Chapter 7.16
INVESTMENT OF BOROUGH FUNDS

Sections:

7.16.010    Definitions.

7.16.020    Investment policy and objectives.

7.16.030    Persons authorized to invest borough funds.

7.16.040    Authorized investments.

7.16.050    Collateralization.

7.16.060    Portfolio diversification.

7.16.070    Safekeeping and custody of securities.

7.16.080    Internal controls.

7.16.090    Investment reporting.

7.16.100    Qualification of financial institutions.

7.16.110    Removal from qualified bidders list.

7.16.120    Placement of borough investments.

7.16.130    Appeal.

7.16.140    Emergency powers.

7.16.150    Conflict of interest.

7.16.170    Interpretation and construction.

7.16.010 Definitions.

In this chapter:

Actively traded” means securities which are regularly bought and sold on the secondary market on a daily basis and for which price information is available on a regular basis in the Wall Street Journal;

Bank” means an institution which is chartered or otherwise authorized to conduct business as a bank by, and regulated by, an agency of the United States government or of any state, which is insured by the Federal Deposit Insurance Corporation, and which maintains a main or branch office within the United States on a regular and permanent basis;

Credit union” means an institution which is chartered or otherwise authorized to do business as a credit union by the Federal Credit Union Act or as the context permits under the laws of any state, and regulated by an agency of the United States government or of any state and which is insured by the National Credit Union Administration, and which maintains a main or branch office within the United States on a regular and permanent basis. In order to do business with a credit union, the borough must be in the credit union’s field of membership;

Financial institution” means a bank, credit union, savings and loan association, international bank, or securities dealer;

Immediate family” means spouse, child (step, biological or adoptive), parent (step, biological or adoptive), sibling, grandparent, father-in-law, mother-in-law, or a regular member of the person’s household;

International bank” means a bank as defined in this chapter, and any other institution chartered or otherwise authorized to provide banking services by the government of any foreign country, or political subdivision thereof, whether or not said institution maintains an office within the United States;

Money market mutual fund” means a mutual fund which maintains a constant share price regardless of market fluctuations and which has an average maturity of its entire portfolio of 60 days or less;

Savings and loan association” means an institution chartered or otherwise authorized to do business as a savings and loan association by, and regulated by, an agency of the United States government or of any state, and insured by the Federal Savings and Loan Insurance Corporation, which maintains a main or branch office within the United States on a regular and permanent basis;

Securities dealer” means a person, partnership, corporation or other entity licensed by the Securities and Exchange Commission to deal in secondary financial markets, which is a member of the New York Stock Exchange, and which maintains a main or branch office within the United States on a regular and permanent basis;

U.S. government agency or instrumentality securities” means securities issued by the U.S. government agencies or quasi-government agencies and guaranteed directly or indirectly by the U.S. government.

U.S. Treasury securities” means bills, notes and bonds issued directly by the United States Treasury through the Federal Reserve System, and guaranteed by the full faith and credit of the United States government.

It is the public policy of the Fairbanks North Star Borough that investment of borough funds with or through local financial institutions furthers the public interest. “Local financial institution” is defined as a financial institution which maintains an office in the borough on a regular and permanent basis. However, the welfare of all the citizens of the borough requires that the objectives contained in FNSBC 7.16.020(C) be met at all times. Therefore, an investment shall not be placed with or through such a local institution if the placement would result in any decrease in or impairment of the borough’s ability to meet these objectives. (Ord. 2016-40 § 43, 2016; Ord. 99-007 § 6, 1999; Ord. 87-069 § 4, 1988. 2004 Code § 3.04.190.)

7.16.020 Investment policy and objectives.

A. This chapter applies to the investment of all borough moneys, unless otherwise provided expressly by ordinance. Borough moneys accounted for in the following funds shall be invested only in accordance with this chapter:

1. General fund;

2. All special revenue funds;

3. All capital projects funds;

4. All enterprise funds;

5. All trust and agency funds;

6. All internal service funds;

7. Debt service fund;

8. Any other borough funds.

B. All persons having responsibility for making decisions regarding the investment of borough moneys shall utilize the same judgment and care, under the 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 capital as well as the probable income to be derived in accordance with the objectives established in subsection (C) of this section.

C. The borough investment portfolio shall be managed so that the portfolio, as a whole, meets the objectives set forth in this subsection. All persons selecting investments for borough moneys shall adhere to these objectives, which are listed in order of relative importance.

1. Safety of principal is the most important objective of the borough investment program;

2. Maintaining sufficient liquidity to meet the borough’s cash flow requirements is the second most important objective of the borough investment program;

3. Achieving a reasonable market rate of return is the final objective of the borough investment program.

D. Notwithstanding the above objectives, no person shall invest borough moneys in a manner which violates any provision of this chapter or the administrative procedures established under this chapter. (Ord. 99-007 § 2, 1999; Ord. 87-069 § 4, 1988. 2004 Code § 3.04.010.)

7.16.030 Persons authorized to invest borough funds.

The mayor is authorized to invest borough moneys in accordance with this chapter, and shall ensure that no person invests borough moneys other than in accordance with this chapter and the administrative procedures established under this chapter. The mayor may delegate daily management authority over the borough investment program, in writing, to the chief financial officer. With the advice of the chief financial officer, the mayor shall establish written administrative procedures for the operation of the borough investment program, which may delegate authority to specific employees of the borough financial services department to supervise or conduct all or part of each investment transaction. Whenever this chapter assigns responsibility or gives authority to the mayor, such responsibility or authority may be exercised by any person to whom the mayor has delegated the responsibility or authority, unless otherwise provided in this chapter. (Ord. 87-069 § 4, 1988. 2004 Code § 3.04.020.)

7.16.040 Authorized investments.

A. Borough moneys shall be invested only in the following instruments:

1. U.S. Treasury securities with maturities not exceeding five years from the date of purchase;

2. Other obligations guaranteed by the U.S. government or its agencies and instrumentalities with maturities not exceeding five years from the date of purchase;

3. Repurchase agreements with financial institutions for the sale and repurchase of securities specified in subsections (A)(1) and (2) of this section, which meet the collateralization margin requirements for such securities specified in FNSBC 7.16.050 and with maturities not exceeding five years from the date of purchase;

4. Certificates of deposit and other deposits at banks, credit unions, or savings and loan associations collateralized as provided in FNSBC 7.16.050 with maturities not exceeding five years from the date of purchase;

5. Uncollateralized deposits at banks, credit unions, and savings and loan associations, to the extent that the deposits are insured by the Federal Deposit Insurance Corporation, the National Credit Union Administration, or the Federal Savings and Loan Insurance Corporation with maturities not exceeding five years from the date of purchase;

6. Bonds and notes which are issued by any state or political subdivision thereof, and which are graded A or higher by Moody’s Investors Service, Inc., or Standard and Poor’s Corporation with maturities not exceeding five years from the date of purchase;

7. Prime commercial paper graded A1 or higher by Moody’s Investors Service, Inc., or P1 or higher by Standard and Poor’s Corporation with maturities not to exceed 270 days from the date of purchase;

8. Prime bankers acceptances offered by the 50 largest international banks with maturities not to exceed 180 days from the date of purchase;

9. Money market mutual funds whose portfolios consist entirely of instruments specified in subsections (A)(1), (2) and (3) of this section, maturity date not applicable;

10. The Alaska Municipal League Investment Pool, Inc., whose investments are made in accordance with Alaska Statutes, the terms of Pool’s common investment agreement, and the Pool regulations and procedures. Provisions of this chapter which conflict with those regulations and procedures shall not apply to the borough’s investments in the Alaska Municipal League Investment Pool.

B. No person shall invest any borough moneys in any instrument which is not listed in subsection (A) of this section. This prohibition includes, but is not limited to, investment of borough moneys in any mutual fund, except as otherwise provided in subsection (A)(9) of this section, common or preferred stock, precious metal, zero coupon bond, corporate bond, option contract, futures contract or negotiable instrument with a variable interest rate.

C. The mayor may enter into a short-term repurchase agreement, certificate of deposit or other authorized investment with the bank or credit union in which the borough’s daily operating moneys are deposited, for the purpose of investing any excess operating moneys which will be needed in the immediate future to fund borough operations. This investment may be continuing in nature, such that excess borough operating moneys are continually invested. This short-term investment shall be governed by the provisions of this chapter relating to similar long-term investments, except that the mayor may alter the margin requirements of FNSBC 7.16.050 with respect to this short-term investment, if he determines that such action is reasonably necessary to obtain and secure the investment.

D. All securities purchased by the borough, and all other borough investments, must mature such that the average maturity of the borough’s portfolio does not exceed three years. Further, at the time of purchasing an investment, not more than 30 percent of the prior 12-month moving average value of the portfolio, excluding amounts held in on-demand accounts, may be in the three- to five-year range.

E. Subject to the limitations imposed by FNSBC 7.16.100, borough moneys may be invested in any financial institution, as defined in FNSBC 7.16.010, except that moneys may be invested with a bank which does not maintain a business office in the United States on a regular and permanent basis only when investment with an “international bank” is expressly authorized by this chapter. (Ord. 99-007 § 3, 1999; Ord. 92-071 § 2, 1992; Ord. 87-069 § 4, 1988. 2004 Code § 3.04.030.)

7.16.050 Collateralization.

A. If borough moneys are invested in certificates of deposit or other deposits in a bank, credit union, or savings and loan association, the entire amount of principal and interest which will be payable to the borough upon maturity of the investment must be collateralized by any combination of the following, unless otherwise provided:

1. Insurance issued by the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), or Federal Savings and Loan Insurance Corporation (FSLIC);

2. U.S. Treasury securities;

3. Obligations guaranteed by the U.S. government or its agencies and instrumentalities;

4. Obligations of the state of Alaska or its political subdivisions which are secured by the full faith, credit and taxing power thereof, and which are rated A or higher by Moody’s Investors Service, Inc., or Standard and Poor’s Corporation.

No security pledged as collateral for a borough investment shall mature more than five years after the date of the borough’s investment transaction.

B. At all times during the term of the borough’s investment in a certificate of deposit or other deposit, the bank, credit union, or savings and loan association with which borough moneys are so invested shall pledge and maintain collateral, in accordance with this chapter and the administrative procedures adopted under this chapter, which has a then-current market value equal to the following percentage (margin requirement) of the total amount of principal and interest which will be due and owing to the borough at the maturity date of such certificate of deposit or other deposit. At all times during the term of such investments the collateral pledged as security for each investment shall have a market value at least equal to the applicable margin requirement, which requirement shall vary with the type of instrument pledged as security, according to the schedule set out in this subsection. The margin requirements contained herein are minimums. The mayor may require higher margins if he determines that such action is reasonably necessary to protect the security of borough investments.

Collateral Type

Margin Requirement

U.S. Treasury Securities

 

 

Maturity date one year or less from the date of the borough’s investment transaction

102%

 

Maturity date between one and five years from the date of the borough’s investment transaction

105%

 

Actively traded U.S. government agency or instrumentality securities, except mortgage pass-through securities

 

 

Maturity date one year or less from the date of the borough’s investment transaction

103%

 

Maturity date between one and five years from the date of the borough’s investment transaction

107%

 

Government National Mortgage Association mortgage pass-through securities

120%

 

All other U.S. government agency or instrumentality mortgage pass-through securities, and U.S. government agency or instrumentality securities which are not actively traded

125%

 

Obligations of the state of Alaska and its political subdivisions secured by the full faith, credit and taxing power thereof

 

 

Maturity date, one year or less from the date of the borough’s investment transaction

102%

 

Maturity date between one and five years from the date of the borough’s investment transaction

107%

 

FDIC, NCUA, and FSLIC insurance

100%

(Ord. 99-007 § 4, 1999; Ord. 87-069 § 4, 1988. 2004 Code § 3.04.040.)

7.16.060 Portfolio diversification.

A. Borough investments shall be diversified to minimize the risk of loss resulting from over concentration of investments in a specific maturity, a specific issuer, a specific class of security or a specific financial institution. The mayor shall adopt administrative procedures to implement this section.

B. The total amount of principal and accumulated interest which will be paid to borough at maturity of all certificates of deposit, other deposits and/or repurchase agreements invested with any one financial institution shall not at any time exceed 20 percent of the total net worth of the financial institution, as shown on said financial institution’s most current annual financial statement. At no time shall the total value of borough moneys invested in repurchase agreements, certificates of deposit and/or other deposits with a single financial institution, including interest which will be payable to the borough at the maturity of each investment, exceed 30 percent of the total principal value of the entire borough investment portfolio. The short-term investments authorized by FNSBC 7.16.040(C) shall not be included in calculating compliance with this 30 percent limitation. (Ord. 87-069 § 4, 1988. 2004 Code § 3.04.050.)

7.16.070 Safekeeping and custody of securities.

The mayor shall enter into agreements with one or more banks to provide custodial and safekeeping services for borough investments. All investments purchased by the borough, and all securities pledged to the borough as collateral, shall be either held directly by the borough or held by a third party custodial bank as agent for the borough. At no time shall the mayor permit the financial institution with whom the borough is investing funds, or from whom the borough is purchasing securities, to hold both the borough’s money and the securities purchased or pledged as collateral. A custodial and safekeeping bank may hold both the borough’s money and the securities purchased or pledged, for the time necessary to accomplish delivery of either or both. (Ord. 87-069 § 4, 1988. 2004 Code § 3.04.060.)

7.16.080 Internal controls.

By administrative procedure, the mayor shall adopt and establish a system of internal controls within the financial services department, and the other departments of the borough administrative staff, to provide checks and balances within the process by which borough moneys are invested. The internal controls shall be designed to minimize the risk of loss of public funds resulting from fraud, employee error, misrepresentation by third parties, anticipated changes in financial markets or imprudent actions by borough officials and employees. The borough’s external auditors shall review and evaluate, at least annually, the system of internal controls to ensure that they are adequate for accomplishing the purposes stated in this section. (Ord. 87-069 § 4, 1988. 2004 Code § 3.04.070.)

7.16.090 Investment reporting.

The mayor shall cause to be prepared and delivered to the assembly and the investment review committee quarterly reports containing the following information about each investment in which borough moneys were invested at any time during the quarter:

A. The type of investment;

B. The financial institution;

C. The face amount;

D. The interest rate;

E. The maturity date;

F. The purchase date;

G. The purchase price;

H. The amount of interest accrued on the investment during the quarter;

I. The yield to the borough;

J. The market value as of the end of the quarter;

K. The information required by subsections (A) through (E) and (J) of this section for each instrument pledged as collateral for any borough investment.

The report shall also identify and describe the status of the borough’s compliance or noncompliance with the portfolio diversification requirements of FNSBC 7.16.060. (Ord. 87-069 § 4, 1988. 2004 Code § 3.04.080.)

7.16.100 Qualification of financial institutions.

A. The mayor shall maintain a roster of financial institutions qualified to bid on borough investments, called the qualified bidders list. If the investment is a repurchase agreement, certificate of deposit or other deposit, the financial institution in which moneys are invested must be on the qualified bidders list. If the investment is a direct purchase of a security (other than a repurchase agreement, certificate of deposit or other deposit) either directly from the issuer or through an intermediary financial institution, the institution issuing the security need not be on the qualified bidders list, but any intermediary institution from which the borough takes delivery of the security must be on the qualified bidders list.

B. The mayor shall adopt administrative procedures under which financial institutions interested in becoming included on the qualified bidders list may apply for inclusion. The procedures may restrict the times at which applications will be received, but must provide at least one opportunity to apply for inclusion per year. The mayor may also add financial institutions, which meet the criteria established under subsection (C) of this section, to the qualified bidders list at any time without utilizing the application procedure.

C. The mayor shall adopt administrative procedures for evaluating financial institutions for inclusion on the qualified bidders list. Such procedures shall require financial institutions to provide such records, reports and information as the mayor shall require, and shall be designated to evaluate the financial institution’s ability to meet the objectives of the borough’s investment program, pursuant to FNSBC 7.16.020. The administrative procedures shall require an analysis of the credit characteristics, capitalization, management policies, financial history, client references and other relevant information concerning the credit worthiness and competitiveness of each financial institution. The mayor may place a financial institution on the qualified bidders list if, after such analysis, he determines that the financial institution is able to meet the objectives of the borough’s investment program. The procedures shall also require financial institutions on the qualified bidders list to submit such records, reports and information as the mayor shall require, and also require that all financial institutions on the qualified bidders list be evaluated for continued retention on such list at least annually. (Ord. 87-069 § 4, 1988. 2004 Code § 3.04.090.)

7.16.110 Removal from qualified bidders list.

The mayor may remove a financial institution from the qualified bidders list if the financial institution fails to provide required reports, records and information, or otherwise fails to meet the qualifications for inclusion on such list; if the institution breaches or defaults on any obligation owed to the borough; or if the mayor determines that the objectives of the borough investment program will not be met by investments placed with or through such financial institution. (Ord. 87-069 § 4, 1988. 2004 Code § 3.04.100.)

7.16.120 Placement of borough investments.

A. Because of rapid fluctuations in interest rates, and the brief period of availability of some securities, bids may be solicited, received and accepted, either orally or in writing. Solicitation, receipt and acceptance of bids over the telephone is authorized. In order for a bid to be responsive, it must meet all of the specifications and requirements of the bid solicitation, and must be received by the mayor at or before the date and time specified in the bid solicitation. The mayor shall not consider nonresponsive bids.

B. The mayor shall award a bid to the financial institution whose bid best fulfills the investment objectives contained in FNSBC 7.16.020, considering the borough investment portfolio as a whole; meets the bid specifications; and complies with all other restrictions and limitations contained in this chapter and the administrative procedures adopted under this chapter.

C. All securities transferred to or from the borough, except securities pledged as collateral, shall be transferred using the delivery versus payment method. All securities pledged to the borough as collateral shall be actually received by a custodial bank designated by the mayor, before borough funds are transferred to the financial institution with which the borough is investing. The mayor may require financial institutions to deliver collateral to a custodial bank prior to bidding on borough investments.

D. The mayor shall maintain records of the specifications of all bid solicitations, and the contents of all responses thereto, including the date and time each such response was received. The mayor shall also prepare a record of the final decision made with respect to each solicitation for bids, together with a brief explanation of the reasons for such decision. The mayor shall prepare such written records not later than one business day following the day on which the mayor takes final action with respect to each bid transaction. (Ord. 87-069 § 4, 1988. 2004 Code § 3.04.110.)

7.16.130 Appeal.

A. A financial institution may appeal an action of the mayor taken under FNSBC 7.16.100 through 7.16.120 to the investment advisory committee only by filing a written notice of appeal, stating the reasons therefor, with the mayor not more than 10 days following the date of the action appealed. The committee shall consider the matters presented by the financial institution, borough records of the transaction and any other available information, and may, but is not required to, hold a hearing on the matter. If the committee finds that the financial institution has established by clear and convincing evidence that the action appealed violated the provisions of this chapter or the administrative procedures adopted hereunder, the committee shall grant the appeal. Otherwise the committee shall deny the appeal. Not more than 30 days following the date on which the financial institution files the appeal, the committee shall provide the financial institution with written notice of its decision on the appeal, stating the reasons for such decision. The borough or the financial institution may appeal the decision of the investment advisory committee to the superior court as provided by law. The mayor shall adopt administrative procedures to implement this section.

B. The mayor may investigate and consider informal complaints concerning borough investments, but such complaints shall not constitute formal appeals and the complainant shall not be entitled to receive the remedies provided below.

C. The mayor may suspend action with respect to any financial institution, or any borough investment, including the investment which is the subject matter of an appeal, during the pendency of the appeal.

D. If a financial institution’s appeal of a decision not to add it, to remove it, or to add another financial institution to the qualified bidders list is granted, its sole remedy shall be inclusion of itself on the qualified bidders list, or removal of another financial institution from the list, as applicable. If a financial institution’s appeal regarding failure to consider its bid or failure to award the bid to such financial institution is granted, the financial institution’s sole remedy shall be payment by the borough to the financial institution of the costs actually incurred by the financial institution in preparing its bid. (Ord. 87-069 § 4, 1988. 2004 Code § 3.04.120.)

7.16.140 Emergency powers.

Notwithstanding any other provision of this chapter or this code of ordinances, if the mayor determines that a reasonable possibility exists that the principal and interest of a borough investment are not adequately secured for any reason, the mayor may take any or all of the following actions in order to protect the principal and interest of such borough investment:

A. Rescind or otherwise terminate the investment without regard to interest or other penalties which may arise because of such action;

B. Demand from the financial institution additional or substitute collateral;

C. Demand from the financial institution additional or substitute safekeeping measures;

D. Notify state or federal regulatory agencies of the nature and reasons for such insecurity and seek assistance in remedying the insecurity;

E. Temporarily deviate from the requirements of FNSBC 7.16.100 through 7.16.120 relating to the qualified bidders list and the placement of borough investments, and the provisions of FNSBC 7.16.060 relating to portfolio diversification;

F. Take any other action which the mayor deems reasonably necessary to protect the security of the principal and interest of borough investments. (Ord. 87-069 § 4, 1988. 2004 Code § 3.04.150.)

7.16.150 Conflict of interest.

A. No elected official, investment advisory committee member, or employee of the borough shall:

1. Take any action, make any decision, or exercise his official judgment or discretion with respect to a borough investment with the intent to confer a benefit upon or provide a material advantage to himself, to a member of his immediate family, or to any financial institution in connection with the investment of borough moneys;

2. Accept any gift, gratuity or other inducement offered by any person for the purpose of influencing his opinion, judgment, action, decision or exercise of official discretion in connection with the investment of borough moneys. Prohibited gifts and gratuities include, but are not limited to, payment of money, gift of real or personal property, reduced commission for investments for the person’s own account, reduced interest rate, waiver of penalties and forgiveness of delinquency or default on a loan;

3. Participate in a decision regarding the investment of borough money, if the decision concerns or relates to the investment or potential investment of money in, or the purchase or potential purchase of, a security from or offered by any financial institution or other entity of which the person, or a member of the person’s immediate family, is an officer, director or employee, or in which the person or family member has a substantial financial interest;

4. Perform any other act or omission which would constitute a violation of the public trust imposed upon persons handling public moneys, or which would otherwise impair the public confidence in the integrity of the borough’s financial affairs.

B. Violation of the prohibitions contained in subsection (A) of this section shall constitute cause for terminating employment with the borough or membership on the investment advisory committee. (Ord. 87-069 § 4, 1988. 2004 Code § 3.04.160.)

7.16.170 Interpretation and construction.

This chapter represents the maximum amount of authority and discretion which the mayor may utilize in investing borough moneys. However, nothing in this chapter shall be construed to prohibit the mayor from adopting standards, rules, policies and procedures which are more restrictive than those contained in this chapter. The enumeration in this chapter of instruments which are authorized for borough investments shall not be construed as requiring the mayor to invest in all, or any particular, instrument contained in such list at any given time. The mayor may invest in some or all of such instruments as he deems appropriate. Similarly, the enumeration of instruments which are acceptable as collateral for borough investments shall not be construed as requiring the mayor to accept all, or any particular, instrument contained in such list at any given time. The mayor may accept some of such instruments, and reject others, in his discretion. (Amended during 1993 republication; Ord. 87-069 § 4, 1988. 2004 Code § 3.04.180.)