Finance Committee

CITY OF HENDERSONVILLE FINANCE COMMITTEE January 24th, 2023, at 6:00 p.m. 101 Maple Drive North, Hendersonville, TN 37075 I. Call to Order by the Chairman II. Acceptance of agenda III. Minutes A. Approval of October 25, 2022, meeting minutes 2-4 B. Approval of November 29, 2022, meeting minutes 5 IV. Ordinances and Resolutions Clary 1. Reading of Ordinance 2023-03, an ordinance amending Ordinance 2022-11 6-13 to reflect mid-year adjustments to the city’s 2023 Fiscal Year Budget Clary 2. Reading of Resolution 2023-04, a resolution to adopt an investment policy 14-27 for the City of Hendersonville V. Other Agenda Items 3. Discussion: Receive and File 2022 Annual Comprehensive Financial Report (to be provided at the meeting) 4. Other Business • Sales Tax Update (to be provided at the meeting) • Hotel/Motel Tax Update (to be provided at the meeting) VI. Adjournment Anyone needing accommodations due to disabilities, please contact the ADA Coordinator at 615-822-1016 at least 24 hours prior to the meeting. 1  FINANCE COMMITTEE MEETING October 25, 2022 CONFERENCE ROOM 2 @ 6:00 pm Present: Arlene Cunningham, Karen Dixon, Rachel Collins Absent: None Others Present: Robert Manning, Mayor Jamie Clary, Jesse Eckenroth, Andy Gilley, Chief Scotty Bush, Peg Petrelli Called to order at 6:00 pm Motion to Approve the October 25th, 2022, Finance Committee agenda Motion: Rachel Collins Second: Karen Dixon Vote: Unanimous Approval 3-0 Motion to Approve the September 27th, 2022, Finance Committee meeting minutes Motion: Rachel Collins Second: Karen Dixon Vote: Unanimous Approval 3-0 Ordinances Motion to recommend approval of Ordinance 2022-27, an ordinance amending the comprehensive classification and compensation planning of the city and appropriating funds Motion: Rachel Collins Second: Karen Dixon Vote: Unanimous Approval 3-0 Motion to recommend approval of Ordinance 2022-28, an ordinance to accept grant funds for the purchase of bullet resistant vests and to appropriate these funds for this purpose Motion: Karen Dixon Second: Rachel Collins Vote: Unanimous Approval 3-0 2 Motion to recommend approval of Ordinance 2022-29, an ordinance to accept safety office grant funds for traffic enforcement and to appropriate these funds for such purpose Motion: Rachel Collins Second: Karen Dixon Vote: Unanimous Approval 3-0 Motion to recommend approval of Ordinance 2022-31, an ordinance accepting a donation appropriating funds for a bicycle pump repair station Motion: Rachel Collins Second: Karen Dixon Vote: Unanimous Approval 3-0 Motion to recommend approval of Ordinance 2022-32, an Ordinance appropriating funds for a new pumper truck for the City of Hendersonville Motion: Rachel Collins Second: Karen Dixon Yea: 2 - Cunningham, Collins Nay: 1 - Dixon Vote: Passed 2-1 Motion to recommend approval of Ordinance 2022-33, an Ordinance appropriating funds for a survey of the deer population in the City of Hendersonville Motion: Karen Dixon Second: Rachel Collins Vote: Unanimous Approval 3-0 Resolutions Motion to add Resolution 2022-46, a Resolution allowing the City to bid on hosting the 2023 and 2024 TSSAA State Cross Country Championships Motion: Rachel Collins Second: Karen Dixon Vote: Unanimous Approval 3-0 Other Business 3 Sales Tax Analysis – Sales tax for the month of September 2023 totaled $1,494,685 This represents a $84,496 increase compared to September 2022. Hotel & Motel Tax Analysis – Tax collections for the month of September 2023 totaled $32,673.00 This represents a $15,648.48 increase compared to September 2022. Motion to Adjourn Motion: Karen Dixon Second: Rachel Collins Vote: Unanimous Adjourned 6:44 pm ________________________________ Arlene Cunningham, Chairwoman 4  SPECIAL-CALLED FINANCE COMMITTEE MEETING MINUTES NOVEMBER 29, 2022 CONFERENCE ROOM 1 7:30 p.m. Present: Karen Dixon, Janna Garton and Eric Sitler Absent: None Others Present: Mayor Clary, Jesse Eckenroth and other guest Called to order at 7:30 p.m. Motion to Accept the Agenda Motion: Second: Vote: Elect a Chairman: Mayor Clary opened the floor for nominations for Chairman of the Finance Committee. Alderwoman Garton nominated Alderwoman Dixon. Alderwoman Dixon accepted. Motion: Janna Garton Vote: Approved 3-0 Elect a Vice Chairman: Alderman Sitler nominated Alderwoman Garton. Alderwoman Garton accepted. Motion: Eric Sitler Second: Karen Dixon Vote: Approved 3-0 Other Agenda Items None Motion to Adjourn Motion: Karen Dixon Vote: Approved 3-0 Adjourned 7:33 p.m. ________________________________ Karen Dixon, Chairman 5  ORDINANCE 2023-03 Sponsor: Clary AN ORDINANCE AMENDING ORDINANCE 2022-11 TO REFLECT MID-YEAR ADJUSTMENTS TO THE CITY’S 2023 FISCAL YEAR BUDGET WHEREAS, on June 28, 2022, the City’s governing body passed Ordinance 2022-11 (the “budget ordinance”) adopting the City’s operating budget for Fiscal Year 2023; and WHEREAS, the budget ordinance was based on projected revenues and anticipated expenditures for Fiscal Year 2023; WHEREAS, there have been over five (5) months of actual revenue, expenditure activity and other adjustments, and the City desires to amend the budget ordinance mid-year to reflect this activity and these adjustments; and WHEREAS, the Board recognizes the growing and more technical workload of the current position of Chief of Operations, as well as its supervisory responsibilities over all Department Heads (and as a result all City employees), in conjunction with the high effectiveness and valuable performance with which the current Chief of Operations delivers, all of which justifies an increase in compensation; NOW, THEREFORE, BE IT ORDAINED BY THE BOARD OF MAYOR AND ALDERMEN OF THE CITY OF HENDERSONVILLE, TENNESSEE, AS FOLLOWS: SECTION ONE: The City’s Fiscal Year 2023 budget ordinance, Ordinance 2022-11, is hereby amended in accordance with the mid-year budget adjustments set forth in the attached Exhibit A. SECTION TWO: Upon taking effect, this ordinance supersedes and preempts all previous ordinances and resolutions creating and funding the position of Chief of Operations, including, but not limited to Ordinance 2020-53, Ordinance 2022-11, and Resolution 2021-15, only to the extent as described below. SECTION THREE: The Chief of Operations position is hereby removed from the City’s Standard Job Classification Pay Table, and funds are budgeted for the current Chief of Operations to be paid at the hourly pay rate of $83.50 (annual salary $173,680). Overtime pay is not allowed for the position (Exempt). Funds are further budgeted for the current Chief of Operations to be paid an annual deferred compensation of $15,000 after the conclusion of each full year of employment, beginning on the anniversary date this ordinance is approved and each anniversary date thereafter. A full year of employment from each anniversary date shall be completed to be eligible for the deferred compensation, no pro-rata share shall be paid. The existing $400 per month vehicle payments remain budgeted. Vacation leave time is reduced from six (6) weeks to five (5) weeks; with no more than two (2) such weeks being eligible to be sold back per year. The current severance agreement of six (6) months’ pay for termination without cause shall remain but shall not be included for deferred compensation eligibility. Termination with cause is not eligible for 6  O23-03 Page 2 severance pay nor deferred compensation. All other City standard employee benefits not otherwise provided herein shall be provided. SECTION FOUR: Upon taking effect, Ordinance 2020-53 is further amended by deleting in its entirety the first and second sentences of SECTION TWO, Subsection 4. This ordinance shall take effect on the earliest date allowed by law. First Reading: _________________ Second Reading: APPROVED: ____________________________ JAMIE CLARY, Mayor ATTEST: _________________________________ TAMARA INGERSOLL, Interim City Recorder APPROVED AS TO FORM AND LEGALITY: _____________________________________ LANCE A. WRAY, Interim City Attorney 7  O23-03 Page 3 LEGISLATIVE HISTORY Ordinance 2023-03 Sponsor: Clary Committee: Finance Date of Committee Meeting: January 24th, 2023 Committee Recommendation: 8  EXHIBIT A FISCAL YEAR 2023 - GENERAL FUND REVENUE ADJUSTMENTS Department Account Name Original Budget Requested Amendment Adjusted Budget Justification Revenue Business Tax $1,400,000 $100,000 $1,500,000 Mid-year projected collections. Revenue Sales Taxes - Local $17,732,500 $2,000,000 $19,732,500 Mid-year projected collections. Revenue Sales Taxes - State $5,637,500 $995,000 $6,632,500 Mid-year projected collections. Revenue State Shared Revenue $1,012,400 ($125,000) $887,400 Mid-year projected collections. Revenue Fines and Fees $650,000 $25,000 $675,000 Mid-year projected collections. Revenue Hotel Motel Occupancy Tax $340,000 $10,000 $350,000 Mid-year projected collections. Revenue Other $109,000 $160,000 $269,000 $25,000 donation and higher than expected collections Revenue Other - Insurance Reimbursements $0 $229,000 $229,000 Insurance Reimbursements Total General Fund Revenue Amendments $3,394,000 FISCAL YEAR 2023 - GENERAL FUND EXPENSE ADJUSTMENTS Department Account Name Original Budget Requested Amendment Adjusted Budget Justification Codes N/A $0 N/A Planning N/A $0 N/A Finance Computer Replacements $4,000 $5,000 $9,000 Replacement of aging computers for four Finance staff Finance Salaries and Benefits $1,184,535 ($50,000) $1,134,535 Vacancy of Assistant Finance Director Admin. Services Special Projects $18,500 $12,000 $30,500 Internet equipment replacement to reduce annual subscription costs by 10k per year Executive Salaries and Benefits $502,300 $13,000 $515,300 COO compensation amendment Executive Advertisement $3,000 $500 $3,500 Tsuru-Hendersonville Frienship Committee - Nashville Cherry Blossom Festival Fire Salaries and Benefits $12,103,700 $200,000 $12,303,700 Paramedic, hazmat and other approved supplemental pay not included in original budget figures Fire Fuel $75,000 $12,000 $87,000 Fuel cost increases Fire Maintenance of Equipment $138,278 $40,000 $178,278 Higher than expected mechanical failures Fire Electric/Water Utilities $138,278 $7,000 $145,278 Utility cost and usage increases Fire Assets $7,000 and up $76,000 $825,000 $901,000 Replacement of Engine 6 Parks Maintenance - Parks $190,000 $35,000 $225,000 Replacement of Drakes Creek Irrigation Pump $10,000; Rising costs of other general maintenance items Parks Supplies and Tools $50,000 $35,000 $85,000 Costs escalation in supplies coupled with increased in facility usage Parks Fuel $50,000 $15,000 $65,000 Fuel cost escalation and increased usage Parks Recreation Athletic $120,000 $10,000 $130,000 Donations from Morris Orthodontics and Coca-Cola to be used for various upgrades at the park Parks Special Projects - Cameras, Disc Golf, Skate $15,000 $6,200 $21,200 Funds received from PEP Grant Donations, TSSAA State Cross Country, Ice Vending Machine at Sanders Ferry Park and Discin' Disciples Parks Special Project - Mary's Magical Place $9,742 $10,530 $20,272 Donations from Pig Fest, Kristen Weigel Photography, Putting for a Purpose, Festival of Lights Parks Special Projects - Lights at Memorial Park $0 $64,000 $64,000 Use of Donated funds for lights at Memorial Park (non-operating budget) Police Assets $1,000 up to $7,000 $225,800.00 $178,350.00 $404,150.00 Equipment for 10 Patrol Vehicles Police Assets $7,000 and up $385,000.00 $437,025.00 $822,025.00 10 Additional Patrol Vehicles and one (1) replacement and ACO Utility bed Police Computer Fees $179,830.00 $15,000.00 $194,830.00 Required Access to Additional LPR Database Public Works Salaries and Benefits $1,842,100 ($150,000) $1,692,100.00 Vacancy of multiple Public Works positions Public Works Assets $7,000 and up $37,500 $64,000 $101,500.00 Freehill Fuel Pump Replacement, Traffic Signal Cabinet Public Works Supplemental Paving $2,285,000 $720,000 $3,005,000.00 Additional Paving Disposal Brush Disposal/Grinding $100,000 $80,000 $180,000.00 High volume of vegetative debris Disposal Tipping Fees $1,380,000 $25,000 $1,405,000.00 Projected total cost exceeds current budget based on mid-year assessment Capital Projects Golf Cart Barn $0 $350,000 $350,000.00 Capital Project - Replace current cart barn (non-operating budget) Insurance - Parks Insurance Claim - 733 $0 $35,000 $35,000 Concession Stand Insurance - Country Insurance Claim - 733 $0 $60,000 $60,000 Golf Course Building/Pro Shop Hills Golf Fund Insurance - Fire Insurance Claim - 733 $0 $74,000 $74,000 Station #5 Building Repairs Insurance - Public Insurance Claim - 733 $0 $60,000 $60,000 Totaled signal equipment NSIR/West Main Street and Streetlight replacement Saundersville Road Works Total General Fund Expense Amendments $3,188,605 9  FISCAL YEAR 2023 - GENERAL FUND TRANSFERS, EXPENSES (Zero Net Expense & Use of Fund Balance) Transfer Account Name Original Budget Requested Amendment Adjusted Budget Justification From: Parks Rugby Parking Lot Project PY ($1,520) N/A Residual balance from previous project From: Golf Golf Fund Barn Repair PY ($31,690) N/A Residual balance from previous project From: Capital Proj. Capital Projects - Station #3 Roof $ 310,000 ($155,000) $155,000 Balance from completed project From: Admin Services Salaries and Benefits $ 1,427,200 ($52,000) $1,375,200 Vacancy of Senior Network Administrator Total From: ($240,210) To: Golf Golf Fund - Cart Barn Replacement 0 $104,210 $104,210 Replace deteriorated cart barn To: PW Assets $7,000 and up $60,000 $49,000 $109,000 City Hall building fire alarm, security and control enhancements To: Admin Services Professional Services $51,000 $87,000 $138,000 Services to backfill vacancy of Senior Network Administrator Total To: $240,210 From: Hotel Tax Hotel Tax Reserve Account Balance N/A ($101,000) N/A Existing reserved balance for tourism promoting activity To: Parks Special Project - Lights at Memorial Park 0 $101,000 $101,000 Special Project that will allow night tournaments (non-operating budget) Use of Reserved Fund Balance $101,000 FISCAL YEAR 2023 - STATE STREET AID EXPENSE ADJUSTMENTS Department Account Name Original Budget Requested Amendment Adjusted Budget Justification State Street Aid Salaries and Benefits $830,800 ($180,000) $730,800 Dedicating three staff members for Stormwater Utility work State Street Aid Maintenance - Streets $665,000 $180,000 $765,000 Additional Paving Total State Street Aid Expense Amendments $0 FISCAL YEAR 2023 - STORMWATER EXPENSE ADJUSTMENTS Department Account Name Original Budget Requested Amendment Adjusted Budget Justification Stormwater Salaries and Benefits $262,600 $220,000 $482,600 Dedicating three staff members for field work Stormwater Assets $7,000 and up $13,000 $30,000 $43,000 Camera system for storm pipe investigation Total Stormwater Expense Amendments $250,000 10  General Fund FY 2023 Mid-Year Amendment Operating Budget FY2023 - Original Amendment FY2023 - Proposed Revenues 53,955,859 3,394,000 57,349,859 Expenditures 54,570,239 2,774,605 57,344,844 Surplus/(Deficit) (614,380) 619,395 5,015 Non-Operating Budget (Capital & Special Projects) FY2023 - Original Amendment FY2023 - Proposed Revenues 12,833,656 0 12,833,656 Expenditures 20,078,997 515,000 20,078,997 Subtotal (7,245,341) (515,000) (7,760,341) PLUS: CP Reserve Funding 5,319,924 0 5,319,924 PLUS: One-Time - ARPA Funding 2,631,034 0 2,631,034 Use: Hotel Reserve Fund Balance 0 101,000 101,000 Surplus/(Deficit) 705,617 (414,000) 291,617 OPERATING & NON-OPERATING FY2023 - Original Amendment FY2023 - Proposed Operating - Surplus/(Deficit) (614,380) 619,395 5,015 Non-Operating - Surplus/(Deficit) 705,617 (414,000) 291,617 Surplus/(Deficit) 91,237 205,395 296,632 11 DATE: January 24, 2023 ORDINANCE/RESOLUTION # Ordinance 2023-03 That the Board of Mayor and Alderman consider SPECIFIC REQUEST/ Ordinance 2023-03, a mid-year budget ordinance, RECOMMENDATION: amending the Fiscal Year 2022/2023 Budget for the City of STAFF Hendersonville. REPORT REPORT PREPARED BY: Jamie Clary-Mayor, Jesse Eckenroth-COO BACKGROUND: 1 On an annual basis the city appropriates funds to facilitate the orderly operations of local government services. The city’s budget year, or fiscal year, begins July 1st and ends June 30th. The budget is segregated between multiple funds, the General Fund being the primary fund used for the city’s operations. The General Fund is divided amongst the different departments and functions of the city. Each department within the General Fund in segregated into three groups of expenses: salaries/benefits, assets, and operations. The expense groups have itemized expense accounts (line items) within the group that serve as a budgeting guide, but the budget is ultimately constrained by the total group budget and not by the individual line items. The mid-year budget review serves as a time to review and revise the budget based on 6-months of actual activity and updated projections. DISCUSSION: 2 Fiscal Year 2022-2023 continues to yield revenue growth. The budgeted revenue numbers have been revised to reflect six months of actual revenues and the updated projections for the remaining six months. The revenue projections for the General Fund budget are expected to increase by approximately $3.4 million. The revenue growth is primarily driven by an increase of $3 million in Sales Tax Revenue. The primary additional expenses being proposed with the mid-year review: • Increased paving efforts • Police and Fire equipment • Project prioritization (lights at Memorial Park and cart barn) • Increased park maintenance efforts FISCAL IMPACT: 3 The additional General Fund revenue projections amount to $3,394,000; the expenditures being proposed with the mid-year review are divided into several categories: • Operating expenses - $2,774,605 • Non-operating expenses - $414,000 • Use of reserved fund balance – $101,000 • Transfers between existing budgeted operating and non-operating accounts that have a net-zero effect. 12  O23-03 Staff Report Page 2 The amendments result in a balanced operating budget and improve the overall financial position of the budget. The FY23 mid-year amendments will bring the General Fund from a $91,237 surplus to a $296,632 surplus. Special Revenue Funds, State Street Aid and Stormwater, have minor amendments and are included in the attached list of budget adjustments. The amendments being proposed include the reallocation of three employees from the State Street Aid Fund to the Stormwater Fund to accurately account for the three positions that are now 100% dedicated to stormwater activity. The reallocation of expenses allows State Street Aid to take on additional paving activity. ATTACHMENTS: 4 Exhibit “A” is attached to Ordinance 2023-03 and itemizes every proposed budget amendment. 13  RESOLUTION 2023-04 Sponsor: Clary A RESOLUTION TO ADOPT AN INVESTMENT POLICY FOR THE CITY OF HENDERSONVILLE WHEREAS, Tennessee Code Annotated § 6-56-106, the City Charter and the Hendersonville Municipal Code as well as other federal, state and local law all establish minimum requirements and the authority for the safe, temporary investment of idle public funds; WHEREAS, it is the City’s intent to establish a comprehensive investment policy that will serve as the guideline for more prudent investment of these funds, identifying and improving the processes of investment in order to meet the regular cash flow needs of the City, achieving a market rate of return, and minimizing the potential for losses arising from market changes or issuer default; and WHEREAS, a comprehensive investment policy will provide for the safety of principal, proficient liquidity, earnings on idle funds, accountability and the preservation of ethical and conflict of interest standards; NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF MAYOR AND ALDERMAN OF THE CITY OF HENDERSONVILLE, TENNESSEE, that an investment policy is hereby adopted and attached herein to establish a set of parameters for the investment of idle funds for the City of Hendersonville. This policy shall be effective _________ ____, 2023. Adopted this _______________ day of ___________, 2023. APPROVED: __________________________ JAMIE CLARY, Mayor ATTEST: __________________________________ TAMARA INGERSOLL, Interim City Recorder APPROVED AS TO FORM AND LEGALITY: _____________________________________ LANCE A. WRAY, Interim City Attorney 14  LEGISLATIVE HISTORY Resolution 2023-04 Sponsor: Clary Committee: Finance Date of Committee Meeting: January 24th, 2023 Committee Recommendation: 15  City of Hendersonville Investment Policy Purpose This Investment Policy provides guidelines for the prudent investment of the City's temporarily idle cash and identifies the City's policies regarding the investment process. Investments of public funds shall be made in accordance with this Investment Policy and shall be designed to meet the daily cash flow needs of the City and to achieve a market rate of return while minimizing the potential for losses arising from market changes or issuer default. Governing Authority It is the policy of the City of Hendersonville to invest idle public funds in a manner that is in compliance with federal, state, and other legal requirements including Tennessee Code Annotated (T.C.A.) 6-56-106, titled Authorized Investments; which governs the investment of public funds by cities and towns. Scope This policy applies to the investment of all funds of the City of Hendersonville, excluding the retirement funds and developer deposits. 1. Pooling of funds Except for cash in certain restricted and special funds, the city will consolidate cash balances from all funds to maximize investment earnings and to increase efficiencies with regard to investment pricing, safekeeping and administration. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. 2. Restrictive and Special Funds Those funds that are considered restricted and special funds are: City of Hendersonville Drug Fund, Employee Retirement Fund, retainage and deposit accounts. Objectives The primary objectives of investment activities shall be safety, liquidity, and yield: 1. Safety of Principal Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate the following risks: 16  A. Credit Risk The City will minimize credit risk, which is the risk of loss due to the failure of the investment issuer or backer, by: • Limiting the portfolio to the types of investments pursuant to TCA 6-56- 106 • Diversifying the investment portfolio so that the impact of potential losses from any one type of security or from any one individual issuer will be minimized. B. Interest Rate Risk The City will minimize interest rate risk, which is the risk that the market value of investments in the portfolio will fall due to changes in market interest rates, by: • Structuring the portfolio to meet the cash requirements of ongoing operations, thereby mitigating the need to liquidate investments at a loss prior to maturity; • Investing operating funds primarily in shorter-term investments and limiting the average maturity of the portfolio in accordance with this policy in accordance with T.C.A. 6-56-106. 2. Liquidity The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that investments mature concurrent with cash needs to meet anticipated demands. 3. Yield The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Said market rate of return should be regularly evaluated to determine if the investment return is meeting performance benchmarks, such as average yield on three-month U.S. Treasury Bills, or the Federal Funds Rate or some other type of objective benchmark. Return on investment is of secondary and subordinate importance compared to the safety and liquidity objectives described above. Authorized and suitable investments The Mayor, in order to provide a safe temporary medium for investment of idle funds, shall have the authority to approve purchases and investments as authorized in by TCA 6-56-106. The Finance Director shall be the Investment Officer and will manage the purchase of investments either through a third-party investment manager or in-house. The Investment Officer must provide the Mayor an investment purchase request, see exhibit B, and obtain the Mayor’s approval before any investment is purchased. The Mayor must approve every investment 17 purchase, excluding investments that can be liquidated with 5 business days, which can be approved and managed by the Investment Officer. The Mayor can delegate authority to approve investment purchases if directed by the Board of Mayor and Alderman (BOMA) resolution. Standards of Care 1. Delegation of Authority Authority to manage the investment program is granted to the city’s Finance Director, hereinafter referred to as the Investment Officer, appointed by the Board of Mayor and Alderman. The Investment Officer will have responsibility for the investment process and carry out the day-to-day operational requirements. The Investment Officer, if approved by the Mayor, has the authority to hire a competent and qualified third-party investment manager to direct the investment fund activity. The Investment Officer, and those whom the Investment Officer delegates authority to, will be charged with the following responsibilities: A. To review and update the Investment Policy as necessary. B. Monitor the investment transactions to ensure that proper controls are in place to ensure the integrity and security of the City Portfolio C. Assure that the City is in compliance with current state law, any applicable City Charter provisions and the Investment Policy. D. To monitor the contract and activity of the city’s third-party investment manager, if such third-party is being engaged. E. To provide the Board of Mayor an Alderman a quarterly report on the performance and state of the investment portfolio. 2. Prudence The standard of prudence to be used in the context of managing the overall portfolio is the prudent person rule which states: Investments will 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 in regard to speculation but in regard to the permanent disposition of the funds considering the probable income as well as the probable safety of the capital. 3. Ethics and Conflict of Interest Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution and management of the investment program or which could impair their ability to make impartial investment decisions. They shall disclose any material financial interests that could be related to the performance of the City’s portfolio. 18 Reporting The Investment Officer shall prepare and present a quarterly report of the status of the current investments to BOMA. The report will include the following: 1. Percent invested in each security type (CD, US Treasury, etc.); 2. Listing of investments by maturity date; 3. Confirmation that investments comply with this Investment Policy Portfolio Diversification It is the policy of the City of Hendersonville to reduce overall risks while attaining average market rates of return by diversifying its investments. The investment types shall conform to TCA 6-56-106 and shall be diversified by: 1. Limiting investments to avoid over concentration in eligible securities from a specific issuer or sector (excluding U.S. Treasury securities); 2. Investing a portion of the portfolio in readily available funds such as the Tennessee Local Government Investment Pool (LGIP) or collateralized money market funds to ensure that appropriate liquidity is maintained in order to meet ongoing obligations. 3. Ensuring portfolio maturities are staggered to avoid undue concentration of assets with similar maturity dates. Investment Evaluation It is the City’s policy to achieve a market rate of return on public funds while minimizing risks and preserving capital. In evaluating the performance of the City’s portfolio in complying with this policy, the Investment Officer shall establish an appropriate performance benchmark and compare the return of its portfolio to the benchmark. Performance to benchmark shall be reported in the Finance Director’s Quarterly Investment Report. Underperforming investments should be replaced with investments that meet benchmark expectations. Amendments This Investment Policy shall be reviewed annually by the Investment Officer and Finance Department. If amendments need to be made to the policy a report shall be brought to BOMA and a resolution to amend the policy shall be placed on the BOMA agenda. Exhibit A – TCA 6-56-106 Exhibit B – Investment Purchase Approval Form Exhibit C – Security Type Requirements Exhibit D – Maturity Limits Schedule Exhibit E – Internal Control Policy - Investments 19  Tenn. Code Ann. § 6-56-106. Authorized Investments. (a) In order to provide a safe temporary medium for investment of idle funds, municipalities are authorized to invest in the following: (1) Bonds, notes or treasury bills of the United States; (2) Nonconvertible debt securities of the following federal government sponsored enterprises that are chartered by the United States congress; provided, that such securities are rated in the highest category by at least two (2) nationally recognized rating services: (A) The federal home loan bank; (B) The federal national mortgage association; (C) The federal farm credit bank; and (D) The federal home loan mortgage corporation; (3) Any other obligations not listed in subdivisions (a)(1) and (2) that are guaranteed as to principal and interest by the United States or any of its agencies; (4) Certificates of deposit and other evidences of deposit at state and federally chartered banks, and savings and loan associations. Notwithstanding any other public or private act to the contrary, all investments made pursuant to this subdivision (a)(4) shall be secured by collateral in the same manner and under the same conditions as state deposits under title 9, chapter 4, parts 1 and 4, or as provided in a collateral pool created under title 9, chapter 4, part 5; (5) Obligations of the United States or its agencies under a repurchase agreement for a shorter time than the maturity date of the security itself if the market value of the security itself is more than the amount of funds invested; provided, that municipalities may invest in repurchase agreements only if the comptroller of the treasury or the comptroller's designee approves repurchase agreements as an authorized investment, and if such investments are made in accordance with procedures established by the state funding board; (6) The local government investment pool created by title 9, chapter 4, part 7; (7) (A) Municipalities having a population in excess of one hundred fifty thousand (150,000), according to the 1990 federal census or any subsequent federal census, may also permit investment of idle funds in the following investment instruments: 20  (i) Prime banker's acceptances that are eligible for purchase by the federal reserve system; and (ii) Prime commercial paper that is rated at least A1 or equivalent by at least two (2) nationally recognized rating services; (B) Municipalities having a population of not less than twenty thousand (20,000) nor more than one hundred fifty thousand (150,000), according to the 1990 federal census or any subsequent federal census, may also permit investment of idle funds in prime commercial paper in accordance with the following: (i) Such paper shall be rated in the highest category by at least two (2) commercial paper rating services; and (ii) The paper shall have a remaining maturity of ninety (90) days or less; (C) Investment in the instruments set forth in this subdivision (a)(8) shall first be authorized by the municipality's legislative body, acting by resolution or ordinance. In addition, investment in such instruments shall be prohibited until the legislative body has adopted written policies to govern the use of such instruments, with such policies being no less restrictive than those established by the state funding board to govern state investments in such instruments; (8) The municipality's own bonds or notes issued in accordance with title 9, chapter 21; and (9) (A) Investment in the instruments set forth in subdivision (a)(2), (a)(5), (a)(6), or any type of investment authorized pursuant to a municipality's charter that is of a type that is not included in this part shall require the following: (i) The municipality's legislative body must authorize the investment by ordinance; and (ii) The legislative body must adopt a written enforceable investment policy by ordinance to govern the use of investments, with the policies being no less restrictive than those established by the state funding board to govern state investments in these types of instruments. (B) Investment in instruments covered by this subdivision (a)(9) shall be prohibited until the legislative body has adopted written policies to govern the use of the investments or an ordinance has been passed to authorize the investment. (b) The investments listed in subdivisions (a)(1)-(4) may have a maturity of not greater than four (4) years from the date of investment; however, such investments may have a maturity of greater than four (4) years from the date of investment if such maturity is approved by the comptroller of the treasury or the comptroller's designee. 21 (c) (1) Proceeds of bonds, notes and other obligations issued by municipalities, reserves held in connection therewith and the investment income therefrom, may be invested in obligations that: (A) Are rated in either of the two (2) highest rated categories by a nationally recognized rating agency of such obligation; (B) Are direct general obligations of a state of the United States, or a political subdivision or instrumentality thereof, having general taxing powers; and (C) Have a final maturity on the date of investment of not to exceed forty-eight (48) months or that may be tendered by the holder to the issuer thereof, or an agent of the issuer, at not less than forty-eight-month intervals. (2) Such proceeds and the investment income thereon may also be invested as otherwise set forth in this section. (d) The investments authorized by this section are in addition to those authorized in any other general law or in any municipality's charter. 22  CITY OF HENDERSONVILLE, TENNESSEE Investment Purchase Approval Form FROM: TO: DATE: REASON FOR INVESTMENT PURCHASE REQUEST PURCHASE DETAILS PURCHASE TYPE: PURCHASE PRICE: YIELD: MATURITY: CONFORMANCE WITH INVESTMENT POLICY 1.) Is this a TCA 5-56-106 Authorized Purchase? Yes _____ No _____ 2.) Are sufficient funds available? Yes _____ No _____ 3.) Is the maturity date considerate of the City’s cash flow needs? Yes _____ No _____ 4.) Is purchase recommended by City’s investment advisor? Yes _____ No _____ N/A _____ INVESTMENT OFFICER’S SIGNATURE: APPROVAL FOR PURCHASE MAYOR’S SIGNATURE: City of Hendersonville’s Page 1 of 1 Investment Purchase Approval Form Revised 12/22/2022 23 Security Type Requirements Type *Short-Term *Long-Term Requires Comptroller Rating Rating Approval Requirement Requirement Bonds P-1, A-1, F1+ AAA Yes, if remaining maturity date is greater than 4-years Notes P-1, A-1, F1+ AAA Yes, if remaining maturity date is greater than 4-years Bills P-1, A-1, F1+ Not No Applicable Nonconvertible Debt Securities – P-1, A-1, F1+ AAA Yes, if remaining federal home loan bank, federal maturity date is greater national mortgage association, than 4-years federal home loan mortgage corporation, and others guaranteed by the U.S. or U.S. agencies Certificates of Deposit (CD’s) Per title 9, chapter 4 – Requires comptroller if greater than 4 years U.S. or U.S. Agency Repurchase Yes Agreements Local Government Investment Not Not No Pool Applicable Applicable Prime Commercial Paper – 90 days P-1, A-1, F1+ Not No or less Applicable Municipality’s (own) bonds No Investments in general obligations P-1, A-1, F1+ AAA No from U.S., or its political subdivision, from proceeds of city’s debt issuance *Must have highest rating by two raters (Moody’s, S&P’s or Fitch). Moody’s Long-Term Rating (11 months or greater maturity date) AAA Moody’s Short-Term Rating (13 months or less maturity date) P-1 researchdocumentcontentpage.aspx (moodys.com) Standard and Poor’s Long-Term Rating (Greater than 1-year) AAA Standard and Poor’s Short-Term Rating (12 months or less) A-1 GMT20160823145849.pdf (maalot.co.il) Fitch Group Long-Term Rating AAA Fitch Group Short-Term Rating (up to 13 months for corporate and 36 months for public) F1+ Rating Definitions (fitchratings.com) 24 MATURITY CATEGORIES DESCRIPTION Balance Thresholds Liquid Government pool account, savings account and other interest- Minimum of ½ Unassigned Fund less than 1 week bearing accounts that allow withdrawals, without penalty, within 5- Balance, but not less than 5 million business days of notice Near-term Treasury Bills, and other TCA 6-56-106 regulated securities, with a 30% minimum of all Reserve Fund 1-year or less maturity of 1-year or less balances Short-term Treasury/Agency Notes, and other TCA 6-56-106 regulated securities, Amount available after liquid and near- 3-years or less with a maturity less of 3-years or less term thresholds are satisfied Medium-term Treasury/Agency Notes, and other TCA 6-56-106 regulated securities, 20% maximum of all Reserve Fund 4-years or less with a maturity of 4-years or less balances. 25  Internal Control Policy – Investments  All investment purchases must follow TCA 5-65-106 and the City of Hendersonville’s Investment Policy.  The Investment Officer is the Finance Director, unless authorized otherwise by BOMA.  The Investment Officer, or person performing duties of Investment Officer, will not perform bank reconciliations  A Quarterly report will be prepared and made available to BOMA  The Mayor must approve all investment purchase  The Investment Officer, and all involved in the investment process, must be aware of all Investment policies and procedures, including TCA 5-65-106  No employee of the Finance Department shall have a conflict of interest with the investment advisor, nor engage the investment advisor for personal use  The Investment Officer must review the policy on an annual basis and provide policy amendments, as needed, to BOMA via resolution  The Investment Officer must meet annually with the Finance Committee to review the Investment Portfolio  All investment activity shall be public record and made readily available to the public  Interest earnings will be allocated based on the percentage of each funds invested balance. For example, if $100 is received as interest earnings and the General Fund supplies 98% of the invested funds and the Fund XYZ supplies 2% of the invested funds, then the earnings are split 98% to the General Fund and 2% to Fund XZY. Generally accepted accounting principles will be used to determine each funds percentage of the whole. 26 DATE: January 24, 2023 ORDINANCE/RESOLUTION # Resolution 2023-04 That the Board of Mayor and Alderman consider SPECIFIC REQUEST/ RECOMMENDATION: Resolution 2023-04, to establish an investment policy for the City of Hendersonville. STAFF REPORT REPORT PREPARED BY: Jesse Eckenroth-COO BACKGROUND: 1 Investment opportunities are available for cities in Tennessee as dictated by the T.C.A. 6-56-106. The City of Hendersonville has cash that is available for interest bearing opportunities. To be fiscally prudent with taxpayers’ dollars an investment policy is being considered to leverage the city’s ability to earn interest income on idle cash. DISCUSSION: 2 The investment policy, as proposed, has three objectives: • Safety of Principal • Liquidity • Yield T.C.A., as it pertains to this policy, has defined criteria for investment activity, the safety of the investment is ensured by restricting investment options and maturity dates. The proposed policy would allow the city to manage investment activity in-house or with the assistance of a financial advisor. FISCAL IMPACT: 3 The additional General Fund revenue projection for interest income is dependent on market conditions. Below are some examples of annual interest earnings on $10 million: • 0.5% - $50,000 • 1.0% - $100,000 • 1.5% - $150,000 • 2.0% - $200,000 • 2.5% - $250,000 • 3.0% - $300,000 If we continue to utilize the city’s savings account at our bank the expected interest income for FY23 is approximately $50,000. ATTACHMENTS: 4 City of Hendersonville – Investment Policy 27