I. Governing Authority
It is the policy of the Morton Grove Public Library (MGPL) to invest public funds in a manner that will provide the highest investment return with the maximum security while meeting the daily cash flow demands of the Morton Grove Public Library and conforming to all state and local statutes governing the investment of public funds.
This policy applies to the investment of all funds, excluding the investment of employees' retirement funds. Proceeds from certain bond issues, as well as separate foundation or endowment assets, will be covered by a separate policy, when needed.
1. Pooling of Funds
Except for cash in certain restricted and special funds, the Morton Grove Public Library will consolidate cash and reserve 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.
III. General Objectives
The primary objectives, in priority order, of investment activities shall be safety, liquidity, and yield:
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 credit risk and interest rate risk.
a. Credit Risk
The Morton Grove Public Library will minimize credit risk, which is the risk of loss due to the failure of the security issuer or backer, by:
Limiting investments to the types of securities listed in Section VII of this Investment Policy
Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisers with which the Morton Grove Public Library will do business in accordance with Section V
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 Morton Grove Public Library will minimize interest rate risk, which is the risk that the market value of securities in the portfolio will fall due to changes in market interest rates, by:
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.
Investing operating funds primarily in shorter-term securities, money market mutual funds, or similar investment pools and limiting the average maturity of the portfolio in accordance with this policy (see section VIII).
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 securities mature concurrent with cash needs to meet anticipated demands (static liquidity). Alternatively, a portion of the portfolio may be placed in money market mutual funds or local government investment pools which offer same day liquidity for short-term funds.
The Morton Grove Public Library’s cash management portfolio shall be designed with the objective of regularly meeting or exceeding a performance benchmark, which would be the average return on three-month U.S. Treasury bills.
IV. Standards of Care
The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and this investment policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and the liquidity and the sale of securities are carried out in accordance with the terms of this policy.
The "prudent person" standard states that, "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."
2. 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 and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the Morton Grove Public Library.
3. Delegation of Authority
Responsibility for the operation of the investment program is hereby delegated to the investment officer, who shall act in accordance with established written procedures and internal controls for the operation of the investment program consistent with this investment policy. Procedures should include references to: safekeeping, delivery vs. payment, investment accounting, repurchase agreements, wire transfer agreements, and collateral/depository agreements. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the investment officer. The investment officer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.
V. Authorized Financial Institutions, Depositories, and Broker/Dealers
1. Authorized Financial Institutions, Depositories, and Broker/Dealers
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 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:
Audited financial statements demonstrating compliance with state and federal capital adequacy guidelines
Proof of Financial Industry Regulatory Authority (FINRA) certification (not applicable to Certificate of Deposit counterparties)
Proof of state registration
Completed broker/dealer questionnaire (not applicable to Certificate of Deposit counterparties)
Certification of having read and understood and agreeing to comply with the Morton Grove Public Library’s investment policy.
Evidence of adequate insurance coverage.
An annual review of the financial condition and registration of all qualified financial institutions and broker/dealers will be conducted by the investment officer.
2. Minority and Community Financial Institutions
From time to time, the investment officer may choose to invest in instruments offered by minority and community financial institutions. In such situations, a waiver to certain parts of the criteria under Paragraph 1 may be granted. All terms and relationships will be fully disclosed prior to purchase and will be reported to the appropriate entity on a consistent basis and should be consistent with state or local law. These types of investment purchases should be approved by the appropriate legislative or governing body in advance.
VI. Safekeeping and Custody
1. Delivery vs. Payment
All trades of marketable securities 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 a centralized independent third-party custodian selected by the entity as evidenced by safekeeping receipts in the Morton Grove Public Library’s name. The safekeeping institution shall annually provide a copy of their most recent report on internal controls (Statement of Auditing Standards No.70, or SAS 70).
The investment officer shall establish a system of internal controls, which shall be documented in writing. The internal controls shall be reviewed by the investment committee, where present, and with the independent auditor. The controls shall be designed to prevent the loss of public funds arising from fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of the Morton Grove Public Library.
VII. Suitable and Authorized Investments
1. Investment Types
Consistent with the FINRA Policy Statement on State and Local Laws Concerning Investment Practices, the following investments will be permitted by this policy and are those defined by state and local law where applicable:
U.S. Treasury obligations which carry the full faith and credit guarantee of the United States government and are considered to be the most secure instruments available;
U.S. government agency and instrumentality obligations that have a liquid market with a readily determinable market value;
Certificates of deposit and other evidences of deposit at financial institutions,
Commercial paper, rated in the highest tier (e.g., A-1, P-1, F-1, or D-1 or higher) by a nationally recognized rating agency;
Investment-grade obligations of state, provincial and local governments and public authorities;
Repurchase agreements whose underlying purchased securities consist of the aforementioned instruments;
Money market mutual funds regulated by the Securities and Exchange Commission and whose portfolios consist only of dollar-denominated securities; and
Local government investment pools either state-administered or developed through joint powers statutes and other intergovernmental agreement legislation.
Where allowed by state law and in accordance with the FINRA Recommended Practices on the Collateralization of Public Deposits, full collateralization will be required on all demand deposit accounts, including checking accounts and negotiable certificates of deposit.
3. Repurchase Agreements
Repurchase agreements shall be consistent with FINRA Recommended Practices on Repurchase Agreements.
VIII. Investment Parameters
It is the policy of the Morton Grove Public Library to diversify its investment portfolios. To eliminate risk of loss resulting from the over-concentration of assets in a specific maturity, issuer, or class of securities, all cash and cash equivalent assets in all Morton Grove Public Library funds shall be diversified by maturity, issuer, and class of security. Diversification strategies shall be determined and revised periodically by the investment committee/investment officer for all funds except for the employee retirement fund.
In establishing specific diversification strategies, the following general policies and constraints shall apply: Portfolio maturities shall be staggered to avoid undue concentration of assets in a specific maturity sector. Maturities selected shall provide for stability of income and reasonable liquidity.
For cash management funds:
Liquidity shall be assured through practices ensuring that the next disbursement date and payroll date are covered through maturing investments or marketable U.S. Treasury bills.
Positions in securities having potential default risk (e.g., commercial paper) shall be limited in size so that in case of default, the portfolio’s annual investment income will exceed a loss on a single issuer’s securities.
Risks of market price volatility shall be controlled through maturity diversification such that aggregate price losses on instruments with maturities exceeding one year shall not be greater than coupon interest and investment income received from the balance of the portfolio.
The investment committee/investment officer shall establish strategies and guidelines for the percentage of the total portfolio that may be invested in securities other than repurchase agreements, Treasury bills or collateralized certificates of deposit. The committee shall conduct a quarterly review of these guidelines and evaluate the probability of market and default risk in various investment sectors as part of its considerations.
2. Maximum Maturities
To the extent possible, the Morton Grove Public Library shall attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow, the Morton Grove Public Library will not directly invest in securities maturing more than three (3) years from the date of purchase or in accordance with state and local statutes and ordinances. The Morton Grove Public Library shall adopt weighted average maturity limitations (which often range from 90 days to 3 years), consistent with the investment objectives.
Reserve funds and other funds with longer-term investment horizons may be invested in securities exceeding three (3) years if the maturities of such investments are made to coincide as nearly as practicable with the expected use of funds. The intent to invest in securities with longer maturities shall be disclosed in writing to the legislative body.
Because of inherent difficulties in accurately forecasting cash flow requirements, a portion of the portfolio should be continuously invested in readily available funds such as local government investment pools, money market funds, or overnight repurchase agreements to ensure that appropriate liquidity is maintained to meet ongoing obligations.
3. Competitive Bids
The investment officer shall obtain competitive bids from at least two brokers or financial institutions on all purchases of investment instruments purchased on the secondary market.
The investment officer shall prepare an investment report monthly. The report shall be provided to the Library Board as part of the regular monthly financial report.
2. Performance Standards
The investment portfolio will be managed in accordance with the parameters specified within this policy. The portfolio should obtain a market average rate of return during a market/economic environment of stable interest rates. The 90 days Treasury rate is the benchmark against which portfolio performance shall be compared on a regular basis.
3. 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 will ensure that review of the investment portfolio, in terms of value and price volatility, has been performed consistent with the FINRA Recommended Practice on "Mark-to-Market Practices for State and Local Government Investment Portfolios and Investment Pools.
X. Policy Considerations
Any investment currently held that does not meet the guidelines of this policy shall be temporarily exempted from the requirements of this policy. Investments must come in conformance with the policy within six months of the policy’s adoption or the governing body must be presented with a plan through which investments will come into conformance.
This policy shall be reviewed on an annual basis. Any changes must be approved by the investment officer and any other appropriate authority, as well as the individuals charged with maintaining internal controls.
XI. Approval of Investment Policy
The investment policy shall be formally approved and adopted by the governing body of the Morton Grove Public Library and reviewed annually.
Re-approved by the Morton Grove Public Library Board of Directors December 18, 2014; re-approved December 10, 2015.