Background:
This Board Action Request seeks continuation of the additional investment authority described in Minnesota Statute 118A.07 which the Investment Officer uses in the safekeeping, management and investment of county deposits and funds. It requires annual authorization by the local governing body as well as policies and procedures and an oversight process which are documented below.
For three decades, the county's treasury practices have incorporated the use of Treasury bonds, bonds issued by government agencies, municipal bonds, collateralized deposits, repurchase agreements, reverse repurchase agreements, and futures and options contracts when useful and appropriate to the safe management of county funds.
The requested additional investment authority specifically allows the Investment Officer to enter into repurchase agreements, and reverse repurchase agreements for periods greater than the 90 days allowed without the additional authority, and to purchase futures and options contracts through 2019.
Similar to last year, this request for the additional investment authority also includes an internally-imposed limit on amount of investments owned at 120% of the prior year's average invested cash position, which is 10% under the statutory limit of 130%. The self-imposed limit effectively caps our use of reverse repurchase agreements to buy additional investments. It also recognizes that the county has an additional cash management tool in its commercial paper issuance program. Finally, the limit signals to financial markets that we manage our use of available financing conservatively.
In actual practice during the current year, the Investment Officer has only used the additional investment authority to enter into reverse repurchase agreements for limited periods of time to maintain a safe and favorable investment position.
The Office of Budget and Finance (OBF) has written policies and procedures that define its management of county deposits and investments, including:
- collateralization requirements on bank deposits;
- specifications for repurchase and reverse repurchase agreements, and index-based investments such as floating rate securities, options and futures contracts, and interest rate swap agreements;
- the final maturity of any individual security;
- the maximum average weighted life of the portfolio; and
- monitoring of the credit quality of financial institutions and instruments with which Hennepin County transacts.
OBF staff discusses markets and investment strategies with its Investment Policy Advisory Committee, a committee of community members with financial markets experience who volunteer their insights.
Documentation of these policies and procedures is maintained by the Office of Budget and Finance. Additionally, there are control and oversight procedures to monitor investment transactions and strategy, and portfolio performance. These include internal and external auditing, credit rating agency reviews, Investment Policy Advisory Committee review, internal controls on the execution and recording of investment transactions, and daily monitoring by the county auditor's office of the aforementioned limit on amount of investments owned.
The attached documents give additional information regarding the use of the additional investment authority. Exhibit 1 documents the proposed usage of the additional authority. Exhibit II is a summary of oversight practices which includes the Investment Policy Advisory Committee’s endorsement at its October 19, 2018 meeting to continue using the additional investment authority defined in statute. Further, the Investment Officer shall report to the board in 2019 on the findings of the oversight process.
In addition to its own funds, the county’s investment portfolio includes funds of the Regional Rail Authority, Housing and Redevelopment Authority, Hennepin Health Services, Hennepin Health Foundation, Three Rivers Park District, and Minnesota Ballpark Authority.