FILE: DFL
Cf: DG
CASH MANAGEMENT AND INVESTMENTS
La. Rev. Stat. Ann. §33:2955 requires all political subdivisions to develop and adopt an investment policy, which should (1) reflect the mandate to manage public funds prudently; (2) place appropriate emphasis on the goals of safety of principal first, liquidity second, and yield third; (3) establish internal controls for any derivatives in use to ensure that the risks inherent in derivatives are adequately managed.
Strategies for proper cash management and investment of available funds shall be reviewed and evaluated on an annual basis to ensure that investment rules and guidelines expressed in this policy are being followed according to current statutory provisions. The monetary assets of the Washington Parish School Board shall be held in trust by the fiduciary (fiduciaries) designated by the School Board. Cash management and the investment of funds shall be managed by the Superintendent and/or his/her designee.
CASH MANAGEMENT
All aspects of cash management operations shall be designed to ensure the absolute safety and integrity of the School Board’s financial assets.
Cash management activities shall be conducted in full compliance with prevailing local, state and federal regulations. Furthermore, such activities shall be designed to adhere to guidelines and standards promulgated by applicable professional organizations.
Operating within appropriately-established administrative and procedural parameters, the School Board shall aggressively pursue optimum financial rewards, while simultaneously controlling its related expenditures. Therefore, cash management functions which engender interaction with outside financial intermediaries shall be conducted in the best financial and administrative interests of the school system. In pursuit of these interests, the School Board shall utilize competitive bidding practices whenever practicable, affording no special financial advantage to any individual or corporate member of the financial or investment community.
The School Board shall authorize the Superintendent and staff to design and enforce written administrative regulations, guidelines, and procedures relating to a variety of cash management issues such as the eligibility or selection of various financial intermediaries, documentation and safekeeping requirements, philosophical and operational aspects of the investment function, and such other functional and administrative aspects of the cash management program which necessitate standard setting in pursuit of appropriate prudent, enhanced protection of assets or procedural improvements.
DEPOSITORY BANK
Louisiana statutes require School Boards to select a fiscal agent for purposes of receiving or depositing funds of the School Board. The bank selected as fiscal agent shall be asked to enter into a fiscal agency contract or such other necessary instruments setting forth the duties, responsibilities, and agreements pertaining to said fiscal agency.
The fiscal agency bank, when selected, shall serve for a term as agreed to by the School Board and until its successor shall have been duly selected and qualified, and shall pledge approved securities, as provided for in the fiscal agency contract subject to the regulations under state law.
PLEDGED SECURITIES
Funds on deposit shall be collateralized in an amount at all times equal to 100% by pledged "approved securities" in accordance with state law to adequately protect the funds of the School Board.
The School Board shall periodically monitor the amount of approved securities to assure that an amount not less than 100% on deposit with the depository bank, less any applicable Federal Deposit Insurance Corporation (FDIC) insurance is pledged.
The bank shall have the right and privilege of substituting approved securities only upon obtaining the prior written approval of the School Board. Such approval may be granted by facsimile transmission. The approved securities shall be valued at their market value.
INVESTMENT OPTIONS
The Washington Parish School Board shall invest funds under its control which it, at its discretion, may determine to be available for investment.
General Rules and Guidelines
In general, the investment activities of the Washington Parish School Board shall be conducted in a manner consistent with prudent business practices, and in compliance with applicable state investment statutes. Investments of the School Board shall be made, not for speculation, but for investment, considering (1) the probable safety of their capital, (2) the probable liquidity requirements, and (3) the probable income to be derived.
The primary objectives, in priority order, of investment activities are as follows:
Safety of capital is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital by mitigating the credit risk (the risk of loss because of failure of the security issuer or backer) and the interest rate risk (the risk that the market value of securities will fall because of changes in the interest rate marketplace).
The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This shall be accomplished by structuring the portfolio so that investments mature concurrent with cash needs to meet anticipated demands. Since cash demands cannot always be anticipated, the portfolio should consist largely of investments that can be liquidated within a reasonably short period of time.
The investment portfolio shall be designed with the objective of attaining a reasonable rate of return, in relation to the marketplace, taking into account the investment risk constraints and liquidity needs. Return on investments is of least importance compared to safety and liquidity.
Persons involved in the investment process shall refrain from personal business activity that could conflict with the proper and impartial 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.
Expenditures for banking or other financial services shall be evaluated in the same manner as other expenditures of School Board funds.
Financial institutions (commercial banks, savings and loan associations and credit unions) which serve as depositories of School Board funds shall comply with all prevailing provisions of State statutes. Such financial institutions must be organized under the laws of Louisiana or have their principal offices in the State of Louisiana. Deposits in such financial institutions, whether they are time deposits, demand deposits, or deposits in special interest-bearing accounts (e.g. NOW accounts or Super NOW accounts) shall only be made with such institutions which qualify to accept public deposits and are protected under the terms of State statutes.
The School Board may conduct security transactions with its fiscal agent bank, certain other carefully selected financial institutions who qualify, or with certain security dealers. Any selected state institution must be organized under the laws of Louisiana, and any national bank must have their principal offices in the State of Louisiana. Security dealers with whom the School Board conducts business shall be subject to the following guidelines and criteria. Only dealers who qualify under the Securities and Exchange Commission Rule 15c3-1 (uniform net capital rule) as listed by the Market Reports Division of the Federal Reserve Bank of New York as "Primary Dealers" shall be deemed suitable to conduct School Board Securities transactions. In addition, all dealers shall provide proof of National Association of Securities Dealers (NASD) certification and proof of registration with the State of Louisiana. They must be familiar with the provisions of this investment policy.
Just because a security dealer is listed as a "Primary Dealer" does not obligate the School Board to conduct business with them. The dealer(s) will be selected at the discretion of the School Board. These "primary dealers" are unique within the United States government securities industry in that they both "report" and are "regulated" in an industry which is typically "non-reporting" and "non-regulated." Included on the list are major securities firms (e.g. Prudential, Dean Witter Reynolds, Merrill Lynch, Smith Barney, etc.) and some of the world's largest banks (e.g., Chase Securities, Citicorp Securities, Nationsbanc, Chemical Securities, etc.)
It will therefore be the policy of the Washington Parish School Board when dealing with security brokers or dealers to restrict transactions to this list of "primary dealers." Such policy will preclude the Washington Parish School Board from transacting business with other brokers and dealers whose financial strength and operational capabilities cannot be confidently determined, given the absence of "reporting" and "regulation" requirements.
The School Board shall limit its purchase of investment securities to those considered to be of high quality as follows:
Time certificates of deposit of any bank domiciled or having a branch office in Louisiana, savings accounts or shares of savings and loan associations and savings banks, as defined by Louisiana Revised Statute §6:703(15) and (16), or share accounts and share certificate accounts of federally or state chartered credit unions issuing time certificates of deposit. For those funds made available for investment in time certificates of deposit, the rate of interest paid shall be established by contract between the bank and the School Board; however, the interest rate at the time of investment shall be a rate of not less than fifty basis points below the prevailing marker interest rate on direct obligations of the United States Treasury with a similar length of maturity.
Funds invested in accordance with this section shall not exceed at any time the amount insured by the Federal Deposit Insurance Corporation in any one banking institution, or in any one savings and loan association, or National Credit Union Administration, unless the uninsured portion is collateralized by the pledge of securities in the manner provided in La. Rev. Stat. Ann. §39:1221 and §§39:1223 through 39:1226.
The following obligations as specified in La. Rev. Stat. Ann. §33:2955:
Direct United States Treasury obligations, the principal and interest of which are fully guaranteed by the government of the United States.
a. Bonds, debentures, notes, or other evidence of indebtedness issued or guaranteed by federal agencies and provided such obligations are backed by the full faith and credit of the United States of America, which obligations include, but are not limited to (1) U.S. Export-Import Bank; (2) Farmers home Administration; (3) Federal Financing Bank; (4) Federal Housing Administration Debentures; (5) General Services Administration; (6) Government National Mortgage Association - guaranteed mortgage backed bonds and guaranteed pass-through obligations; (7) U.S. Maritime Administration - guaranteed Title XI Financing; and (8) U.S. Department of Housing and Urban Development.
b. Bonds, debentures, notes, and other evidence of indebtedness issued or guaranteed by U.S. Government instrumentalities, which are federally sponsored and such obligations include but are not limited to (1) Federal Home Loan Bank Systems; (2) Federal Home Loan Mortgage Corporation; (3) Federal National Mortgage Association; (4) Student Loan Marketing Association; and (5) Resolution Funding Corporation.
c. Bonds, debentures, notes or other evidence of indebtedness issued by the state of Louisiana, or any other state of the United States, or any of the political subdivisions of any state, or any domestic U.S. corporation, with limited exceptions noted in La. Rev. Stat. Ann. §33:2955.
d. Direct security repurchase agreements of any federal book entry only securities enumerated in 2(a) and 2(b) (1) & (2). "Direct security repurchase agreement" means an agreement under which the political subdivision buys, holds for a specified time, and then sells back those securities and obligations enumerated in 2(a) and 2(b) (1) & (2).
e. The Louisiana Asset Management Pool (LAMP).
In no event shall monies be considered available for investment unless and until such funds are determined by the Superintendent or chief financial officer, in the exercise of prudent judgment, to be in excess of the immediate cash requirements of the fund to which the monies are credited. As a criteria in making such a determination, any amount of money exceeding ten thousand dollars which is on demand deposit to the credit of the School Board, or to the credit of any fund and which is not required to meet an obligation for at least forty-five (45) days, or any amount of money exceeding one hundred thousand dollars which is on demand to the credit of the School Board or to the credit of any fund and which is not required to meet an obligation for at least fifteen (15) days shall be construed available for investment.
Generally, the School Board will only invest in "money market instruments," which are defined as creditworthy, highly liquid investments with maturities of one (1) year or less. Although there may be certain circumstances in which longer term investments may be considered, such as for bond sinking funds or maturity matched construction funds, the general use of instruments with maturities in excess of one (1) year will be avoided since such maturities typically have much higher market fluctuations than do shorter term investments.
The School Board shall always strive to avoid investment losses. However, the incurrence of a "book" or "accounting" loss does not necessarily indicate an inappropriate investment activity or faulty portfolio management. There may be circumstances when it is more prudent to liquidate an investment at a loss and purchase a new instrument bearing a higher rate of return for an overall gain to the School Board. Such instances will be fully documented. Therefore the School Board does not prohibit the incurrence of an occasional loss as long as the transaction can be justified in the overall portfolio management process.
Investment securities generally take the form of either "physical" or "book entry only." Physical securities are in written form and bear the name of the owner of the security itself. An example is certificates of deposit from financial institutions. "Book entry only" securities are of the form that they have no physical document, and are recorded as an accounting entry by the issuing agency or government. In the case of "book entry only" instruments, it is imperative that the School Board have written evidence of both existence of the security and its registration in the name of the School Board. This is accomplished through the issuance of a "safekeeping receipt" by a third party designated by the School Board. Under no circumstances may both the issuing agency (or its parent, subsidiary, or holding company) and the safekeeping agent be the same entity. Therefore, all ownership of securities shall be evidenced by either the physical security itself, or by an acceptable safekeeping receipt issued by a third party financial institution acceptable to the School Board.
Interest Earnings
The interest earned on any such investment shall be credited to the fund from which the investment was acquired or it may be applied to the payment of the principal and interest of the outstanding bonded indebtedness of that fund.
LIQUIDATION OF INVESTMENTS
At any time that may be advisable, the School Board may cash or liquidate any of the investments authorized herein which are purchased for any particular fund. The proceeds of any such liquidation shall be credited to the fund from which the authorized investments were originally purchased.
PROHIBITED TRANSACTIONS
The following arrangements are expressly prohibited:
Any transactions not specifically authorized by this policy.
The purchase of securities on margin.
Direct purchases of single family or commercial mortgages.
Purchases of foreign bonds.
Collateralized mortgage obligations that have been stripped into interest only or principal only obligations.
Inverse floaters, or structured notes. For purposes of this section, structured notes shall mean securities of U.S. Government agencies, instrumentalities, or government-sponsored enterprises which have been restructured, modified, and/or reissued by private entities.
| Revised: October, 1997 | Revised: March 17, 2011 |
| Revised: January 14, 2010 | Revised: January 15, 2015 |
Ref: La. Rev. Stat. Ann. §§6:703, 17:99, 33:2955, 39:1211, 39:1212, 39:1219, 39:1221, 39:1222, 39:1223, 39:1224, 39:1225, 39:1226
Board minutes, 5-2-96, 1-14-10, 3-17-11, 1-15-15
Washington Parish School Board