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HomeMy WebLinkAbout1997 02-13 FCAi AGENDA BROOKLYN CENTER FINANCIAL COMMISSION February 13, 1997 City Hall Conference Room B 1. Call to Order: 7:00 P.M. 2. Roll call. 3. Approval of Minutes: January 9, 1997. 4. Approval of Agenda 5. Deferral of proposed Capital Improvements Fund & Reserve Fund Expenditure Policy to March meeting. • 6. Proposed Accounts Receivable Policy. 7. Proposed NSF check Policy. 8. Amended Investment Policy. 9. Set Date of Next Meeting. 10. Adjournment: 8:00 P.M. 11. Tour of Fire buildings. The Financial Commission asked to receive copies of monthly financial reports submitted to the City Council. The following reports are attached for your review: General Fund Summary Budget Report - Preliminary December 31, 1996 Lodging Tax Collection and Distribution Report - December 31, 1996 Centerbrook Golf Course Statement of Revenues and Expenses - Preliminary December 31, 1996 • Liquor Stores Financial Statements - Preliminary December 31, 1996 1 • MINUTES OF THE PROCEEDINGS OF THE FINANCIAL COMMISSION OF THE CITY OF BROOKLYN CENTER JANUARY 9, 1997 CITY HALL, CONFERENCE ROOM B CALL TO ORDER Chair Donn Escher called the meeting to order at 7:01 P.M. in Conference Room B. ROLL CALL Present at roll call were Chair Donn Escher, Commissioners: Ned Storla, Jay Hruska, and Jerry Blarney. Commissioner Ron Christensen arrived at 7:07 P.M. Also present were Mayor Myrna Kragness, Council Member Debra Hilstrom, City Manager Michael McCauley, Finance Director Charlie Hansen and a citizen, Mike Redusky. Commissioner Larry Peterson was unexcused. Discussion of Status and Role of the Fin ncial Commission Chair Donn Escher raised his concern over the lack of involvement of the Financial Commission in City finances and asked what direction the Financial Commission should go in the future. He handed out and read a prepared statement. Extensive discussion followed. Mayor Kragness and Councilmember Hilstrom expressed their desire to continue the Financial Commission and find ways to use it more effectively in 1997. i Approval of Minutes A motion was made by Commissioner Ron Christensen to approve the minutes of the November 14, 1996 meeting. Commissioner Jay Hruska seconded the motion and all members voted in its favor except for Commissioners Donn Escher, Ned Storla, and Jerry Blarney who abstained from voting. Annual Meeting Chair Donn Escher asked for nominations for the position of chair for 1997. Ron Christensen nominated Donn Escher to be chair. Ned Storla seconded the nomination. All members voted in favor of the nomination. Chair Donn Escher appointed Ned Storla to be Vice Chair. Undate of Fire & Police Building Needs Planning Mike McCauley presented two draft site plans for the Civic Center and the West Fire Station. The Civic Center plan contemplates moving general office space to a new addition connecting the current City Hall to the Community Center. The existing City Hall would be remodeled on both floors for the Police Department. At the West Fire Station, the current building would be demolished and the Liquor Store relocated to a yet to be determined site. A new fire station would be built on the current site with a drive through apparatus bay. The East Fire Station would be remodeled but not enlarged. Preliminary cost estimates are $3,200,000 to build the west and remodel the east fire stations and $3,500,000 to build the general office space and remodel is the Police Station. 2 • Review of Canital Imnrovements Fund Exie diture Policv Mike McCauley presented a draft of a capital expenditure reserve fund policy to set aside $1,000,000 for a true emergency fund. The remaining assets would stay in the existing Capital Improvements Fund and would be available to use for current city needs with an amended Capital Improvements Fund Expenditure Policy. Debra Hilstrom asked if the policy defined what projects would be allowed in each fund. Ron Christensen expressed concern about striking the requirement for a minimum fund balance. Mike McCauley explained that this need is met by the reserve fund. Donn Escher asked for a chart to explain how the two funds would work in practice. Mike McCauley proposed a review of the cash resources of all funds. Discussion of Standard Meeting Date for 1997 It was decided to change the standard meeting date of the Financial Commission to the first Thursday of each month, beginning in March. Mike McCauley announced that the City Council has proposed to have a joint meeting with the Financial Commission in May. This will take place on Thursday, May 1, in keeping with the new standard meeting date. Next Meeting, The next meeting will be Thursday, February 13, 1997 at 7:00 P.M. • ADJOURNMENT Chair Donn Escher declared the meeting adjourned at 9:00 F.M. • 3 0 MEMORANDUM TO: Financial Commission Chair Donn Escher, Members Ned Storla, Ron Christensen, Lawrence Peterson, Jay Hruska, Jerald Blamey, Michael Weidner, Council Liaison Debra Hilstrom, and City Manager Michael J. McCauley FROM: Charlie Hansen, Finance Director C H DATE: February 11, 1997 SUBJECT: Deferred Agenda Items At the last Financial Commission meeting, staff was instructed to prepare materials for this meeting on the proposed Capital Improvements Fund and Reserve Fund expenditure policy; a report on cash balances and fund balances in all funds; and more detailed materials on building plans. As we worked to prepare all of these items and the ones that are on the agenda, it became apparent that it was too much material for one meeting in • which we were also doing a tour of Fire Stations. We decided to defer the items listed above until the March meeting. These items were selected for several reasons. While we are progressing toward closing out 1996, there are still several unresolved issues which affect year end cash balances and fund balances. This has an impact on the proposed Capital Improvements Fund and Reserve Fund expenditure policy. Work on that policy and the new building plans have also been slowed by the press of other business on the City Manager's time. • 4 MEMORANDUM 0 TO: Michael J. McCauley, City Manager FROM: Charlie Hansen, Finance Director C H DATE: February 10, 1997 SUBJECT: Accounts Receivable and NSF Check Policies Attached are two draft policies for handling accounts receivables and NSF checks. We have been doing most of the processes identified in these policies. The initiative for writing the policies came from the need at the end of 1996 to write off those invoices and checks for which our collection efforts have been unsuccessful. In the past, we submitted a resolution to the City Council for them to approve the amounts written off. These write offs usually were an insignificant amount and you felt we shouldn't bother the City Council with them. However, since that represents a change in practice, you suggested that I write these policies to define our practices from this point forward. • • 5 • CITY OF BROOKLYN CENTER ACCOUNTS RECEIVABLE POLICY 1. Purpose To assure that account receivable are handled in a uniform process which provides for maximum recovery for the City while maintaining an efficient operation. 2. Issuance process Adequate controls and processes shall be established as appropriate to each City division issuing accounts receivable invoices to maximize the collection of the amounts owed. These may include credit checks, customer screening technics, requirements for partial advance payments, and other processes as appropriate. 3. Loss controls When an invoice becomes delinquent, steps shall be taken to collect the amount owed and prevent further loss. These may include sending of a demand for payment letter, adding the amount related to an account owed to the City, refusing further services, turning the account over to a collection agency, certification of the amount as a special assessment if allowed by state statute, and other processes as • appropriate. 4. Accounting All invoices shall be listed on the financial system as an accounts receivable with a reasonable offsetting allowance for an estimated uncollectible. The Finance Department will at least annually submit to the City Manager a list of uncollectible accounts receivable for which collection efforts have been unsuccessful and which are to be written off. The City Manager will have the authority to write off individual accounts receivable of up to $2,500 and annual lists of accounts receivable of up to $15,000. Amounts in excess of either of these limits shall be submitted to the City Council for approval prior to being written off. • 6 Member Kathleen Carmody introduced the following resolution and • moved its adoption: RESOLUTION NO. 95-240 RESOLUTION AUTHORIZING THE CITY MANAGER TO WRITE-OFF UNCOLLECTIBLE ACCOUNTS RECEIVABLES WHEREAS, the City Manager has reported the following accounts receivables are uncollectible. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Brooklyn Center to authorize the City Manager to write-off from the City records as uncollectible the following accounts receivables: Due From Vince Delisi Timber Ridge Apartments Gregory & Cheryl Stock Theresa Schultz • Pumose Amount 5th False Police Alarm $ 50.00 2nd - 7th False Fire Alarms 1,650.00 Diseased Tree Removal 150.50 Accident Damage - Street Signs 66.86 Total November 13, 1995 Date ATTEST: G/,Y'. zi~ Deputy Clerk $ 1.917.36 May The motion, for the adoption of the foregoing resolution was duly seconded by member Debra Hilstrom and upon vote being taken thereon, the following voted in favor thereof: Myrna Kragness, Kristen Mann, Debra Hilstrom, and Kathleen Carmody; and the following voted against the same: none, whereupon said resolution was declared duly passed and adopted. • 7 • CITY OF BROOKLYN CENTER NSF CHECK POLICY 1. Purpose To assure that not-sufficient-funds, account closed, and other bad checks be handled in a uniform process which provide for maximum recovery for the City while maintaining an efficient operation. 2. Prevention and safeguards Adequate controls and processes shall be established as appropriate to each City point of contact to minimize the risk of the City receiving NSF checks. These may include check verification services, customer screening technics, credit checks, visible warnings of collection penalties, and other processes as appropriate. 3. Loss controls Upon receipt of a NSF check, steps shall be taken to collect the amount owed and prevent further loss. These may include sending of a demand for payment letter, charging a fee for a returned check up to the amount allowed by state statute, adding the amount back to an account owed to the City, refusing further services, . turning the check over to a collection agency, and other processes as appropriate. 4. Accounting NSF check balances shall be listed on the financial system as an accounts receivable with a reasonable offsetting allowance for estimated uncollectible checks. The Finance Department will at least annually submit to the City Manager a list of uncollectible checks for which collection efforts have been unsuccessful and are to be written off. The City Manager will have the authority to write off individual checks of up to $2,500 and annual lists of checks of up to $15,000. Amounts in excess of either of these limits shall be submitted to the City Council for approval prior to being written off. 8 Member Kathleen Carmody introduced the following resolution and • moved its adoption: RESOLUTION NO. 95-U2 RESOLUTION AUTHORIZING THE CITY MANAGER TO WRITE-OFF UNCOLLECTIBLE CHECKS • WHEREAS, the City Manager has reported checks totalling $1,955.68 made payable to the City of Brooklyn Center are uncollectible because the payors' checking accounts upon which they are drawn have been closed and that attempts to locate the payors have been unsuccessful. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Brooklyn Center to authorize the City Manager to write-off from the City records as uncollectible the following amounts: $1,867.13 for the Liquor Stores Fund, $8.00 for the Golf Course Fund, and $80.55 for the General Fund for a total of $1,955.68. November 13, 1995 Date ATTEST: Deputy Clerk The motion for the adoption of the foregoing resolution was duly seconded by member Debra Hilstrom and upon vote being taken thereon, the following voted in favor thereof. Myrna Kragness, Kristen Mann, Debra Hilstrom, and Kathleen Carmody; and the following voted against the same: none, whereupon said resolution was declared duly passed and adopted. D Myrna KragneseMayor 9 • • MEMORANDUM TO: Michael J. McCauley, City Manager FROM : Charlie Hansen, Finance Director C H DATE: February 10, 1997 SUBJECT: Investment Policy The City's first investment policy was writen by Paul Hohnlund in 1990 and the City Council approved it by resolution. When the state first came out with the broker certification requirement on 1/l/94, I revised Paul's policy to include a statement on derivatives and sent it to the brokers. This version of the policy was never submitted to the City Council. I feel that even the 1/1/94 revised policy is rather out of date and I would like to have the City Council adopt a new policy. I have written a draft policy based largely on the GFOA model investment policy. Areas in which I deviated from the model policy are mostly as follows: 1. Inclusion of language from Minnesota Statutes Chapter 118A and the Brooklyn Center City Charter in place of more generic language. 2. Leaving out some investment practices allowed by the model policy to reflect my more conservative approach to investing. 3. Leaving out an internal control provision regarding segregation of transaction duties from record keeping duties since I currently do both. 4. Leaving out some periodic reporting elements since they are much more extensive than what I currently do. 5. In a few instances I added provision I felt were desirable. 10 CITY OF BROOKLYN CENTER FINANCIAL COMMISSION (TASK FORCE= JANUARY 9. 1997 Prepared statement regarding the history, scope, purpose and accomplishments of the Financial Ad Hoc Task Force and the Financial Commission On April 9, 1991, the Brooklyn Center City Council adopted Resolution #91-115 to establish a one year Ad Hoc City Financial Task Force. The Scope of activity for the Task Force was to advise the City Council regarding matters relevant to the City's financial status. Its Purpose was to evaluate the cost effectiveness of City services, programs and functions in response to higher costs of service delivery, mandates and a trend of decreasing intergovernmental revenues to cities. The Duties and Responsibilities of the Task Force included: make recommendations to improve cost effectiveness of City services, programs and functions, -make recommendations on priorities for reducing or eliminating services should it become necessary, and -make recommendations on modifications, additions, and/or deletions to short and long term City revenue sources. On April 8, 1992, Resolution #92-99 was adopted by the City Council to extend the life of the Task Force until such time as it had made its final presentation and recommendations to the City Council. On July 22, 1992, the Task Force presented a report entitled "General Fund Budget Prioritization Process" which was accepted by the City Council. In the City Council's unanimous opinion there was a continuing need to formulate priorities and responses to continuing limited resources and to provide on-going fiscal advice to the Council, the Council adopted Resolution #92-168 on July 13,1992 to establish a permanent Financial Commission. The Scope, Purpose and Duties and Responsibilities of the Commission were to be the same as for the Ad Hoc Task Force. AD HOC TASK FORCE From its first meeting in September, 1991 through its presentation of its report in July, 1992, the Task Force met at least 18 times, with several sub-committee meetings in-between. During that time, Task Force • members met with the City Manager, Council Members and City Department Heads. CITY OF BROOKLYN CENTER FINANCIAL COMMISSION (TASK FORCEI is JANUARY-9,1997- Areas of study included: -City budgets, expenditures, sources of revenue -City staffing and organizational structure -City departments and services provided, including cost ratios -City job classification plan -City pay plans and pay equity progress -Franchise fees -Property tax structure; City assessing policies -Existing Financial Management policies When this extensive study was completed, a General Fund Prioritization Process Report was compiled and submitted to the City Council, but not before there had been input from the employees themselves, department heads, the City Finance Officer and the City Manager. FINANCIAL COMMISSI-0-M The Financial Commission met regularly, plus additional sub-committee meetings, between its inception until the middle of 1995. During that period of time, the Commission provided advice and counsel to the City Manager and the City Council on a variety of items including: -reviewed and proposed recommendations to modify existing Financial Management Policies and Procedures, -developed and proposed policies and procedures for: Capital Improvements Fund Expenditures Adequate General Fund Balance Policy Formula Mayor and Council Member Total Compensation City Contractual Services for Non-Profit Organizations Severance Pay Policy for Laid Off Employees REORGANIZATION/ORGANIZATIONAL ANALYSIS Considerable time was spent participating in the Suburban City. Management Study for First Tier Cities. This led the Commission into a joint organizational analysis with the City Manager. Services, staffing, salaries were studied in detail. The outcome of this effort resulted in a re-organization of City functions. ANNUAL BUDGET Probably one of the more important functions performed by the Commission was its participation in the development of the annual City CITY OF BROOKLYN CENTER FINANCIAL COMMISSION (TASK FORCE) JANUARY 9. 1997 Budget each year. The City Manager worked closely with the Commission in its preparation. Once the proposed budget was ready for submission to the City Council, joint meetings were held amongst the City Council, the City Manager, the City Finance Officer and the Financial Commission. As a result of this cooperative effort amongst elected City officials, City employees and City citizens, a remarkable degree of success and acceptance was achieved on the budget. Commission members always attended the taxation public hearings and were in a position to provide public support to the tax proposals based on the budget document. However, since the preparation of the 1995 annual City Budget, the Financial Commission has been left out of the process by both the City Manager and the City Council, either by design or oversight. FUTURE STATUS AND ROLE OF THE FINANCIAL COIMISSIOR The purpose of this statement has been to generally outline some of the many activities and accomplishments, but not all, of the Financial Commission and its predecessor, the Ad Hoc Task Force, and to pose to the City Manager and the City Council the question as to the future status and role of the Financial Commission. Several Commission members and its current Chair have developed the sense of not being wanted or needed either by the City Manager or the City Council. If this is true, then Commission members should be told so directly and the Commission dissolved. If, on the other hand, the Financial Commission is needed and wanted, the City Manager and the City Council should so affirm and begin again to utilize the advice and counsel of Commission members who represent the citizens of Brooklyn Center. We do not and will not accept the role of "being there" when there is trouble. We believe that we can provide an on-going positive contribution to the City of Brooklyn Center. We genuinely believe that our assistance is needed as City staff and the City Council contemplate future bonding and construction requests to the tax payers of the City. Donn H. Escher, Chair Brooklyn Center Financial Commission 0 0 CITY OF BROOKLYN CENTER INVESTMENT POLICY 1. SCOPE This investment policy applies to all of the investment activities of the City, except for the Employee Deferred Compensation Agency Fund and the proceeds of refunding bond issues where the investment of such proceeds is specifically governed by the bond escrow agreement. II. OBJECTIVE 1. SAFETY Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and i interest rate risk. A. Credit Risk Credit risk is the risk of loss due to failure of the security issuer or backer. Credit risk may be mitigated by: • Limiting investments to the safest types of securities; and • Pre-qualifying the financial institution, broker/dealer, intermediaries, and advisors with which an entity will do business; and • Diversifying the investment portfolio so that potential losses on individual securities will be minimized. B. Interest Rate Risk Interest rate risk in the risk that the market value of securities in the portfolio will fall due to changes in general interest rate. Interest rate risk may be mitigated by: • Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity; and • • By investing operating funds primarily in shorter-term securities. 1 • 2. LIQUIDITY The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands. Furthermore, since all possible cash demands cannot be anticipated, the portfolio should contain a large component of securities with active secondary or resale markets. 3. YIELD The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of least importance compared to the safety and liquidity objectives described above. The core of investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities shall be held to maturity with the following exceptions: 1. Liquidity needs of the portfolio require that the security be sold. 2. A security of declining credit could be sold early to minimize loss of principal. 4. STABLE EARNINGS Since investment earnings are included in the budgeted revenues of the City, it is important that these earnings be stable and predicable through at least the next budget cycle. This points to the need to purchase securities of various maturities so that at least half of the portfolio will remain for two or more years with known interest rates. III. STANDARDS OF CARE 1. PRUDENCE The standard of prudence to be used by investment officials shall be the prudent person standard and shall be applied in the context of managing an overall portfolio. Investment officials acting in accordance with this policy and exercising due • 2 • diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and the purchase and sale of securities are carried out in accordance with the terms of this policy. 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. 2. ETHICS AND CONFLICTS OF INTEREST Officials 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 that could impair their ability to make impartial decisions. Officials shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/ investment positions that could be related to the performance of the investment portfolio. Officials shall refrain from undertaking personal investment transactions S with the same individual with who business is conducted on behalf of the City. 3. DELEGATION OF AUTHORITY Authority to manage the investment program is derived from Minnesota State Statutes, Chapter 118A and Brooklyn Center City Charter Chapter 6, Section 6.04 and is granted to the City Manager, City Treasurer, and Assistant City Treasurer. Responsibility for the operation of the investment program is hereby delegated to the City Treasurer, who shall carry out the program consistent with this policy. No person may engage in an investment transaction except as provided under the terms of this policy. The City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the execution of all investment transactions. 4. TRAINING To ensure the competence of its investment officials, the City should provide opportunity for the officials to attend such investment training programs as are available and suitable. is 3 • IV. SAFEKEEPING AND CUSTODY AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS A resolution shall be submitted to the City Council at least annually to designate depositories of city funds. This shall include institutions and dealer/brokers where accounts are maintained for banking services, purchase and sale of investment securities, and the custody of securities. The City Treasurer shall provide to each broker or institution, a written statement of investment restrictions which shall include a provision that all future investments are to be made in accordance with Minnesota Statutes governing the investment of public funds, prior to completing an initial transaction, and annually thereafter. An annual review of the depositories shall be conducted by the City Treasurer. Requests for Proposals for banking services and custodian for investment securities shall be conducted on a periodic basis as defined in the Policy and Procedure on Requests for Proposals for Financial Professional Services. 2. INTERNAL CONTROLS The City Treasurer is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft, or misuse. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived and the valuation of costs and benefits requires estimates and judgements by management. Internal controls shall include the following; a. Control of Collusion. Collusion is a situation where two or more employees are working in conjunction to defraud their employer. b. Custodial safekeeping, Securities purchased from any bank or dealer shall be placed with an independent third party for custodial safekeeping or held in an account with the Federal Reserve Bank of Minneapolis. C. Avoidance of nhvsical deliverv securities. Book entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded against loss 40 4 or destruction. The potential for fraud and loss increases with physical delivered securities. d. Clear delegation of authority to subordinate staff members., Officials must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure. e. Written confirmation of telex)bone transactions for investments and wire transfers. Due to the potential for errors and improprieties arising from telephone transactions, all transactions should be supported by written communications and approved by the appropriate official. Written communications may be via fax on letterhead. Institutions and broker/ dealers shall be provided with a list of authorized signers. f. Development of a wire transfer agreement with institutions and broker/, dealers. This agreement should outline the various controls, security provisions, and delineate responsibilities of each party making and receiving wire transfers. g. Independent Audit. The City's independent auditors shall conduct a thorough review of the City's investment portfolio and transactions as part of their engagement. 3. DELIVERY VERSES PAYMENT All trades where applicable will be executed by delivery verse payment (DVP). This ensures that securities are deposited in the eligible financial institution prior to the release of funds. Securities will be held by a third party custodian. V. SUITABLE AND AUTHORIZED INVESTMENTS 1. INVESTMENT TYPES Consistent with Minnesota Statutes Chapter I I9A, the following investments will be permitted by this policy : a. Securities that are the direct obligations or are guaranteed or insured issues of the United States, its agencies, its instrumentalities, or organizations • 5 created by an act of Congress; including governmental bills, notes, bonds, and other securities. b. Commercial paper issued by U.S. corporations or their Canadian subsidiaries that is rated in the highest quality by at least two nationally recognized rating agencies and matures in 270 days or less. C. Time deposits that are fully insured by the Federal Deposit Insurance Corporation or bankers acceptances of U.S. banks. d. Repurchase agreements and reverse repurchase agreements may be entered into with financial institutions identified by Minnesota Statutes Chapter 118A. e. Securities lending agreements may be entered into with financial institutions identified by Minnesota Statutes Chapter 118A. f. Minnesota joint powers investment trusts may be entered into with trusts identified by Minnesota Statutes Chapter 118A. g. Money market mutual funds regulated by the Securities and Exchange Commission and whose portfolios consist only of short term securities permitted by Minnesota Statutes Chapter 118A. h. Bonds of the City of Brooklyn Center issued in prior years, may be redeemed at current market price, which may include a premium, prior to maturity using surplus funds of the debt service fund set up for that issue. Such repurchased bonds shall be canceled and removed from the obligation of the fund. 2. SECURITIES NOT PURCHASED Derivative securities which obtain their value by the calculation of some portion of the value of another security shall not be purchased. Mortgage backed securities, even if insured by a Federal Agency, shall not be purchased. Securities which represent the principal or interest payments stripped off from an original issue security shall not be purchased. • 6 0 CITY OF BROOKLYN CENTER STATEMENT OF INVESTMENT POLICY Dated January 1, 1994 It is the policy of the City of Brooklyn Center that available funds be invested to the maximum extent possible, at the highest rates obtainable at the time of investment, in conformance with the legal and administrative guidelines outlined herein. Safety of principal is the foremost objective. Liquidity and yield are also important considerations. I. LeLyal Asnects Minnesota Statutes authorize and define an investment program for municipal governments. A. Investment Instruments Authorization The City of Brooklyn Center shall invest in the following instruments allowed by Minnesota Statutes: • b. C. d. e. f. 9. United States Treasury obligations Federal Agency issues Repurchase Agreements (repo's) Certificates of Deposit Commercial Paper - prime Banker's Acceptances - prime Money Market Funds whose portfolios consist of United States Treasury obligations and Federal Agency issues. B. Supplemental a ositories Annually the City Council will designate depositories for investment purposes. C. Derivatives and Strins not nurchased Under no circumstances will the City of Brooklyn Center purchase securities which are derivatives of United States Treasury obligations or Federal Agency issues, but only the original securities. The City of Brooklyn Center will not purchase mortgage backed securities, even if the mortgages are insured by a Federal Agency. The City of Brooklyn Center will not purchase securities which represent the future interest on securities which has been stripped off from the principal of the security. • 1 • CITY OF BROOKLYN CENTER STATEMENT OF INVESTMENT POLICY (continued) II. Vendor Asnects The vendor aspects of investment activity focus upon protection of taxpayer dollars and investment income, consistent with statutory authorization and financial prudence. The City of Brooklyn Center shall seek to conduct its investment transactions with several competing, reputable investment security dealers and qualifying banks. Special care should be exercised when considering new services. A. Perfecting Collateral in Renurchase Agreements Repo's are considered secured loans with securities as underlying collateral. The collateral in each repo transaction shall be perfected. (Perfection is a legal concept by which a lender attains the right to take delivery and ownership of the collateral involved in a loan in the event that a debtor defaults and files bankruptcy.) With collateral perfection there is less principal risk for the lender since the claim against • the collateral is in place in relation to those other parties. For repo's with maturities of 21 days or less, collateral is considered perfected without security delivery. For repo's with maturities extending past 21 days, perfection occurs only by taking possession of securities. It is the City of Brooklyn Center's policy to insist on delivery of securities if the repo transaction is for greater than 21 days. B. Selection of Reno Vendors The City of Brooklyn Center will purchase repo's from vendors who meet certain criteria. 1. Reno transactions restricted to: a. Reporting dealers who are monitored by the New York Federal Reserve Bank or b. Nationally supervised commercial banks whose combined capital and . surplus equals or exceeds $10,000,000. 2 • CITY OF BROOKLYN CENTER STATEMENT OF INVESTMENT POLICY (continued) 2. Renutation and ExDerience The qualifying bank or dealer must have demonstrated over a significant period of time, a successful, profitable, and reliable operation. 3. Management and Professionalism The qualifying bank or dealer must have an established managerial component and knowledgeable staff capable of ensuring the continued success of the enterprises. C. Certificates of deposit from oualifving banks The City of Brooklyn Center will comply with Minnesota Statutes. • D. Bankers Accentances and Commercial Paner Although authorized by Minnesota Law, bankers acceptances and commercial paper are more risky than instruments of the Federal government of Federal agencies. Because of the credit risk, the City of Brooklyn Center will follow these guidelines: 1. Bankers Acceptances a. Bankers Acceptances shall be restricted to the top 40 banks in the United States (as measured by deposits). Investments in Bankers Acceptances shall not be made if news leads offer concerns over the financial condition of these banks. b. The broker, dealer, or banker shall verify that the Bankers Acceptance is eligible for purchase by the Federal Reserve System. C. Bankers Acceptances should not be purchased unless the yield is greater than United States Treasury obligations or Federal Agency issues. • 3 . CITY OF BROOKLYN CENTER STATEMENT OF INVESTMENT POLICY (continued) 2. Commercial Paper a. Commercial Paper shall be restricted to issues which mature in 270 days or less with a rating of A-1 (Moody's), P-1 (Standard & Poors), or F-1 (Fitch) among at least two of the three rating agencies. b. Commercial Paper shall be purchased only from dealers who report to the Federal Reserve Bank of New York or from qualifying banks. C. Commercial Paper shall not be purchased unless the yield is greater than United States Treasury obligations or Federal Agency issues. • 0