Finance Committee

CITY OF HENDERSONVILLE FINANCE COMMITTEE March 28th, 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 February 21st, 2023, meeting minutes 2-4 IV. Ordinances and Resolutions Clary 1. Reading of Ordinance 2023-08, an ordinance amending Ordinance 5-8 2022-11, as amended, to reflect adjustments to the City’s 2023 fiscal year budget Clary 2. Reading of Resolution 2023-18, a resolution to revise the investment policy 9-28 for the City of Hendersonville, Tennessee V. Other Agenda Items 3. Sales Tax Analysis Report (to be provided under separate cover) 4. Hotel-Motel Tax Report (to be provided under separate cover) 5. Discussion: Budget Schedule (verbal update) 6. Discussion: Budget Revenues (verbal update) 7. Discussion: Insurance Account (verbal update) 8. Discussion: Grant Account (verbal update) 9. Other Business 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 February 21, 2023 CONFERENCE ROOM 2 @ 6:00 pm Present: Karen Dixon, Jeffrey Sasse, Mark Burgdorf Absent: None Others Present: Mayor Jamie Clary, Jesse Eckenroth, Tamara Ingersoll Called to order at 6:00 pm Motion to Amend the January 24, 2022, Finance Committee meeting minutes Jeffrey Sasse moved; That the previous Finance Committee meeting minutes listed him as a member and every vote from the prior meeting minutes needs to be changed to 2-0, or unanimous. Motion: Jeffrey Sasse Second: Karen Dixon Vote: Unanimous Approval 3-0 Karen moved; to Move Up Number 9 listed on the agenda, appoint a Vice-Chairman. Motion to Approve the February 21st, 2022, Finance Committee Agenda as Amended Motion: Jeffrey Sasse Second: Mark Burgdorf Vote: Unanimous Approval 3-0 Other Business Sales Tax Analysis The Chief of Operations, Jesse Eckenroth, led the discussion summarizing the Sales Tax Analysis between Fiscal Year 2023 and Fiscal Year 2022. He mentioned that there is a significant increase over last year on a month-to-month basis. Hotel & Motel Tax Analysis Jesse Eckenroth continued, It is not a large amount of revenue, and they aren’t as consistent as Sales Tax collections. Overall, we are still showing an increase of 12,000 compared to this point in FY22. Creating a Fund for Hotel/Motel Activity 2 Discussion: Mr. Eckenroth; We currently don’t have a fund for collecting and spending Hotel and Motel funds. We are restricted to spend on tourism generating activity. By creating a fund for Hotel/Motel this will increase transparency and be easier for the finance department to track. Appoint a Vice-Chair Jeffrey Sasse nominated Mark Burgdorf to be elected as Vice-Chairman of the Board. Mark Burgdorf accepted his nomination to be Vice-Chairman of the Finance Committee. Vote: Unanimous Approval Creating a Fund for Equipment Purchases Discussion: Jesse Eckenroth; The idea is that the budget is more consistent and stable. Departments don’t have a huge budget so ideally it makes more sense to get an equipment schedule and then just budget every year generally this fund is for larger items regarding public safety. Establishing Criteria for Budget Amendments Outside of the Mid-Year Budget Amendment Discussion: Karen Dixon; Establish criteria as a whole that would apply to mid-year budget and other budget amendments that occur during the year. We should have an allowance for this to happen outside the mid-year budget think ahead and plan for the year. To be efficient, look for criteria around budget amendments that make sense. We don’t want to do a budget amendment for every little thing. Finance Director Recruitment Discussion: We are advertising on multiple platforms for a Finance Director. Within the last two weeks we haven’t had any candidates apply for the position. Active recruitment will continue until a Director is selected. Salary Study Discussion: The City hired a consultant to conduct a study of our City and surrounding cities to look at the pay grade and perform a comparison. The municipal code states that every 5 years we go out and get a salary study. The HR department is offering their help by looking into our pension contributions and the healthcare package we provide comparing to our surrounding cities. That way when it comes time to present to BOMA, we can showcase how the package looks including pension, healthcare, and salary and not just the salary. 3 Investment Policy Update Discussion: We have submitted a plan to the state before we start investing our funds, as soon we hear back from the state we are going to pursue getting our money into an investment fund. The Finance dept. is analyzing the available cash balance for investment opportunities. Debt Analysis Discussion: Alderman Sasse asked staff to look at our debt and consider if it makes any sense to pay debt off and see if there’s any possible savings from paying off our debt. Finance’s analysis of paying off debt compared to investing shows that it makes sense to invest the funds let our cash produce a return and continue with our debt service as is. If interest rates drop, we should revisit this analysis to determine if debt payoff becomes financially prudent. Motion to Adjourn Motion: Burgdorf Second: Sasse Vote: Unanimous Adjourned 6:49 pm ______________________________ Karen Dixon, Chairwoman 4  ORDINANCE 2023-08 Sponsor: Clary AN ORDINANCE AMENDING ORDINANCE 2022-11, AS AMENDED, TO REFLECT 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; WHEREAS, the budget ordinance was passed on projected revenues and anticipated expenditures for Fiscal Year 2023; WHEREAS, the City has received a donation in the amount of $500.00, and insurance proceeds in the amount of $275,000.00, for repair work to city facilities as a result of windstorm damage; WHEREAS, the City desires to amend the budget ordinance to reflect the expenditure of these funds for the projects/operations reflected in Exhibit A attached hereto: NOW, THEREFORE, BE IT ORDAINED BY THE BOARD OF MAYOR AND ALDERMAN OF THE CITY OF HENDERSONVILLE, TENNESSEE, that the City’s Fiscal Year 2023 budget ordinance, Ordinance 2022-11, as amended, is hereby further amended by increasing expenditures as reflected in Exhibit A attached hereto. This ordinance shall take effect at 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 5  LEGISLATIVE HISTORY Ordinance 2023-08 Sponsor: Clary Committee: Finance Date of Committee Meeting: March 28th, 2023 Committee Recommendation: 6  EXHIBIT A Requested Requested Current Expenditure Revenue Adjusted Account Code Account Name Budget Amendment Amendment Budget Justification 110-002-00000-0000-0000-436700- CONTRIBUTIONS - PRIVATE SOURCE $ 31,777 $ - $ 500 $ 32,277 Donation to cover half of deductible 110-000-00000-0000-0000-436350- INSURANCE RECOVERIES $ 229,000 $ - $ 275,000 $ 504,000 Insurance recovery for wind damages 110-000-41920-0015-0000-550100-15050 FY23-PARKS WIND DAMAGE CLAIMS $ - $ 250,000 $ 250,000 110-000-42200-0043-0000-550100- INSURANCE - PAYMENT OF CLAIM $ 86,000 $ 25,000 $ 111,000 110-000-41690-0017-0000-550100- INSURANCE CLAIM DEDUCTIBLE $ - $ 500 $ 500 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 346,777 $ 275,500 $ 275,500 $ 897,777 7 DATE: March 28th, 2023 ORDINANCE/RESOLUTION # Ordinance 2023-08 That the Board of Mayor and Alderman SPECIFIC REQUEST/ RECOMMENDATION: consider Ordinance 2023-08, appropriating funds for storm damage repairs. STAFF REPORT REPORT PREPARED BY: Jesse Eckenroth-COO BACKGROUND: 1 On March 3, 2024, sustained high winds caused damage throughout Sumner County and the State of Tennessee. The City of Hendersonville suffered from wind damage in the form of downed electric lines and trees throughout the city and various damage to city buildings and parks. DISCUSSION: 2 City buildings and parks are insured through Public Entity Partners (PEP). The city has begun the process of gathering quotes to repair the work, the bulk of the insurable damaged has occurred at the city parks. The Parks Department has met with the insurance adjuster and various contractors to facilitate the repair work caused by the wind damage. The city budget did not account for “unknown” damage and we must appropriate funds to facilitate the repair work. The repair work is insured and will net out to the deductible cost of the insurance policy. The total cost of the repair work is being determined, but our initial estimate is $275,000, subject to change as all actual work is completed. FISCAL IMPACT: 3 The fiscal impact will net out to the insurance deductible of $1,000 per occurrence, plus any work we perform outside of the insured loss. We are estimating $275,000 of expenditures and $274,000 of revenue for a total cost of $1,000. If we are required to file separate claims for different facilities or types of damage the deductible will be $1,000 per claim. ATTACHMENTS: 4 N/A 8  RESOLUTION 2023-18 Sponsor: Clary A RESOLUTION TO REVISE THE INVESTMENT POLICY FOR THE CITY OF HENDERSONVILLE, TENNESSEE WHEREAS, pursuant to Resolution 23-04, passed by the Board of Mayor and Alderman of the City on February 13, 2023, the City adopted an Investment Policy relating to its idle and other funds; WHEREAS, the City desires to revise its Investment Policy to incorporate certain recommendations requested from and made by Municipal Technical Advisory Service (“MTAS”); NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF MAYOR AND ALDERMAN OF THE CITY OF HENDERSONVILLE, TENNESSEE, that the City’s Investment Policy is hereby revised as attached hereto as “Exhibit A”, which shall be effective upon the adoption of this Resolution. 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 9  LEGISLATIVE HISTORY Resolution 2023-18 Sponsor: Clary Committee: Finance Date of Committee Meeting: March 28th, 2023 Committee Recommendation: 10  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 OPEB retirement funds, developer deposits, and escrow held for confiscated property. 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, OPEB Retirement Fund, retainage and developer deposits and other funds held in escrow. 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. Security Type Requirements as defined in Exhibit C must be followed. The objective will be to mitigate the following risks: 11  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. Furthermore, since all possible cash demands cannot be anticipated, a portion of the portfolio may be placed in money market mutual funds or local government investment pools which offer sameday liquidity for short-term funds. 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 the Local Government Investment Pool Rate. Return on investment is of secondary and subordinate importance compared to the safety and liquidity objectives described above. Authorized and suitable investments 1. Authorized investments: • U.S. Treasury bills and notes • Secured certificates of deposit at state and federal chartered banks and savings and loan associations • Top-rated state and local government general obligation bonds • Local government investment pools • Other investments authorized by TCA 6-56-106 (Exhibit A) 12  2. Collateralization Where allowed or required by state law, full collateralization will be required on all demand deposit accounts, including checking accounts and negotiable (as authorized by respective state statutes) and non-negotiable certificates of deposit. Authorized Collateral Acceptable collateral for bank deposits and repurchase agreements shall include only: • Obligations of the U.S. Government, its agencies and GSEs, including mortgage backed securities. • Obligations of any state, city, county, or authority rated at least AA by two nationally recognized statistical rating organizations. Alternatively, if a financial institution is a participant in the Tennessee Bank Collateral Pool, the collateralization requirements are satisfied. Investment Approval Process 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 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 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 investment activity. The Investment Officer shall determine which financial institutions are qualified to provide investment services to the City. Examples of qualifications include the following (as appropriate): • Audited financial statements demonstrating compliance with state and federal capital adequacy guidelines • Proof of FINRA certification • Proof of state registration 13  • Certification of having read and understood and agreeing to comply with the City’s investment policy • Evidence of adequate insurance coverage 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. 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 4. Investment performance as compared to benchmark 14 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. 4. Ensuring the thresholds in Exhibit D, Maturity Limits Schedule, are followed 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 compare the return of its portfolio to the benchmark. Performance to benchmark shall be reported in the Investment Officer’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 – Activity 8: Investments, from City’s Internal Control Manual, incorporated as reference only 15  EXHIBIT A 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: 16  (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. 17 (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. 18  EXHIBIT B 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 19  EXHIBIT C 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) 20  EXHIBIT D 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, LGIP, and other TCA 6-56-106 regulated securities, 30% minimum of all Reserve Fund 1-year or less with a 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 21 Internal Control Manual For City of Hendersonville, Tennessee EXHIBIT E Activity 8: Investments Objective 1: Investments are authorized, provide maximum returns with minimum risks and comply with legal requirements Objective 2: Ensure that all investments are accurately recorded Objective 3: Ensure that all investments are authorized and comply with all internal and external restrictions Objective 4: Investments are adequately safeguarded Risks: 1. Investments are not in compliance with state and local laws or are not as profitable or the risk of loss of funds is excessive 2. Investments are not properly timed or monitored resulting in lost revenue or early withdrawal fees 3. Negotiable investments are not adequately safeguarded 4. Investments are not recorded properly, or in inaccurate amounts 5. Investments are not authorized in accordance with applicable restrictions 6. Investments have not been properly approved by the Comptroller 7. Investments exceed risk thresholds set by the Board 8. Investments are not maximizing earnings 9. Penalties are incurred due to early withdrawal to meet cash flow demands 10. Investments are misappropriated Policies: 1. TCA 6-56-106 Authorized Investments Procedures: 1. The City ensures that investments of municipal money maximize earnings and comply with state statutes and municipal investment policies. Investment options include savings accounts, certificates of deposit, deposits in the Tennessee Local Government Investment Pool, etc. Additional guidance regarding investments can be found at http://tn.gov/comptroller/lf/ . 2. The City’s use of strategies, goals and procedures include, but are not be limited to: • investment types (currently only Local Government Investment Pool accounts) • requirement to annually review laws and regulations to determine if there are changes that affect the City • cash forecasting requirements in determining investment options 22 Internal Control Manual For City of Hendersonville, Tennessee • requirement to deposit investment proceeds, including cash received from matured certificates of deposit, into municipal accounts. • investments that must be approved by the Comptroller including Comptroller approved forms. 3. Personnel maintain an investment record card or a similar record listing the essential features of each investment, including the following: a. date of purchase b. description (or bank name) and identification number of each security c. interest rate d. original cost e. fund or funds providing the excess cash for investment f. maturity date of the investment g. date of and amount at termination (cashing) of investment and use of proceeds (reinvestment, deposit into municipal bank accounts, etc.) 23 DATE: March 28th, 2023 ORDINANCE/RESOLUTION # Resolution 2023-18 That the Board of Mayor and Alderman consider SPECIFIC REQUEST/ Resolution 2023-18, incorporating MTAS RECOMMENDATION: recommendations to the investment policy for the City of STAFF Hendersonville. 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 was considered and approved by BOMA on February 13, 2023. DISCUSSION: 2 MTAS reviewed the City of Hendersonville Investment Policy and made several recommendations to the policy. The policy, as attached to Resolution 2023-18, has been amended to reflect the recommendations from MTAS. The recommendations from MTAS do not change the objective or strategy of the policy, however the recommendations provide additional detail on types of investments, add detail on collateralization requirements, establish benchmark criteria, provides labeling of the exhibits and other housekeeping items that enhance the policy. MTAS review comments are attached for reference. FISCAL IMPACT: 3 No fiscal impact with the proposed revisions to the Investment Policy. ATTACHMENTS: 4 MTAS – Investment Policy Review Notes 24  MTAS– Investment Policy Review Notes Scope 1. Does the city hold/invest retirement funds? If you participate in TCRS, the city usually doesn’t have other retirement funds unless you are maintaining funds for other OPEB liabilities. We can discuss further if needed. 2. XXXX at end of first sentence – was this changed/updated? 3. What is the Employee Retirement Fund? I do not see this in the 2022 financial statements. 4. What restrictive deposit accounts does Hendersonville have? This is usually related to utility customer deposits or other liabilities. Wanted to make sure this applies. May need to add clarification. Objectives 5. Under 2. Liquidity - consider adding language about the availability of same day liquidity as written in the GFOA model policy: Furthermore, since all possible cash demands cannot be anticipated, a portion of the portfolio may be placed in money market mutual funds or local government investment pools which offer sameday liquidity for short-term funds. (This is mentioned in the Portfolio Diversification section of your policy but is an important piece of maintaining liquidity) 6. Under 3. Yield “or some other type of objective benchmark” is probably too vague and open- ended. Approved benchmarks should be defined in the policy. If another benchmark is determined to be better than those listed in the policy, the policy should be modified to include it. Authorized and suitable investments 7. Recommend adding a condensed list of authorized investments here and then referring to Exhibit A for more detailed information. Example: • U.S. Treasury bills and notes • Secured certificates of deposit at state and federal chartered banks and savings and loan associations • Top-rated state and local government general obligation bonds • Local government investment pools • Other investments authorized by TCA 6-56-106 (Exhibit A) 8. Recommend adding collateralization requirements like GFOA policy. TCA 6-56-110 requires all municipal funds deposited with a financial institution be secured by collateral. More details can be found in TCA 9-4-404. Alternatively, if a financial institution is a participant in the Tennessee Bank Collateral Pool, the collateralization requirements are satisfied as detailed in TCA 9-4-501. If you invest in certificates of deposit or have other accounts with financial institutions, you need to ensure they are participants in the TN collateral pool or they are maintaining the collateralization requirements in TCA. This is addressed in the authorized investment TCA 6-6- 106(a)(4) and found in your exhibit A, but it is important to address those requirements in the policy so they aren’t forgotten when decisions are being made about investing. Example language to add to policy: 2. Collateralization 25  Where allowed or required by state law, full collateralization will be required on all demand deposit accounts, including checking accounts and negotiable (as authorized by respective state statutes) and non-negotiable certificates of deposit. Authorized Collateral Acceptable collateral for bank deposits and repurchase agreements shall include only: • Obligations of the U.S. Government, its agencies and GSEs, including mortgage backed securities. • Obligations of any state, city, county, or authority rated at least AA by two nationally recognized statistical rating organizations. Alternatively, if a financial institution is a participant in the Tennessee Bank Collateral Pool, the collateralization requirements are satisfied. 9. Consider putting this paragraph in a section titled Investment Approval Process or something similar. Items 8 & 9 should stay under the title “Authorized and suitable investments” Standards of Care 10. Policy should address the process and criteria of selecting financial institutions and hiring a financial advisor. I would change “investment fund activity” to “investment activity”. Here is an example of language similar to the GFOA sample policy: Authorized Financial Institutions, Depositories, and Broker/Dealers 1. A list will be maintained of financial institutions and depositories authorized to provide investment services. In addition, a list will be maintained of approved security broker/dealers selected by conducting a process of due diligence. These may include ‘primary” dealers or regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 15C3-1 (uniform net capital rule). A. The investment officer shall determine which financial institutions are authorized to provide investment services to the City. B. Selection of financial institutions and broker/dealers authorized to engage in transactions with the City shall be at the sole discretion of the City. C. All broker/dealers who desire to become qualified for investment transactions must supply the following (as appropriate): • Audited financial statements demonstrating compliance with state and federal capital adequacy guidelines • Proof of FINRA certification • Proof of state registration • Completed broker/dealer questionnaire (not applicable to Certificate of Deposit counterparties) 26  • Certification of having read and understood and agreeing to comply with the City’s investment policy • Evidence of adequate insurance coverage D. All financial institutions who desire to become depositories must meet the statute requirements to maintain deposits in the State of Tennessee and must supply the following (as appropriate): • Audited financial statements demonstrating compliance with state and federal capital adequacy guidelines • Proof of state registration • Evidence of adequate insurance coverage E. A periodic review of the financial condition and registration of all qualified financial institutions and broker/dealers will be conducted by the investment officer. Is the intent for the financial advisor to get investments approved beforehand? If so, you may also want to add language about the investor having non-discretionary authority. This is discussed in the original information I sent regarding financial advisors. 11. The performance benchmark should be established in the policy itself. Note 6 addresses the section where benchmarks are originally mentioned in the policy. 12. Should add this requirement for the report to the list of items required in Reporting section. The second highlight in this section should say “Investment Officer’s Quarterly Investment Report” 13. Comments on Exhibits a) All Exhibits should be referenced within the policy, so the reader or user of the policy knows when the refer to the exhibits for further information. b) The Exhibits should be labeled. c) Where did Exhibit C come from? How are the short-term and long-term rating requirements established? Is this what will be used by the Investment Officer when determining the performance? If so, it should be referred to in the policy. d) Is Exhibit D what will be used by the Investment Officer to determine what to invest in and when? If so, this may be best as a section of the actual policy. If this is the criteria that will be used to defined limits and balance thresholds, I think this is one of the most important parts of the investment policy. a. If not moved to the policy, at least reference in the policy when this chart should be used by the Investment Officer b. The balance thresholds column refers to the “Reserve Fund” but this is not defined or mentioned anywhere else in the policy. I’m not seeing “Reserve Fund” in the financial statements either. Some local governments try to establish a separate fund for reserves, but this isn’t compliant with Generally Accepted Accounting Principles (GAAP). Is this referring to the available funds for investing? If so, how is this determined? Let me know what this is referring to exactly – we may need to have further discussions. 27  c. Does Hendersonville currently have a cash flow analysis that can easily help determine cash needs and investment opportunities? If not, I can help set something like this up if needed. d. The title of this exhibit may need to be modified based on the response to the previous questions to better describe what this document is – if you are going to leave in the exhibit section of the policy. e) For Exhibit E, does Hendersonville usually put the internal control policies within other policies? I could see this being problematic when changes are made to the internal control policy. Having the information within multiple policies may lead to inconsistencies of the policies. I suggest referencing the internal control policy in the manual instead of including it in the investment policy itself. Example policy language: Internal Controls Management will establish and maintain internal controls designed to provide reasonable assurance that the assets of the City are protected from loss, theft, or misuse. This can be found in the City’s Internal Control Policy. 28