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S-1929 - 07/13/2021 - FINANCE - Ordinances ITEM 6.D.2 BOARD OF TRUSTEES MEETING VILLAGE ol- SAMUEL E. DEAN BOARD ROOM OAK B R , K BUTLER GOVERNMENT CENTER �� 1200 OAK BROOK ROAD OAK BROOK, ILLINOIS 630-368-5000 AGENDA ITEM Regular Board of Trustees Meeting of July 13, 2021 SUBJECT: Village Investment Policy Update FROM: Jason Paprocki, Finance Director J` BUDGET SOURCE/BUDGET IMPACT: N/A RECOMMENDED MOTION: I move that the Village Board adopt Ordinance 2021-FI- EXI.-S-1929 "An Ordinance Amending the Investment Policy for the Village of Oak Brook, Illinois". Backaround/History: The investment of Village funds is controlled by a formal investment policy. The policy was first adopted in 1995, and has been periodically updated as Illinois Compiled Statutes change. In 2020, the Illinois Sustainable Investing Act (30 ILCS 238) was passed, which states, "any public agency or governmental unit should develop, public, and implement sustainable investment policies applicable to the management of all public funds under its control." The act lists the following factors as items to consider, but are not limited to: 1. Corporate governance and leadership 2. Environmental 3. Social capital 4. Human capital 5. Business model and innovation These factors should be viewed as a component of the Village's overall evaluation of potential investment decisions and not a requirement. The sustainable investments language can be found in section IV.2 in the attached policy. BOT AGENDA Pae I In addition, we updated and reformatted the investment policy. There are no material changes to the policy in regards to authorized investment types, collateralization, or safekeeping requirements. Staff reviewed GFOA sample investment policies and added suggested language in an effort to better align the policy with best practices. All changes to the policy, other than the sustainable investments addition, relate to rearranging sections and adding further definitions. Recommendation I recommend that the Village Board approve Ordinance 2021-FI-EX I-S-1929 "An Ordinance Amending the Investment Policy for the Village of Oak Brook, Illinois". i ii I I j I I i BOT AGENDA Page 2 THE VILLAGE OF OAK BROOK COOK AND DUPAGE COUNTIES, ILLINOIS ORDINANCE 2021-FI-EX1-S-1929 AN ORDINANCE AMENDING THE INVESTMENT POLICY FOR THE VILLAGE OF OAK BROOK, ILLINOIS GOPAL G. LALMALANI, Village President CHARLOTTE K. PRUSS, Village Clerk LAURENCE HERMAN MICHAEL MANZO JAMES NAGLE A. SURESH REDDY EDWARD TIESENGA ASIF YUSUF Village Board Published in pamphlet form by authority of the President and the Board of Trustees of the Village of Oak Brook on this the 13th day of July, 2021 Ordinance 2021-FI-EX1-S-1929 An Ordinance Amending the Investment Policy for the Village of Oak Brook,Illinois Page 2 of 3 ORDINANCE 2021-FI-EXI-S-1929 AN ORDINANCE AMENDING THE INVESTMENT POLICY FOR THE VILLAGE OF OAK BROOK,ILLINOIS WHEREAS,on January 24, 1995,the Board of Trustees of the Village of Oak Brook adopted a uniform and comprehensive investment policy encompassing funds governed by it;and WHEREAS,the Village Board last amended said investment policy with the passage of Ordinance S-1546 on September 11,2018;and WHEREAS,it is in the best interests of the Village of Oak Brook that the attached sixth amended Investment Policy be adopted. NOW,THEREFORE,BE IT ORDAINED BY THE PRESIDENT AND BOARD OF TRUSTEES OF THE VILLAGE OF OAK BROOK,DU PAGE AND COOK COUNTIES,ILLINOIS as follows: Section 1: That the provisions of the preamble hereinabove set forth are hereby adopted as though fully set forth herein. Section 2: That the sixth amended Investment Policy, a copy of which is attached hereto and incorporated herein as Exhibit A,is hereby approved and adopted in its entirety and supersedes all prior editions of the Investment Policy. Section 3: That the Village Clerk is hereby authorized and directed to publish this ordinance in pamphlet form in the manner provided by law. Section 4: That all ordinances or parts thereof in conflict with the provisions of this ordinance be and the same are hereby repealed to the extent of such conflict. Section 5: That this ordinance shall be in full force and effect from and after passage and approval pursuant to law. [SIGNATURE PAGE FOLLOWS] Ordinance 2021-FI-EX 1-S-1 929 An Ordinance Amending the Investment Policy for the Village of Oak Brook,Illinois Page 3 of 3 APPROVED THIS 131h day of July,2021. Gopal G.Lalmalani Village President PASSED THIS 131h day of July,2021. Ayes: Trustees Herman,Manzo,Nagle,Reddy,Tiesenga,Yusuf Nays: None Absent: None i OF 0 GE Ake ATTEST: o G Charlotte K.Pruss Village Clerk 00 T4 `��` Exhibit A Of BRQXlr aui Village of Oak Brook Investment Policy I. SCOPE This policy governs the investment practices of all funds of the Village of Oak Brook, excepting the Police Pension Fund and the Firefighters'Pension Fund,which are governed by the Boards of Trustees of each fund and who determine investment policies of those funds, in accordance with applicable law. The funds governed by this polity are accounted for in the Village's Comprehensive Annual Financial Report and include the General Corporate Fund, Special Revenue funds, Capital Project funds, Enterprise funds, Internal Service funds,and any other funds that may be created in the future. All transactions involving the financial assets and related activity of the foregoing funds shall be administered in accordance with the provisions ofthis policy. II. OBJECTIVES The primary objectives of the Village's investment activities are: 1. Safety of Capital Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is desired in order to avoid incurring unreasonable risks from concentrating investments in specific security types and/or particular financial institutions. a) Credit Risk—Credit risk is the risk of loss due to the failure of the security issuer or backer. This risk will be minimized by: i Limiting investments to those listed in this policy. ii Pre-qualifying financial institutions,brokers/dealers,intermediaries,and advisors with which the Village will do business. iii Diversifying the investment portfolio so the impact of potential losses from any one type of security or from any one individual issuer will be minimized. b) Interest Rate Risk—Interest rate risk is the risk that the market value of securities in the portfolio decrease due to changes in general interest rates. This risk will be minimized by: i Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations,thereby avoiding the need to sell securities on the open market prior to maturity. ii Investing operating funds primarily in short-term securities,money market mutual funds,or similar investment pools. c) Custodial Credit Risk—Custodial credit risk is the risk that,in the event of a bank or counterparty failure,the Village's collateral securing uninsured deposits or investments may not be recovered. The Village aims to minimize custodial credit risk by ensuring that all deposits with financial institutions are insured or collateralized with securities held by the Village's agent in the Village's name. Securities will be held by a third-party custodian designated by the Village separate from where the investment was purchased. 2. Liquidity The Village's investment portfolio shall remain sufficiently liquid to enable the Village to meet all operating requirements which may be reasonably anticipated in any Village fund. Maturities of investments in all funds covered by this policy shall not exceed five years, unless a temporary extension of maturities is approved by the Board of Trustees. 3. Maintenance of Public Trust All participants in the investment process shall seek to act responsibly as custodians of the public trust and shall avoid any transaction that might impair public confidence in the Village. 4. Yield The investment portfolio shall be designed with the objective of attaining a market rate of return,based on appropriate performance benchmarks,throughout budgetary and economic cycles,taking into account the investment risk constraints and liquidity needs. The core investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Yield,or return on investment,is of secondary importance to the legality,safety,and liquidity objectives described above. III. STANDARDS OF CARE 1. Responsibility Management responsibility for the investment program of the Village of Oak Brook is hereby delegated to the Finance Director/Treasurer,who shall direct the investment program in a manner consistent with this policy. The Finance Director/Treasurer shall be responsible for all transactions undertaken, shall establish a written system of controls to regulate the activities of subordinate employees, and shall provide written approval for each investment placement. 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 investment officials shall be the"prudent person"and shall be applied in the context of managing the overall portfolio. 3. Ethics and Conflicts of Interest Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution of the investment program,or which could impair their ability to make impartial investment decisions. 4. Indemnification Investment officers and employees of the Village acting in accordance with this Investment Policy and such written procedures as have been or may be established, in relation thereto, and exercising due diligence, shall be relieved of personal liability for an individual security's credit risk or market changes. IV. INVESTMENT INSTRUMENTS 1. Authorized Investments The Village may invest in any type of investment instrument permitted by Illinois law, as described in Chapter 30 of the Illinois Compiled Statutes(ILCS),30 LCS 235/2. Permitted investment instruments include: a) Bonds, notes,certificates of indebtedness, Treasury bills or other securities which are guaranteed by the full faith and credit of the United States of America as to principal and interest. b) Bonds,notes,debentures,or other similar obligations of the United States of America or its agencies. c) Commercial paper, provided that, (a)the issuer is a U.S.Corporation with more than$500 million in assets, (b)the security is rated within the 3 highest classifications by two standard rating services,(c)the security will mature within 3 years of purchase, and(d)such purchase does not exceed 10%of the issuer's outstanding obligations. d) The State of Illinois Public Treasurer's Investment Pool(The Illinois Funds). e) Money market mutual funds which are registered under the Investment Company Act of 1940,provided the portfolio is limited to bonds, notes, certificates, treasury bills, or other securities which are guaranteed by the United States of America as to principal and interest. f) Repurchase Agreements which are collateralized by full faith and credit U.S. Treasury securities. g) Insured accounts of credit unions whose principal office is in Illinois. h) Interest-bearing savings accounts,interest-bearing certificates of deposit,or interest-bearing time deposits or any other investments constituting direct obligations of any bank as defined by the Illinois Banking Act. i) Interest bearing bonds registered in the name of any county,township,city,village, incorporated town,municipal corporation,or school district,of the State of Illinois, of any other state,or of any political subdivision or agency of the State of Illinois or of any other state,whether the interest earned thereon is taxable or tax-exempt under federal law. The bonds shall be rated at the time of purchase within the four (4)highest general classifications established by a rating service of nationally recognized expertise in rating bonds of states and their political subdivisions. For purposes of this section,the term"agencies of the United States of America" include: the federal land banks,federal intermediate credit banks, banks for cooperative,federal farm credit banks,or any other entity authorized to issue debt obligations under the Farm Credit Act of 1971; the federal home loan banks and the federal home loan mortgage corporation; and any other agency created by act of Congress. This policy expressly prohibits investments in derivative type securities. 2. Sustainable Investments Pursuant to the Illinois Sustainable Investing Act,30 ILCS 238,the Village shall consider material,relevant,and decision-useful sustainability factors in evaluating investment decisions. These factors will be integrated into investment decision-making,investment analysis,portfolio construction,due diligence,and investment ownership in order to maximize anticipated financial returns,minimize projected risk,and more effectively execute fiduciary duty. Such factors include: a) Corporate governance and leadership factors b) Environmental factors c) Social factors d) Human capital factors e) Business model and innovation factors Sustainability factors may be analyzed in a variety of ways,including,but not limited to: a) Direct financial impacts and risks b) Legal,regulatory,and policy impacts and risks c) Industry norms,best practices,and competitive drivers d) Stakeholder engagement The Village shall periodically consult with its investment advisor about the Illinois Sustainable Investment Act in its investment process and implications on the Village's investment portfolio. V. DIVERSIFICATION It is the policy of the Village to diversify its investment portfolio. Investments shall be diversified in order to reduce the risk of loss resulting from concentration in a specific maturity, issuer,or class of securities. In order to achieve a diversified investment portfolio,no one financial institution shall hold more than 25%of the Village's investments,exclusive of securities guaranteed by the full faith and credit of the United States of America,or obligations of the United States of America agencies. VI. COLLATERALIZATION It is the policy of the Village to require that all deposits in excess of FDIC insurable limits be secured by collateral to protect public deposits in a single financial institution if it were to default. Eligible collateral instruments and collateral ratios(market value divided by deposit)are as follows: a) U.S.Government Securities =110% b) Obligations of Federal Agencies =115% c) Obligations of the State of Illinois =115% d) Local and Municipal Bonds rated"A"or better by Moody's =115% The ratio of fair market value of collateral to the amount of funds secured shall be reviewed at least quarterly and additional collateral shall be requested when the ratio declines below the level required. Third party safekeeping is required for all collateral. To accomplish this,the securities can be held at the following locations: a) A Federal Reserve Bank or branch office. b) At another custodial facility-generally in a trust department through book-entry at the Federal Reserve,unless physical securities are involved. If physical securities are involved,at a third party depository in a suitable vault and insured against loss by fire,theft and similar causes. c) By an escrow agent of the pledging institution. Safekeeping of collateral shall be documented by a written agreement approved by the Village. This may be in the form of a safekeeping agreement,trust agreement,escrow agreement or custody agreement. Substitution or exchange of securities held in safekeeping as collateral may occur without prior written notice to the Village provided that the market value of the replacement securities are equal to or greater than the market value of the securities being replaced. The Village shall be notified in writing within two days of all substitutions. VII. SAFEKEEPING AND CUSTODY 1. Qualified Financial Institutions All depositories of the Village shall execute a contract every three years which shall designate the requirements of serving as depository for the Village,including collateralization of Village funds invested at such depository and the related safekeeping requirements of pledged securities. The Village shall have a separate contract with an"operating bank"for demand deposits,which shall also execute a contract with the Village for such service at least once every three years. A list will be maintained of financial institutions authorized to provide investment services. In addition,a list also will be maintained of approved security broker/dealers selected by creditworthiness(e.g.,a minimum capital requirement of$10,000,000 and at least five years of operation). These may include"primary"dealers or regional dealers that qualify under Securities and Exchange Commission(SEC)Rule 15C3-1(uniform net capital rule). All financial institutions and broker/dealers who desire to become qualified for investment transactions must supply the following as appropriate: a) Audited financial statements b) Proof of National Association of Securities Dealers(NASD)certification c) Proof of state registration d) Certification of having read,understood,and agreeing to comply with the Village's investment policy. An annual review of the financial condition and registration of qualified financial institutions and broker/dealers will be conducted by the Finance Director/Treasurer. Depositories-Demand Deposits Any financial institution selected to be eligible for the Village's demand deposits must meet the following requirements: a) The Village shall select one financial institution to provide operating banking services including,but not limited to: checking accounts,wire transfers,credit card processing,ACH processing,etc. b) The Village shall not maintain funds in any financial institution that is not a member of the FDIC. In addition,the Village shall not maintain funds in any institution not willing or capable of posting required collateral for funds in excess of FDIC insurable limits. c) Fees for banking services shall be mutually agreed to by an authorized representative of the depository bank and the Village from time to time. Depositories-Certificates of Deposit Any financial institution selected to be eligible for the Village's competitive certificate of deposit purchase program must meet the following requirements: a) Shall provide wire transfer and safekeeping services. b) Shall be a member of FDIC system and shall be willing and capable of posting required collateral for funds in excess of FDIC or insurable limits. The total amount of Village funds deposited and/or invested in a financial institution shall not exceed 25%of the institution's capital stock, surplus,and undivided profits. 2. Internal Controls The Finance Director is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the Village 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(1)the cost of a control should not exceed the benefit likely to be derived and(2)the valuation of costs and benefits requires estimates and judgements by management. The Finance Director shall establish a process for an annual independent review by an external auditor to assure compliance with policies and procedures. The internal controls shall address the following points: I a) Control of collusion b) Separation of transaction authority from accounting and recordkeeping c) Custodial safekeeping d) Avoidance of physical delivery securities e) Clear delegation of authority to subordinate staff members f) Written confirmation of transactions for investments and wire transfers g) Development of a wire transfer agreement with the lead bank and third-party custodian 3. Delivery vs.Payment Third party safekeeping is required for all securities owned by the Village. All security transactions will be executed by delivery vs.payment(DVP)to ensure that securities are deposited in an eligible financial institution prior to the release of funds. Securities will be held by an independent third party custodian designated by the Village and evidenced by safekeeping receipts and an approved written agreement. The agreement may be in the form of a safekeeping agreement,trust agreement,escrow agreement,or custody agreement. Fees for this service shall be mutually agreed upon by the Village and the safekeeping bank selected by the Village. VIII. PERFORMANCE STANDARDS The investment portfolio will be managed in accordance with the parameters specified within this policy and shall strive to attain a market average rate of return that exceeds the interest rate on 90 day U.S. Treasury Bills, taking into account the Village's risk constraints, cash flow characteristics,and legal restriction on eligible investments. IX. REPORTING On a monthly basis, the Finance Director/Treasurer shall submit to the Village Board an investment report which shall describe the portfolio in terms of investment securities, maturities and cost by fund,market value,and earnings for the current period and year to date. On an annual basis,the Finance Director/Treasurer shall submit a comprehensive annual report on the investment program and activity,including a review of the overall performance for the year. X. MARKING TO MARKET The market value of the portfolio shall be calculated at least quarterly,and a statement of the market value of the portfolio shall be issued at least quarterly. This review,in terms of value and price volatility,will be performed consistent with the GFOA Recommended Practices on "Mark-to-Market Practices for State and Local Government Investment Portfolios and Investment Pools." XI. POOLING OF CASH AND INVESTMENTS The Village may pool the cash and investments of various funds in order to maximize investment earnings. Investment income shall be allocated to the various funds based upon their respective participation. XII. AMENDMENT This policy may be amended by the Village President and Board of Trustees, upon recommendation of the Finance Director/Treasurer and Village Manager. XIII. CONFLICT In the event of any conflict between this Policy and the Illinois Compiled Statutes or case decisions of the State of Illinois,the Statutes and case law decisions shall control. XIV. ADOPTION Adopted as amended by the Village President and Board of Trustees by Ordinance 2021- FI-EX1-S-1929 on July 13,2021.