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HomeMy WebLinkAboutAgenda - 03-17-2011 - 2L~ ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: March 17, 2011 Action Agenda Item No. 2 • SUBJECT: FY 2011-12 Budget Work Session DEPARTMENT: County Manager and Financial Services PUBLIC HEARING: (YIN) No ATTACHMENTS): Attachment 1. February 2011 Monthly Financial Dashboard Attachment 2. 2"d Draft Orange County Capital Funding Policy . Attachment 3. 2"d Draft Orange County Debt Management Policy Attachment 4. 2"d Draft Orange County Fund Balance Policy Attachment 5. 1St Draft Orange County Investment Policy INFORMATION CONTACT: Frank Clifton, (919) 245-2306 Clarence-Grier, (919) 245-2453 PURPOSE: For the Board to receive an update on the financial status of the County, and discuss changes in the capital funding, debt management, fund balance and investment management policies. BACKGROUND: 1) Current Year Fiscal Update a) Revenues -Overall revenue collections are on target, at this point, in the current fiscal year. i) Real Property Taxes -Preliminary reports indicate property tax revenues, year-to-date, continue to be consistent with the collection rate of previous years. ~ Of the $123.8 million budgeted for real property taxes, the Tax Administration Office has collected approximately 100.2% of that amount, or $124 million as of February 28, 2011. • 2 • ii) Motor Vehicle Property Taxes -Motor vehicle property tax collections to-date are slightly below the target for the current fiscal year. iii) Sales Taxes -The County has received five months of sales tax receipts for the current year -July through November 2010. Out of a $14.4 million budget, the County has received $4.5 million, down $2.6 million due to the refunds paid to non-profit organizations earlier than the previous fiscal year. There are positive signs of the economy recovering. As a result, we do expect to receive slightly higher sales taxes for the fiscal year than budgeted. iv) Intergovernmental Revenues -Intergovernmental revenues continue to lag behind the current year's budget due to the timing of reimbursements received from Federal and State funding sources. We continue to expect these revenues to meet budget by the end of the fiscal year, if there are not any current year budgetary impacts at the Federal and State level. v) Charges for Services, Licenses and Permits are in line with current year budget and prior year receipts. b) Expenditures -Overall expenditures are slightly higher than budget at this point in the current fiscal year. Public Safety expenditures are higher than the prior fiscal year due to purchases of vehicles and equipment by the Sheriff Department and Emergency Management Services. All other functional expenditures are in-line with the budget at this point in the fiscal year. • 2) Policies Earlier in the fiscal year, we proposed changes to some of the existing financial policies of the County. Additionally, as previously discussed, one of the factors in our bonds and debt being rated highly by the rating agencies is the existence of sound fiscal policies and procedures. We have provided the updated policies .and procedures for your information, review and discussion: • Orange County Capital Funding Pplicy -Second Draft • Orange County Debt Management Policy -Second Draft • Orange County Fund Balance Policy -Second Draft • Orange County Investment Policy -First Draft The attached policies will document our current practices, procedures, and standards. Moreover, these policies will align the County's financial management practices with the current financial rules and reporting standards promulgated by the Government Finance Officers Association (GFOA) and the Local Government Commission (LGC). • 3 • FINANCIAL IMPACT: There is not a financial impact of receiving this information. RECOMMENDATION(S): The Manager recommends the Board of County Commissioners: 1. Receive an update from staff regarding the County's current FY2010-11 fiscal status. 2. Receive the information on the policies presented and advise staff on the implementation of the aforementioned policies. • • • • • ~~ i ORANGE COUNTY 4 Monthly Financial Dashboard • FISCAL YEAR ENDING June 30, 2011 Reporting Period: Febuary 1-28, 2011 OUR"~ASN AND fNVE3TMENTS. ~ r. ", _ _ Balances on February 28, 201 1, in whole dollars CASH ~ INVESTMENTS BY FUND GENERAL FUND Feb 2011 Feb 2010 Operating $ 63,986,830 $ 63,588,640 TOTAL GENERAL FUND $ 63,986,830 $ 63,588,640 OTHER FUNDS Feb 2011 Feb 2010 Special Revenue $ 5,556,378 $ 4,638,491 Solid Waste $ 13,810,279 $ 10,972,082 Efland Sewer $ 187,411 $ 216,924 Sportsplex $ 1,338,037 $ 1,195,262 County Capital $ 12,281,130 $ 14,408,D23 School Capital $ 15,998,357 $ 3,305,493 TOTAL OTHER FUNDS $ 49,171,592 $ 34,736,275 TOTAL CASH >4 INVESTMENTS COUNTY-WIDE Feb 2011 Feb 2010 ALL FUNDS $ 113,158,422 $ 98,324,915 OUR CASH PLOWS.. Comparison of FYTD GENERAL FUND REVENUES ~ EXPENDITURES Current FYTD %. Prior FYTD Fiscal Year Budget $ 180,563,386 $ 182,942,672 Revenues Fiscal Year to Date $ 149,916,007 83.03% 82.64% Expenses Fiscal Year to Date $ 119,122,595 65.97% 64.89% SOLID WASTE fiscal Year Budget $ 10,480,459 $ 9,362,375 Revenues Fscal Year to Date $ 7,932,534 75.69% 69.51 % Expenses Fiscal Year to Date $ 4,724,301 45.08% 46.69% EFLAND SEWER FUND Fiscal Year Budget $ 214,950 $ 213,246 Revenues Fscal Year to Date $ 178,565 83.07% 83.57% Expenses Fiscal Year to Date $ 139,632 64.96% 52.45% SPORTSPLEX Fiscal Year Budget $ 3,170,940 $ 3,164,735 Revenues Project to Date $ 2,498,094 78.78% 73.60% _ Expenses Project to Date $ 1,916,991 60.45% 52.29% COUNTY CAPITAL PROJECTS (PROJECTS TO DATE) Project Budget $ 100,406,770 $ 159,288,367 Revenues Project to Date $ 26,595,822 26.49% 11.94% Expenses Project to Date $ 25,240,996 25.14% 8.11 % SPECIFIC REVENUE COLLECTIONS AT AGLANCE... - Comparison of FY Current Prior AD VALOREM PROPERTY 7AX FY % FY Fiscal Year Budget $ 131,975,738 $ 130,431,195 Revenues this Month $ 2,862,607 2.17% 2.05% Revenues FYTD $ 129,771,758 98.33% 98.21% SALES & USE TAX Fiscal Year Budget $ 14,463,000 $ 16,873,405 Revenues this Month $ 1,066,287 7.37% 6.07% Revenues FYTD $ 4,488,625 31.04% 42.16% LICENSES AND PERMITS Fiscal Year Budget $ 1,188,624 $ 1,127,624 Revenues this Month $ 52,383 4.41% 6.21% Revenues FYTD $ 626,403 52.70% 58.81% CHARGES FOR SERVICES _ Fiscal Year Budget $ 8,274,586 $ 8,339,763 Revenues this Month $ 917,685 11.09% 15.32% Revenues FYTD $ 5,016,276 60.62% 97.06% Fiscal Year Budget $ 18,311,766 $ 16,537,423 Revenues this Month $ 1,292,331 7.06% 7.72% Revenues FYTD $ 8,067,039 44.05% 48.95% INVEST, MISC 3 TRANSFERS Fiscal Year Budget $ 2,743,568 $ 2,246,178 Revenues this Month $ 603,630 22.00% 6.03% Revenues FYTD $ 1,945,905 70.93% 44.30% SOLID WASTE REVENUES ~ Fiscal Year Budget $ 10,480,459 $ 9,382,375 Hues this Month $ 593,317 5.66% 4.29% Hues FYTD $ 7,932,534 75.69% 69.51% RTSPLEX REVENUES Fiscal Year Budget $ 3,220,720 $ 3,164,735 Revenues this Month $ 933,925 29.00% 30.88% Revenues FYTD $ 2,498,094 77.56% 73.60 EXPENDITURES::=AT A GL,4NCE _ = _ ~;:~. ~ .r' Comparison of Monthl Expenses GENERAL FUND Fiscal Year YTD Expenses FUNCTIONS 2011 Budget Current FY Prior FY Governing and Management $ 13,477,450 $ 7,902,389 $ 9,440,941 General Services 7,254,657 4,399,629 4,439,398 Community and Environment 6,005,322 3,617,132 3,877,622 Human Services 33,266,209 20,271,281 21,339,954 Education 64,667,512 41,949,675 41,373,819 Public Safety 19,494,131 12,019,688 10,764,789 Culture and Recreation 1,960,782 1,211,887 1,306,230 CapitalOutiay 311,590 - - Debt Service: Principal 18,778,388 15,211,781 10,261,855 Interest 9,854,057 6,092,813 6,538,166 Transfers 5,493,288 6,446,320 9,375,796 $ 180,563,386 $ 119,122,595 $ ~ 118,718,570 Fiscal Year Budget $ 180,563,386 $ 182,942,672 YTD % of Annual Budget Expended 65.97% 64.89% SOLID WASTE Environmental Support $ 1,590,423 $ 679,869 $ 516,739 LandflllOperations 3,677,519 1,678,245 ~ 1,994,666 Recycling 3,385,084 1,355,707 1,864,692 Sanitation 1,827,433 1,010,480 4,395 $ 10,480,459 $ 4,724,301 $ 4,380,492 Fiscal Year Budget $ 10,480,459 $ 9,382,375 YTD% of Annual Budget Expended 45.08% 46.69% SPORTSPLEX Expenses $ 3,170,940 $ 1,916,991 $ 1,654,694 $ 3,170,940 $ 1,916,991 $ 1,654,694 Fiscal Year Budget $ 3,170,940 $ 3,170,940 YTD% of Annual Budget Expended 60.45% 52.18% • • -~ ~4-~1-~r~~>r~ ~Z Draft Revised 10!26/10 5 Orange County Board of Commissioners • Draft Capital Funding Policy Preamble This capital funding policy is the product of extensive analysis and deliberation. The intent of this policy is to reflect greater priority than there has been historically on providing funding for County projects, with particular emphasis directed at enhanced upkeep of existing County facilities. The policy reflects the implementation of the Board of Commissioners' resolution of November 16, 2004 that the Board "does hereby adopt in principle a policy of allocating a target of 60 percent of capital expenditures for school projects and 40 percent of capital expenditures for county projects over the decade beginning in calendar year 2005': This policy continues the County's principle and historical practice of funding all School and County related debt service obligations before allocating any other School or County capital funds for other purposes. Long Range Capital Investment Plan During January of each fiscal year, the County Manager shall present, to the Board, five- year County and School capital needs and funding plans in the form of a Capital Investment Plan. Each year, the Board of Commissioners shall conduct a public hearing on the Manager's Recommended CIP during March and subsequently adopt afive-year • Capital Investment Plan (CIP) as part of the annual operating budget in June. County and School recurring capital needs will be identified and reviewed during each annual. operating budget cycle, and recurring capital appropriations will be approved by the Board of Commissioners as an element of each annual Orange County Budget Ordinance. The five-year plan for long-range capital funding shall include anticipated County and School capital expenditures costing $100,000 or more. Sources of Funds The County will allocate the following sources of funds for County and School debt service and long-range and recurring capital: • All proceeds from the Article 40 and Article 42 half-cent sales taxes. (The North Carolina General Statutes require that 30 percent of the Article 40 (NCGS§105-487(a)) and 60 percent of the Article 42 (NCGS§105-502(x)) sales tax revenue be earmarked for public school capital outlay as defined in NCGS§105-4260 or to retire any indebtedness incurred by the county for these purposes) • School Construction Impact Fees for each school system. • Property tax revenue as needed and approved by the Board. • Draft Revised 10/26/10 6 • The County will budget NC Education Lottery proceeds as the revenues are distributed by the State each quarter, once the revenues are identified for an individual school • capital project and requested by each district. Debt Service All County and School related debt service obligations would be funded prior to allocation of programmed funding for any other capital purposes. Orange County Schools' impact fees will be earmarked to pay for debt service on projects that involved the construction of new school space in the Orange County Schools system. Chapel Hill-Carrboro City Schools' impact fees will be earmarked to pay for debt service on projects that involved the construction of new school space in the Chapel Hill-Carrboro City Schools system. These expenditures will be tracked and verified by each district annually. NC Education Lottery Proceeds Each school district will have the option to dedicate its share of the annual NC Education Lottery monies to address school facility renovation needs or as additional revenue to the districts pay-as-you-go funding to address school facility renovation needs. Annually either district can request that the County dedicate Lottery proceeds to repay debt service and the county will substitute pay-as-you-go-funding to expedite approved capital projects in the schools capital improvement plan. Allocation • Capital funding for each five-year capital planning period will be allocated between the two school districts based on the student membership planning allotments, provided by the NC Department of Public Instruction by March 1 of each year. Capital Project Ordinances -Form and Purpose All funds allocated to capital projects are to be accounted for in a Capital Project Fund as authorized by a Board of County Commissioner approved Capital Project Ordinance. The Capital Project Ordinance will include a detailed break down of each major cost category related to the project. In accordance with the Board of County Commissioners November 2000 adopted "Policy on P/anning and Funding School Capital Projects", whenever School capital project bids are either higher or lower than originally projected, or any other factor affecting the project budget occurs, the affected school system is expected to work with County Management and Budget staff to present revised capital project ordinances for adoption by the Board of Commissioners. The same expectations shall be applicable for changes to County Capital project budgets. . Community Use of Schools It is the intent of the Board of County Commissioners to evaluate each new proposed school in both School Districts for joint community use opportunities, including, but not • limited to, park and recreation use. ' Draft Revised 10/26/10 Schools Adequate Public Facilities Ordinance • Orange County's Schools Adequate Public Facilities Ordinance (SAPFO) and Memoranda of Understanding (MOUs) between the County and its municipal and school partners establish the machinery to assure that, to the extent possible, new development will take place only when there are adequate public school facilities available, or planned, which will accommodate such new development. The Board of County Commissioners is committed to the principle that new school space documented as needed through the annual SAPFO technical review process will be reflected in the next adopted CIP, and will be funded so as to be constructed to be available before the relevant level of service threshold is exceeded. Rescission This policy supersedes any policy in place prior to this date. Approved , 2010. C~ 7 • • C7 ~ ~chrm~~ ~ Draft Revised 10/26/10 $ • ORANGE COUNTY BOARD OF COMMISSIONERS DRAFT DEBT MANAGEMENT POLICY The County has long recognized the importance of proper long-range planning in order to meet capital improvement needs as they arise without experiencing dramatic impacts on operational cost and debt service. The following policy statements will provide guidance on the issuance of dept to help insure that the County maintains a sound debt position and that its credit quality is protected. In conjunction with the County's Capital Policies, these policy statements rationalize the decision making process, identify objectives for staff to implement, and demonstrate a commitment to long term financial planning objectives. In addition, this debt management policy will allow for an appropriate balance between the established debt parameters and providing flexibility to respond to unforeseen circumstances and new opportunities. POLICY STATEMENTS Purpose and Type of Debt 1. Incurrence of debt or long-term borrowing will only be used for the purpose of providing financing for capital projects to include, but not limited to: • a. Construction of new School and County facilities b. Renovation and repair of existing School and County facilities c. Acquisition of real property (land and/or buildings) d. Construction or expansion of Public Utilities. e. Providing funds for Affordable Housing Projects f. Construction, acquisition and development of Parks g. Purchase of major equipment Debt issuance will not be used to finance current operations or normal maintenance. 2. The types of debt instruments to be used by the County include: a. General Obligation Bonds b. Bond Anticipation Notes c. Installment Purchase Agreements (private placement) d. Special Obligation Bonds (landfill only) e. Certificates of Participation, when feasible f. Revenue Bonds 3. All debt issued, including installment purchase methods, will be repaid within a period not to exceed the expected useful life of the improvements or equipment financed by the debt. • 4. The County will not issue tax or revenue anticipation notes. Draft Revised 10/26/10 9 Purpose and Type of Debt (continued) • 5. The County will not issue bond anticipation notes with maturities in excess of one year. 6. The County will strive to maximize the use of pay-as-you-go financing for capital improvements. Issuance of Debt 7. The County will strive to issue bonds no more frequently than once in any fiscal year. The scheduling of bond sales and installment purchase decisions and the amount of bonds to be sold and installment financing to be sought will be determined each year by the County Commissioners. These decisions will be based upon the identified cash flow requirements for each project financed, market conditions, and other relevant factors. These factors will be ascertained from the school systems and County departments. If cash needs for bond projects are insignificant in any given year, the Board may choose not to issue bonds. Instead, the Board may fund up front project costs and reimburse these costs when bonds are sold. In these situations the Board will adopt Reimbursement Resolutions prior to the expenditure of project funds. • 8. The County will seek level or declining debt repayment schedules and will avoid issuing debt that provides for balloon principal payments reserved at the end of the term of the issue. 9. The County will avoid over-reliance on variable rate debt. Variable rate debt will only be considered when market conditions favor this type of issuance. When variable rate debt is considered, careful analysis will be performed and techniques applied that will ensure that the County's sound debt position will be maintained. At no time will variable rate debt exceed 20% of the County's total outstanding debt. 1O.The County is required by Statute to issue general obligation debt through a competitive process. The competitive process will also be used for other debt issuance unless time factors, interest rates or other factors make it more favorable to the County to use. a negotiated process: 11. In the planning process for debt issuance the County will assess the need to maintain its "Bank Qualification" if installment purchase financing is being considered. • Draft Revised 10/26/10 . Level of Debt • 12.The County will maintain its net bonded debt at a level not to exceed three percent of the assessed valuation of taxable property within the County. 13.The County will strive to maintain its annual debt service costs at a level no greater than fifteen percent of general fund revenues, including installment purchase debt. This is a recommended "best practice" from the Government Finance Officers Association. Advance Refunding of Debt 14.The County will make every effort to issue advance refunding bonds to achieve cost savings of at least 3% percent net of the refunding bonds. Net savings includes gross savings less issuance costs and any cash contributions to the refunding. The 3% savings is the minimum savings permissible before the North Carolina Local Government Commission will consider advance refunding bonds. These decisions will be based upon the maturity date of the refunded bonds, the call date and premium on the refunded bonds and the interest rates at which the refunding bonds can be issued. Undesignated Fund Balance 15.The County will strive to maintain an undesignated balance in the general fund of 17% percent of budgeted general fund operating expenditures each fiscal year. The amount of undesignated fund balance maintained during each fiscal year should not fall below 8% percent of budgeted general fund operating expenditures as recommended by the North Carolina Local Government Commission. 16.To the extent that general fund undesignated fund balance exceeds 17% percent the balances may be utilized to fund capital expenditures or pay down outstanding County debt. Investment of Capital Funds 17. Investment of capital funds will be.performed in accordance with the North Carolina General Statutes (159-30). Funds will be invested in instruments that will provide the liquidity required to meet the cash flow needs of each project funded. 10 Draft Revised 10/26/10 11 fter subtractin re wired or otential • 18. Investment earnings on capital funds, a g q p arbitrage, will be used for project costs and/or debt service. Bond Ratings 19. The County will maintain good communications with bond rating agencies regarding its financial condition and will follow a policy of full disclosure on every financial report and offering statement. 20. The County will strive to maintain bond ratings at or better than AAA (Fitch), Aa2 (Moody's Investor Services) and AA+ (Standard & Poor's). Arbitrage Rebate and Secondary Market Disclosure Requirements 21. The County will comply with all arbitrage rebate requirements as established by the Internal Revenue Service and all secondary market disclosure requirements established by the Securities and Exchange Commission. 22. Arbitrage will be calculated at the end of each fiscal year and interest earned on investment of bond or installment purchase proceeds will be reserved to • pay any penalties due. Enterprise Funds 23. For any Enterprise Fund that is supporting debt, an annual rate study will be performed to ensure that fees or rates are sufficient to meet the debt service requirements. Capital Reserve Funds 24. The County will create and maintain capital reserve funds as appropriate, such as for school and county projects. 25. The Capital Reserves will be funded from property tax revenues, sales tax revenues and/or any other revenue source that the County Commissioners may choose. 26. Funds accumulated in the Capital Reserve Funds will be used on a pay-as- you-go basis to finance renovations and repairs to existing buildings and the purchase of major equipment. The.Board may also choose to fund other pay- • as-you-go initiatives from Reserve Funds. Draft Revised 10/26/10 • 5-Year Ca ital Investment Plan CIP a l 1 • 27. The County will review and adopt afive-year CIP annually. 28. This Debt Management Policy will be incorporated into the CIP. 29. The County~will strive to include plans for debt issuance within the CIP. Rescission This policy supersedes any policy in place prior to this date. Approved , 2010. 12 • • • 13 • ORANGE COUNTY BOARD OF COMMISSIONERS DRAFT FUND BALANCE MANAGEMENT POLICY The Fund Balance Management Policy is intended to address the needs of Orange County (County), in the event of unanticipated and unavoidable occurrences which could adversely affect the financial condition of the County and thereby jeopardize the continuation of necessary public services. This policy will ensure the County maintains adequate fund balance and reserves in the County's Governmental Funds to provide the capacity to: 1. Provide sufficient cash flow for daily financial needs, 2. Secure and maintain investment grade bond ratings, 3. Offset significant economic downturns or revenue shortfalls, and 4. Provide funds for unforeseen expenditures related to emergencies. Fund Balance for the County's Governmental Funds will be comprised of the following categories: 1. Nonspendable -amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually. required to be maintained intact. 2. Restricted -amounts externally imposed by creditors (debt covenants), grantors, contributors, laws, or regulations of other governments. • 3. Committed -amounts used for a specific purpose pursuant to constraints imposed by formal action of the government's highest level of decision-making authority. a. Amounts set aside based on self-imposed limitations established and set in place prior to year-end, but can be calculated after year end. b. Limitation imposed at highest level and requires same action to remove or modify c. Ordinances that lapse at year-end 4. Assigned -amounts that are constrained by the government's intent to be used for specific purposes, but are neither restricted nor committed. 5. Unassigned -amounts that are not reported in any other classification. The General Fund will be the only fund that will have an unassigned fund balance. The Special Revenue Funds and Capital Project funds will consist of only nonspendable, restricted, committed and assigned categories of fund balance. Unassigned Fund Balance -General Fund Orange County has adopted a fiscal policy that provides for capital projects to be financed with debt and pay-as-you-go funding. In order to obtain the best possible financing, the County has adopted policies designed to maintain bond ratings at or better than AAA (Fitch), Aa2 (Moody's Investor Services) and AA+ (Standard & Poor's). Part of the County's fiscal health is • maintaining a fund balance position that rating agencies feel is adequate to meet the County's needs and challenges. 14 Orange County has therefore adopted a policy that requires management to maintain an unassigned balance as follows: . 1. The County will strive to maintain an unassigned fund balance in the General Fund of 17% percent of budgeted general fund operating expenditures each fiscal year. The amount of unassigned fund balance maintained during each fiscal year should not fall below 8% percent of budgeted general fund operating expenditures, as recommended by the North Carolina Local Government Commission. 2. To the extent that the General Fund unassigned fund balance exceeds 17% percent, the balances may be utilized to fund capital expenditures or pay down outstanding County debt. 3. The County's budget and revenue spending policy provides for programs with multiple revenue sources. The Financial Services Director will use resources in the following hierarchy: bond proceeds, Federal funds, State funds, local non-county funds, county funds. For purposes of fund balance classification, expenditures are to be spent from restricted fund balance first, followed in-order by committed fund balance, assigned fund balance, and lastly, unassigned fund balance. The Financial. Services Director has the authority to deviate from this policy if it is in the best interest of the County with Board of County Commissioner's approval. 4. Management is expected to manage the budget so that revenue shortfalls and expenditure increases do not impact the County's total unassigned fund balance. If a catastrophic economic event occurs that requires a 10% or more deviation from total budgeted revenues or expenditures, then unassigned fund balance can be reduced by action from the Board of County Commissioners; the Board also will adopt a plan of action to return spendable fund balance to the required level. Enterprise Funds - (Solid Waste, Efland Sewer, and the Orange County Sportsplex) -The County will strive to maintain unrestricted' net assets greater than 8% of total operating revenues at fiscal year-end, net of any donated assets recognized, to provide reserves for operations and future capital improvements. Restrictions, reservations, and designations of Net Assets for Enterprise Funds For external reporting purposes, net assets will be reported as restricted or unrestricted in accordance with GAAP. For internal purposes, net assets will be reserved or designated as follows: 1. Encumbered balances to continue existing projects are designated. 2. Designations for funding of planned projects in a future period to reduce the financial demands placed upon a subsequent budget. • Internal Service Funds -Dental Insurance Fund -total net assets shall maintain a positive • balance to illustrate the internal nature of recovery fees for services performed in self-insuring employees of the County. Additionally, the net assets of the fund will demonstrate adequate funding for incurred, but not reported claims. ~~~-~' S 5 ORANGE COUNTY BOARD OF COMMISSIONERS • DRAFT INVESTMENT POLICY SCOPE This policy applies to all investments of Orange County (County) except authorized petty cash accounts and trust funds administered by the Financial Services Director. The County pools the cash resources of its various funds into a single fund in order to maximize investment opportunities. These funds are accounted for in the County's Comprehensive Annual Financial Report. Each fund's portion of total cash and investments is summarized by fund type in the combined balance sheet as equity or deficit in pooled cash and investments. This policy applies to all transactions involving the financial assets and related activity of all the various funds accounted for in the County's Comprehensive Annual Financial Report. OBJECTIVES Funds of the County will be invested in accordance with North Carolina General Statute 159- 30 Cash Management and Investment Policy, and written administrative procedures. The County's investments shall be undertaken in a manner that (1) seeks to ensure the preservation of capital in the overall portfolio, (2) provides for sufficient liquidity to meet the cash needs of the County's various operations and (3) attains a fair market rate of return. Cash • management functions will be conducted in such a manner as to insure that adequate funds will always be available to meet the County's financial obligations and to provide the maximum amount of funds available for investment at all times. RESPONSIBILITY In accordance with N.C. General Statutes, the Financial Services Director is charged with the responsibility of cash management and investment. The Financial Services Director is responsible for investment decisions. and activities and shall develop and maintain written administrative procedures for the operation of the cash management and investment program, consistent with N.C. Statutes and these policies. The standard of prudence to be used by the Financial Services Director shall be the "Prudent Investor" Rule, which states, "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." • 16 This standard of prudence shall be applied in the context of managing the overall portfolio. The Financial Services Director, acting in accordance with North Carolina General Statues, this • policy, and written administrative procedures and exercising due diligence shall be relieved of personal responsibility for an investment credit risk, provided .deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. ETHICS AND CONFLICTS OF INTEREST To avoid the appearance of potential conflict of interest or favoritism to a particular bank or broker, the Financial Services Director or any delegate employee who has investment responsibilities, shall make full disclosure to the County Manager of any relationship or dealings with any financial institution that has business dealings with the County. This disclosure need not include normal banking or brokerage relationships that are at normal market rates and conditions available to the general public. Investment officials of banks and other institutions shall be familiar with N.C. General Statutes and County policy regarding gifts and favors and shall act accordingly. STATUTORY AUTHORIZATION The legal limitations of local government investments are defined in N.C.G.S. 159-30. Accordingly, the following classes of securities are indicative of the investments utilized by Orange County: A. Obligations of the United States or obligations fully guaranteed both as to principal and • interest by the United States. B. Obligations of the Federal Financing Bank, the Federal Farm Credit Bank, the Bank for Cooperatives, the Federal Intermediate Credit. Bank, the Federal Land Banks, the Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Housing Administration, the Farmers Home Administration and the U.S. Postal Service. C. Obligations of the State of North Carolina. D. Bonds and notes of any North Carolina local government or public authority, subject to such restrictions as the Secretary of the Local Government Commission may impose. E. Deposits at interest or purchase of certificates of deposit with any bank, savings and loan association or trust company in North Carolina, provided such deposits or certificates of deposit are fully collateralized. F. Prime quality commercial paper bearing the highest rating of at least one nationally recognized rating service and not bearing a rating below the highest (A1, P1, F1) by any nationally recognized rating service which rates the particular obligation. • 17 G. Bankers' Acceptances provided that the accepting bank or its holding company is either (1) • incorporated in the State of North Carolina or (2) has outstanding publicly held obligations bearing the highest rating of at least one nationally recognized rating service and not bearing a rating below the highest (Aaa or AAA) by any nationally recognized rating service which rates the particular obligations. H. Participating shares in a mutual fund for local government investment (such as the N.C. Cash Management Trust) which is certified by the N.C. Local Government Commission. ADMINISTRATIVE RESTRICTIONS In addition to the previously noted limitations on appropriate securities, Orange County's investment activities are further restricted in the following manner: A. It is the policy of Orange County to diversify its investment portfolio. Assets held shall be diversified to eliminate the risk of loss resulting from the over concentration of assets in a specific maturity, a specific issuer or a specific class of securities. Diversification shall be determined and revised periodically by the Investment Officer. 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. B. Orange County recognizes that investment risks can result from issuer defaults, market price changes or various technical complications leading to temporary illiquidity. Portfolio • diversification is employed as a way to minimize default risk. No individual investment transaction shall be undertaken that jeopardizes the capital position of the overall portfolio. In the event of a default by a specific issuer, the Financial Services Director shall review and, if appropriate, proceed to liquidate securities having comparable credit risks. C. No investments in Repurchase Agreements shall be made unless the underlying collateral shall be placed in safekeeping in the trust department of a third-party designated by the County. D. The combined total investment in comrriercial paper and bankers' acceptances shall not exceed thirty five percent (35%) of the total portfolio and the investment in commercial paper or bankers' acceptances of a single issuer shall not exceed (35%) of the total portfolio at the time of investment. E. No investment shall be made in any security with a maturity greater than five (5) years from the date of purchase. C. 18 SELECTION OF SECURITIES The Financial Services Director will determine which instruments shall be purchased and sold • and the desired maturity date(s) that are in the best interest of the County. The selection of an instrument will involve the evaluation of, but not be limited to, the following factors: A. Cash flow projections and requirements. B. Current market conditions. C. Overall portfolio balance and makeup. CUSTODY AND SAFEKEEPING OF SECURITIES Orange County will maintain a third party safekeeping account for all investments (generally provided by the County's primary bank). Transactions should be processed on a delivery versus payment basis. Some securities, primarily certificates of deposit, will not 6e kept in the third party safekeeping account, but will be kept by the Financial Services Director in the vault of the Finance Services Department. INTERNAL CONTROLS The Financial Services Director is responsible for establishing a system of internal controls. These controls are designed to prevent losses of public funds arising from fraud, employee • error, and misrepresentation by third parties or imprudent actions by County employees. REPORTING The Financial Services Director shall maintain a monthly investment report. The report shall include a general description of the portfolio in terms of investment securities, maturities, yields and other features. The report will show investment earnings for the month and fiscal year-to- date, including the annualized earned yield percentage for the portfolio. The report will compare actual investment earnings with budgeted earnings: ~~