HomeMy WebLinkAboutRes 2017-09RESOLUTION 2017-09
A RESOLUTION OF THE MAYOR AND COUNCIL OF THE TOWN OF
FOUNTAIN HILLS, ARIZONA, ADOPTING THE TOWN OF FOUNTAIN
HILLS FINANCIAL POLICIES, AMENDED AND RESTATED
APRIL 6, 2017.
WHEREAS, the Mayor and Council of the Town of Fountain Hills (the "Town
Council") approved Resolution No. 2003-14, adopting the Town of Fountain Hills Financial
Policies (the "Original Financial Policies") to establish the framework for fiscal planning and
management; and
WHEREAS, pursuant to Resolution No. 2003-50, the Original Financial Policies were
amended on August 21, 2003 (the "2003 Amended Financial Policies") to include the Town's
debt policy as reserved under the Original Financial Policies; and
WHEREAS, pursuant to Resolution No. 2009-05, the 2003 Amended Financial Policies
were amended and restated on June 18, 2009 (the "2009 Amended Financial Policies") to
incorporate Rainy Day Fund procedures and to make other technical corrections; and
WHEREAS, pursuant to Resolution No. 2010-16, the 2009 Amended Financial Policies
were amended on June 17, 2010 (the "2010 Amended Financial Policies") to modify the sales tax
revenues allocation for the Capital Projects Fund; and
WHEREAS, pursuant to Resolution No. 2012-02, the 2010 Amended Financial Policies
were amended and restated on June 7, 2012 (the "2012 Amended Financial Policies") to adopt
financial policies consistent with, and to implement, Governmental Accounting Standards Board
Statement 54 ("GASB 54") requirements; and
WHEREAS, pursuant to Resolution 2015-08, the 2012 Amended Financial Policies were
amended and restated on March 19, 2015 (the "2015 Amended Financial Policies") to
incorporate the Town's separate cash handling policies and to update certain provisions of the
Town's debt policy; and
WHEREAS, pursuant to Resolution 2016-31, the 2015 Amended Financial Policies were
amended and restated on November 17, 2016 (the "2016 Amended Financial Policies") to clarify
the time requirement in which to: (i) transfer excess revenues collected over budgeted and
unexpended appropriations from the General Fund to the Capital Projects Fund; and (ii) establish
the Town Council's budget adoption as the expression of its intent to commit fund balances for
the purpose of GASB 54; and
WHEREAS, the Town Council desires to further amend the 2016 Amended Financial
Policies to add a new Chapter 10, Investment/Cash Management Policy and to make other
technical corrections.
2913498.1
NOW, THEREFORE, BE IT RESOLVED BY THE MAYOR AND COUNCIL OF
THE TOWN OF FOUNTAIN HILLS as follows:
SECTION 1. The recitals above are hereby incorporated as if fully set forth herein.
SECTION 2. The document known as
Amended and Restated April b. 2017 (the "2017
hereby adopted in substantially the forth and
incorporated herein by reference.
Town of Fountain Hills Financial Policies,
Amended and Restated Financial Policies") is
substance attached hereto in Exhibit A and
SECTION 3. The Mayor, the Town Manager, the Town Clerk and the Town Attorney
are hereby authorized and directed to take all steps necessary to carry out the put -pose and intent
of this Resolution.
PASSED AND ADOPTED BY the Mayor and Council of the Town of Fountain Hills,
Arizona, April G, 2017.
FOR THE TOWN OF FOUNTAIN HILLS:
L'nda M. Ka nagh, Ma ar
REVIEWED BY:
Grady E. Mil r, own Manager
190498,1
2.
ATTESTED TO:
t/' � f�
J w4
APPROVED AS TO FORM:
(IL,
An rew J. McGuire, Town Attorney
EXHIBIT A
TO
RESOLUTION 2017-09
[2017 Amended and Restated Financial Policies]
See following pages.
2913498.1
TOWN OF
FOUNTAIN HILLS
FINANCIAL POLICIES
Amended and Restated April 6, 2017
2909518.2
Table of Contents
I.
INTRODUCTION.............................................................................................................. 1
II.
OVERALL
GOALS............................................................................................................
1
2.1
Fiscal Conservatism..................................................................................................
1
2.2
Maintaining Bond Rating..........................................................................................
1
2.3
Stability.....................................................................................................................
1
2.4
Delivering Quality Services......................................................................................
1
IIl.
FUND BALANCE..............................................................................................................
1
3.1
Fund Balance Categories..........................................................................................
2
3.2
General Fund.............................................................................................................
3
3.3
Special Revenue Funds.............................................................................................
6
3.4
Debt Service Funds...................................................................................................
6
3.5
Capital Projects Fund................................................................................................
6
IV.
FINANCIAL PLANNING..................................................................................................
7
4.1
Budget Adoption.......................................................................................................
7
4.2
Budget Preparation....................................................................................................
7
4.3
Operating Budget......................................................................................................
7
4.4
Revenue Sources.......................................................................................................
7
4.5
Revenue Estimate......................................................................................................
8
4.6
Staffing......................................................................................................................8
4.7
Budget Preparation Schedule....................................................................................
8
4.8
Performance Measurement.......................................................................................
8
4.9
Efficiency Analysis...................................................................................................
8
4.10
Department Responsibility........................................................................................
8
4.11
Quarterly Report .......................................................................................................
8
4.12
Deficit.......................................................................................................................
8
V.
EXPENDITURE CONTROL.............................................................................................
8
5.1
Budgeted Expenditures.............................................................................................
8
5.2
Purchasing System and Policies................................................................................
9
5.3
Internal Controls.......................................................................................................
9
5.4
State Expenditure Limit............................................................................................
9
5.5
Capitalized Assets.....................................................................................................
9
VI.
REVENUES AND COLLECTIONS..................................................................................
9
6.1
Balanced Revenue Base............................................................................................
9
6.2
Stable Revenue Base.................................................................................................
9
6.3
Monitoring Collection...............................................................................................
9
6.4
Intergovernmental Aid............................................................................................
10
6.5
Cost Recovery.........................................................................................................
10
6.6
Growth Revenues....................................................................................................
10
VII.
USER FEE COST RECOVERY......................................................................................
10
7.1
Establishing Fees....................................................................................................
10
7.2
Recalculation...........................................................................................................10
VIII.
CASH HANDLING POLICY..........................................................................................
10
8.1
Individual Responsibilities......................................................................................
11
8.2
Establishing Cash Handling Sites...........................................................................
11
2909518.2
IX
Kq
2909518.2
8.3
Procedures for Cash Collection..............................................................................
11
8.4
Receipts...................................................................................................................12
8.5
Cash Received in Person.........................................................................................
13
8.6
Cash Received Through the Mail...........................................................................
15
8.7
Check Acceptance...................................................................................................
15
8.8
Credit Card Acceptance..........................................................................................
17
8.9
Balancing of Cash Receipts....................................................................................
17
8.10
Cash Over & Short ..................................................................................................
18
8.11
Returned Check Procedures....................................................................................
19
8.12
Preparation of Deposits (performed by the Finance Division) ...............................
20
8.13
Exceptions to Cash Handling Policy.......................................................................
20
8.14
Records Retention...................................................................................................
20
DEBTPOLICY.................................................................................................................
20
9.1
General....................................................................................................................21
9.2
Capital Improvement Plan......................................................................................
21
9.3
Financing Alternatives............................................................................................
24
9.4
Issuance of Obligations...........................................................................................
25
INVESTMENT/CASH
MANAGEMENT POLICY........................................................
26
10.1
Scope.......................................................................................................................26
10.2
Prudence..................................................................................................................27
10.3
Objectives...............................................................................................................
27
10.4
Investment Strategy.................................................................................................
28
10.5
Responsibility and Control......................................................................................
29
10.6
Authorized Financial Dealers and Institutions.........................................................
31
10.7
Portfolio and Investment Asset Parameters..............................................................
32
10.8
Collateralization......................................................................................................34
10.9
Safekeeping and Custody........................................................................................
34
10.10 Internal Control.......................................................................................................
34
10.11
Reporting.................................................................................................................
35
10.12 Investment Policy Adoption....................................................................................
35
10.13 Certification............................................................................................................
36
11
I. INTRODUCTION
The Mayor and Town Council (the "Town Council") of the Town of Fountain Hills (the
"Town") understands that principles of sound financial management establish the framework for
overall fiscal planning and management. The principles set forth guidelines for both current
activities and long range planning. Following these principles will enhance the Town's financial
health as well as its image and credibility with its citizens, the public in general, bond rating
agencies and investors. The policies will be reviewed periodically to assure the highest standards
of fiscal management. Policy changes will be needed as the Town continues to grow and
becomes more diverse and complex in the services it provides, as well as the organization under
which it operates, to provide these services to its citizens. The Town Manager and staff have the
primary role of reviewing and providing guidance in the financial area to the Town Council.
II. OVERALL GOALS
The overall financial goals underlying these principles are:
2.1 Fiscal Conservatism. To ensure that the Town is, at all times, in a solid financial
condition, defined as:
A. Cash solvency — the ability to pay bills.
B. Budgetary solvency — the ability to balance the budget.
C. Long run solvency — the ability to pay future costs.
D. Service level solvency — the ability to provide needed and desired services.
E. Adhering to the highest accounting and management practices as well as the
financial reporting and budgeting standards established by the Government
Finance Officers Association, by the Governmental Accounting Standards Board
(GASB) and by other professional organizations.
2.2 Maintaining Bond Rating. To maintain an Aa3 or better bond rating in the financial
community to assure the Town taxpayers that the Town government is well managed and
financially sound.
2.3 Stabili . To have the ability to withstand local and regional economic fluctuations, to
adjust to changes in the service requirements of our community, and to respond to
changes in Federal and State priorities and funding as they affect the Town's residents.
2.4 Delivering_ Quality Services. To deliver quality services in an affordable, efficient and
cost-effective basis providing full value for each tax dollar.
III. FUND BALANCE
Fund balance is defined as the cumulative difference of all revenues and expenditures, also
considered the difference between a fund's assets and deferred outflows of resources and its
liabilities and deferred inflows of resources. The purpose of this policy is to establish a key
2909518.2 1
element of the financial stability of the Town by setting guidelines for fund balance. It is
essential that the Town maintain adequate levels of fund balance to mitigate financial risk that
can occur from unforeseen revenue fluctuations, unanticipated expenditures and similar
circumstances. The fund balance also provides cash flow liquidity for the Town's general
operations. Fund balance is an important indicator of the Town's financial position and adequate
reserves must be maintained to allow the Town to continue providing services to the community
during periods of economic downturns and/or unexpected emergencies or requirements.
The level of fund balance is related to the degree of uncertainty that the Town faces. A prudent
level of financial resources is necessary to protect against the need to reduce service levels or
raise taxes and fees due to temporary revenue shortfalls or unpredicted one-time expenditures.
With the Town dependency upon State shared income and State sales tax revenues for
approximately one third of the General Fund budget, there is increased opportunity for
fluctuation. Additionally, a significant portion of Town revenue is received from sales taxes –
both state shared and local – which are sensitive to fluctuations in the economy. Therefore, the
level of reserves needs to be sufficient to ensure stability in ongoing government operations
during a slowdown in the economy or legislative changes to the revenue sharing formula.
Fund balance is one of the most widely used elements of state and local government financial
statements by (1) municipal bond analysts through credit reviews and ratings, (2) taxpayer
associations, (3) research organizations and oversight bodies, (4) state, county and local
legislators and officials, (5) financial statement users and (6) reporters.
Other objectives that influence the size of the fund balance are:
1. Credit reviews performed by municipal bond analysts.
2. Preserving or improving the bond rating.
3. Maintaining a positive trend to historical fund balances.
4. Maintaining a rating equal to or better than surrounding communities.
The Governmental Accounting Standards Board ("GASB") has found that usefulness and value
of fund balance information provided is significantly reduced by misunderstandings regarding
the message that it conveys and the inconsistent treatment and financial reporting practices of
governments. GASB issued a pronouncement, GASB Statement No. 54 ("GASB 54"), which
applies to all financial reports of all state and local governmental entities; GASB 54 intended to
improve financial reporting by providing fund balance categories and classifications that will be
more easily understood.
3.1 Fund Balance Categories. An accounting distinction is made between portions of fund
balance that are spendable and nonspendable. These portions are broken into five
categories:
(A) Nonspendable fund balance—Includes amounts either not in spendable form or
legally or contractually required to be maintained intact. This amount includes
inventory, prepaids, and non-current receivables such as long-term loan and notes
2909518.2 2
receivable and property held for resale (unless the proceeds are restricted,
committed or assigned).
(B) Restricted fund balance— Includes amounts that are either (1) externally
imposed by creditors (such as through debt covenants), grantors, contributors, or
laws or regulations of other governments or (2) imposed by law through
constitutional provisions or enabling legislation. Restricted fund balance means
"restricted net assets" as defined in the government -wide Statement of Net Assets,
GASB Statement No. 34, as amended by GASB Statement No. 46.
(C) Committed fund balance—Includes amounts that are committed for specific
purposes by formal action of the Town Council. Amounts classified as
"committed" are not subject to legal enforceability like restricted fund balance;
however, those committed amounts cannot be used for any other purpose unless
the Town Council removes or changes the limitation by taking the same form of
action it employed to previously impose the limitation. The action to commit fund
balances must occur prior to year end; however, actual amounts can be
determined in the subsequent period.
(D) Assigned fund balance—Includes amounts that are intended by the Town to be
used for specific purposes, but are neither restricted nor committed. Intent should
be expressed by the Town Council itself or a subordinate high-level body or
official possessing the authority to assign amounts to be used for specific
purposes in accordance with policy established by the Town Council. This
assignment would include any activity reported in a fund other than the General
Fund that is not otherwise restricted more narrowly by the above definitions. The
Town is not allowed to assign balances that result in a residual deficit.
(E) Unassigned fund balance—Includes any remaining amounts after applying
categories (A) -(D) above (amounts not classified as nonspendable, restricted,
committed or assigned). Planned spending in the subsequent year's budget would
be included in the unassigned fund balance category. The General Fund is the
only fund that will report a positive unassigned balance.
3.2 General Fund.
The fund balance of the Town General Fund may consist of up to five components, as
described previously. In order to satisfy the objective of maintaining a bond rating equal
to or better than surrounding peer communities, a combined General Fund operating fund
balance of at least 30% of revenues is recommended.
A. Committed Fund Balance. The Town will maintain a committed fund balance in
the General Fund of 20% of the average actual General Fund revenues for the
preceding five fiscal years, indicating stable fiscal policies. The maintenance of
this fund balance is a particularly important factor considered by credit rating
agencies in their evaluation of the credit worthiness of the Town. It is of primary
importance that the Town's credit rating be protected.
2909518.2 3
(1) Rainy Day Fund to be Maintained. As a component of the Committed
fund balance, the Town will maintain a Rainy Day Fund, separate and
apart from the Unassigned General Fund, which shall be designated for
use in the event of an unanticipated expenditure or loss of revenue. The
Rainy Day Fund balance at the end of any fiscal year will be equal to a
minimum of 20% of the average actual General Fund revenues for the
preceding five fiscal years. This contingency will provide for the
temporary financing of an unforeseen nature for that year. Expenditures
for these emergency or unforeseen appropriations can only be undertaken
with Town Manager approval and only if funds are not available in the
department requesting the funding.
(2) Guidelines for Rainy Dam. In order to achieve the objectives of this
policy, and to maintain sufficient working capital and a comfortable
margin of safety to address emergencies and unexpected declines in
revenue without borrowing, the following guidelines shall be adhered to
by the Town Manager, Town staff and Town Council:
(a) Deposit Rules. At the end of each fiscal year, the Town Council
shall transfer 5% of any surplus revenues (before transfers to the
Capital Projects Fund) to the Rainy Day Fund. Deposits shall be
made as set forth herein until the Rainy Day Fund balance is equal
to at least 20% of the average actual General Fund revenues for the
preceding five fiscal years.
(b) Use Rules. Rainy Day Funds may only be expended for any one of
the following purposes or under the following circumstances:
(i) To replace the loss of more than 25% of the Town's local
share of State shared revenues received pursuant to ARMZ.
REv. STAT. § 43-206.
(ii) For any event that threatens the health, safety or welfare of
the Town's citizens.
(iii) For any event that threatens the fiscal stability of the Town.
(iv) To address any matter declared as an emergency by the
Governor or the Mayor.
(c) Withdrawal Rules. All withdrawals from the Rainy Day Fund shall
be subject to the following rules:
(i) Any appropriation shall require the approval by at least 2/3
of the entire Town Council.
(ii) The maximum amount of Rainy Day withdrawals in any
fiscal year shall not exceed one-half of the total balance in
the Fund.
2909518.2 4
(d) Replenishment Rules. Any amounts withdrawn from the Rainy
Day Fund shall be replenished as follows (and such repayment
shall be in addition to the annual deposits set forth above):
(i) All amounts shall be repaid in not more than five years, in
annual installments of not less than 1% of the previous
fiscal year General Fund balance.
(ii) Repayments shall be appropriated as part of the annual
budget adoption.
B. Assigned Fund Balance. The Town will maintain an assigned fund balance in the
General Fund of a minimum 10% of the average actual General Fund revenues for
the preceding five fiscal years. This assigned fund balance will be assigned for (1)
"pay-as-you-go" capital project expenditures, (2) vehicle or equipment
replacement, (3) prepaying or defeasing existing Town debt or (4) any other
expenditure that is non-recurring in nature. The 10% is the minimum and may be
increased to accelerate accumulation of funds for a large capital expenditure. To
the extent these balances are expended, additional funds necessary to restore this
additional 10% amount will be provided in at least approximately equal
contributions during the five fiscal years following the fiscal year in which the
event occurred. The assigned General Fund balance can be authorized for
expenditure only in accordance with Resolution 2012-02 adopted by the Mayor
and Town Council on June 7, 2012, as may be amended from time to time.
C. Unassigned Fund Balance. Funds in excess of the balances described in the
preceding paragraphs will be unassigned General Fund balance, unless otherwise
assigned in accordance with GASB 54. By Resolution, the Town Council has
allocated General Fund surplus funds to be (1) transferred to the Rainy Day Fund,
(2) transferred to Assigned Fund Balance, (3) used to supplement "pay as you go"
capital expenditures in the Capital Projects Fund or (4) used to prepay or defease
existing Town debt. These funds may not be used to establish or support costs that
are recurring in nature. Any excess revenues collected over budgeted and
unexpended appropriations not needed to meet fund balance requirements will be
transferred to the Capital Projects Fund.
During the annual budget process, the Town Manager will estimate the surplus or
deficit for the current year and prepare a projection of the year-end unassigned
General Fund balance. Such projection will include an analysis of trends in fund
balance levels on an historical and future projection basis.
The Finance Director is authorized to assign available fund balance for specific
purposes in accordance with GASB 54. It is the policy of the Town that
expenditures for which more than one category of fund balance could be used,
that the order of use is: Nonspendable fund balance, restricted fund balance,
committed fund balance, assigned fund balance and unassigned fund balance.
2909518.2 5
3.3 Special Revenue Funds.
A. HURF. The Highway User Revenue Fund ("HURF") is restricted in use solely for
street and highway purposes. The fund depends upon State shared revenues for
over 90% of annual revenues. The restricted fund balance will be based on the
minimum requirement as specified in the schedule for projects funded with
Special Revenue or grant funds. The schedule will be reviewed on an annual basis
to determine the required amount to be set aside as restricted fund balance.
B. Excise Tax Funds. The excise tax funds are committed funds that the Town
Council may dedicate for specific purposes by resolution or as part of the annual
budget adoption.
3.4 Debt Service Funds.
The Debt Service Fund is established for the payment of principal and interest on bonded
indebtedness and as such is a restricted fund. Revenues are derived from a property tax
levy, pledged excise taxes, municipal property lease payments and shared revenues.
Revenues are received in amounts sufficient to pay the annual debt service payment;
therefore, the restricted fund balance will be no less than the annual debt service payment
due on July 1 of the new fiscal year and no more than the annual debt service payment
due on July 1 plus an amount equal to the average annual delinquency factor based on the
prior three years' delinquency rates.
3.5 Capital Projects Fund.
A Capital Projects Fund has been established to allow the Town to accumulate monies for
(1) purchase of land or buildings, (2) improvements to Town -owned properties, (3) grant
matches associated with capital improvements, (4) public safety projects and equipment
purchases, (5) economic development projects and (6) such other capital projects as
determined by the Town Council. The Capital Projects Fund will be funded by: (A) sales
of real and personal property belonging to the Town; (B) General Fund transfer of any
excess revenues (from the prior fiscal year) collected over budgeted and unexpended
appropriations not needed to meet fund balance requirements or re -appropriation; and (C)
interest earnings on the balance of the fund invested per the Town's investment policy.
Accounted for separately, but considered part of the Capital Projects Fund, are
accumulated development fees collected pursuant to ARiz. REv. STAT. § 9-463.05 that are
assessed on new construction for the purpose of funding growth. These funds are
restricted to growth -related capital expenditures as designated in the Town's adopted
Infrastructure Improvements Plan. The fund balance will be established each fiscal year
during the budget process depending on planned expenditures but cannot exceed
accumulated revenues. The Town shall first be entitled to recoup the cost of any capital
improvements, infrastructure, marketing or sales -related costs associated with the
disposition of property before crediting the Capital Projects Fund (for funds other than
development fees). The Town Council may approve the uses of the Capital Projects Fund
as a part of its annual budget or by motion and affirmative vote at the time the
expenditures are approved.
2909518.2 6
IV. FINANCIAL PLANNING
Financial planning refers to the process of identifying resources and allocating those resources
among competing purposes. The primary vehicle for this planning is the preparation, monitoring
and analyses of the Town's budget. It is increasingly important to monitor the performance of the
programs competing to receive funding.
4.1 Budget Adoption. The Town Manager shall prepare a proposed annual budget, which
shall be submitted to the Town Council and the public for review in accordance with
ARiz. REv. STAT. § 42-17001, et seq. The Town will budget revenues and expenditures
on the basis of a fiscal year beginning July 1 and ending the following June 30. The
Town Council will adopt the budget no later than June 30. By adopting the budget and
the various funds set forth therein, the Town Council expresses its intent to commit fund
balances for the purpose of GASB 54 classifications. The Town Manager shall execute
the Town Council policies as set forth in the finally adopted budget.
4.2 Budget Preparation. The Town Manager or authorized designee will prepare a budget in
accordance with the guidelines established by the Government Finance Officers
Association in its Distinguished Budget Award Program. The proposed budget will
contain the following:
A. Revenue estimates by major category, by major fund.
B. Expenditure estimates by department levels and major expenditure category, by
fund.
C. Estimated fund balance by fund.
D. Debt service by issue detailing principal and interest amounts by fund.
E. Proposed personnel staffing levels.
F. A detailed schedule of capital projects, including a capital improvement program.
G. Any additional information, data, or analysis requested of management by the
Town Council.
4.3 Operating Budget. The operating budget will be based on the principle that current
operating expenditures, including debt service, will be funded with current revenues,
creating a balanced budget. The Town will not balance the current budget at the expense
of meeting future years' expenditures; for example, accruing future years' revenues or
rolling over short-term debt to avoid planned debt retirement.
4.4 Revenue Sources. Ongoing operating costs should be supported by ongoing, stable
revenue sources. This policy protects the Town from fluctuating service levels and avoids
crises when one-time revenues are reduced or removed. Revenues from growth or
development should be targeted to costs related to development, or invested in
improvements that will benefit future residents or make future service provision efficient.
2909518.2 7
4.5 Revenue Estimate. The Town Manager will provide an estimate of the Town's revenues
annually for each fiscal year, as well as estimates of special (grant, excise tax, etc.)
revenues and interfund transfers.
4.6 Staffing. The budget will fully appropriate the resources needed for authorized regular
staffing. At no time shall the number of regular full-time employees on the payroll
exceed the total number of full-time positions authorized by the Town Council. All
personnel actions shall be in conformance with applicable Federal and State law and all
Town ordinances and policies.
4.7 Budget Preparation Schedule. Annually, the Town Manager shall provide a budget
preparation schedule outlining the preparation timelines for the proposed budget. Budget
packages for the preparation of the budget, including forms and instructions, shall be
distributed to Town Departments in a timely manner for the Department's completion.
Department Directors shall prepare and return their budget proposals to the
Administration Department, as required in the budget preparation schedule.
4.8 Performance Measurement. Performance measurement indicators will be integrated into
the budget process as appropriate.
4.9 Efficiency Analysis. Alternatives for improving the efficiency and effectiveness of the
Town's programs and the productivity of its employees will be considered during the
budget process. Duplication of services and inefficiency in service delivery should be
eliminated wherever they are identified.
4.10 Department Responsibility. Department Directors are required to monitor revenues and
control expenditures to prevent exceeding their total departmental expenditure budgets.
Department Directors shall immediately notify the Town Manager of any exceptional
circumstances that could cause a departmental expenditure budget to be exceeded.
4.11 Quarterly Report. A quarterly report on the status of the General Fund budget and trends
will be prepared within 60 days of the end of each quarter by the Town Manager or
authorized designee.
4.12 Deficit. If a deficit is projected during any fiscal year, the Town will take steps to reduce
expenditures, increase revenues or, if a deficit is caused by an emergency, consider using
the Rainy Day Fund, to the extent necessary to ensure a balanced budget at the close of
the fiscal year. The Town Manager may institute a cessation during the fiscal year on
hirings, promotions, transfers and capital equipment purchases. Such action will not be
taken arbitrarily or without knowledge and support of the Town Council.
V. EXPENDITURE CONTROL
The Town Manager shall ensure compliance with the legally adopted budget. In addition,
purchases and expenditures must comply with all applicable legal requirements.
5.1 Budgeted Expenditures. Expenditures will be controlled by an annual budget at the
departmental level. The Town Council shall adopt appropriations through the budget
2909518.2 8
process. Written procedures will be maintained for administrative approval and
processing of certain budget transfers within funds.
5.2 Purchasing System and Policies. The Town will maintain a purchasing system that
provides needed materials in a timely manner to avoid interruptions in the delivery of
services. All purchases shall be made in accordance with the Town's purchasing policies,
guidelines and procedures and applicable State and Federal laws. The Town will
endeavor to obtain supplies, equipment and services as economically as possible.
5.3 Internal Controls. Expenditures will be controlled through appropriate internal controls
and procedures in processing invoices for payment.
5.4 State Expenditure Limit. The State of Arizona sets a limit on the expenditures of local
jurisdictions. The Town will comply with these expenditure limitations and will submit
an audited expenditure limitation report, audited financial statements and audited
reconciliation report as defined by the Uniform Expenditure Reporting System (ARiz.
REv. STAT. § 41-1279.07) to the State Auditor General each year.
5.5 Capitalized Assets. All assets of $10,000 or more will be capitalized and recorded in the
Town of Fountain Hills Summary of Capital Assets.
VI. REVENUES AND COLLECTIONS
All government employees are considered stewards of public funds. In order to provide funding
for service delivery, the Town must have reliable revenue sources. These diverse revenues must
be collected equitably, timely and efficiently.
6.1 Balanced Revenue Base. The Town's goal is a General Fund revenue base that is equally
balanced between sales taxes, State shared revenues, property tax, service fees and other
revenue sources.
6.2 Stable Revenue Base. The Town will strive for a diversified and stable revenue base to
shelter it from economic changes or short-term fluctuations and in any one revenue
source by doing the following:
A. Establishing new charges and fees as needed and as permitted by law at
reasonable levels.
B. Pursuing legislative change, when necessary, to permit changes or establishment
of user charges and fees.
C. Aggressively collecting all revenues, late penalties, outstanding taxes owed and
related interest as authorized by law.
6.3 Monitoring Collection. The Town Manager or authorized designee will monitor all taxes
to ensure they are equitably administered and collections are timely and accurate. Fees
and charges should be based on benefits and/or privileges granted by the Town, or based
on costs of a particular service.
2909518.2 9
6.4 Intergovernmental Aid. The Town Manager or authorized designee should pursue
intergovernmental aid for those programs and activities that address a recognized need
and are consistent with the Town's long-range objectives. Any decision to pursue
intergovernmental aid should include the consideration of the following:
A. Present and future funding requirements.
B. Cost of administering the funds.
C. Costs associated with special conditions or regulations attached to the grant
award.
6.5 Cost Recovery. The Town will attempt to recover all allowable costs (both direct and
indirect) associated with the administration and implementation of programs funded
through intergovernmental aid. In the case of the Fountain Hills Unified School District,
the Town may determine to recover less than full cost of services provided. In the case of
State and Federally mandated programs, the Town will attempt to obtain full funding for
the service from the governmental entity requiring the service be provided. Allowable
costs will be determined based upon a "Cost Allocation Study" prepared periodically.
6.6 Growth Revenues. Local sales tax revenues are derived from several sources with a
significant portion from construction related activity. To ensure that the revenues from
growth or development are targeted to costs related to development, or invested in
improvements that will benefit future residents or make future service provision efficient,
the Town will designate 50% of those one-time revenues to the Capital Projects Fund.
Monthly, these revenues will be transferred from the General Fund to the Capital Projects
Fund for future appropriation.
VII. USER FEE COST RECOVERY
User fees and charges are payments for voluntarily -purchased, publicly -provided services that
benefit specific individuals. The Town relies on user fees and charges to supplement other
revenue sources in order to provide public services.
7.1 Establishing Fees. The Town may establish user fees and charges for certain services
provided to users receiving a specific benefit. User fees and charges will be established
to recover as much as possible the direct and indirect costs of the program or service,
unless the percentage of full cost recovery has been mandated by specific action of the
Town Council. It is recognized that occasionally competing policy objectives may result
in reduced user fees and charges that recover a smaller portion of service costs.
7.2 Recalculation. Periodically, the Town will recalculate the full costs of activities
supported by user fees to identify the impact of inflation and other attendant costs.
VIII. CASH HANDLING POLICY
Collecting and controlling cash at the Town are very important functions. The Customer Service
Representatives and Permit Technicians are the Town's cash handling agents. Strong internal
2909518.2 10
controls for cash collection and handling are necessary to prevent mistreatment of Town funds
and to safeguard and protect employees from unwarranted charges of mishandling funds.
Historical practices shall not constitute justification for deviation from these procedures. The
material contained in this Section supersedes any previous policies and procedures regarding the
handling of cash followed within the Town and/or within Departments. The Finance Division
will conduct periodic reviews of cash handling procedures. Any amendments to the policies
require Town Council approval, but the Town Manager may make interpretations and exceptions
to the policies contained in this Section as more particularly set forth in Subsection 8.13 below.
8.1 Individual Responsibilities. All cash transactions are to be processed by Town staff
(including cash, credit cards, checks, etc.) and not volunteers. Any Department Director
or manager with responsibilities for managing Town cash receipts and those employees
who are entrusted with the receipt, deposit and reconciliation of cash for Town -related
activities shall be responsible for knowledge of and compliance with this Section VIII. A
reference to this Section should be included as part of all departmental policies and
procedures.
8.2 Establishing Cash Handling Sites. Ideally, from a control perspective, collecting and
controlling cash should be centralized in one location; however, that is not always
possible or practical. As a result, the collection of money is, in part, decentralized. The
Finance Division must authorize all cash handling sites, including one-time requests for
cash for special events. Departments requesting status as a cash handling site (or special
events where money is being collected and a cash float is needed) must submit a request
to the Finance Division at least 24 hours prior to the special event that includes:
A. Reason(s) why cash handling site or cash float is needed.
B. A list of the personnel involved with the cash handling site, descriptions of their
duties and how segregation of duties will be maintained.
C. Whether a change drawer will be needed.
D. A description of the reconciliation process, including frequency of reconciliation.
E. A description of the process for safeguarding cash until it is deposited.
F. A schedule of how often and where cash deposits will be made.
8.3 Procedures for Cash Collection.
A. "Cash" is defined as any of the following accepted methods of payment for Town
transactions:
(1) Cash (U.S. coin and currency).
(2) Checks (drawn on U.S. banks and made payable to the Town; no third
party checks).
2909518.2 11
(3) Credit Cards (MasterCard, Visa, Discover, American Express).
(4) Money Orders.
B. Cash should be physically protected through the use of vaults, safes, cash
registers, etc. Each Department is responsible to make the necessary provisions to
properly safeguard the cash receipts in its area and maintain the necessary safe or
vault that will ensure the security. Generally, any amount of cash on hand must be
maintained in a vault or heavy safe (one which cannot be easily moved by two
persons using a hand cart). Cash should not be retained in desk drawers or
standard file cabinets without a locking mechanism; petty cash must be secured in
a locked file cabinet and keys should be secured separately.
C. The cash drawer should be kept shut when not in use and after each transaction.
The cash drawer, when open, should not be left unattended when it contains
money. The contents of cash drawers should be placed in a safe, vault, or an
approved, locked location after each day; all safes are to be kept locked.
8.4 Receipts.
A. Procedures must be in place to record the daily beginning and ending receipt
numbers of the cash register, and include safeguards to prevent manipulation of
register totals, receipt numbers, etc. Automatic numbering of receipts through a
computerized system is an acceptable alternative.
B. Receipts should be generated from either receipt books or cash register receipt
system.
C. Cash registers must be programmed to issue receipts, which shall contain all
information required by the accounting system to properly credit and track
payments.
D. Receipt books, if issued for special events, must be issued in sequential order. All
books should be accounted for from the time of delivery and returned to the
Finance Division.
E. Only those receipt books that have been distributed by the Finance Division may
be used.
F. At a minimum, sequential, pre -numbered receipt forms must contain the
following information:
(1) Date issued.
(2) Cashier and/or Department issuing the receipt.
(3) Name of payor (not the department name or revenue source).
2909518.2 12
(4) Net amount received.
(5) Sufficient information to identify the purpose of the payment.
(6) Form of payment (cash, check, credit card, etc.).
G. The receipt forms should also:
(1) Contain all available identifying numbers and other pertinent, descriptive
information including invoice numbers.
(2) Be issued in a minimum of two copies, one for the payor and one to
accompany the deposit.
(3) Never be altered; if any type of change is necessary, all copies of the
receipt must be clearly marked "void" and a new receipt issued.
(4) Be filed sequentially and retained by the Department (including void
receipts).
8.5 Cash Received in Person.
A. When a customer produces a mutilated bill (where a portion is missing), the
receiver should request that the customer have a bank redeem the bill. No bill will
be considered for acceptance if both serial numbers are not present.
B. A printed receipt must be issued for each payment received when the customer
pays in person. At a remote location (for special events), manual pre -numbered
receipts may be used when cash register receipts are not available.
C. Departments may not accept post-dated checks, IOU's, or third party checks.
D. All cash received must be recorded through the computerized accounting system
with computer-generated official Town cash receipts. When a cash handling site
with a computerized accounting system has to use temporary cash receipts, those
temporary receipts must be converted over to computerized receipts as soon as
possible. If the conversion cannot be accomplished within 48 hours, the cash
should be deposited into the Department's safe and tracked in detail until it is
recorded on the computerized accounting system.
E. The customer must be presented an official Town receipt form with a duplicate
record being retained by the receiving Department. All numbered receipts must be
accounted for, including the original of voided receipts.
F. The cash handling site must maintain a clear separation of duties. An individual
should not have responsibility for more than one of the cash handling
components: collecting, depositing, disbursement and reconciling.
2909518.2 13
2909518.2
The procedures below are to be followed to safeguard the employee and the cash:
(1) Account for cash as soon as is it received count the cash in front of
customer.
(2) Keep cash received in view of the customer until the transaction is
complete.
(3) If change is required, count all cash and change in front of customer.
(4) Reconcile the funds received to the computerized accounting system cash
report or to the total of the temporary receipts at the end of the day or at
the end of each shift and balance the receipts as set forth in Subsection 8.9.
(5) Immediately place all cash in a cash drawer, safe or other secure place
until deposited. A secure area for processing and safeguarding funds
received should be provided and restricted to authorized personnel.
(6) Personal transactions with Town cash funds are prohibited. Monies may
never be borrowed nor loaned from cash funds, nor may personal checks
be cashed from receipts.
(7) All employees paying for Town services (rentals, movie tickets, animal
license, business license, etc.) must be rung up by a different employee
under a separate user ID.
(8) Deposit all cash intact and not intermingled or substituted with other cash.
(9) Pay refunds or expenditures through the appropriate Town bank account
on a Town -generated check from the main accounts payable account for
the smaller accounts. If the original payment was made using credit/debit
card, then whenever possible refunds will be issued through the credit card
per credit card regulations.
(10) Provide printed receipts generated by the financial system for every
transaction involving money.
(11) Voided cash receipts must be approved and initialed by a supervisor
before the daily deposit is done, noting the reason for voiding the
transaction.
(12) Deposit daily cash report and cash promptly at the end of each day into the
Finance Division safe.
(13) Place cash in amounts over $500.00 in the Finance Division safe
immediately following the transaction until the end of day close out.
(14) Cashiers should enter transactions using their personal logins (switch user)
during a single shift.
14
(15) All packaged coin or strapped currency received as payment should be
removed from the package or straps and verified.
H. Cashing checks from Town deposits, borrowing cash for personal use, lapping
receipts to cover shortages in cash receipts, withholding checks for deposit in
order to float checks, commingling personal and Town funds and modifying cash
records are all serious offenses and may result in discipline up to and including
immediate discharge from employment.
8.6 Cash Received Through the Mail.
A. When mail is opened, if the cash received is not credited directly into the
appropriate Town account or issued a receipt through a computerized accounting
system, a log of the checks, credit card transactions and or cash should be
prepared and submitted to the Finance Division. The log should include the
customer's name, amount received, check number and any other information
available that may assist in proper allocation of the funds. The envelope also
should be retained as part of the records.
B. When mail is opened, checks must be endorsed promptly with a restrictive
endorsement stamp. Checks must be stored in a safe or other secure place
approved by the Finance Division until deposited.
C. Unidentified receipts must be deposited to a depository account approved for such
purposes. All reasonable attempts should be made to identify the correct account
and transfer the funds.
8.7 Check Acceptance.
A. The Federal Reserve has established a regulation to standardize check
endorsements:
(1) Checks must be made payable to the Town of Fountain Hills and endorsed
promptly with a restrictive endorsement stamp payable to the Town of
Fountain Hills. The endorsement stamps must be distributed by the
Finance Division; this stamp protects the check if lost or stolen.
(2) All depositor's endorsements are limited to the top 1.5 inches on the back
side of the check, at the trailing edge of the check. This area is where
endorsements are normally placed. If you look at the face of the check, the
endorsement area is directly behind where "Pay to the Order of is printed.
(3) Any check that has been endorsed may not be returned to the customer.
Any marks below the 1.5 inches on the check may obscure the bank
routing number, cause delays in returning checks, and forfeit the Town's
right to recovery. The purpose of this regulation is to speed collection and
returns.
2909518.2 15
(4) The endorsement must include the following:
FOR DEPOSIT ONLY
TOWN OF FOUNTAIN HILLS
[Account Number]
(5) Checks should have the customer information pre-printed on the face of
the check. Bank issued/generated checks are acceptable.
(6) Personal checks from employees for cash may not be cashed at any
counter in a Town facility.
(7) Checks or credit card transactions will not be cashed or processed for
more than the amount of purchase. Departments are not authorized to
return currency to the payor in the event that the check exceeds the
amount due to the Town.
B. Be sure that the name, branch, city and state where the drawer's bank is located is
printed on the check.
C. The Town will not accept a check that is:
(1) Illegible or not written out clearly; checks should be written out in blue or
black ink only.
(2) For anything other than the exact amount (no change will be given).
(3) A third party check (that is, checks made out to someone other than the
Town).
(4) Altered or changed.
(5) Undated, post-dated or stale dated (older than six months).
(6) Not signed.
(7) A starter check, i.e. a check without the name, address and check number
on the face of the check.
(8) Not in U.S. funds.
(9) From a foreign bank, even if payable in U.S. funds.
(10) Transfer checks.
D. If the written amount on a check does not match the numerical amount, the
written amount will govern.
2909518.2 16
E. Money orders should be filled out by the customer in the presence of Town staff,
the customer must countersign and write Town of Fountain Hills in the payee
section.
8.8 Credit Card Acceptance.
A. Credit cards accepted are Visa, MasterCard, Discover and American Express.
B. When presented with a credit card, the Department cashier shall:
(1) Verify that the card has not been altered and is not expired.
(2) Check customer identification to verify that the name on the card and the
account name are the same, unless someone is paying for other family
members.
(3) Retain the credit card until the transaction is complete.
(4) Enter the credit card transaction by swiping the card through the terminal
on the keyboard; if the keyboard does not have a terminal, the swipe reader
is not functioning or payment is being taken over the telephone, the credit
card number should be entered manually when prompted.
(5) If the credit card information is being input from a paper registration form
that includes the card number and payor signature, shred or permanently
mark over the portion of the form that includes the credit card information
as soon as the transaction is complete and the card is accepted.
(6) If receiving credit card information over the phone, verify the caller's name
as it appears on the card, verify the amount to be processed, enter the credit
card number, expiration date and security code directly; immediately shred
any piece of paper where the information can be viewed or taken.
8.9 Balancing of Cash Receipts.
A. All funds collected must be balanced daily, by mode of payment, by comparing
the total of the cash, checks and credit cards to the computerized accounting
reports, to the manual receipts totals, including the totals of the money received
by mail. All cash receipts and supporting documentation (daily deposit slip,
system receipts, and system reports) should be transferred daily to the accounting
system and all discrepancies should be resolved before the end of the day/shift.
B. Daily cash counts and reconciliations will be performed on a random basis by the
Accountant or other senior Finance Division staff member. These reconciliations
should be signed and dated by the reviewer. The total monthly receipts should be
balanced with the monthly bank account statements and accounting system
monthly reports and all discrepancies should be resolved.
2909518.2 17
C. Currency and coin must be reconciled separately from checks, credit cards and
money orders by comparing actual cash received to the cash total from the cash
report or to the sum of the cash sales from the manual receipts.
D. Over/short amounts must be separately recorded, investigated and resolved to the
extent possible as set out in the over/short portion of this Section.
E. Because balancing can be a time-consuming task and requires attention to detail,
it is recommended that each cashier pre -balance his/her own drawer periodically
during the day.
NOTE: On the rare occasion that a check needs to be forwarded to another party
by the Town of Fountain Hills, the check cannot be endorsed. Any of the
following positions are authorized to approve this receipt without endorsement:
the Town Manager, the Finance Director and the Town Clerk. Approval to accept
this instrument in this manner requires approval from one of the Town's
authorized signatories in writing prior to the presentation of the instrument.
F. End of day close out process for cash collection points includes the following:
(1) Two signatures on the daily cash report before depositing in the Finance
Division safe.
(2) Total deposit must match the printed report from the software program.
(3) Deposits are turned in daily and deposited in the Finance Division safe by
the responsible parry.
8.10 Cash Over & Short.
A. A daily accounting of cash received should be balanced against the total amount
on the daily reports run by the Department. Any amount that is over or short shall
be reported on the same day to the Department Director and the Accountant.
B. The discipline procedures set forth below should be followed if the established
dollar limits and frequency of overages and/or shortages are exceeded. The
current established dollar limit is five dollars. A log should be established to
record any overages and shortages, and the employee's name and date. Patterns,
frequencies and inconsistencies should be noted on the employee's performance
review. Overages or shortages of $50.00 or more are to be reported to the Finance
Director.
C. Warnings or exceptions involving cash overages or shortages shall be retained in
the employee's permanent file.
D. If the shortage is the result of a suspected or documented theft, the shortage must
be reported immediately and in writing to the Accountant, the Finance Director
and the Town Manager who will submit to law enforcement for investigation,
regardless of amount.
2909518.2 18
E. Employees who handle cash are expected to be careful and accurate and to
balance their funds each day without overages or shortages. Failure to follow
internal controls and checks and balances as approved by the Finance Division is
considered to be at least negligence and could be considered misconduct subject
to the following disciplinary procedures:
(1) Verbal Warning. A verbal warning will be given if an employee has:
(i) Two or more over/shorts in any 90 -day period (regardless of the
amount).
(ii) Cumulative over/shorts of $75.00 or more in any 30 -day period.
(2) Written Warning.
(i) After an employee has received two verbal warnings, the third
warning will be in the form of a written warning. A fourth warning
will be subject to disciplinary action as determined by the
Department Director.
(ii) A written warning will be issued if an employee exceeds a
cumulative total of $100.00 or more cash short in any month
regardless of the number of verbal warnings.
8.11 Returned Check Procedures.
A. Any checks returned by the Town's depository bank as uncollected shall be sent
to the Finance Division. Examples of returned checks include: non -sufficient
funds (NSF), account closed, payor's signature missing, refer to maker and post-
dated or stale -dated checks.
B. When a check is returned, the Finance Division prepares a negative entry to the
revenue journal, debiting the originating account for the amount of the check and
at the same time assessing a service fee in the amount set forth in the Town's
adopted fee schedule. It is the responsibility of the Department that was credited
with the revenue to notify the check writer and use due diligence to collect the
amount of the check and the service fee. The check writer will be prohibited from
receiving Town services until the Town is paid the full amount, plus the returned
check fee. Restitution should be in the form of currency, money order, cashier's
check or certified check. The Finance Division will maintain an aging report on
all non -collectable items; this report will be submitted monthly to the Finance
Director.
C. When restitution is obtained, the same account should be used that was used on
the negative entry and the deposit should be transferred to the Customer Service
Representative for inclusion in the daily deposit.
2909518.2 19
D. If after proper due diligence is performed, collection has not been made, the
Accountant may be consulted regarding returned items that remain uncollected for
further action through the State.
8.12 Preparation of Deposits (performed by the Finance Division).
A. The Finance Division shall prepare all deposits.
B. All checks must be made payable to Town of Fountain Hills and endorsed. A
calculator tape of the checks should be included with the checks bundled together.
C. Cash must be recorded on the deposit slip in the appropriate space.
D. Only depository -issued deposit slips, including the appropriate account number(s)
and sub-code(s) are to be used.
E. Someone not involved with collecting the cash, opening the mail or reconciling
the deposit must prepare the deposit.
F. Deposit from the Municipal Court should be secured in locking deposit bags,
which are available from the bank.
G. Trips to the bank should be at random times during each day.
8.13 Exceptions to Cash Handling Policy.
A. Any exception to this Section must be approved in writing by the Department
Director and requires the concurrence of the Finance Director. For example, in
cases where there is not enough staff available to maintain complete separation of
duties, an alternate process to safeguard Town funds must be established and
approved by the Finance Director. Requests for exceptions to these procedures
must be submitted to the Finance Director in writing.
B. Town personnel are prohibited from depositing Town cash into checking or other
bank accounts unless the account has been set up by the Finance Division.
8.14 Records Retention. All cash receipts and related documents must be maintained in
accordance with Records Retention Schedules pursuant to ARiz. REV. STAT. §§ 39-101
through 39-103 and 41-151.15 through 41-151.19. Accounting reports, deposit slips,
credit card receipts, copies of manual cash receipts, etc. should be kept for the period
specified by the Records Retention Schedules.
IX. DEBT POLICY
The purpose of this debt policy is to provide for the preservation and enhancement of the Town's
bond ratings, the maintenance of adequate debt service reserves, compliance with debt
instrument covenants and provisions and required disclosures to investors, underwriters and
rating agencies. The Town's overall debt management policy is to ensure that financial resources
2909518.2 20
are adequate in any general economic situation to not preclude the Town's ability to pay its debt
when due.
These policies are meant to supplement the legal framework of public debt laws provided by the
Arizona Constitution, State Statutes, Federal tax laws and the Town's current bond resolutions
and covenants.
9.1 General.
A. The Town will (1) use current revenues to pay for short-term capital projects,
repair and maintenance items and (2) reserve long-term debt for capital
improvements with useful lives of ten years or more. The Town will not use long-
term debt to fund current governmental operations and will manage its cash flow
in a fashion that will prevent any borrowing to meet working capital needs.
However, exclusive reliance upon "pay-as-you-go" funds for capital
improvements requires existing residents to pay for improvements that will
benefit new residents who relocate to the area after the expenditure is made.
Financing capital projects with debt provides for an "intergenerational equity," as
the actual users of the capital asset pay for its cost over time, rather than one
group of users paying in advance for the costs of the asset. Where there is a
benefit to all future residents, debt financing should be given consideration.
B. To increase its reliance on current revenue to finance its capital improvements,
and promote a "pay-as-you-go" philosophy, the Town will allocate each year a
percentage of current revenues to maintain a minimum 10% of average actual
General Fund revenues for the preceding five fiscal years in the assigned fund
balance.
9.2 Cgpital Improvement Plan.
A. As part of the budget process each year, the Town Manager or authorized
designee will prepare a capital spending plan that provides a detailed summary of
specific capital projects for the five fiscal years subsequent to the fiscal year
presented. The plan will include the name of the project, project schedule, capital
cost by fiscal year and a recommended specific funding source. The five year
capital improvement plan will be developed within the constraints of the Town's
ability to finance the plan.
B. The Town Manager and Department Directors will develop formal ranking
criteria that will be used in the evaluation of all capital projects. The ranking
criteria will give greatest weight to those projects that protect the health and
safety of its citizens. "Pay-as-you-go" project financing shall be given the highest
priority. Capital improvements that must rely upon debt financing shall be
accorded a lower priority and projects with a useful life of less than ten years shall
not be eligible for inclusion in bond issues except in extraordinary circumstances.
C. Lease -purchase financing shall be undertaken only when the project is considered
essential to the efficient operation of the Town or to remove expenditures that
would exceed the State -imposed expenditure limitation. The Town Manager or
2909518.2 21
authorized designee shall be responsible for ensuring that "pay-as-you-go"
expenditures do not cause the State -imposed expenditure limitation to be
exceeded in any fiscal year.
D. All capital project requests will be accompanied by a description of the sources of
funding to cover project costs. Where borrowing is recommended, a dedicated
source of funds to cover debt service requirements must be identified. All capital
project requests will be required to identify any impact the project may have on
future operating costs of the Town. The Town will seek grants to finance capital
improvements and will favor those projects that are likely to receive grant money.
E. All capital project appropriations and amendments to the capital improvement
plan must be approved by the Town Council.
F. The capital plan will include all equipment and facilities with a useful life of
greater than ten years and a cost greater than $50,000. Debt financing shall not
exceed the useful life of the infrastructure improvement or asset.
G. The following steps shall be used to prepare the Capital Improvement Program
("CIP"):
(1) Establish Capital Improvement policies, including:
(a) Time period the CIP will cover.
(b) Facilities/equipment that will be included in the CIP.
(c) How acquisition of multiple items (e.g., computers) will be treated.
(d) Identification of projects that are expected to be undertaken, but
fall outside the time horizon of the plan.
(2) Adopt standards to rank project requests.
(a) Projects that address a public health or safety concern are given top
priority.
(b) Projects mandated by a court of competent jurisdiction or a
government with authority over the Town are equal with public
health or safety.
(c) Major maintenance (preservation of assets).
(d) Replacement of obsolete equipment (improving efficiency).
(e) Expansion to meet demand caused by growth.
(f) Coordination of projects to achieve cost savings.
2909518.2 22
(g) Availability of cash to finance improvements from current
revenues.
(h) Acquisition of open space.
(3) Perform and maintain a capital inventory and identify useful life.
(4) Identify projects.
(a) Status review of previously approved projects.
(b) Identification of new projects.
(c) Assess capital project alternatives.
(d) Complete project request forms.
(5) Assess funding sources.
(a) Available grants.
(b) Development fees shall be utilized to fund capital projects before
"pay-as-you-go" and bond issuance financing.
(c) Developer contributions.
(d) Private contributions.
(e) Issuance of securities.
(f) Capital leases.
(6) Approve the CIP and Budget.
(a) Town Council review.
(b) Public hearing.
(c) Adoption of the CIP and capital budget.
All capital project requests will be accompanied by a description of the sources of funding to
cover project costs. Where borrowing is recommended, the source of funds to cover debt service
requirements must be identified. All capital project requests will be required to identify any
impact the project may have on future operating costs of the Town.
Department Directors will submit detailed descriptions of the useful life of capital projects
submitted in conjunction with the preparation of the Town's CIP. The Town Manager shall
incorporate an estimate of the useful life of proposed capital improvements in developing an
amortization schedule for each bond issue. If a short-lived asset or project (less than ten years) is
2909518.2 23
included in a bond issue then the bond amortization schedule shall be adjusted to reflect the
asset's rapid depreciation. At no time shall the amortization exceed the life of the asset.
9.3 Financing Alternatives.
A. Financing alternatives include, but are not limited to:
(1) Grants.
(2) Developer Contributions.
(3) General Obligation ("GO") Bond — requires voter approval, supported by
an ad valorem (property) tax.
(4) Revenue Bonds — repaid with dedicated revenue source (HURF, revenue
generated by project).
(5) Municipal Property Corporation ("MPC") Bonds — repaid with a dedicated
revenue source.
(6) Community Facilities District ("CFD") or Special District Bonds —
supported by an ad valorem property tax, revenues of the district or
assessments of the cost of public infrastructure or enhanced municipal
services.
(7) Capital Leases — repaid within operating budget.
(8) Commercial Paper (CP) or Bond Anticipation Notes (BAN) with terms
less than two years.
B. Town debt service costs (GO Bonds, Revenue Bonds, MPC Bonds, Leases) shall
not exceed 20% of the Town's operating revenue in order to control fixed costs
and ensure expenditure flexibility. Improvement District, CFD and Special
District debt service is not included in this calculation because it is paid by district
property owners and is not an obligation of the general citizenry. Separate criteria
for CFDs have been established and included within the Town's CFD policy.
C. The Town shall comply with all U.S. Internal Revenue Service arbitrage rebate
requirements for bonded indebtedness.
D. Where applicable, the Town will structure GO bond issues to create level debt
service payments over the life of the issue. The goal will be to strive for a debt
repayment schedule to be no more than 15 years; at no time will the debt exceed
25 years.
E. Refunding bonds will be measured against a standard of the net present value debt
service savings exceeding 3% of the principal amount of the bonds being
refunded, or if savings exceed $750,000, or for the purposes of modifying
restrictive covenants or to modify the existing debt structure to the benefit of the
2909518.2 24
Town. Refinancings undertaken for other reasons should proceed only when the
advantages have been clearly shown in a cost/benefit analysis of the transaction.
F. The Town will seek to maintain and, if possible, improve the current bond rating
in order to minimize borrowing costs and preserve access to credit.
G. An analysis showing how a new issue combined with current debt impacts the
Town's debt capacity and conformance with Town debt policies will accompany
every future bond issue proposal. The debt capacity analysis should reflect a
positive trend and include:
(1) Percent of debt outstanding as a percent of the legal debt limit.
(2) Measures of the tax and revenue base.
(3) Evaluation of trends relating to expenditures and fund balance.
(4) Debt service as a percentage of assessed valuation.
(5) Measures of debt burden on the community.
(6) Tax-exempt market factors affecting interest costs.
(7) Debt ratios.
H. MPC and contractual debt, which is non-voter approved, will be utilized only
when a dedicated revenue source (e.g., excise taxes) can be identified to pay debt
service expenses. The project to be financed will generate net positive revenues
(i.e., the additional revenues generated by the project will be greater than the debt
service requirements).
I. The Town's privilege/excise tax to debt service goal will be a ratio of at least
2.5:1 to ensure the Town's ability to pay for long-term debt from this elastic
revenue source.
9.4 Issuance of Obligations.
A. The Town shall select the underwriter and the paying agent/registrar for each debt
issuance based on competitive bid. The underwriter must be a firm with an office
in the Phoenix area and a record of prior working relationships.
B. The request for proposals process will be designed to select the service providers
that offer the Town the best combination of expertise and price. The Town is not
required to select the firm offering the lowest price, but a report must be prepared
by the Town Manager providing justification to the Town Council for a
recommendation when other than the lowest bidder is chosen. The review of all
proposals submitted shall be the responsibility of the Town Manager.
2909518.2 25
C. The Town will sell bonds through public sale, online bidding process or an
accelerated bidding process unless the Town Council authorizes the bond to be
sold by negotiated sale or private placement.
D. The Town Manager or designee and Town Attorney will coordinate their
activities to ensure that all securities are issued in the most efficient and cost-
effective manner and in compliance with the governing statutes and regulations.
The Town Manager and the Town Attorney shall consult and jointly select the
bond counsel for a bond issue.
E. The Town Manager or authorized designee will seek a rating on all new issues
which are being sold in the public market if economically feasible.
F. The Town will report all financial information on an annual basis and notices of
listed events in a timely manner, not in excess of ten business days after the
occurrence of event, to the rating agencies and the Municipal Securities
Rulemaking Board (MSRB) Electronic Municipal Market Access (EMMA)
system. The annual report will include but not be limited to the Town's annual
Comprehensive Annual Financial Report (CAFR) and other items specified in the
Town's continuing disclosure undertakings.
G. Any institution or individual investing monies as an agent for the Town shall do
so in a manner consistent and in compliance with the Town's adopted Investment
Policy.
H. The Town Manager or authorized designee will provide detailed draw schedules
for any project to be funded with borrowed monies. The Town will invest the
proceeds or direct a trustee to invest the proceeds of all borrowings in a manner
that will ensure the availability of funds as described in the draw schedules.
I. The Town acknowledges the responsibilities of the underwriting community and
pledges to make all reasonable efforts to assist underwriters in their efforts to
comply with Securities and Exchange Commission Rule 15c2-12 and MSRB Rule
G-36. The Town will follow its adopted issuance and post -issuance compliance
procedures relating to its tax-exempt financings.
X. INVESTMENT/CASH MANAGEMENT POLICY
It is the intent of this investment/cash management policy (the "Investment Policy") that idle public
funds (i.e., uninvested funds) will be invested in a manner that maintains safety of principal,
maintains liquidity to meet cash flow needs, provides competitive investment returns and conforms
to all state statutes governing the investment of public funds (the "Investment Portfolio"). The
purpose of these investment guidelines is to formalize the framework for the Town's daily
investment activities.
10.1 Scope. This Investment Policy shall be administered in a manner that follows Arizona
Revised Statutes Title 35, Chapter 2, Article 2.1, as amended and other investment
guidelines mandated by statute and is limited in its application to funds that are not
immediately needed and are available for investment, including any and/or all districts,
2909518.2 26
component units, etc., of the Town. These funds are accounted for in the Town's
Comprehensive Annual Financial Report ("CAFR") and may include:
A.
The General Fund;
B.
Highway User Revenue Fund;
C.
Excise Tax Funds;
D.
Special Revenue Funds;
E.
Debt Service Funds;
F.
Capital Project Funds;
G. Development Fees Funds;
H. Internal Service Funds; and
I. Any new fund/component unit created unless specifically exempted.
Except for cash in certain restricted funds, the Town will consolidate cash balances from all
funds to maximize investment earnings. Investment income will be allocated to the various
funds based on their respective participation and in accordance with generally accepted
accounting principles.
10.2 Prudence. 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. The standard
of prudence to be used by any firm or individual given responsibility as Investment Officer
shall be the "prudent person" standard and shall be applied in the context of a professional
investment official managing an overall portfolio or account in a manner that aims to
accomplish the objectives set forth in these policies. Investment Officers acting in
accordance with the Town's written procedures and this Investment Policy and exercising
due 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 appropriate action is taken to control adverse developments.
10.3 Objectives. In priority order, the primary objectives of Town investment activities are:
A. Safety: Safety of principal is the foremost objective of the investment program.
Investments of the Town shall be undertaken in a manner that seeks to ensure the
preservation of principal in the overall portfolio. To attain this objective, the Town
will diversify its investments by investing funds among a variety of securities
offering independent returns and financial institutions.
B. Liquidity: The Town Investment Portfolio will remain sufficiently liquid to enable
the Town to meet all operating requirements that might be reasonably anticipated.
Liquidity will be achieved by matching investment maturities with forecasted cash
flow funding requirements, by investing in securities with active secondary markets
and by diversification of maturities and call dates. Furthermore, since all possible
cash demands cannot be anticipated, a portion of the portfolio may also be placed in
savings accounts, Certificates of Deposit ("CDs") or local government investment
pools that offer same day liquidity for short-term funds.
2909518.2 27
C. Yield (Return on Investments): The Town 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 of safety and
liquidity needs and the cash flow characteristics of the portfolio.
Return shall be subordinated to safety and liquidity. The core of investments is
limited to relatively low-risk securities in anticipation of earning a fair return relative
to the risk being assumed. Securities shall not be sold prior to maturity, with the
following exceptions:
(1) A security with declining credit may be sold early to minimize loss of
principal;
(2) A security swap would improve the quality, yield or target duration in the
portfolio;
(3) Liquidity needs of the portfolio require that the security be sold; and
(4) If market conditions present an opportunity for the Town to benefit from the
sale.
D. Risk of Loss: All participants in the investment process will seek to act responsibly
and prudently as custodians of the public trust. Investment Officers will avoid any
transactions that they reasonably believe might impair public confidence in the
Town's ability to govern effectively. The Town Council recognizes that in a
diversified portfolio, occasional measured losses due to market volatility are
inevitable, and must be considered within the context of the overall portfolio's
investment return, provided that adequate diversification has been implemented.
10.4 Investment Strate. The Town intends to pursue a portfolio management philosophy that
includes passive management; passive management means that the financial markets will be
monitored by Investment Officers and investments will be purchased and sold based on the
Town's parameters for safety and liquidity and based on market conditions. All marketable
securities purchased by the Town shall have active secondary markets, unless a specific cash
outflow is being matched with an investment that will be held to maturity to meet that
obligation. Securities may be purchased as a new issue or in the secondary markets.
Securities may be sold as provided in Section 4.3. Securities may be purchased with the
intent from the beginning to sell them prior to maturity or with the expectation that the
security would likely be called prior to maturity under the analyzed market scenario. The
portfolio will be structured to benefit from anticipated market conditions and to achieve a
reasonable return. Relative value between asset groups shall be analyzed and pursued as part
of the investment program within the restrictions set forth by this Investment Policy.
Diversification by market sector and security types, as well as maturity will be used to
protect the Town from credit and market risk in order to meet liquidity requirements. Market
and credit risk shall be minimized by diversification and are defined below:
A. Credit Risk: The Town will seek to mitigate credit risk, which is defined as the risk
of loss due to failure of the security issuer or backer. Mitigating credit risk is to be
accomplished by carefully managing the allocation of funds to non-government or
2909518.2 28
insured sectors. The Finance Director will monitor the credit holdings on a
continuous basis to ensure they remain appropriate to hold.
B. Interest Rate Risk: The Town will seek to mitigate interest rate risk, which is
defined as the risk that the market value of securities held in the portfolio will
decline due to increases in market interest rates subsequent to their purchase. This
mitigation will be accomplished by:
(1) Structuring the Investment Portfolio so that securities mature concurrent with
the anticipated cash requirements for ongoing operations, thereby avoiding,
as much as possible, the need to sell securities into an adverse market
environment prior to maturity;
(2) Investing funds primarily in shorter -term securities or similar investment
pools and limiting the average maturity of the portfolio in accordance with
the needs of the Town; and
(3) With respect to any firm or individual given responsibility for investments,
utilizing external research and advice regarding the current interest rate
outlook and global economic condition to optimize portfolio duration
strategy.
C. Market Rate Risk: The Town will seek to mitigate market rate risk, which is defined
as the risk that the portfolio value will fluctuate due to changes in the general level
of interest rates. This mitigation will be accomplished by:
(1) Providing adequate liquidity for short-term cash needs; and
(2) Making longer-term investments only with funds that are not needed for
current cash flow purposes.
10.5 Responsibility and Control.
A. Delegation of Authority: Authority to manage the Town investment program is
derived from the ARiz. REv. STAT. §§ 35-323 - 328. Management responsibility for
the investment program is hereby delegated to the Finance Director. The Finance
Director shall be primarily responsible for ensuring the Investment Portfolio is
invested according to this Investment Policy. In carrying out these duties, the
Finance Director may delegate certain tasks to others (each an "Investment Officer")
whose skill and experience are appropriate to the delegation. The term "Investment
Officer" includes the Finance Director (until a particular task is delegated) and the
"Investment Advisor," as defined below and as described in Section 10.5. A list of
Town personnel eligible for delegation as Investment Officer is attached to this
Investment Policy in Appendix A.
B. Establishment of Procedures: The Finance Director shall establish written
procedures for the operation of the investment program consistent with this
Investment Policy. Procedures should include reference to: safekeeping, repurchase
agreements, wire transfer agreements, banking service contracts and
2909518.2 29
collateral/depository agreements. Such procedures shall include explicit delegation
of authority to persons responsible for investment transactions. No person may
engage in an investment transaction except as provided under the terms of this
Investment Policy and the procedures established by the Finance Director.
C. Management Responsibilities: No person shall engage in an investment transaction
except as provided under the terms of Investment Policy, the procedures established
by the Finance Director, or designee, and verbal or written authorization by the
Finance Director to withdraw, transfer, deposit and invest the Town's funds. The
Finance Director shall be responsible for all transactions undertaken, and shall
establish a system of controls to regulate the activities of Investment Officers. The
Finance Director has the authority to manage internally or to delegate the
management of the investment program to an investment advisor engaged by the
Town (the "Investment Advisor"). The Finance Director is responsible for:
(1) Reporting Investment Portfolio performance to Town Manager;
(2) Evaluating the performance of the externally -managed portfolio;
(3) Monitoring Investment Advisor's compliance with this Investment Policy;
(4) Conveying the investment needs of the Town to the Investment Advisor; and
(5) Developing investment strategy with the Investment Advisor.
D. Ethics and Conflicts of Interest: All persons involved in the investment process 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. Employees and Investment Officers shall disclose to the Town
Manager any material financial interests in financial institutions that conduct
business within the Town, and they shall further disclose any material personal
financial/investment positions that could be related to the performance of the Town,
particularly with regard to the time of purchases and sales. This Investment Policy
expressly incorporates the provisions of ARIZ. REv. STAT. Title 38, Chapter 3,
Article 8.
E. Disclosure: Investment Officers and employees shall disclose to the Town Manger
any material financial interest in financial institutions that conduct business with the
Town. Investment Officers and employees shall further disclose any material
personal investment positions that could be related to the performance of the Town's
Investment Portfolio. Investment Officers and employees shall subordinate their
personal investment transaction to those of this jurisdiction, particularly with regard
to the timing of purchases and sales. An Investment Officer who is related within
the second degree by affinity or consanguinity to individuals seeking to sell an
investment to the Town shall file a statement with the Town Manager and the
Finance Director disclosing that relationship.
2909518.2 30
F. Investment Training: Investment Officers shall have a finance, accounting or related
degree and knowledge of treasury functions and the State of Arizona laws governing
public money management and investments.
10.6 Authorized Financial Dealers and Institutions. The Finance Director will maintain a list of
qualified persons or firms authorized to provide investment services that have been publicly
procured. In addition, a list will also be maintained of the State pool of approved security
broker/dealers selected by credit worthiness who are authorized to provide investment
services. The Town shall qualify persons or firms by applying generally accepted industry
standards (i.e., capital requirements, asset quality, earnings, liquidity, management and local
community development) using available public agency and private rating services as
appropriate. Investment transactions shall only be conducted with financial institutions that
are licensed as may be required by law to do business in Arizona. Primary government
securities dealers, or broker-dealers engaged in the business of selling government securities
shall be registered in compliance with section 15 or 15C of the Securities Exchange Act of
1934 and registered pursuant to ARiz. REv. STAT. § 44-3151, as amended. It shall be the
responsibility of the financial institutions and broker/dealers who desire to become qualified
bidders for investment transactions to provide the following:
i. Audited financial statements within six months of the close of the fiscal year;
ii. Proof of Financial Industry Regulatory Authority (FINRA) certification, and trading
resolution;
iii. Proof of State registration; and
iv. Certification of having read this Investment Policy and the Town's depository
contracts.
An eligible listing of broker/dealers shall be established for the purchase and sale of
investment securities; a new list of approved broker/dealers will be established as needed.
External managers may also use their own lists of internally -approved broker-dealers, but
only after any such list has been approved by the Town Manager and Finance Director. A
periodic review of the financial condition and registrations of qualified companies will be
conducted by the Finance Director and the Town Manager.
A. Selection of Depository, Financial Institutions and Broker/Dealers: Depositories
shall be selected through the Town's procurement process, with a typical contract
being for two years with an option to extend the contract for three additional one
year terms. In selecting depositories, the creditworthiness of institutions shall be
considered, and the Finance Director shall conduct a comprehensive review of the
prospective depositories' credit characteristics and financial history. No public
deposit shall be made except in an eligible public depository as established by state
depository laws. The depository bank bid will not include bids for investment rates
on certificates of deposit.
Certificate of deposit rates will be evaluated competitively between qualified
financial institutions in accordance with the manner in which all other types of
investment assets are purchased. The Investment Officer may accept bids for
2909518.2 31
certificates of deposit and for all marketable securities either orally, in writing,
electronically, or in any combination of these methods. The Investment Officer will
strive to receive three price quotes on marketable securities being sold, but may
allow one broker/dealer to sell at a predetermined price under certain market
conditions. Investments purchased shall be shopped competitively between
approved financial institution and broker/dealers.
B. Insurability: Banks, financial institutions, individuals and firms seeking to establish
eligibility for the Town's certificates of deposit purchase program, shall submit
financial statements, evidence of federal insurance and other information as required
by the Investment Officers.
10.7 Portfolio and Investment Asset Parameters.
A. Pricing: Market price for investments acquired for the Town's Investment Portfolio
shall be priced using independent pricing sources and market value shall be
monitored at least annually.
B. Eligible Investments: The Town's eligible investments are governed by ARiz. REv.
STAT. § 35-323 et seq. Furthermore, those investments not identified in ARiz. REv.
STAT. § 35-323 et seq. are considered to be ineligible. For the eligible investments,
the following limitations apply:
(1) Investments in insured or collateralized CDs in eligible depositories shall
not exceed 30% of the portfolio.
(2) Investments in Certificate of Deposit Account Registry Services shall not
exceed 20% of the portfolio.
(3) Bonds, notes or other evidences of indebtedness of the State or any of its
counties, incorporated cities or towns, school districts or special taxing
districts, including registered warrants that bear interest pursuant to ARIZ.
REv. STAT. § 11-635, shall not exceed 10% of the portfolio.
(4) Bonds, notes or evidences of indebtedness of any county, municipal
district, municipal utility or special taxing district of any state that are
payable from revenues, earnings or a special tax specifically pledged for
the payment of the principal and interest on the obligations, and for the
payment of which a lawful sinking fund or reserve fund has been
established and is being maintained shall not exceed 10% of the portfolio.
(5) Bonds, notes or evidences of indebtedness issued by any county
improvement district or municipal improvement district of any state to
finance local improvements authorized by law, if the principal and interest
of the obligations are payable from assessments on real property within
the improvement district shall not exceed 10% of the portfolio.
(6) Commercial paper of prime quality shall not exceed 30% of the portfolio.
2909518.2 32
(7) Bonds, debentures, notes or other evidences of indebtedness shall not
exceed 30% of the portfolio.
(8) Negotiable or brokered certificates of deposit issued by a nationally or
state chartered bank or savings and loan association shall not exceed 30%
of the portfolio.
Bond proceeds shall be invested by the Finance Director (or the Investment
Officer, if such duties have been delegated) pursuant to applicable laws, relevant
bond indenture requirements and relevant tenets of this Investment Policy.
Proceeds from tax-exempt bonds shall be invested, recorded and reported in the
manner set forth by the United States ("U.S.") Treasury and Internal Revenue
Service to preserve the tax-exempt status of the bonds. The Town's Finance
Department will maintain systems to ensure that these requirements are met.
Funds set aside to defease Town debt in conjunction with an escrow agreement
will be invested in accordance with State law and appropriate bond documents
and as the trustee bank holding such funds deems necessary.
C. Prohibited Investments: Regardless of sector, no more than 5% of the portfolio
may be invested in any one issuer (excluding obligations issued or guaranteed by
the U.S. or any of the senior debt of its agencies, sponsored agencies,
corporations, sponsored corporations or instrumentalities). In addition to the
limitations on investment types according to ARiz. REv. STAT. § 35-323 et seq.,
Town funds will not be invested in any of the following:
(1) reverse repurchase agreement
(2) callable agencies
(3) derivative type investments such as collateralized mortgage obligations,
strips, floaters, etc.
(4) futures, contractual swaps, options
(5) inverse floaters
(6) interest only securities
(7) forward contracts
(8) interest bearing securities that have a possibility of not accruing current
income
(9) closed end management type companies
(10) securities whose yield/market value is based on currency, commodity or
non-interest indices
(11) bearer -form securities
D. Downgraded Credit Ratings: If the credit rating of a security is subsequently
downgraded below the minimum rating level specified in this Investment Policy,
the Finance Director shall evaluate the downgrade on a case-by-case basis in
order to determine if the security should be held or sold. The Finance Director
will apply the general objectives of safety, liquidity, yield and legality to make the
decision.
2909518.2 33
10.8 Collateralization. Where allowed by State law, full collateralization is required on all
demand deposit accounts, including checking accounts and non-negotiable certificates of
deposit. The State requires all depositories holding public funds participate in the State
managed pooled collateral program. The State will monitor collateral for public funds to
ensure the proper level of collateral is maintained by participant depositories. The Finance
Director will check to ensure that any depository it utilizes is a State collateral pool
participant. In the event that the Town enters into a repurchase agreement, it shall require
collateralization at 102% and accept only the following insurance and securities as
collateral:
A. FDIC insurance coverage.
B. Obligations of the U.S., its agencies and instrumentalities, including agency and
instrumentality issued mortgage backed collateral if directly guaranteed by the U.S.
C. Other obligations, the principal of and interest on which are unconditionally
guaranteed or insured by the State, the U.S. or its agencies and instrumentalities.
D. Obligations of states, agencies thereof, counties, cities, and other political
subdivisions of any state having been rated as to investment quality by a NRSRO
and having received a rating of no less than "A" or its equivalent.
10.9 Safekeeping and Custody. All security transactions including collateral for repurchase
agreements, entered into by the Town or its agents/trustees shall be conducted on a delivery -
versus -payment ("DVP") basis. That is, funds shall not be wired or paid until verification
has been made that the safekeeping bank received the correct security. The safekeeping, or
custody, bank is responsible for matching instructions from the Town's Investment Officers
on an investment settlement, with what is wired from the broker/dealer, prior to releasing the
Town's designated funds for a given purchase. The security shall be held in the name of the
Town, or held on behalf of the Town, in a bank nominee name. A third party custodian
designated by the Finance Director and evidenced by safekeeping receipts will hold
securities. The safekeeping bank's records shall assure the notation of the Town's ownership
of, or explicit claim on, the securities. The original copy of all safekeeping receipts shall be
delivered to the Town. Securities shall be held by a custodian designated by the Town
Manager and evidenced by safekeeping receipts.
10.10 Internal Control. The Town Manager shall establish an annual process of independent
review as part of the external audit. This review will provide internal control by assuring
compliance with policies and procedures. The Investment Officer is responsible for
establishing and maintaining an internal control structure designed to ensure that the assets
of the Town 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
judgments by management. Internal controls should address the following points:
A. Control of collusion: Collusion is a situation where two or more employees are
working in conjunction to defraud their employer.
2909518.2 34
B. Separation of transaction authority from accounting and record keeping: By
separating the person who authorizes or performs the transaction from the people
who record or otherwise account for the transaction, a separation of duties is
achieved.
C. Custodial safekeeping: Securities purchased from any bank or dealer including
appropriate collateral (as defined by state law) shall be placed with an independent
third parry of custodial safekeeping.
D. Avoidance of physical delivery 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 or destruction. The
potential for fraud and loss increases with physically delivered securities.
E. Clear delegation of authority to staff members: Staff members must have a clear
understanding of their authority and responsibilities to avoid improper actions.
Clear delegation of authority also preserves the internal control structure that is
contingent on the various staff positions and their respective responsibilities.
F. Written confirmation of transactions for investments and wire transfers: Due to the
potential for error and improprieties arising from telephone and electronic
transactions, all transactions should be supported by written communications and
approved by the appropriate person. Written communications may be via facsimile
if on letterhead and if the safekeeping institution has a list of authorized signatures.
G. Development of a wire transfer agreement with the lead bank and third -party
custodian: The Finance Director should ensure that an agreement will be entered
into and will address the following points: controls, security provisions, and
responsibilities of each party making and receiving wire transfers.
10.11 Reporting. The Town Manager, or designee, is charged with the responsibility of providing
quarterly reports on investment activity and returns. The report shall summarize investment
transactions that occurred during the reporting period, and shall include, at a minimum:
A. Asset listing showing par value, cost and market value of each security, type of
investment, issuer and interest rate;
B. Average maturity of the portfolio;
C. Maturity distribution of the portfolio;
D. Average portfolio credit quality;
E. Distribution by type of investment.
10.12 Investment Policy Adoption. This Investment Policy shall be adopted by resolution of the
Town Council. The Investment Policy shall be reviewed at least once every five years by the
Finance Director and Town Manager and any modifications made hereto must be approved
by the Town Council.
2909518.2 35
10. 13 Certification. A copy of this Investment Policy will be provided upon request to the senior
management of any financial institution that is approved to transact business with the Town
in order that it is appraised of the policies of the Town. The certification must be signed and
executed by a senior member of the financial institution before any business is conducted.
2909518.2 36
GLOSSARY
AGENCY: A debt security issued by a
federal or federally sponsored agency.
Federal agencies are backed by the full faith
and credit of the U.S. Government. Federally
sponsored agencies (FSAs) are backed by
each particular agency with a market
perception that there is an implicit
government guarantee. An example of
federal agency is the Government National
Mortgage Association (GNMA). An example
of a FSA is the Federal National Mortgage
Association (FNMA).
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.
BASIS POINT: A unit of measurement
used in the valuation of fixed-income
securities equal to 1/100 of 1 percent of yield
(e.g., "1/4" of 1 percent is equal to 25 basis
points).
BID: The price offered by a buyer of
securities. (When you are selling securities,
you ask for a bid.) See Offer.
BROKER: A broker brings buyers and
sellers together for commission.
CERTIFICATE OF DEPOSIT (CDs): A
time deposit with a specific maturity
evidenced by a certificate. Large -
denomination CDs are typically negotiable.
CERTIFICATE OF DEPOSIT
ACCOUNT REGISTRY SERVICES
(CDARS): A network of financial
institutions offering CDs that diversify large
deposits between banks at FDIC limits.
2909518.2 37
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.
COMPREHENSIVE ANNUAL
FINANCIAL REPORT (CAFR): The
official annual report for the Town. It
includes five combined statements for each
individual fund and account group prepared
in conformity with GAAP. It also includes
supporting schedules necessary to
demonstrate compliance with finance -related
legal and contractual provisions, extensive
introductory material, and a detailed
Statistical Section.
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.
DEALER: A dealer, as opposed to a broker,
acts as a principal in all transactions, buying
and selling for his own account.
DEBENTURE: A bond secured only by the
general credit of the issuer.
DELIVERY VERSUS PAYMENT: There
are two methods of delivery of securities:
delivery versus payment and delivery versus
receipt. Delivery versus payment is delivery
of securities with an exchange of money for
the securities. Delivery versus receipt is
delivery of securities with an exchange of a
signed receipt for the securities.
DISCOUNT: The difference between the
cost price of a security and its maturity when
quoted at lower than face value. A security
selling below original offering price shortly
after sale also is considered to be at a
discount.
DISCOUNT SECURITIES: Non-interest
bearing money market instruments that are
issued a discount and redeemed at maturity
for full face value (e.g., U.S. Treasury Bills).
DIVERSIFICATION: Dividing investment
funds among a variety of securities offering
independent returns.
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, farmers, farm
cooperatives, and exporters.
FEDERAL DEPOSIT INSURANCE
CORPORATION (FDIC): A federal
agency that insures bank deposits, currently
up to $250,000 per deposit.
FEDERAL FARM CREDIT BUREAU
(FFCB): Debt securities issued by banks of
the Farm Credit System, a leading provider
of loans, leases and services to rural
communities and U.S. agriculture.
FEDERAL FUNDS RATE: The rate of
interest at which Fed funds are traded. 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 a federal corporation working
under the auspices of the Department of
2909518.2 38
Housing and Urban Development (HUD). It
is the largest single provider of residential
mortgage funds in the U.S. Fannie Mae, as
the corporation is called, is a private
stockholder -owned corporation. 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.
FEDERAL OPEN MARKET
COMMITTEE (FOMC): Consists of seven
members of the Federal Reserve Board and
five of the twelve Federal Reserve Bank
Presidents. The President of the New York
Federal Reserve Bank is a permanent
member, while the other Presidents serve on
a rotating basis. The Committee periodically
meets to set Federal Reserve guidelines
regarding purchases and sales of Government
Securities in the open market as a means of
influencing the volume of bank credit and
money.
FEDERAL RESERVE SYSTEM: The
central bank of the U.S. created by Congress
and consisting of a seven -member Board of
Governors in Washington, D.C., 12 regional
banks and about 5,700 commercial banks that
are members of the system.
FINANCIAL REGULATORY
INDUSTRY AUTHORITY: A regulatory
body created after the merger of the National
Association of Securities Dealers and the
New York Stock Exchange's regulation
committee. The Financial Industry
Regulatory Authority is responsible for
governing business between brokers, dealers
and the investing public. By consolidating
these two regulators, FINRA aims to
eliminate regulatory overlap and cost
inefficiencies.
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION (GNMA
OR GINNIE MAE): Securities influencing
the volume of bank credit guaranteed by
GNMA and issued by mortgage bankers,
commercial banks, savings and loan
associations, and other institutions. Security
holder is protected by full faith and credit of
the U.S. Government. Ginnie Mae securities
are backed by the FHA, VA or FMHM
mortgages. The term "pass-throughs" is often
used to describe Ginnie Maes.
GOVERNMENT SPONSORED
ENTERPRISE AGENCIES (GSE): U.S.
Government Agencies, Government
Sponsored Enterprises (GSEs), Corporations
or Instrumentalities of the US Government —
Federal Instrumentality Securities include,
but are not limited to, Federal National
Mortgage Association (FNMA), the Federal
Home Loan Mortgage Corporation
(FHLMC), Federal Home Loan Banks
(FHLB), and the Federal Farm Credit Bureau
(FFCB).
INTERNAL CONTROLS: An internal
control structure designed to ensure that the
assets of the entity are protected from loss,
theft, or misuse. The internal control structure
is designed to provide reasonable assurance
that these objectives are met.
INVESTMENT ADVISOR: An
independent person or group of people that
makes investment recommendations or
conducts securities analysis for a fee.
LIQUIDITY: A liquid asset is one that can
be converted easily and rapidly into cash
without a substantial loss of value. In the
money market, a security is said to be liquid
if the spread between bid and asked prices is
2909518.2 39
narrow and reasonable size can be done at
those quotes.
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 repurchase
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.
MONEY MARKET: The market in which
short-term debt instruments (i.e., bills,
commercial paper, bankers' acceptances,
etc.) are issued and traded.
OFFER: The price asked by a seller of
securities. (When you are buying securities,
you ask for an offer.) See Asked and Bid.
OPEN MARKET OPERATIONS:
Purchases and sales of government and
certain other securities in the open market by
the New York Federal Reserve Bank as
directed by the FOMC in order to influence
the volume of money and credit in the
economy. Purchases inject reserves into the
bank system and stimulate growth of money
and credit; sales have the opposite effect.
Open market operations are the Federal
Reserve's most important and most flexible
monetary policy tool.
PORTFOLIO: Collection of securities held
by an investor.
PRIMARY DEALER: A group of
government securities dealers who 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 SEC -registered securities
broker-dealer, banks and a few unregulated
firms.
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 custody 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 prudent person of discretion
and intelligence who is seeking a reasonable
income and preservation of capital (see ARiz.
REv. STAT. §§ 14-10902 and 14-10906).
QUALIFIED PUBLIC DEPOSITORIES:
A financial institution which does not claim
exemption from the payment of any sales or
compensation use or ad valorem taxes under
the laws of this state, which has segregated
for the benefit of the 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.
RAINY DAY FUND: Designed to set
revenue aside during times of above -trend
economic growth and to utilize this revenue
during times of below -trend growth. A
Rainy Day Fund can be used to balance the
budget which is the intended purpose.
2909518.2 40
RATE OF RETURN: The yield obtainable
on a security based on it purchase price or its
current market price. This may be the
amortized yield to maturity on a bond the
current income return.
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, which is,
increasing bank reserves.
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.
SECONDARY MARKET: A market made
for the purchase and sale of outstanding
issues following the initial distribution.
SECURITIES & EXCHANGE
COMMISSION (SEC): Agency created by
Congress to protest investors in securities
transactions by administering securities
legislation.
SIFMA: Securities Industry and Financial
Markets Association.
TOTAL RETURN: The sum of all
investment income plus changes in the
capital value of the portfolio. For mutual
funds, return on an investment is composed
of share price appreciation plus any realized
dividends or capital gains. This is calculated
by taking the following components during a
certain time period: (Price Appreciation) +
(Dividends paid) + (Capital Gains) = Total
Return.
U.S. TREASURY BILLS: A non-interest
bearing discount security issued by the U.S.
Treasury to finance the national debt. Most
bills are issued to mature in three months, six
months, or one year.
U.S. TREASURY BONDS: Long-term
U.S. government debt securities with
maturities of ten years or longer and issued in
minimum denominations of $1,000.
Currently, the longest outstanding maturity
for such securities is 30 years.
U.S. TREASURY NOTES: Intermediate
U.S. government debt securities with
maturities of 1 to 10 years and issued in
denominations ranging from $1,000 to $1
million or more.
U.S. TREASURY OBLIGATION: Direct
obligations of the U.S. Treasury whose
payment is guaranteed by the U.S.
YIELD: The current rate of return on an
investment security generally expressed as a
percentage of the security's current price.
2909518.2 41
Appendix A
Authorized Investment Officers
PFM Asset Management LLC
Attn: Paulina Woo
1820 East Ray Road
Chandler, Arizona 85225
Town Manager
Town Accountant (limited in ministerial acts only)
Town Clerk (limited in ministerial acts only)
2909518.2