demonstrate those secure procedures to the Finance
Director).
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CITY OF ARLINGTON, WASHINGTON
OPERATING POLICIES
Budget and Operating Policies
a. All decisions will be within the context of long-range plans (Capital Facilities Plan/
Comprehensive Plan/Capital Improvement Plan). Staff shall provide a review of the
implications of budgetary proposals on long-range plans.
b. The annual budget shall be developed consistent with state law and in a manner which
encourages early involvement with the public and City Council. A calendar of events related
to budget development shall be presented to the City Council by April 30'h of each year.
c. The Finance Department will maintain a system for monitoring the City's budget
performance. The system will provide the City Council with monthly and or quarterly
information in a timely manner on fund level resource collections and department level
expenditures.
Under the provisions of State Law and the City's operating procedures, the budget may be
adjusted or amended in two different ways. Adjustment of the budget involves a reallocation
of existing appropriations and does not change the"bottom line".No City Council action is
needed as State Law allows budget adjustments to be done administratively.Amendment of
the budget involves an addition to or reduction of existing appropriations. City Council
action, by ordinance, is required.
d. Fixed asset inventories. Accurate inventories of all physical assets, their condition, life spans,
and cost will be maintained to ensure proper stewardship of public property. The Finance
Director will establish policies and appropriate procedures to manage fixed assets, including
establishing the threshold dollar amount for which fixed asset records are maintained and
how often physical inventories are taken.
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CITY OF ARLINGTON, WASHINGTON
OPERATING POLICIES
Purchasing
The City will follow State Laws, adopted resolutions, ordinances and policies regarding
procurement.
Federal Funds. When procurement involves the expenditure of federal funds, purchasing shall
be conducted in accordance with any applicable federal laws or regulations.
Grants. When procurement involves the expenditure of a grant,purchasing shall be conducted in
accordance with any applicable grant laws or regulations.
Emergency procurement. The Mayor or his/her designated agent may make or authorize others
to make emergency procurements of materials, supplies, equipment or services when there exists
a threat to public health,welfare, or safety. State laws relating to emergency purchases will be
followed.
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CITY OF ARLINGTON, WASHINGTON
OPERATING POLICIES
Cost Allocation
The City of Arlington desires to comply with all laws and recommendations in calculating and
receiving full cost recovery for services rendered to other funds.
Cost allocation is a method to identify and distribute indirect costs. Direct costs are costs
assignable to a specific objective, whereas indirect costs are costs incurred for multiple cost
objectives or not assignable to a specific cost objective without effort disproportionate to the
benefit received.
The Washington State Auditor's Office prescribes the accounting and reporting of local
governments in the State of Washington under the Revised Code of Washington (RCW)
43.09.200. Washington State law provides, at RCW 43.09.210. It states in part:
Separate accounts shall be kept for each department, public improvement, undertaking,
institution, and public service industry under the jurisdiction of every taxing body. All
service rendered by, or property transferred from , one department, public improvement,
undertaking, institution, or public service industry receiving the same, and no department,
public improvement, undertaking institution, or public service industry shall benefit in any
financial manner whatever by an appropriation of fund made for the support of another.
The RCW does not specifically address how"full value" is to be determined.
RCW 35A.33.122/35A.34.205/35.33.123 states:
Administration, oversight, or supervision of utility—Reimbursement from utility budget
authorized. Whenever any code city apportions a percentage of the city manager's,
administrator's, or supervisor's time, or the time of other management or general government
staff, for administration, oversight, or supervision of a utility operated by the city, or to
provide services to the utility, the utility budget may identify such services and budget for
reimbursement of the city's current expense fund for the value of such services.
The Federal Office of Management and Budget(OMB) Circular A-87
OMB Circular A-87 establishes cost principals for State, local, and Indian Tribal Governments
for determining costs for Federal Awards. Item 5 of the Circular states that, "The principals are
for determining allowable costs only." In defining allowable costs,the Circular provides a
definition of allocable costs at Attachment A, paragraph C.3.a, "A cost is allocable to a particular
cost objective if the goods or services involved at chargeable or assignable to such cost objective
in accordance with relative benefits received." The Circular further outlines costs that are
allowable for charging the Federal government and distinguishes those that are specifically
excluded from recovery.
Governmental Accounting Standards Board (GASB)
GASB is the independent organization that establishes and improves standards of accounting and
financial reporting for U.S. state and local governments. While GASB is not a governmental
agency and does not have enforcement authority, compliance with GASB is tested by the
Washington State Auditor's Office's annual audit of the City.
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CITY OF ARLINGTON, WASHINGTON
OPERATING POLICIES
Allocated Costs
The City has identified a variety of ways to identify and determine an appropriate percentage of
costs for allocation to various using funds. These ways include;
• Number of employees(FTE's)in each fund
• Total operating expenses(dollar amounts)in each fund(not including debt service and capital
improvements)
• Total operating revenues(dollar amounts)in each fund(not including beginning fund balances,
grant receipts or interfund transfers),and
• Number of expenditure line items used in each fund
• What percentage of Finance Dept.time is directly attributable to utility billing
The following is the plan to allocate General Fund Service costs - Administrative, Financial
(including payroll), Information Services (computer and communications),to the various funds
that utilize those services. One of the tasks of the Finance Department is to manage the Utility
Billing function for the Water/Sewer and Stormwater Funds. Forty seven percent of all Finance
costs are considered to be directly related to the utility funds. The breakdown is 98%of the two
Utility Billing Clerks, 90%of the Cashier, 25%of the Accounts Payable Clerk, 5%of the Staff
Accountant, 51/o of the Assistant Finance Director and 10%of the Finance Director.
1) Identify the General Fund costs to be allocated.
2) On an annual basis, the Finance Department will compile the numbers from the above
mentioned ways to determine the appropriate percentages to use in allocating General
Fund costs to be allocated to various funds. An average percentage rate will then be
determined.
3) Allocate the General Fund Administrative, Financial and Information Services costs.
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CITY OF ARLINGTON, WASHINGTON
DEBT MANAGEMENT POLICY
Debt Management Policy
The objectives of the City's Debt Management Policy will be:
• To reduce the use of debt so that debt service payments will be a predictable and manageable
part of the operating budget.
• To raise capital at the lowest cost, consistent with the need to borrow. This will be
accomplished by:
- Keeping a high credit rating(while making attempts to strengthen credit rating)
- Maintaining a good reputation in the credit markets by adjusting the capital program for
regular entry to the bond market and managing the annual budget responsibly.
b. Professional service providers (underwriters, financial advisors, bond insurer's, etc)may be
selected through negotiation, RFQ process or City's procurement policies.
c. Debt issues will be sold on competitive basis(except when conditions make a negotiated sale
preferable) and awarded to the bidder who produces the lowest interest cost. Revenue bonds
can be issued through a negotiated sale when the issue is unusually large,the project is
speculative or complex, the issue is a refunding, or the market is unstable.
d. The term of long-term debt issued will not exceed the life of the projects financed. Current
operations will not be financed with long-term debt.
e. Short-term borrowing will not be used for operating purposes.
f. The City will comply with its obligation to inform the Municipal Securities Rulemaking
Board through the EMMA website (Electronic Municipal Market Access)any and all
continuing disclosure documents and annual financial statements. This site is used by the
ratings agencies and investors. The City's annual audited financial report will be sent to
EMMA as soon as the State Auditor's Office issues the report.
g. The City shall strive to maintain favorable current credit ratings.
h. The City will comply with all statutory debt limitations imposed by the Revised Code of
Washington (RCW). The City of Arlington debt will not exceed an aggregated total of 7.5%
of the assessed valuation of the taxable property within the City. Compliance with state law
and this policy shall be documented each year.
The following individual percentages (as defined in state law) shall not be exceeded in any
specific debt category:
General Debt 2.5%of assessed valuation
Utility Debt 2.5%of assessed valuation
Open Space and Park facilities 2.5%of assessed valuation
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CITY OF ARLINGTON, WASHINGTON
DEBT MANAGEMENT POLICY
i. No debt shall be issued for which the City is not confident that a sufficient, specifically
identified revenue source is available for repayment. The Finance Director shall prepare an
analytical review for this purpose prior to the issuance of any debt.
j. It shall be the policy of the City to limit bonded indebtedness to levels that permit sufficient
borrowing to support a reasonable rate of capital programming, permit a level and pace of
debt amortization within the City's ability to pay, and support the City's credit rating
objectives. It shall further be the policy of the City not to exceed 75%of City's LTGO debt
limit.
k. Credit enhancements shall be considered with a cost/benefit analysis for each long-term bond
issue.
1. Reserve accounts shall be maintained as required by bond ordinances and where deemed
advisable by the City Council. The city shall structure such debt service reserves so that they
do not violate IRS arbitrage regulations.
m. The City will maintain debt service coverage ratios as required for any bond issues.
n. Interfund borrowing may be used where such borrowing is effective. Interfund borrowing
will be approved and authorized by the City Council.
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CITY OF ARLINGTON, WASHINGTON
INVESTMENT MANAGEMENT POLICY
Investment Policy
POLICY. It is the policy of the City of Arlington to invest its public funds in a manner which
will provide the highest investment return consistent with a high degree of security while
meeting the daily cash flow demands of the City and conforming to all state statutes and local
ordinances governing the investment of public funds. Cash may, at the discretion of the Finance
Director be invested separately by fund or be co-mingled into a common investment portfolio
and earnings from such portfolio distributed at least quarterly. The Finance Director is authorized
to manage the investments described herein.
SCOPE. This investment policy applies to all financial assets of the City except: for assets held
in escrow and retirement funds managed by others such as state. City financial assets are
accounted for in the City's Annual Financial Report and include:
2.1 Funds
2.1.1 General Fund
2.1.2 Special Revenue Funds
2.1.3 Debt Service Funds
2.1.4 Capital Project Funds
2.1.5 Enterprise Funds
2.1.6 Internal Service Funds
2.1.7 Trust Funds and Agency Funds
PRUDENCE. The 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.
OBJECTIVE. Funds of the City will be invested in accordance with the Revised Code of
Washington (RCW) 35A.40.050, the BARS manual and these policies.
The primary objectives, in order of priority, of the City's investment activities shall be as
follows:
Legality: The City's investments will be in compliance with all statutes governing the
investment of public funds and the provisions of all applicable bond ordinances.
Safety: Investments of the City shall be undertaken in a manner that seeks to ensure the
preservation of capital in the overall portfolio. 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 City's investment portfolio will remain sufficiently liquid to enable the City to
meet all operating requirements, which might be reasonably anticipated. The Finance Director
shall maintain adequate liquidity by maintaining a minimum balance in the LGIP.
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CITY OF ARLINGTON, WASHINGTON
INVESTMENT MANAGEMENT POLICY
Return on Investment: The City's investment portfolio shall be designed with the objective of
attaining a market rate of return throughout budgetary and economic cycles, taking into account
the City's investment risk constraints and the cash flow characteristics of the portfolio.
Local Institutions: Local Institutions shall be given preference when they are, in the judgment
of the Finance Director, competitive with other institutions.
The Finance Director's investment actions shall be governed by this policy.
The Finance Director shall be responsible for all transactions undertaken and shall establish a
system of controls to regulate all investment activities, and report promptly to the Council any
adverse development with any investment.
ETHICS AND CONFLICTS OF INTEREST. The Finance Officer shall refrain from personal
business activity that could conflict with proper execution of the investment program, or which
could impair their ability to make impartial investment decisions. The Finance Officer shall
disclose to the Mayor and the Council any material financial interests in financial institutions that
conduct business with the City, and she/he shall further disclose any personal
financial/investment positions that could be related to the performance of the City's portfolio.
The City's Finance Officer shall subordinate their personal investment transactions to those of
the City, particularly with regard to the time of purchases and sales.
AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS. The Finance Director will
maintain a list of financial institutions authorized to provide investment services to the City of
Arlington. In addition, a list will also be maintained of approved security broker/dealers
selected by credit worthiness, who maintain an office in the State of Washington. These may
include "primary" dealers or regional dealers that qualify under US Securities and Exchange
Commission Rule 15c3-I (uniform net capital rule).No public deposit shall be made except in a
qualified public depository as established by State laws.
At the request of the City, financial institutions, brokers and dealers performing investment
services for the City shall provide their most recent financial statements or Consolidated Report
of Condition ("call report") for review.
AUTHORIZED&SUITABLE INVESTMENTS. The City may invest in any of the securities
identified as eligible investments as defined by RCW 35A.40.050. In general, these consist of:
Investment deposits(certificates of deposits)with qualified public depositories as defined in
Chapter 39.58 RCW.
Certificates, notes or bonds of the United States, or other obligations of the United States or its
agencies, or of any corporation wholly owned by the government of the United States whose
securities carry full faith and credit guarantees.
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CITY OF ARLINGTON, WASHINGTON
INVESTMENT MANAGEMENT POLICY
Obligations of government-sponsored corporations which are eligible as collateral for advances
to member banks as determined by the Board of Governors of the Federal Reserve System.
(These include but are not limited to, Federal Home Loan Bank notes and bonds, Federal Farm
Credit Bank consolidated notes and bonds, and Federal National Mortgage Association notes.)
Prime bankers' acceptances purchased on the secondary market.
Repurchase agreements for securities listed above.
The Washington Local Government Investment Pool.
COLLATERALIZATION. Collateralization will be required on all repurchase agreements so as
to anticipate market changes and provide a level of security for all funds,the collateral ization
level will be 102% of market value of principal and accrued interest.
The City chooses to limit collateral to the obligations of the United States Government and its
agencies.
Collateral will always be held by an independent third party with whom the entity has a current
custodial agreement (except certificates of deposits). A clearly marked evidence of ownership
(safekeeping receipt)must be supplied to the entity and retained.
Certificates of deposit are delivered to and held by the Finance Director until they mature.
SAFEKEEPING AND CUSTODY. All investment securities purchased by the City, including
collateral on repurchase agreements, shall be held by the City or in safekeeping by the City's
custodian bank or a third party bank trust department, acting as agent for the City under the terns
of a custody or trustee agreement executed by the bank and by the City. The primary agent shall
issue a safekeeping receipt to the City listing the specific instrument, rate, maturity, and other
pertinent information.
All securities transactions, including collateral for repurchase agreements entered into by the
City shall be conducted on a delivery-versus-payment (DVP)basis. Securities will be held by a
third party custodian designated by the City Finance Director and evidenced by safekeeping
receipts.
DIVERSIFICATION. The City will diversify its investments by security type and issuer. With
the exception of US Treasury and Agencies of the United States government, and the
Washington State Local Government Investment Pool, no more than 50%of the City's total
investment portfolio will be invested in a single security and no more than 25%will be invested
with a single issuer.
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CITY OF ARLINGTON, WASHINGTON
INVESTMENT MANAGEMENT POLICY
MAXIMUM MATURITIES. To the extent possible,the City will attempt to match its
investments with anticipated cash flow requirements. Unless matched to a specific cash flow,the
City will not directly invest in securities maturing more than five (5)years from the date of
purchase. The average maturity will be consistent with the liquidity objective. However, the City
may collateralize its repurchase agreements using longer-dated investments not to exceed 10
years.
The City's reserve funds may be invested in securities not to exceed (10) years if the maturity
of such investments is made to coincide as nearly as possible with the expected use of funds.
The purpose of permitting a portion of the investments to have longer maturities is to recognize
that funds may yield higher yields when invested for longer periods of time.
INTERNAL CONTROLS. The Finance Director shall establish a system of internal controls,
which shall be reviewed annually by an external auditor. This review will provide internal
control by assuring compliance with policies and procedures.
PERFORMANCE STANDARDS. The City's investment portfolio will be designed to obtain a
market average rate of return during budgetary and economic cycles,taking into account the
City's investment risk constraints and cash flow needs.
Investment Strategy. The City's investment strategy is active. As a result, securities are
purchased and sold as it best meets the needs of the City as determined by the Finance Director.
The Finance Director will be authorized to trade before maturity if it is in the best interest of the
City to do so.
REPORTING. The Finance Director will determine what investment information will be
included in the monthly financial report.
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INVESTMENT MANAGEMENT POLICIES
GLOSSARY
ACCRUED INTEREST: The interest accumulated on a bond since its dated date or the most
recent date to which interest has been paid by the City. The buyer of the bond pays the market
price and accrued interest,which is payable to the seller.
AGENCIES: Federal agency securities.
ASKED: The price at which securities are offered.
BANKERS' ACCEPTANCE (BA): A draft or bill or exchange accepted by a bank or trust
company. The accepting institution guarantees payment of the bill, as well as the issuer.
BOND: A long-term debt security (IOU) issued by a government or corporation. Generally pays
a stated fixed rate of interest, and returns the face value at maturity.
BOOK VALUE: The amount at which an asset is carried on the books of the owner. The book
value of an asset does not necessarily have a significant relationship to market value.
BROKER: A middleman who brings buyers and sellers together for a commission paid by the
initiator of the transaction or by both sides;they do not position. In the money market, brokers
are active in markets in which banks buy and sell money and in interdealer markets.
CALL OPTION: The right to prepay or redeem a security at a predetermined price on or after a
specified future date that is earlier than its scheduled maturity date.
CERTIFICATE OF DEPOSIT (CD): A time deposit with a specific maturity earning a
specified rate of return evidenced by a certificate. Certificates of Deposit bear rates of interest in
line with money market rates current at the time of issuance.
COLLATERAL: Securities, evidence of deposit or other property which a borrower pledges to
secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of
public monies.
CONFIRMATION: A document used to state and supplement in writing the terms of a
transaction which have previously been agreed to verbally.
COUPON: (a) The annual rate of interest that a bond's issuer promises to pay the bondholder on
the bond's face value. (b)A certificate attached to a bond evidencing interest due on a payment
date (not used since 1982).
CUSIP NUMBER(COMMITTEE OR UNIFORM SECURITIES IDENTIFICATION
PROCEDURES): An identifying number assigned to a publicly traded security. A nine-digit
code is permanently assigned to each issue and is generally printed on face of the security if it is
in physical form.
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INVESTMENT MANAGEMENT POLICIES
GLOSSARY
DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and
selling for his or her own account.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: delivery
versus payment and delivery versus receipt (also called free). Delivery versus payment is
delivery of securities simultaneously with an exchange of money for the securities. Delivery
versus receipt is delivery of securities simultaneously with an exchange of a signed receipt for
the securities.
DISCOUNT: There is "original issue discount" and "market discount." Original issue discount is
the difference between the cost Iprice of a security when first offered for sale to the general
public and its face value at maturity when quoted at lower than face value. Original issue
discount is treated as interest. Market discount is the difference between principal amount of an
outstanding security (reduced by any original issue discount)and the value of that security in the
then-current market(if lower than its principal amount). If a security is bought at a market
discount and later sold at a gain, the gain is taxable income.
DIVERSIFICATION: Dividing investment funds among a variety of securities offering
independent returns.
FARM CREDIT DISCOUNT NOTES AND BONDS: Secured joint obligations of Farm
Credit Banks that are issued with a minimum face value of$50,000 with maturities ranging from
5 to 360 days.
FEDERAL CREDIT AGENCIES: Agencies of the Federal Government set up to supply credit
to various classes of institutions and individuals, e.g., S&L's, small business firms, students,
l farmers, farm cooperatives, and exporters.
FEDERAL FUNDS RATE: The rate of interest at which Federal funds are traded between
banks. This rate is currently pegged by the Federal Reserve through open market operations.
FEDERAL HOME LOAN BANKS (FHLB): The institutions that regulate and lend to savings
and loan associations. The Federal Home Loan Banks play a role analogous to that played by the
Federal Reserve Banks vis-a-vis member commercial banks.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA, like GNMA was
chartered under the Federal National Mortgage Association Act in 1938. FNMA is the
corporation's purchases include a variety of adjustable mortgages and second loans in addition to
fixed-rate mortgages FNMA's securities are also highly liquid and are widely accepted. FNMA
assumes and guarantees that all security holders will receive timely payment of principal and
interest.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a
substantial loss of value.
20
CITY OF ARLINGTON, WASHINGTON
INVESTMENT MANAGEMENT POLICIES
GLOSSARY
LOCAL GOVERNMENT INVESTMENT POOL (LGIP): The aggregate of all funds from
political subdivisions that are placed in the custody of the State Treasurer for investment and
reinvestment.
MARKET VALUE: The price at which a security is trading and could presumably be
purchased or sold.
MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions
between the parties to repurchase -- reverse purchase agreements that establishes each party's
rights in the 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.
MATURITY: The date upon which the principal or stated value of an investment becomes due
and payable.
PORTFOLIO: A collection of securities held by an investor.
PRIMARY DEALER: A group of government securities dealers that submit daily reports of
market activity and positions and monthly financial statements to the Federal Reserve Bank of
New York and are subject to its informal oversight. Primary dealers include Securities and
Exchange Commission(SEC)registered securities broker-dealers, banks, and a few unregulated
firms.
PRINCIPAL: The stated face amount of an instrument, exclusive of accrued interest.
PRUDENT PERSON RULE: An investment standard. In some states the law requires that a
fiduciary such as a trustee may invest money only in a list of securities selected by the
state-the-so-called legal list. In other states the trustee may invest in a security if it is one which
would be bought by a product person of discretion and intelligence who is seeking a reasonable
income and preservation of capital.
QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim
exemption from the payment of any sales or compensating use or ad valorem taxes under the
laws of this state, which has segregated for the benefit of the Public Deposit Protection
Commission eligible collateral having a value of not less than its maximum liability and which
has been approved by the Public Deposit Protection Commission to hold public deposits.
REPURCHASE AGREEMENT(RP or REPO): A holder of securities sells these securities to
an investor with an agreement to repurchase them at a fixed price on a fixed date.The security
"buyer" in effect lends the "seller" money for the period of the agreement, and the terms of the
agreement are structured to compensate him for this. Dealers use RP extensively to finance their
positions. Exception: When the Fed is said to be doing RP, it is lending money,that is,
increasing bank reserves.
21
CITY OF ARLINGTON, WASHINGTON
INVESTMENT MANAGEMENT POLICIES
GLOSSARY
SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and
valuables of all types and descriptions are held in the bank's vaults for protection.
SEC RULE 156-1: SEC uniform net capital rule requiring brokers and dealers to maintain
certain amounts of net capitol.
SECURITIES & EXCHANGE COMMISSION: Agency created by congress to protect
investors in securities transactions by administering securities legislation.
TREASURY BILLS: A non-interest bearing discount security issued by the US Treasury to
finance the national debt. Most bills are issued to mature in three months, six months or one year.
TREASURY BONDS: Long-term US Treasury securities having initial maturities of more than
ten years.
TREASURY NOTES: Intermediate term coupon bearing U.S. Treasury securities having initial
maturities of from one to ten years.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that
member firms as well as nonmember broker-dealers in securities maintain a maximum ratio of
indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio.
Indebtedness covers all money owed to a firm, including margin loans and commitments to
purchase securities, one reason new public issues are spread among members of underwriting
syndicates. Liquid capital includes cash and assets easily converted into cash.
YIELD: The rate of annual income return on an investment expressed as a percentage. Income
Yield is obtained by dividing the current dollar income by the current market price for the
security.Net Yield or Yield to Maturity is the current income Yield minus any premium above
par or plus any discount in purchase price, with the adjustment spread over the period from the
date of purchase to the date of maturity of the bond.
22
CERTIFICATE OF RESOLUTION
I, Kristin Banfield, City Clerk of the City of Arlington, Washington (the "City"),
do hereby certify that the attached is a full, true and correct copy City of Arlington
Resolution No. 2011-002, passed by the Arlington City Council at their regular meeting
on February 7, 2011.
Kris ' Banfield, City Cler
Dated this 91h day of February, 2011