02-14-11 Regular Meeting of Fiscal Affairs Committee

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CITY OF LA PORTE, TEXAS Notes to the Financial Statements September 30, 2010 2. Cash, Cash Equivalents and Investments - Continued In accordance with applicable statutes, the City has a depository contract with an area bank (depository) providing for interest rates to be earned on deposited funds and for banking charges the City incurs for banking services received. The City may place funds with the depository in interest and non - interest bearing accounts. Statutes and the depository contract require full security for all funds in the depository institution through federal depository insurance or a combination of federal depository insurance and acceptable collateral securities and /or an acceptable surety bond. The City requires the depository to place the collateral securities with an independent trustee institution. The depository is required to deliver the safekeeping receipts to the City. In accordance with Texas statutes, the safekeeping receipts are in the name of the depository with proper indication of pledge of the collateral securities by the depository to secure funds of the City. The City must approve all collateral securities pledged and also must approve in writing any changes to the pledged collateral securities. The City has adopted a written investment policy regarding the investment of its funds as defined by the PFIA. The PFIA also requires the City to have independent auditors perform test procedures related to investment practices as provided by the Act. The City complies with the requirements of the Act and with local policies. The City's investment policy permits investment of City funds in only the following investment types, consistent with the strategies and maturities defined in the policy: D. Obligations of the U.S., its agencies and instrumentalities. ➢ Direct obligations of the State of Texas or its agencies. ➢ Collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States. ➢ Other obligations, the principal and interest on which are unconditionally guaranteed or insured by, or backed by full faith and credit of the State of Texas or the United States or their agencies and instrumentalities. ➢ Obligations of states, agencies, counties, cities and other political subdivisions of any state having been rated as to the investment quality by a nationally recognized investment firm and having received a rating of not Tess than A or its equivalent. ➢ Certificates of Deposit issued by state and national banks or savings and on associations that have its main office or branch office in this state are: a. guaranteed or insured by the Federal Deposit Insurance Corporation; or b. secured by obligations that are described in 1 -5 above, which are intended to include all direct federal agency or instrumentality issued mortgage backed securities that have a market value of not less than the principal amount of the certificates or in any other manner and amount provided by law for deposit of the investing entities. ➢ Certificates of Deposit and share certificates issued by a state or federal credit union that have its main office or branch office in this state that are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in 1 through 5 above in any other manner and amount provided by law for the City deposits. ➢ Fully collateralized repurchase agreements having a defined termination date, secured by obligations of the United States, its agencies or instrumentalities, pledged with a third party selected or approved by the political entity, and placed through a primary government securities dealer, as by the Federal Reserve or through a financial institution domiciled in the State of Texas. ➢ Prime domestic banker's acceptances, defined as a banker's acceptance with a remaining term of 270 days or Tess, if the short-term obligations of the accepting bank or its parent are rated at least "A -1" or "P -1" or equivalent by at least one nationally recognized credit rating agency. ➢ Commercial paper that is rated at least "A -1" or "P -1" or the equivalent by either (a) two nationally recognized credit agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or State bank. ➢ SEC - registered no -load money market mutual fund (MMMF), with a dollar weighted average portfolio maturity of 90 days or less, includes in their investment objectives the maintenance of a stable net asset value of $1 for each share. 53