Memorandum

City of Lawrence

Finance Department

TO:	Dave Corliss, City Manager
FROM:	Ed Mullins, Finance Director
Date:	June 12, 2012
RE:	Investment Policy

Background

The City of Lawrence was authorized expanded investment powers under K.S.A. 12-1677b in 1999.  The statute allows the city to invest in government agencies and extends the maximum maturity of an investment from 2 years to 4 years.  The Finance Department was notified in March 2012 that the policies of the Pooled Money Investment Board (PMIB) pertaining to the approval of expanded investment powers had been revised.  The PMIB provided a summary of the changes and a list of recommended revisions to the city’s investment policy in order for it to remain in compliance.

Description

A draft of the revised investment policy was forwarded to PMIB in May.  The Finance Department was subsequently contacted and one additional revision was recommended to the draft policy.  That change was made and the attached revised investment policy will require approval by the City Commission to meet the PMIB’s requirements.

The revisions to the city’s investment policy are summarized below:

1. Section 1.0 includes a requirement that the investment policy will be reviewed and approved at least annually by the City Commission.

2. Section 4.3 was modified to address a “liquidity event” that would require the selling of investments prior to maturity.

3. Section 5.2 addresses the training and experience needs of the individuals responsible for the city’s investments.

4. Section 12 was expanded to include some guidelines on the diversification of the city’s portfolio.

Investments

With the abnormally low interest rates, the city has an unusually high amount of cash in our deposit account.  The amounts in our checking account currently earn interest at a rate of 20 basis points (0.20%).  Even at this low rate, the city’s investment must mature in approximately one year or more to achieve a higher yield.  As a result, when the city does invest, it has been with a longer maturity than usual.  The following tables display information on the city’s investments as of June 2012 and October 2008.  The average yield in 2011 was 0.25% with interest earnings of less than $25,000 while the average yield in 2008 was 3.88% with earnings of $3.5 million.

Type of Investment	October 2008	June 2012
Cash	7%	63%
Municipal Investment Pool	20%	0%
Government Agencies	44%	25%
Certificates of Deposit	29%	12%

Length of Investment	October 2008	June 2012
Less than 6 months	35%	0%
6 to 12 months	30%	60%
More than 12 months	35%	40%

Recommendation

It is recommended that the City Commission approve the revised Investment Policy.