To: Honorable Mayor and Members of Town Council
From: Trish Muller, Finance Director
Title
Resolution Adopting the Town of Castle Rock Investment Policy
Body
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Executive Summary
The Resolution Adopting the Revised Investment Policy includes proposed revisions and additions to the Town’s Investment Policy, was last adopted by Town Council on January 11, 2005. The changes, recommended by the Town’s investment advisor, Insight Investments, were coordinated with Town staff for administrative review in accordance with the policies of the Town of Castle Rock. In the review of the existing investment policy, the language was found to be outdated and not current with state statutes. The recommended revisions update the language to current practices and incorporate changes to align the Town’s policy with statutory guidelines. The changes continue the Town’s existing conservative fiscal approach, in the best interests of the Town and do not allow state statues to override the Town’s policy without going before Town Council for a vote on future revisions.
This memo provides information about the Town’s investment balances and make up by Town fund to provide context, especially in light of the adoption of the 2018 Budget and 2018-2022 Five Year Capital Improvement Program.
Discussion
The existing policy guiding the Town’s investments was adopted by Town Council on January 11, 2005. The policy is outdated with language references and is not aligned with current statutory guidelines. As outlined in detail in the recommended changes to the Investment Policy by Insight Investments (Attachment B), the proposed Resolution aligns the Town’s investment policy with current statutory guidelines regarding the investment of public funds and also updates policy language to reflect current practices. Responsible stewardship of public funds is critically important and this approach is incorporated with the proposed resolution.
Town funds are currently invested in a Local Government Investment Pool known as CSAFE, Colorado Surplus Asset Fund Trust, and through the Town’s Investment advisor, Insight Investments. On a preliminary basis for the end of 2017, the following table identifies how funds are invested:
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As of 12/31/2017, the Town's Cash and Investment Balances by Investment Type: |
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Investment Type |
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U.S. Treasuries |
$ 26,118,862 |
14.58% |
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U.S. Agencies |
55,640,877 |
31.06% |
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Corporate Bonds |
10,031,894 |
5.60% |
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Commercial Paper |
4,792,587 |
2.68% |
|
Money Market Funds |
504,061 |
0.28% |
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Certificates of Deposit |
100,000 |
0.06% |
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Local Gov't Investment Pools |
55,259,946 |
30.84% |
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Cash |
26,708,601 |
14.91% |
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Total All Types |
$ 179,156,828 |
100.00% |
As demonstrated in the table, a significant portion of Town funds is managed within a Local Government Investment Pool or LGIP. The Local Government Investment Pool is a commonly used tool for municipalities, school districts, counties, special districts and other government agencies to conservatively invest public funds. In 1985, the Investment Funds - Local Government Pooling Act was passed and allows Colorado governmental entities to pool their funds to take advantage of short-term investments and maximize net interest earnings. Oversight of CSAFE occurs through a participant elected Board of Trustees, who receive no monetary compensation for their service. The Trust’s investment objectives are committed to providing: 1) Safety and Preservation of Principal, 2) Daily Liquidity and 3) Competitive Yields. The pool maintains the highest credit rating available for LGIP’s from Standard & Poor’s and retains Morgan Stanley as investment advisor.
The Town’s current Investment Advisor, Insight Investments, previously Cutwater Investments, has been retained by the Town for the past four years and has demonstrated valued counsel during that time.
The following table identifies the makeup of investment balances by Town Fund:
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As of 12/31/2017, the Town's Cash and Investment Balances by Fund: |
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Governmental Activities |
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General Fund |
$ 19,435,564 |
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Economic Development Fund |
5,766,099 |
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Transportation Fund |
10,114,834 |
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Capital Funds: |
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Transportation Capital Fund |
7,019,183 |
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Parks Capital Fund |
2,482,004 |
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Fire Capital Fund |
4,922,956 |
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Facilities Capital Fund |
3,853,860 |
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Police Capital Fund |
281,210 |
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Other Governmental Funds: |
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General Long Term Planning Fund |
912,942 |
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DDA TIF Fund |
1,752,492 |
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Conservation Trust Fund |
527,375 |
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P.S. Miller Trust Fund |
238,687 |
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Public Art Fund |
105,127 |
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Special Events Fund |
3,427 |
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Police Forfeiture Fund |
21,601 |
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Internal Service Funds: |
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Employee Benefits Fund |
3,534,948 |
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Fleet Fund |
2,853,847 |
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Total Governmental Funds |
$ 63,826,156 |
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Business-type Activities |
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Water Fund |
$ 19,909,334 |
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Water Resources Fund |
54,648,052 |
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Stormwater Fund |
7,891,578 |
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Wastewater Fund |
26,271,657 |
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Golf Fund |
1,702,394 |
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Community Center Fund |
1,430,401 |
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Development Services Fund |
3,477,256 |
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Total Enterprise Funds |
$ 115,330,672 |
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Total All Funds |
$ 179,156,828 |
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The chart above represents the ending balance of the Cash and Investment Accounts town-wide by Fund. |
As demonstrated in the 2018-2022 Five year Capital Improvement Program, future capital project needs are significant and infrastructure construction is costly. Over the next five years, currently planned capital projects are projected to cost approximately $268 million in total. The largest fund balance identified is for the Water Resources Fund, for which the Town’s Five Year CIP includes significant future planning for the Plum Creek Diversion, Well Fields and Water Purification Facility. Roughly 61% of the total investment balance for the Town is Castle Rock Water funds. These amounts have been saved over many years in order to plan and accommodate necessary infrastructure for the Town. The General Fund balance includes about 11% of the total balance and includes funding for future planning and current year expenses as well.
It is helpful to connect financial planning information with the existing balances in the Town’s investment portfolio to understand why the amounts are necessary. Some of the amounts will be required sooner and others will be required later, as Town growth necessitates infrastructure. The Investment Policy is the vehicle that provides guidance for the long and short term liquidity for the Town. Finance staff work closely with departments to understand capital needs and anticipated timing to ensure adequate financial resources are available as approved in the budget.
Attached are both a “clean” version of the Resolution (Attachment A), in other words how it would appear if adopted, and a “redline” (Attachment C) showing all proposed changes from the current Investment Policy, or if based on the Colorado State Statutes, changes from that statute. Principal changes are summarized as follows:
• Section V) Prudence - language added pertaining to inherent investment risks and professional conduct.
• Section VII) Eligible Investments and Transactions - language has been deleted that allows for changes to Colorado state statute to be assumed to be incorporated into the policy immediately upon being enacted. Rating requirements have been updated to reflect changes in state statute. Language pertaining to securities downgraded below the investment policy guidelines has been added, allowing the Town to either sell or hold the security depending on the best interest of the Town.
• Section IX) Investment Maturity and Liquidity - the maximum weighted average final maturity has been extended to three years from two years.
• Section XI) Selection of Broker/Dealer and Financial Institutions - the requirement that broker/dealers be FDIC members has been removed.
• Section XII) Selection of Banks - reference to savings and loans has been removed.
• Section XIII) Safekeeping and Custody - reference to physical delivery of securities has been removed.
• Section XIV) Performance Benchmarks - reference to the Town’s performance benchmark exceeding the ColoTrust yield has been removed.
• Section XV) Reporting - the requirement that quarterly reports be sent to the Town’s Finance Director and to the entire Town Council has been included, in addition to an accommodation for Council notification if there is a significant change in portfolio composition of maturity during the quarter.
• Annex III) Approved Broker/Dealers - the list has been updated.
• Annex IV) Approved Depositories - the list has been updated.
Staff Recommendation
Staff recommends that Town Council approve Resolution as written.
Proposed Motion
“I move to approve a Resolution Approving the Town of Castle Rock Investment Policy.”
Attachments
Attachment A: Resolution
Attachment B: Recommended Investment Policy
Attachment C: “Redlined” Version of Current Investment Policy