180.1 Introduction
The Board of County Commissioners has authority to invest all funds held by, or belonging to, Johnson County, its agencies or departments. This authority is granted in K.S.A. 12-1675 and has been established by Board of County Commissioner action per home rule resolution.
180.2 . Policy Statement
The primary objectives of the Board of County Commissioners are (in order of priority) safety of principal, maintenance of adequate liquidity, and maximization of earnings from County funds. It is the policy of the Board of County Commissioners of Johnson County that all available funds shall be invested in conformance with this policy and with applicable legal and administrative guidelines at the highest rates obtainable at the time of investment, and that all investments made by, or on behalf of, the County shall seek to adhere to the following objectives:
180.3 Adoption of Policy
The investment policy of Johnson County is adopted pursuant to the authority granted to the Board of County Commissioners under K.S.A. 12-1675, K.S.A.19-101 et seq. and other statutory provisions such as K.S.A. 10-131.
180.4 Investment Review Group
The Investment Review Group (IRG), as established under BOCC Resolution, has as its function to assist the Board of County Commissioners in monitoring the performance and structure of the County's investments. Members of the IRG include a member of the Board of County Commissioners as designated by the Board and who will serve as the chair, the Finance Director, the Treasurer, and two outside investment professionals, who shall be appointed by the Board of County Commissioners upon the advice and recommendation of the IRG. The outside investment professionals of the IRG shall serve at the pleasure of the Board of County Commissioners, subject to bi-annual reappointment by the Board of County Commissioners. At a minimum, one outside investment professional shall have the Chartered Financial Analyst (CFA) and one investment professional shall have the Certified Cash Management (CCM) or Certified Treasury Professional (CTP) designation. The County Commissioner serving on the IRG shall serve for a term of two years and may be reappointed by the Board of County Commissioners. The IRG shall meet quarterly to discuss investment reports, investment strategy, and investment policy and procedures.
The primary duties of the IRG shall be the following:
1. Review the Cash Manager’s economic forecasts and investment strategy for the next two quarters.
2. Review the investment reports and the investment performance of the past quarter and determine any variances that occurred and the documented reasons for the variance.
3. Review the reports on collateral and determine if sufficient collateral has been established.
4. Review reporting on the availability of all funds and their rate of return by investment type.
5. Review compliance with the Investment Policy and measure any variance. Report any variance and any recommendations of changes to the policy and procedures to County Management and the Board of County Commissioners.
6. Develop future guidelines for possible changes to the State investment statutes.
180.5 Investment Structure
The following policies will assist the County with attaining the objectives stated in Section 180.2
1. Acceptable Investments
In accordance with and subject to restrictions imposed by current statutes applicable to both the operating fund and proceeds of bonds or temporary notes, the following list represents the entire range of investments that Johnson County will consider and which shall be authorized for the investments of aforementioned funds by the County. Cited maturities represent maximum durations, which may be reduced depending upon applicable statutory authority:
a. United States Treasury and Agency Securities. The County may invest in obligations of the United States government or any agency thereof insured as to principal and interest by the United States or any agency thereof and obligations and securities of Government Sponsored Enterprises (GSE’s) which under federal law may be accepted as security for public funds and shall not exceed the maximum length of maturity allowed by statute. The Agency Securities include GSE’s, which include the Federal Home Loan Bank, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Federal Farm Credit Bank and the Student Loan Marketing Association, except that proceeds of bonds or temporary notes cannot be invested in Federal Farm Credit Bank or the Student Loan Marketing Association per KSA 10-131.
b. Repurchase Agreements (Repo). The County may invest in contractual agreements between the County and commercial banks, state or federally chartered saving and loan associations, federally chartered savings banks, or primary government securities dealers. The purchaser in a repurchase agreement (repo) enters
into a contractual agreement to purchase Treasury and government agency securities while simultaneously agreeing to resell the securities at predetermined dates and prices.
c. Collateralized Public Deposits (Certificates of Deposit). Instruments issued by financial institutions which state that specified sums have been deposited for specified periods of time and at specified rates of interest. The certificates of deposit are required to be backed by acceptable collateral securities as dictated by State statute. Interest will be calculated on a 365-day year/actual-day month basis, or another method approved by the Finance Director or designee in writing.
d. State Municipal Investment Pool Fund. A pool of funds which are managed by and under the authority of the Kansas State Treasurer.
e. Bank Trust Departments with commercial banks. Investments with trust departments of commercial banks with offices located in Johnson County or with trust companies which have contracted to provide trust services under the provisions of K.S.A. 9-1402, and amendments thereto, with commercial banks which have offices located in Johnson County. Investments under this category are limited to (1) time deposits of depository institutions doing business in Kansas with maturities as noted in (c) above, (2) Treasury or government agency securities with maturities as noted in (a) above, and (3) repurchase agreements of less than 30 days' duration as noted in (b) above.
f. Investments in shares or units of a money market fund. Money market funds are mutual funds that invest in short term debt instruments. The County may only invest in money market funds comprised entirely of securities in direct obligations of the U.S. government or any agency thereof, including GSE’s as described in sub-paragraph a. above.
g. Municipal bonds. Bonds or other obligations issued by any municipality of the State of Kansas as defined in K.S.A. 10-1101, and amendments thereto, which are general obligations of the municipality issuing the same.
2. Investment Instrument Guidelines
The Cash Manager will consider the composition of the current investments and determine whether the securities being considered will maintain the investments within procedural guidelines.
The following maximum limits, by instrument, are established for the County's total investments:
a. Repurchase Agreements .............................................................................................. 40%
b. Collateral Time and Demand Deposits ......................................................................... 100%
c. U.S. Treasury Notes and Bills ...................................................................................... 100%
d. U.S. Govt Agency CouponObligations……………………………….…………………………. 80%
e. U.S. Govt Agency Discount Obligations………………………………………………….………50%*
f. U.S. Govt Agency Callable Obligations ........................................................................... 20%
g. U.S. Govt Agency Step-Up Obligations ........................................................................... 10%
h. Money Market Funds and Instruments ...................................................................... ….25% *
i. Kansas Municipal Investment Pool Fund (MIP) ............................................................... 25%*
* During tax collection periods Discount Obligation percent increases to 65%, Money Market Funds and Instruments percent increases to 50% and t he limit on the MIP may be increased to 50% Tax collection period is defined ten days prior to the due date for taxes to be remitted and runs through the distribution dates set by Kansas Statute.
To allow efficient and effective placement of proceeds from bond sales, the limit on either repurchase agreements or the MIP may be exceeded for up to five consecutive days, per bond issue, following the receipt of bond proceeds.
3. Portfolio Management
All investments of County funds shall be managed through the Office of Financial Management consistent with this policy. The Office of the County Treasurer shall establish operating procedures to coordinate all financial transactions with the Office of Financial Management. The Office of Financial Management shall provide to the Office of the County Treasurer complete written records of all investment information.
This policy shall be submitted to the State’s Pooled Money Investment Board (PMIB) for their review and approval, and upon approval, investments may include those authorized through the PMIB. This approval grants the County “Expanded Powers” whereby the investment horizon is increased from two years to fours years. “Expanded Powers” also allows for investment in Government Sponsored Enterprise bonds (as listed above in Section 180.5, 1., a.) rather than being limited to U.S. Treasuries.
4. Investment Strategy
The County shall follow the most aggressive investment guidelines allowed by State law. County funds shall be managed as multiple portfolios in order to meet liquidity needs of the organization while enhancing total yield of the portfolio.
5 . Cash Management & Investment Practices
It is the policy of the County that its cash management practices shall ensure that funds held by, and belonging to, the County are managed in a manner that complies with all State and Federal Laws, and the policies and strategies of the Board, and that provides for adequate funds to be available to timely meet all disbursement requirements and obligations of the County.
6. Trading Accounts
All trading accounts will be held in the name of “ Johnson County, Kansas”. The Board shall have all trading authority for the investment of County funds, and that trading authority shall be exercised by the Cash Manager and the County Treasurer.
180.6 Investment Policy Revisions
A. Board of County Commissioners
The Board of County Commissioners may initiate or approve any changes to the Investment Policies as originally adopted.
B. Investment Review Group
As authorized by this document, the Investment Review Group (IRG) may suggest policy and procedural changes.
C. Annual Review of Investment Policies
According to section 180.3, the IRG will perform an annual review of Investment Policies and submit suggested changes to the Board of County Commissioners.
180.7 Legal Authority
The Board of County Commissioners of Johnson County is granted the authority to invest temporarily idle funds under applicable Kansas Statutes. The statutes also identify the types of investments the County may purchase.
180.8 Arbitrage
The Tax Reform Act of 1986 provides calculation requirements on the County's yield from investing tax-exempt General Obligation and Revenue bond and temporary note proceeds and debt service funds. These new arbitrage rebate provisions require that the County compute earnings on investments from each issue of bonds on an annual basis to determine if a rebate is required. To determine the County's arbitrage position, the County is required to calculate the actual yield earned on the investment of the funds and compare it to the yield that would have been earned if the funds had been invested at a rate equal to the yield on the bonds sold by the County. The rebate provisions state that periodically (not less than once every five years, and not later than sixty days after maturity of the bonds), the County is required to pay the U.S. Treasury a rebate of any excess earnings. These restrictions require extreme precision in the monitoring and record keeping of investments, particularly in computing yields to ensure compliance. Failure to comply can dictate that the bonds become taxable, retroactively from the date of issuance.
The County's investment position relative to arbitrage restrictions is to continue pursuing the maximum yield on applicable investments while ensuring the safety of capital and liquidity. It is a fiscally sound policy to continue maximization of yield and to rebate excess earnings, if necessary.
180.9 Procedures and Practices
The County Manager, County Treasurer, and Finance Director shall adopt and implement procedures and practices for the efficient cash management of all funds held by, or belonging to, Johnson County, for the coordination of cash management practices with the operations and duties of the Office of Financial Management and the Office of the County Treasurer, and for the prudent investment of funds.