HomeMy WebLinkAbout6. Village Manager's Report 11/20/2012Village of Mount Prospect
Mount Prospect, Illinois
INTEROFFICE MEMORANDUM
TO: MICHAEL E. JANONIS, VILLAGE MANAGER
FROM: FINANCE DIRECTOR
DATE: NOVEMBER 7, 2012
SUBJECT: UPDATED FUND BALANCE POLICY
PURPOSE:
To present for the Board's consideration an updated fund balance policy that provides direction
for managing surplus funds of the Village.
BACKGROUND:
The Village has had a fund balance policy in place since 1999. The initial policy established a
target fund balance level in the General Fund of 25 %. The policy also established reserve
levels for all other special revenue, debt service, enterprise, internal service and trust funds
managed by the Village. General guidance on utilization of reserves was included at that time
as well. The policy was modified again in 2007 and 2010 to keep pace with changes in
accounting standards.
DISCUSSION:
A review of the village's fund balance policy is done each year during the budget process. For
most years this review is simply to ensure compliance with current accounting standards. This
year's review was prompted by comments included in the management letter from the annual
audit for period ending December 31, 2011. The management letter noted a number of Funds
were found to not be in compliance with our fund balance policy. The item of non - compliance
was year -end fund balances were below policy levels. A review of the policy revealed that
policy levels were specific and did not allow for flexibility in managing fund balances. Changes
made to the policy include creating "ranges" for maintaining fund balance levels rather than firm
minimum and /or /maximum targets.
Other changes include a further defining of fund balance requirements for the CDBG Fund and
minor revisions throughout the policy to clean up outdated language.
Programs included in the CDBG Fund are supported via direct grants from the U.S. Department
of Housing and Urban Development (HUD). Reporting guideline for HUD does not permit a
fund balance at year end. As such, there should be no target fund balance listed for the CDBG
Fund. The current version of the policy included a required 25% fund balance. The updated
version removes this requirement.
Updated Fund Balance Policy
November 7, 2012
Page 2
RECOMMENDATION:
It is recommended the Village Board approve the attached fund balance policy to help guide
management decisions regarding surplus Village funds.
David O. Erb
Finance Director
Village of Mount Prospect, Illinois
Fund Balance/Net Assets Policy
Purpose
A Fund Balance/Net Assets Policy establishes a minimum level at which the projected end-of-year fund balance/net assets
must observe; as a result of the constraints imposed upon the resources reported by the governmental and proprietary funds.
This policy is established to provide financial stability, cash flow for operations, and the assurance that the Government will
be able to respond to emergencies with fiscal strength More detailed fund balance financial reporting and the increased
disclosures will aid the user of the financial statements in understanding the availability of resources
It is the Government's philosophy to support long-term financial strategies, where fiscal sustainability is its first priority,
while also building funds for future growth. It is essential to maintain adequate levels of funds balance/net assets to mitigate
current and future risks and to ensure tax rates. Fund balance/net asset levels are also crucial consideration in long-term
financial planning, Credit rating agencies carefully monitor levels of fund balance/net assets and unassigned fund balance in
the General Fund to evaluate the Government's continued creditworthiness.
Definitions
Governmental Funds
The fund balance will be composed of three primary categories:
I ) Nonspendable Fund Balance — portion of a Governmental Fund's fund balance that are not available to be spent,
either in the short-term or long-term, or through legal restrictions (e g,, inventories, prepaid items, land held for
resale and endowments).
2) Restricted Fund Balance — portion of a Governmental Fund's fund balance that is subject to external
enforceable legal restrictions (e.g,, grantor, contributor and property tax levies).
3) Unrestricted Fund Balance— is made up ofthree components:
a, Committed Fund Balance — the portion of a Governmental Fund's fund balance with self-imposed
constraints or limitations that have been placed at the highest level of decision making through formal
Board action, The same action is required to remove the commitment of fund balance
b, Assigned Fund Balance — the portion of a Governmental Fund's fund balance to denote an intended use of
resources but with no formal Board action.
c, Unassigned Fund Balance — available expendable financial resources in a governmental fund that is not the
object oftentative management plan.
Some funds are funded by a variety of resources, including both restricted and unrestricted (committed, assigned and
unassigned) The Government assumes that the order of spending fund balance is as follows: restricted, committed, assigned,
unassigned.
Proprietary Funds
Proprietary funds include enterprise and internal service funds. The net assets will be composed of three primary categories:
1) Invested in Capital Assets, Net of Related Debt — portion of a proprietary fund's net assets that reflects the
fund's net investment in capital assets less any amount of outstanding debt related to the purchase/acquisition of
said capital assets, Related debt, for this purpose, includes the outstanding balances of any bonds, mortgages,
notes, or other borrowings that are attributable to the acquisition, construction, or improvement of capital assets
ofthe Government
2) Restricted Net Assets — portion of a proprietary fund's - net - assets that are subject to external enforceable legal
restrictions (e.g., grantor, contributor and bond covenants).
3) Unrestricted Net Assets — portion of a proprietary fund's net assets that is neither restricted nor invested in
capital assets (net of related debt).
Page 1 of 5
Village of Mount Prospect, Illinois
Fund Balance/Net Assets Policy
Authority
Governmental Funds
Committed Fund Balance — A self - imposed constraint on spending the fund balance must be approved by ordinance or
resolution of the Board- Any modifications or removal of the self - imposed constraint must use the same action used to
commit the fund balance, Formal action to commit fund balance must occur before the end of the fiscal year, The dollar
amount of the commitment can be determined after year end.
Assigned Fund Balance — A self - imposed constraint on spending the fund balance based on the Government's intent to use
fund balance for a specific purpose. The authority may be delegated to members of the management team by the Board,
Minimum Unrestricted Fund Balance Levels
Governmental Funds
General Fund
Purpose — The General Fund is a major fund and the general operating fund of the Government, It is used to
account for all activities that are accounted for in another fund.
Fund Balance — Unrestricted fund balance shall be maintained at a level lvua wh tl /v anti v 0l of the
subsequent Fiscal year's expenditures Should the unrc4lflflu fund balance drop below the�l)% Iovel,
notification will be given to the Village Board and a plan developed to return the balance to the minimum
level within a reasonable period of time, Planned drawd own of fund balance below the 2Q% level will be
permitted for operational purposes to cover extraordinary expenditures or bridge a revenue shortfall
Reductions in fund balance are meant to be short term only and must be resolved through the
implementation of a new permanent revenue source or reduction in expenditure levels, Surplus fund
balance above the X30 %_level maybe transferred to another_ operating or capital fund to cover expenditures
Any fund balance not transferred for the purpose of funding an operational shortfall or one -time expense,
must be transferred to the Capital Improvement Fund to support future capital projects. Fund balance for
the General fund will be capped at 50% of the subsequent fiscal year's expenditures. If at any time this
fund balance exceeds the cap, the Village Board will be mandated to transfer excess funds in an amount
sufficient to bring fund balance below the cap.
Special Revenue Funds uiuu9Jof_ t�llCx J I @.ltd.)
Purpose Used to aecount for and report the proceeds of specific revenue sources that are legally restricted
or committed to expenditures for specified purposes other than debt service or capital projects.
Financing — Special revenue funds are provided by a specific annual property tax levy or other restricted
and/or committed revenue source. Financing may also be received from other charges for services, etc,
Deleted equal to XXX Ys x }
Deleted 25%
Deleted erved y �
Deleted 25
Deleted 25
Deleted 25
Fund Balance — Derived from property taxes (or other restricted revenue source); therefore, legally
restricted. The ortion of fund balance derived from roe taxes will be legally tv%rictaui 1 he remaiinin
annual budgeted expenditures - This will b adjusted annually ith he adoption o of the annual budget and is De leted a minim
P property rtY g Y g
fund balance amount ( committed tar -- - um
g P J Y P g
calculated at a minimum of three months of expenditures not including capital, debt service and transfers.
I lie 4`DB i l " "uol;SB pa.,a ", PAtculu" rgppfli; lauul) „wv9ry r � lr mei -1u1, is, praavide�.,tGarabtu} Rr, aEaraol grtrrtt� Irt�rxro iNy�`,
tl„ (?rp rtarrerlt cif 9lut,s,uupg Puna „4 t.� valopuutuftt,,,(il p)a , _RcpoCtuet lines for HOD dtu „n.itq
pgmvptit aufly ,h,tl3rfce at yre4uf:.en ., , s sutctu� tlla�ru.wigi it .,ry(t.q J a,t drorscl Nrolaurc�a, level
Debt Service Fund
Purpose — Established to account for financial resources that are restricted, committed, or assigned to
expenditure for principal and interest,
Financing — The municipality levies an amount or transfers in an amount close to the principal and interest
that is anticipated to be paid
Deleted ¶
Page 2 of 5
Village m Mount Prospect, Illinois
Fund BalancetNaAssets Policy
,Minimum Unrest leted FUnd BaIgnEg Levels — Continued
[Moved ( I
nmw Balance —Fund »muncv derived ftom property taxes is lexm// restricted. Any fund uum,ce
accumulation shou be to a maximum the amount of next principal and interest payment due. amu
balance for debt service supported by alternative rev shall be maintained at a level equal to 50% of
the next 'om^o principal and interest nurmv/* yuvuu umu mum`m, umv »omw the minimum level,
notification will vu given wthe Village Board and u plan developed m return t balance m the minimum
/mu/ wmm u reasonable nvrmu of time vumneu draw down of moo balance for debt uommv mnu, is
r�»�« permitted / muuwumunooummmmmowo^uu�n�mv�^ouvuu|o nn�l.m�uuoumcvabove the
�x �
minimum level can u* used m reduce the Debt Service portion or the property tax levy or the amount of
alternative revenues needed m meet the curr years budgeted expenditures.
Moved up [I]: Minimum Unmt,,icted Fund
~
Capital Projects Fund
pmnoov n,umooheu to account for and report onunu/u/ remmnoo that are reuriu"x, mmmitted, or
assigned to expenditures for capital outlay including the acquisition or construction ofeapital facilities and
other capital assets, excluding t types vr capital related outflows financed ov proprietary funds
Financing — Debt financing, grants, *rmtenuuu transfers are used m finance projects,
mmuuuunuu — coomuureu ,cm*o^teu for mmmunance, construction and/or umvmnmom; therefore,
considered committed, restricted, or assigned depending on the intended source/use of the funds u
or_______ l
balance shall »c maintained at between omo/ the five-year average for capital expenditures
--------—
supported or this fund mu maximum or$/million Shouu�ueum4 umv the mi
zo pt
|me\ummcmiwvwx»uoweommovmum:onummmumun �vu/oreum��r mu»u�n�mmr
minimum |cr^/ within u reasonable period of time, mmmcu ura"movw of fund omuuou ov/^w the
mm/mom /ovm will be permitted to cover emnmmiomy expenditures or muu cost projects that occur
/^uowuemly ymr\us umu umxnco ^owm the minimum level can be used to support momo: capital
projects, transferred msupp projects m other capital funds nrtramomnuum other funds m designated or
m"m/wgeamou Fund balance maybe permitted m grow beyond the ou9Aneutn level /" cover anticipated
Deleted: minimum
high-cost projects in future years . . ... . .....
D ell ete d:
Proprietary Funds
EnterpriseFun«
Purpose Established m account for and report ouanciu resources that are invested u capit assets, net or
related debt, restricted, or unrestricted for future spending related to t fund The focus of enterprise fund
measurement is upon determination of operating income, changes in net assets, financial position, and cash
flows The generally accepted accounting principles applicable are those similar to businesses in the private
o,omr, Emenm,cmou, are required m account for operations for which o fee io charg w external n,vm
for goods or services and the activity (a) is financed with debt that is solely secured by a pledge of the net
revenues, (b) has third party requirements that the cost of providing services, including capital costs, be
recovered with fees and charg or (c) establishes fees and charg based on a pricing policy designed to
recover similar costs
pmanung — User fees, debt financing, or grants are used to finance operations capital outlay and
improv and de service retirements
Page 3 of 5
Village of Mount Prospect, Illinois
Fund Balance/Net Assets Policy
timitna uin ifln9u ekk �suw lloaim ,an l< - Ien4ninru 4�
Net Assets — Considered invested in capital assets net of related debt (for amounts capitalized as capital
assets, less the outstanding debt related to the acquisition of said assets, Restricted net assets relate to bond
covenant reserves as outlined in the bond ordinance. Unrestricted net asset targets should represent no less
I expenses) .
than qlw�, months_ of operating expenses (excluding debt_servlce and cap to lrz d e asset I he cash
and nnvcsament balance shall he muintaarned w a level jtsaavea ra�,a��f anq �I�,� /, of subsequent fiseal y(ar's
ulcNJtge�I c xpendataares <.Illpnr l,.arlllpfrw at�uenR , Should the cash and anve.stniciii balance droli below the
Q,% level, notification will be given to the Village Board and a plan developod to return the balance to the
minimum level within a rcasonable period oftlnte Planned drawdown of the cash and mvestment b ahmce ,
below the �,(,f"iu level will be permitted for operational purposes to cover extraordinary expenditures or
bridge a revenue shortfall. Reductions in the balance are meant to be short term only and must be resolved
through a fee adjustment dictated by a water and sewer rate study, implementation of a new permanent
revenue source or reduction in expenditure levels. Surplus cash and investment balances above thcJA),ewe
level can be used to support ongoing water and sewer capital projects or to defer or decrease future late,
increases
Internal Service Fund
Purpose - Established to account for and report financial resources that at are invested in capital assets, net
of related debt, restricted, or unrestricted for fixture spending related to the fund, The focus of internal
service fund measurement is upon determination of operating income, changes in net assets, financial
position, and cash flows The generally accepted accounting principles applicable are those similar to
businesses in the private sector. Internal service funds are used to account for the financing of goods or
services provided by an activity to other departments, funds or component units of the Government on a
cost - reimbursement basis.
Financing — User fees charged to other departments, funds, or component units, or debt financingare used
to finance operations, capital outlay and improvements, and debt service retirements.
Net Assets — Considered invested in capital assets net of related debt (for amounts capitalized as capital
assets, less the outstanding debt related to the acquisition of said assets, Restricted net assets relate to bond
covenant reserves as outlined in the bond ordinance, Unrestricted net asset targets should represent
appropriate levels given the activity of the fund and the discretion of the Board and management (excluding
debt service and capitalized asset expenses).
fund balance for the Risk Management Fund sh all be tnainiained at a level equal to unpaid claims liability
(as prepared by enrolled aacmary), plus; °1"a of theseif= insured retention level fear aatno and gcaneral liability
claims„ plus,,'IVlo of tine sntbsequcnt liscal year's expenditures Cur workers' a,utnpensataon claims, Should
the unreserved fund bulaance drop below the minhnum level, notification will be given to the Village Board
and a plan developed to return the balance to the minimum level within a reasonable period of time
Planned drawdown of fund balance below the minimum level will be permitted for operational purposes to
cover extraordinary expenditures or to reduce the impact of increasing premiums or claims experience from
health, workers' compensation or liability coverages, Reductions in the fund balance are meant to be short
term only and must be resolved through rate adjustments, implementation of a new permanent revenue
source or reduction in expenditure levels. Surplus fund balance above the minimum level may be used to
defer or reduce payments needed to support risk management operations,
Fund balance for the Vehicle Maintenance, Vehicle Replacement and Computer Replacement Funds shall
be maintained at a level sufficient for the ongoing maintenance of computer and motor vehicle machinery
and equipment. Fund balances shall also support the replacement of machinery and equipment according
to its designated replacement schedule. Should fund balance drop below the minimum level, notification
will be given to the Village Board and lease payments by the departments will be adjusted to return
balances to the minimum level within a reasonable period of time. Surplus fund balance above the
minimum level can be used to reduce future lease payments.
Moved ( insertio n)..[.Z]..........•.,,,_„ -- ...__ ...
Deleted three
.
Formatted Font 10 pt
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Deleted equal to
Formatted: Font: 10 pt
C Deleted 33
, �....
Formatted Font 10 pt
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Formatted Font 10 pt
Deleted 33
Formatted Font 10 pt
Deleted 33
t
Formatted Font. Cop
Deleted 33
ed Font 10 t
Forman p
Deleted ¶
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Formatted Fon to����10 , „,pt,�,�,����,,,,,,,,,. ..,,,,,
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Formatted Justified, Indent Left 1 ", Space
After: 0 pt, Line spacing single . ..
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MOVed U P 2 Mmrm Fun
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Formatted Font 10 pt n^^^^A^^^
Deleted 50
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Formatted Font 10 pt
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Formatted Font 10 pt
Page 4 of 5
Village of Mount Prospect, Illinois
Fund Balance/Nct Assets Policy
Other Considerations
m establishing the above policies for unrestricted fund balance/net asset levels, the Government considered the following
mum,:
• The predictability of the Government's revenues and the volatility mits expenditures (i.e.higher levels of
unrestricted fund balance may be needed ommunmm revenue sources are subject m unpredictable fluctuations mif
operating expenditures are highly volatile)
• The Government's perceived exposure m significant one-time outlays (v,g` disasters, immediate cupumomd^
budget cuts)
• The potential drain upon General Fund resources from other funds as well as the availability of resources in other
funds (/.*. deficits m other funds may require o higher level vr unrestricted fund balance »v maintained mthe
General Funu, just as, the availability of resources in other umuo may reduce the amount of unrestricted mmo
balance needed m the General Fund)
• Liquidity (i,e,, a disparity between when financial resources actually become available to make payments and the
average maturity ofre[ated liabilities may require that a higher level ofresources be maintained)
• Commitments and assignments (i.u, governments may wish m maintain higher levels v/ unrestricted fund balance m
compensate for any portion of unrestricted fund balance already committed or assigned by the government for a
specific purpose)
o any vr the above factors change, the Government should readdress current unrestricted fund balance/net asset levels m
ensure amounts are appropriate
Page 5 of 5
Village of Mount Prospect, Illinois
Fund Balance /Net Assets Policy
Purpose
A Fund Balance/Net Assets Policy establishes a minimum level at which the projected end -of -year fund balance /net assets
must observe; as a result of the constraints imposed upon the resources reported by the governmental and proprietary funds.
This policy is established to provide financial stability, cash flow for operations, and the assurance that the Government will
be able to respond to emergencies with fiscal strength. More detailed fund balance financial reporting and the increased
disclosures will aid the user of the financial statements in understanding the availability of resources.
It is the Government's philosophy to support long -term financial strategies, where fiscal sustainability is its first priority,
while also building funds for future growth. It is essential to maintain adequate levels of funds balance /net assets to mitigate
current and future risks and to ensure tax rates. Fund balance /net asset levels are also crucial consideration in long -term
financial planning. Credit rating agencies carefully monitor levels of fund balance /net assets and unassigned fund balance in
the General Fund to evaluate the Government's continued creditworthiness.
Definitions
Governmental Funds
The fund balance will be composed of three primary categories:
1) Nonspendable Fund Balance — portion of a Governmental Fund's fund balance that are not available to be spent,
either in the short-term or long -term, or through legal restrictions (e.g., inventories, prepaid items, land held for
resale and endowments).
2) Restricted Fund Balance — portion of a Governmental Fund's fund balance that is subject to external
enforceable legal restrictions (e.g., grantor, contributor and property tax levies).
3) Unrestricted Fund Balance — is made up of three components:
a. Committed Fund Balance — the portion of a Governmental Fund's fund balance with self - imposed
constraints or limitations that have been placed at the highest level of decision making through formal
Board action. The same action is required to remove the commitment of fund balance.
b. Assigned Fund Balance — the portion of a Governmental Fund's fund balance to denote an intended use of
resources but with no formal Board action.
c. Unassigned Fund Balance — available expendable financial resources in a governmental fund that is not the
object of tentative management plan.
Some funds are funded by a variety of resources, including both restricted and unrestricted (committed, assigned and
unassigned). The Government assumes that the order of spending fund balance is as follows: restricted, committed, assigned,
unassigned.
Proprietary Funds
Proprietary funds include enterprise and internal service funds. The net assets will be composed of three primary categories:
1) Invested in Capital Assets, Net of Related Debt — portion of a proprietary fund's net assets that reflects the
fund's net investment in capital assets less any amount of outstanding debt related to the purchase /acquisition of
said capital assets. Related debt, for this purpose, includes the outstanding balances of any bonds, mortgages,
notes, or other borrowings that are attributable to the acquisition, construction, or improvement of capital assets
of the Government.
2) Restricted Net Assets — portion of a proprietary fund's net assets that are subject to external enforceable legal
restrictions (e.g., grantor, contributor and bond covenants).
3) Unrestricted Net Assets — portion of a proprietary fund's net assets that is neither restricted nor invested in
capital assets (net of related debt).
Page 1 of 5
Village of Mount Prospect, Illinois
Fund Balance /Net Assets Policy
Authority
Governmental Funds
Committed Fund Balance — A self - imposed constraint on spending the fund balance must be approved by ordinance or
resolution of the Board. Any modifications or removal of the self - imposed constraint must use the same action used to
commit the fund balance.Formal action to commit fund balance must occur before the end of the fiscal year. The dollar
amount of the commitment can be determined after year end.
Assigned Fund Balance — A self - imposed constraint on spending the fund balance based on the Government's intent to use
fund balance for a specific purpose. The authority may be delegated to members of the management team by the Board.
Minimum Unrestricted Fund Balance Levels
Governmental Funds
General Fund
Purpose — The General Fund is a major fund and the general operating fund of the Government. It is used to
account for all activities that are accounted for in another fund.
Fund Balance — Unrestricted fund balance shall be maintained at a level between 20% and 30% of the
subsequent fiscal year's expenditures. Should the unrestricted fund balance drop below the 20% level,
notification will be given to the Village Board and a plan developed to return the balance to the minimum
level within a reasonable period of time. Planned drawdown of fund balance below the 20% level will be
permitted for operational purposes to cover extraordinary expenditures or bridge a revenue shortfall.
Reductions in fund balance are meant to be short term only and must be resolved through the
implementation of a new permanent revenue source or reduction in expenditure levels. Surplus fund
balance above the 30% level may be transferred to another operating or capital fund to cover expenditures.
Any fund balance not transferred for the purpose of funding an operational shortfall or one -time expense,
must be transferred to the Capital Improvement Fund to support future capital projects. Fund balance for
the General fund will be capped at 50% of the subsequent fiscal year's expenditures. If at any time this
fund balance exceeds the cap, the Village Board will be mandated to transfer excess funds in an amount
sufficient to bring fund balance below the cap.
Special Revenue Funds (excluding CDBG Fund)
Purpose - Used to account for and report the proceeds of specific revenue sources that are legally restricted
or committed to expenditures for specified purposes other than debt service or capital projects.
Financing — Special revenue funds are provided by a specific annual property tax levy or other restricted
and/or committed revenue source. Financing may also be received from other charges for services, etc.
Fund Balance — Derived from property taxes (or other restricted revenue source); therefore, legally
restricted. The portion of fund balance derived from property taxes will be legally restricted. The remaining
fund balance amount (restricted and/or committed) will be targeted at level of between 10% and 25% of
annual budgeted expenditures. This will be adjusted annually with the adoption of the annual budget and is
calculated at a minimum of three months of expenditures not including capital, debt service and transfers.
The CDBG Fund is a separate reporting fund where financing is provided through direct grants from the
U.S. Department of Housing and Urban Development (HUD). Reporting guidelines for HUD do not
permit any balance at year end. As such, there will be no target fund balance level.
Debt Service Fund
Purpose — Established to account for financial resources that are restricted, committed, or assigned to
expenditure for principal and interest.
Financing — The municipality levies an amount or transfers in an amount close to the principal and interest
that is anticipated to be paid.
Page 2 of 5
Village of Mount Prospect, Illinois
Fund Balance /Net Assets Policy
Minimum Unrestricted Fund Balance Levels — Continued
Fund Balance —Fund balance derived from property taxes is legally restricted. Any fund balance
accumulation should be to a maximum the amount of next principal and interest payment due. Fund
balance for debt service supported by alternative revenues shall be maintained at a level equal to 50% of
the next year's principal and interest payment. Should fund balance drop below the minimum level,
notification will be given to the Village Board and a plan developed to return the balance to the minimum
level within a reasonable period of time. Planned draw down of fund balance for debt service funds is
permitted only to account for fluctuations in the bond repayment schedule. Surplus fund balance above the
minimum level can be used to reduce the Debt Service portion of the property tax levy or the amount of
alternative revenues needed to meet the current years budgeted expenditures.
Capital Projects Fund
Purpose - Established to account for and report financial resources that are restricted, committed, or
assigned to expenditures for capital outlay including the acquisition or construction of capital facilities and
other capital assets, excluding those types of capital related outflows financed by proprietary funds.
Financing — Debt financing, grants, or interfund transfers are used to finance projects.
Fund Balance — Considered segregated for maintenance, construction and /or development; therefore,
considered committed, restricted, or assigned depending on the intended source /use of the funds. Fund
balance shall be maintained at between 25% and 50% of the five -year average for capital expenditures
supported by this fund to a maximum of $1 million. Should the fund balance drop below the minimum
level, notification will be given to the Village Board and a plan developed to return the balance to the
minimum level within a reasonable period of time. Planned drawdown of fund balance below the
minimum level will be permitted to cover extraordinary expenditures or high cost projects that occur
infrequently. Surplus fund balance above the minimum level can be used to support ongoing capital
projects, transferred to support projects in other capital funds or transferred to other funds as designated by
the Village Board. Fund balance may be permitted to grow beyond the maximum level to cover anticipated
high -cost projects in future years.
Proprietary Funds
EnterpriseFund
Purpose - Established to account for and report financial resources that are invested in capital assets, net of
related debt, restricted, or unrestricted for future spending related to the fund. The focus of enterprise fund
measurement is upon determination of operating income, changes in net assets, financial position, and cash
flows. The generally accepted accounting principles applicable are those similar to businesses in the private
sector. Enterprisefunds are required to account for operations for which a fee is charged to external users
for goods or services and the activity (a) is financed with debt that is solely secured by a pledge of the net
revenues, (b) has third party requirements that the cost of providing services, including capital costs, be
recovered with fees and charges or (c) establishes fees and charges based on a pricing policy designed to
recover similar costs.
Financing — User fees, debt financing, or grants are used to finance operations, capital outlay and
improvements, and debt service retirements.
Page 3 of 5
Village of Mount Prospect, Illinois
Fund Balance /Net Assets Policy
Minimum Unrestricted Fund Balance Levels — Continued
Net Assets — Considered invested in capital assets net of related debt (for amounts capitalized as capital
assets, less the outstanding debt related to the acquisition of said assets. Restricted net assets relate to bond
covenant reserves as outlined in the bond ordinance. Unrestricted net asset targets should represent no less
than two months of operating expenses (excluding debt service and capitalized asset expenses). The cash
and investment balance shall be maintained at a level between 20% and 30% of subsequent fiscal year's
budgeted expenditures, capital improvements. Should the cash and investment balance drop below the
20% level, notification will be given to the Village Board and a plan developed to return the balance to the
minimum level within a reasonable period of time. Planned drawdown of the cash and investment balance
below the 20% level will be permitted for operational purposes to cover extraordinary expenditures or
bridge a revenue shortfall. Reductions in the balance are meant to be short term only and must be resolved
through a fee adjustment dictated by a water and sewer rate study, implementation of a new permanent
revenue source or reduction in expenditure levels. Surplus cash and investment balances above the 30%
level can be used to support ongoing water and sewer capital projects or to defer or decrease future rate
increases.
Internal Service Fund
Purpose - Established to account for and report financial resources that at are invested in capital assets, net
of related debt, restricted, or unrestricted for future spending related to the fund. The focus of internal
service fund measurement is upon determination of operating income, changes in net assets, financial
position, and cash flows. The generally accepted accounting principles applicable are those similar to
businesses in the private sector. Internal service funds are used to account for the financing of goods or
services provided by an activity to other departments, funds or component units of the Government on a
cost - reimbursement basis.
Financing — User fees charged to other departments, funds, or component units, or debt financingare used
to finance operations, capital outlay and improvements, and debt service retirements.
Net Assets — Considered invested in capital assets net of related debt (for amounts capitalized as capital
assets, less the outstanding debt related to the acquisition of said assets. Restricted net assets relate to bond
covenant reserves as outlined in the bond ordinance. Unrestricted net asset targets should represent
appropriate levels given the activity of the fund and the discretion of the Board and management (excluding
debt service and capitalized asset expenses).
Fund balance for the Risk Management Fund shall be maintained at a level equal to unpaid claims liability
(as prepared by enrolled actuary), plus 33% of the self - insured retention level for auto and general liability
claims, plus 33% of the subsequent fiscal year's expenditures for workers' compensation claims. Should
the unreserved fund balance drop below the minimum level, notification will be given to the Village Board
and a plan developed to return the balance to the minimum level within a reasonable period of time.
Planned drawdown of fund balance below the minimum level will be permitted for operational purposes to
cover extraordinary expenditures or to reduce the impact of increasing premiums or claims experience from
health, workers' compensation or liability coverages. Reductions in the fund balance are meant to be short
term only and must be resolved through rate adjustments, implementation of a new permanent revenue
source or reduction in expenditure levels. Surplus fund balance above the minimum level may be used to
defer or reduce payments needed to support risk management operations.
Fund balance for the Vehicle Maintenance, Vehicle Replacement and Computer Replacement Funds shall
be maintained at a level sufficient for the ongoing maintenance of computer and motor vehicle machinery
and equipment. Fund balances shall also support the replacement of machinery and equipment according
to its designated replacement schedule. Should fund balance drop below the minimum level, notification
will be given to the Village Board and lease payments by the departments will be adjusted to return
balances to the minimum level within a reasonable period of time. Surplus fund balance above the
minimum level can be used to reduce future lease payments.
PaLle 4 of 5
Village of Mount Prospect, Illinois
Fund Balance/Net Assets Policy
Other Considerations
In establishing the above policies for unrestricted fund balance /net asset levels, the Government considered the following
factors:
• The predictability of the Government's revenues and the volatility of its expenditures (i.e., higher levels of
unrestricted fund balance may be needed if significant revenue sources are subject to unpredictable fluctuations or if
operating expenditures are highly volatile)
• The Government's perceived exposure to significant one -time outlays (e.g., disasters, immediate capital needs, state
budget cuts)
• The potential drain upon General Fund resources from other funds as well as the availability of resources in other
funds (i.e., deficits in other funds may require a higher level of unrestricted fund balance be maintained in the
General Fund, just as, the availability of resources in other funds may reduce the amount of unrestricted fund
balance needed in the General Fund)
• Liquidity (i.e., a disparity between when financial resources actually become available to make payments and the
average maturity of related liabilities may require that a higher level of resources be maintained)
• Commitments and assignments (i.e., governments may wish to maintain higher levels of unrestricted fund balance to
compensate for any portion of unrestricted fund balance already committed or assigned by the government for a
specific purpose)
If any of the above factors change, the Government should readdress current unrestricted fund balance /net asset levels to
ensure amounts are appropriate.
Pace 5 of 5
Village of Mount Prospect
Mount Prospect, Illinois
INTEROFFICE MEMORANDUM
TO: MICHAEL E. JANONIS, VILLAGE MANAGER
FROM: FINANCE DIRECTOR
DATE: NOVEMBER 7, 2012
SUBJECT: INVESTMENT POLICY - UPDATE
PURPOSE:
To present to the Village Board an updated investment policy identifying changes to policy language
and an updated list of authorized financial institutions, brokers /dealers and investment advisors.
BACKGROUND:
The Village has had an approved investment policy in place since 1985 to assist in managing
surplus funds. The policy sets forth requirements for the investment of public funds. Included in the
policy is a list of financial firms authorized to do business with the village. Section 16.0 of the policy
states that the Finance Director /Treasurer shall review the policy on an annual basis and any
modifications made thereto must be approved by the Board of Trustees. The policy was last
amended on February 2007.
DISCUSSION:
During the annual audit of village finances, the auditor identified non - compliance with section 11.0 of
the investment policy dealing with diversification. The item of non - compliance was year -end
balances that exceeded authorized levels. As currently drafted, the investment policy does not
allow for an appropriate level of diversification of assets. Investment alternatives such as Certificate
of Deposits and short -term notes previously assumed to be holders of surplus reserves are no
longer an option in the current investment environment making higher diversification levels
necessary. The current policy limits balances in a particular financial institution to between 10% and
40 %. These levels are not sufficient for the amount of reserves currently available to be invested. It
is recommended that levels for diversification be increased to a not -to- exceed level of 50% until
market conditions improve.
While reviewing the policy to address the diversification issue, there were also a number of other
sections that were in need of updating. Updates to the policy outside diversification were made to
policy scope, investment objectives, delegation of authority, ethics and conflicts of interest and
suitable investments. Minor revisions were also made throughout the policy to clean up outdated
language.
Lastly, the list of authorized financial institutions and broker /dealers (Exhibit A) was updated to
reflect current company names that were changed through merger or acquisition, Each named
institution interested in handling village funds will receive an updated investment policy and be
required to sign off on its receipt and understanding of the contents thereof.
Investment Policy Revision
November 7, 2012
Page 2 of 2
RECOMMENDATION:
It is recommended the Village Board approve revisions made to the Village's Investment Policy,
including Exhibit A.
David O. Erb
Finance Director
I: \Investments \Investment Policy \Cover Memo - November 2012.doc
VILLAGE OF MOUNT PROSPECT, ILLINOIS
INVESTMENT POLICY
"
1.0 Policy Formatted Justified Line spacing single
polic g p P e ..,, acg: single J
It is the olic of the Villa of Mount Pros to invest public funds in a manner which � Formatted une s in
pat
will provide the highest investment return with the maximum security while meeting the
daily cash flow demands of the Village and conforming to all state and local statutes
governing the investment of public funds. The following investment policy is hereby
promulgated for use by the Village of Mount Prospect.
Formatted Justified, Line spacing: single
2.0 Scope
This investment policy applies to the investment activities of all funds of the Village of Formatted Line spacing: single
1-11-111 .,
Mount Prospect, except for the Police and Firefighters' Pension Funds that are subject to the
order of the Board of Trustees of each respective Fund. The Illinois Compiled Statutes will
take precedence except where this policy is more restrictive wherein this policy will take
precedence.
1., cpt, Lttl 4Mwsll in v talitt tee ,utcj...��gecial INJtd�4 „,t�Yt YIIa C wAll,..RtIn�411idllt 4e1��Ir � Formatted Indent Left 031
balances ftom till liam s to inaaa investm rogrlf �lg� Investmenl;..,l .,will be allot ted C Formatte Font: 1 m
2 pt
to the varic” is fu nds based on...their la,�prx tw,vc partlC �ttson .wK otl ;�cuordance Witlt ly
�a�,pptr�d ���;e.out:tirag prlr�cipl_cs,
Deleted ¶
ormatted Justified Line spacing single
3.0 Prudence F m,., ....
The standard of prudence to be used by the investment officials shall be the "prudent- Formatted: Line spacing single
person" standard and shall be applied in the context of managing an overall portfolio.
,t hp patt�jcrat..l t gn " .standard states. Investments shall be made with the judgement 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.
Investment officials of the Village of Mount Prospect acting in accordance with this
investment policy and written procedures and exercising due diligence shall be relieved of
personal responsibility for an individual security's credit risk or market price changes,
provided that material deviations from expectations are reported to the Village Manager in a
timely fashion, and appropriate action is taken to control adverse developments.
Deleted, ¶��
Formatted: Justified, Line spacing: single
4.0
Investment Objectives
The primary investment objectives, in order of priority, shall be, cg alaty l , alari lit,„ �
and Re turn:
• ca 11 naw�cstlaaclat,
�Legalrty I +reept as raacadrfred IaarLrrt- paaa^saa�ant taw dacarlae rule strth rrf, �
lmmhased_unfltr thts_polra r_slaarll ,guad Public Funds Investlnc Act
H,l m 3 rw4 e �ar all revisions 11 rc!� rjaay
o afeta Investments shaal9_1af aledert,a en in a,manner, that seeks to ,ensure the"
prc sery rtrcwla of tile mrver i N lu rtVc >lawr, t he k9s a trwt 4o n1hi t :r ai l
ris ate �
sk and interest a"^ata, r isk.,
C,aasalit Itislw, -,,, I Bae iil will rninir�nize crediit risk tla r,rsla < «l let s.dLie to t1,ie
thiI tire o1 tht sevurriilvisstier or..backcr y;
..J imru,Itl,rag investments to the safest.t, seeiarWps
a M4 tlnlr h rnarrr A al prol5tn rrtirkrr , t E,;)1 4 E T rpYc rr r t�B tdre5 and a6isers,
with wdwl by 1r'i,ljag ill cltihuyaness,
I7iiweryrt it . th airawa stAtscgaC u lyratt,;ta�lrca siy potentiazt lo rrh., individual
securit wi be mini mized.
_Interest, Rate Risk - Jlacyill,<s wili mini ize the risk, t hat the market value of
the Securities in the ia rttlrl o ws H f H dttg tgSt1,apryg in gcrarwr,al..ltatr,rest rtes by:.
traratiarr.tag tjac irr tra r t ,ti .lactrtiwaliw, so that sectir fi smarture tcfnicel. skw
c•�.�itlla�a lcar._oragc�icig np�,matcr'as, ¢llerel� a�tFoitiira t1a� r ro�wrc9. two �l
st'inirifics, n aararko ptaaar_tta_raua
ix_ty sltra wcrla ratrag f_rrtaclti larr�ar aril rro s1_atlrtt t..1grr?a sr c attWes or itmrvestairent.
gaattals�.,
�.....i reaciadtt � -The investment ,prartltapra� w�_r�lC r,�ni�arrr Sul d�rc rltgy Vi�taid tarn l_3a111_c_n rail,rrlg
n31g ra in Ear c scrraably antrcit llr,z,s is w rLcomp8,lslted y str_tartrrr?
the,_, rtdmadrti, that
seaurrties ral�ililre_carrrear.r °Tani a nti easia raecils tta - nicer aaati
deaaasar MIS, A Eon of the 1 rtlrrNACi_wtlsta aia t e ate rim_Icra l goyerl rilent invesulle bt
INVIS Whia m ft caflet.,saaa�t �I rw^ Iiftuidat�C'irr siai term funds.
w I "ta rt l lietrarrq m Ilac tta:ve�tit�gn! paar��coloak Aalt7__1�ae rueai �w«u!fa...tEie taupe tae e,cfl attaLiuilig
4,1n«arl�et rate. cad retu rn thrdaarg laai, ct �tsjd acasrfarlalrc e "rlcs, !Ainginyr aaairirnt
the i Task constraints and liaiuidity needs, ilr rrawast�aa rsl�ntrteij
rtl,it v risk se trratacs,wr arrtpyr rztaa er„ie e,ia�paiwlg L4ir rel ative to the
lae�ng tssura�aeaN„
Formatted: Justified, Line spacing: single,
Bulleted + Level 1 + Aligned at 0.5" + Tab
after: 0 75 + Indent at 0.75
Deleted The investment activities ofthe Village
Deleted:
conform to federal state and local legal
requirements¶
Formatted Indent Left 0.75
Formatted Bulleted + Level 1 + Aligned at:
0.5 + Tab after 0 + Indent at: 0.75'
m, x
Formatted Font 12 pt
Formatted: Indent: Left. 1 ", Bulleted +Level:
1 + Aligned at: 0.5" + Tab after: 0.75" +
Indent at: 0.75 ", Tab stops: Not at -0.5" +
0.75"
Formatted: Font: 12 pt
Formatted: Font: 12 pt
Formatted: Font: 12 pt
Formatted: Font: 12 pt
Formatted: Indent: Left: 0.5 ", Bulleted +
Level: 1 + Aligned at: 1" + Tab after: 1.25" +
Indent at: 1.25 ", Tab stops: 0.75 ", List tab +
Not at 1.25"
Formatted: Font: 12 pt
Formatted: Indent: Left. 0.5 ", Bulleted +,,,,,,„
Level: 1 + Aligned at: 1" + Tab after: 1.25" +
Indent at: 1.25 ", Tab stops: 0.75 ", List tab +
Not at 1.25"
Formatted: Font 12 . pt
Deleted: ¶
INVESTMENT POLICY
paee 2
<# >Safety — The preservation of capital and
protection of investment principal shall be the
primary concern of the investment officials in
selecting depositories or investments ¶
< # >Liquidity —The investment portfolio shall
remain sufficiently liquid to meet all operating
requirements, which might be reasonably expected ¶
< # >Return —The investment officials shall seek to
obtain a market average or better rate of return
throughout budgetary and economic cycles, taking
into account investment risk constraints, cash flow,
and legal restrictions on investments $
Formatted: Justified, Line spacing: single
Formatted ,,,Font: ,,,1Z „Pt,,,,,,,,,,,,,
The portfolio should be reviewed jjt t - - - --------- ........................ ........ ... ........
,�Iyartqft_as to its effectiveness in meeting thL- Deleted. periodically
Village's needs for qL)mj?L1LYar 11 qa1k �L c safety, liquidity, rate of return, Formatted: Line spacing : single
1cg.wiL _ gq_s! ....... . .......... .
diversification and its general performance.
When deposits of Village monies become collected funds, and it is determined that those
funds are not needed for immediate disbursement, those funds shall be invested within two
--- -- - J
5.0 Dele
working days at prevailing rates of return. ------------------ - ---- -------- — -
1 7--�.-- -,---1
gation of Authority iLine sp single
Agthol"2 UL ited to the Finance Director derived-
- 1YP%MM-!LgL
Formatted: Line spacing: single
30 U-S"S 235 cc, seq. "Lhe Finance Director or designpq,,
, - -
-Aq l internaal coarols
!TV�1110110-t 1112ML 1 1 t
filLAtig%gration cal the in '1911.141 L as consistent wit - he itiv
Procedures should inchide references to safck�.�ptng slq '
Jkmx Yr Ing Il n v"t In ell t
al mis, ire tmlisf& !qaL/dg
LLA.�,t �Y 4YI1tl t'
-mlaysw e in an investment transa.cflon,exce)�
a (Y,wgo
Lhq- —tqans o0his ' 11 Anl,j,-Itig r - A , I s t L c�Lb Jil anc e Director. "
�q -s 412- -h- Y Alig .1
Finance Director shall be resr-K.L!,s ror all transactions undertaken and shall establish a
U-Agm RE 9KI( L %t aIN ate t17 _4gfi V J bordinate ol'fici in
m.jg2LLs.,..,JntcrnaI controls over investment transaclions shall lie reviewed by
investmenl nikq
th ilkaag ��,Liriancc De artnigntJ:6 Wli i at r view c,. Ila at
.... ........... . .....
the Audit Con n ri
Deleted: Management and administrative
............
responsibility for the investment program is hereby
delegated to the Director ofFinancefrreasurer who,
6.0 Ethics and Conflicts of Interest
under the delegation of the Board offrustees, shall
establish written procedures for the operation of the
five, villag ,M Mr,'Ti , At N to or finaricial office emM 0
-X
investment program
. . ................ . . ....
i fied, Lin e spacing: single
[ Jus
.;hall: refi-ain firoin ctia that could yLlUcty�,ith the,,p pL-qNq. ion and
I I I I -
Formatted: Font: 12 pt
jorna a�!Jal
kpatY4gqy1'Lqnt of die could,inip air their abifity Ae J11111
. .....
Formatted: Indent: Left: 0.31"
dtlNi nis,. -1a rohibitp finik��tq, 1hp RAQVvIg:
A activities jtuqkL&,
........... . ...
a laving - 1my . ..in I direc I , or indirectly, in, in titudon in which investmenis are
a
ni X
marka rate r
Formatted: Normal, Line s pa cing sin
pea�,a�n�a property
Bulleted + Level: 1 + Aligned at: 0.5" + Tab
o after: 0.75" + Indent at: 0.75", No
,
_jg1prqgA �jl )LjiL iTKL(IY vittL111 -
p _ 4 L - -) L- L any institution or widow/orphan control, Don't hyphenate, Don't
conippily in which the Ila , of Mount PrOSpCet has, at„ �( itO Mad Shill OF adjust space between Latin and Asian text,
inves lie nt mar Don't adjust space between Asian text and
In I C I t I
numbers, Tab stops: -0.5", Left
— ---------
Formatted: Font: 12 pt, Not Expanded by
Jjecei C ondensed by
g! qtLnM1 With Whi Lthc Villagg-IMS-A 4qp9sJq1ry alk)nship ............
_or investinent. Formatted: Font: 12 pl:
nign,iggnient continw- ?—, - .......... .. .. . .................
Deleted: 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
D eleted . . .... . . .. . .......... . .... ........
Formatted: Justified, Line spacing : single
7.0 Authorized Investment Advisors, Broker/Dealers and Financial Institutions
The iina,nce � ti Gail' / "Q''ri a tii "ei" shall maintain t list of all investme advisors,-
Vn Deleted: Director of Finance
li;okci " /dcaleis t111FI financial institutions authori by the V illage Board to provide
P Formatted: Une spacin single
investment services, attached hereto as Exhibit A.
It shall be the policy of the Village of Mount Prospect to select financial institutions on the
following basis:
Formatted: Justified, Line spacing single
• Securi : The Village will not maintain funds in any financial institution that is notes
Formatte L ine spacing sngle
covered by the Federal Deposit Insurance Corporation. Furthermore, the Village will
not maintain funds in any financial institution not willing or capable of posting
required collateral for funds in excess of the FDIC limits.
Formatted Font 12 pt
„
• Size: The Village will not select as depository any financial institution in which thi—
Formatted Justified Line spacing single
Village funds on deposit will exceed 50% of the institutions stated capital stock and
Formatted Line spacing: single
.. ... ®®
surplus.
• Location The Village will maintain operating and investment accounts in financial
institutions located within the corporate boundaries of the Village of Mount Prospect
whenever economically beneficial to the Village, and when not precluded by other
standards of this policy. However, the Village may approve qualified depositories
regardless of location.
• Statement of Condition The Village will maintain for public and managerial
inspection the last two sworn statements of resources and liabilities that the institution
is required to file with the Commissioner of Banks or the Comptroller of the
Currency.
• Services and Fees Fees for banking ervices shall be mutually agreed to b the
g Y
n�an«�c� lircctor /Treasurer on an annual basls. Whenever
depository bank and the)" w n ,_, ,
P Y �,... ,_, --
_ II
Deleted DireotcrofFi nonce ...... d
possible, the Village shall cover fees for services by means of compensated balances.
F Formatted Justified Line spacing single
Investment advisors and broker /dealers shall be selected based upon their overall experiences
� Formatt ed Line spacing: single
with Illinois municipalities and the Illinois Compiled Statutes with regard to the Investment
_,.
of Public Funds Act. Broker /dealers will also be selected on the basis of credit worthiness
as well as their ability to obtain competitive prices on securities purchased and sold on
behalf of the Village.
Formatted Justified Line spacing sin gle
......................
8.0 Authorized and Suitable Investments
l t it 1a, ttdGlEt l 1G r tiWJ, IkGiNa 6B t tdJ Atita'' Nt WG1 t &N���l�ar 311 in - ltNletC�s I1�8s ha�S,t�d_ t'k4,�Gr
Formatted Indent Left. 0.31"
,., .
uhh5 utPky „'rhq!! A gt9Edeal'? Qhg 1 FUndsro lrtivl,"wtNG"CeG1t...Act 0 111 CS Z35 et s C, .mInd all
revisions 11�c�attl�_�r� m�ly__l�a ���ltta try �1 "ic lYlto�cat� � "�._l3Glrtr� t a �to�1lt��a�°y cD;g;
sp Iitziblc _tl n"9�.nts air_ e ten - nitl d m i 1b + t � 1 Ine nce , Dirk. tor @tY C.(1i li 4lkW.,M., with the
ap li ° ble statute:
+� lltsiltl tcitolLLis�tlzMttlirncflentitadiactwu, aGy_ Itlm9lciit�4 ;a,ctNtit,1�isaaasrro�31y
tb c ,United S tate s �i ludin flea m (-ttw citineiit„ taittioi gB, , ikg ... s ,ti Knr the
l tlna s sce ... l,Vl — a k t is G °i � Small l��a;�il�igm 1 . �mitlistration Fannens .. I...Ionic
°1,f i7'71t1f }tGaltiSlil rM ClV 9c1p K gS;kGf ti diLt1Xtl71118sttla1 1x11C1-,t�'Ca 1 7';.17k;ill.,,ll�t111i(jg1 j3rinlz.,.
dpppsit Intel -b ' c wn jig rest H af' or interest-
r� 0001"S4 lP8_5_Nqo,.,As�, 0 -k ng, te tes o
v
bearit rn(L dgpp
mg obf �ptk)rLs. oC-011YA)r W
that are
banks.
Commercial pM(j_- in that ) s[kjZtCLp �sqrrlpq Ll.cxcecd $2.0 riiiHion in face
. . . ....... _yq
value with a unatu i y cal Iran lrarattrr..�hara _!4q_4qy
g
A he
Inust bgSj C_ A_ 1, P- F`- l P-),_ (A5, 1preina cr -y
_L ft qjjdp d-b
the fi)IlqKylg_[4kjji
&
111 1bg gyglg m fllgl : m jjlg rating assi w,11 L) v tbs , r I encies falls bc1ow the
. .. . ............... .
Eq�#Lj jq,,4 <p
tedAg�qv c. t1jg,y i I I a or its ilivestirlen it hal lakc_st p
Formatted: Font: 12 pt
o Secur �t es Iggg!L
i I j yjssuedby" d
,tq! _qyj�, enalsolv urn gs _airid( klor)_associalions which giv,
I"w±lran.a.y.m ark rnutual funds registewd under the amended Investnignicortip i,qf
at ly Ael
--------------------------------------- - - . ..... . .....
1940 i d at th te
..... . . . ......................
.... —,,,__po o Lip is limited if) bonds, notg S gijo� g cates of
indebt d iess,,, trea bi Is, or other sccuritics w h are United
. ............ ..........
States o ca 0 "ols to r( T—
24M � unaml (LLhg !YMA (L $Mulm_
qggpcies under 30 Il,QS,235,cl_Wq,.
Jiemcd Ammo(s-I hrou Any j)Ejl[htLr financial insfitution,...or y.telional
investment .__pawarN . . .... lhe.. Slate pf,11finpis Treasurers Investment P 1. A
(30 - ------ p I
,gs.sion ofthe wflatend sccur4y sL�z tj�Lo ) t a n ned o as,qf&ec re gig 1?ijtjg
e
IIH l-11ML M
pj
the collateral froni the )in bank hal be rcceived.
. ..... .... . . g_ s
, ban 1 1 ___ ---- ---
ASg!g jijgid.«Ayj:thAjufipgAAAA of the 161t owing , p_ wim Federl N
aation al
----------- _kdg[qj a �t "I--l-1-11�,.�11--l-11.1�,�,,,�ll----
M, ialion Fed I I Adillinisination ff )JI 0
s i IIA u El IjQqSi gjlp
. ... .. _Ards
Banks Farniers I Ionic Admillistratior
_A
Banks Federal I11pnw pap B oriks, 1"ederal Loan l lra ple Mo Co tion f FrLddie
AilLd qjhqE gge
.agies authorized under the
s so long A5_thgy_tiw , apf Lby „ tlrc E` it ranc-c-D-irecton
Coll L�c i ND:tg gq�pkts,
1w ized ��,)rqgg QWi t ( n
th qLk i, ghs - is s u q d by .. i
AAA rated Ile -at , jwy specified in section
as no more than 35% of the total c t cpq is invested in a
pqrtfolk J,rn o ppL
cornbinatio ol'_ o s thm u M ortgp�gcs, , _ !axable
g py AgoPY -Pas
11 _Ai p _A I 1,, M j:lLL_k
kilcial Instiultion Examination Coo, if girojille(L 'flie CM( 'v
. . . ....... "), _ - 1- 11 ------
extendtonolaw 19L(huna (,)-,y at 1 00 PS & At 100
.PSA__thc...CNI0*S.Pust have at least , 50 basis_poijill posit - i - Ve - sp .... yi,q1_dovc,r_a
y I?ej't)re it is added to the pqrl. AJO. Leveraged,
j
interest only,jK incip j,pil,ty, coni ion tranche CMO's pre strict ly
qtjo '111 _. - I I I �, 1. � 1-11 1 - . I——
........ ........ M
from purc
Ta xable „ unictpal „Bonds with a e,re iipt rating,,,,,cif AA car ,higher from ..one,,,,,,rating
ggcai,Iw I14 which are nsIltctd to cglltiltgjo A &ArAing svq �llr�wro�I� �) 1<aran�al
R _919ne - ftan 3 1 cil” Iq totrti 4, - . L liifi is invested kiJ ni nicirral:._
Age,Iley t "MO's uttc dtgfrtcMitrtgaga l oess- tk'tr� a awly c)rrcg_ralf,
A,gl ttwy d rtlmtps rrlt +r atr toltl;�rc� msolcsLggn other delIrv�a,t,I,ve sccuritic&_gt ggpt.
the (WO's and 9oit tl e�r�r�s t�pr <Iu ilk ctl, rollP i11 scct,[atty fight L � ����
Itr }tii"artx.cl ttitalc r tlgr��a ltlley.-
Bon re1rstered under the Investmr,nr Con tpgpy.: M t oY 1� ?�1(` tti,za
drtalai,,.¢irale t(t( tmIarlavrLNw tl th,,Mit Iluc_pcart�c�lraa I$ IIl�att�,d to �rla�d ..rarat�s .i1�a�Iliy..bll,ls....str
otter securities which w t�e�ttl�urtrttt�v�9, w ��y dl m l��ta��ll ���tt � gll��rrprrra wit aaf,� rr��rta�nr�s �t
1ta�rrk Ise til syrtr,I tyrt,Ilt ch91gigro[i, x iaral Iltrrala;lt.ti..i . w lgciia rc rltrit,t ro3 IL C
�2 35 CL _ Ict _1iii ion Shall not ex ac clN rho criteria noted in Section Vil
.�.
• No siggIg investnt�i"ot ept alucr s gear ttttawcd.. a �ha�l aiaitt.c Stat s gaav fl Il�cltt Irr_r,y
exceed 5% of the, fund's total market v_alue,,,
(tlrt,rtyp n ctrtlfcrts ,trialy!)g_,IrdlcdRwttltdsflrt,i Ill tcrtd yttttt�e gcvlatytiaag.
such investments are revised.
Investments shall be made that reflect the cash flow needs of the fund type being invested. .a
The Village will specifically avoid any purchase of financial forwards or futures, any
leveraged investments, and lending securities or reverse repurchase agreements.
9.0 Collateralization
Funds on deposit in checking accounts and certificates of deposit in excess of FDIC,'
insurance limits must be secured by some form of collateral, witnessed by a written
agreement and held in the name of the Village at an independent/third party institution. The `
Village will accept any of the following assets as collateral:
• U.S. Government Securities
• Obligations of Agencies or Instrumentalities of the U.S. Government
• Obligations of the State of Illinois
• Obligations of the Village of Mount Prospect
• General Obligation Municipal Bonds rated "A" or better
• Any other collateral acceptable for use by the Treasurer of the State of Illinois
The amount of collateral provided will not be less than 105% of the fair value of the net
amount of public funds being secured. The ratio of fair value of collateral to the amount of
funds being secured will be reviewed at least quarterly.
Deleted: Investments may be made in any type of
security allowed for in the Public Funds Investment
Act (30ILCS 235/2), A summary of authorized
investments follow:¶
¶#> Notes, bonds, certificates of indebtedness,
treasury bills, or other securities, which are
guaranteed by the f u l l faith and credit of the United
States of America.¶
<#> Bonds, notes, debentures, or other similar
obligations of the United States of America or its
agencies ¶
< #> Interest- bearing savings accounts, interest -
bearing certificates of deposit or interest - bearing
time deposits or any other investments constituting
direct obligations of any bank as defined by the
Illinois Banking Act .1
¶ # >Short term obligations of corporations organized
in the United States with assets exceeding
$500,000,000 if (i) such obligations are rated at the
time of purchase at one of the 3 highest
classifications established by at least 2 standard
rating services and which mature not later than 180
days from the date of purchase, (ii) such purchases
do not exceed 10% of the corporation's outstanding
obligations and (iii) no more than one -third of the
Village's funds may be invested in short term
obligations of corporations I
< #> Money market mutual funds registered under the
Investment Company Act of 1940, provided that the
portfolio of any such money market mutual fund is
limited to obligations described in paragraphs (a) and
(b) of this section¶
< # >Repurchase agreements, subject to the
requirements and limitations set forth in 30 ILCS
235/2 Q
¶ # >I[linois Funds, the investment pool administered
by the Illinois State Treasurer, and¶
¶ # >[Ilinois Metropolitan Investment Fund ¶
Formatted: Justified, Line spacing: single
,`. ,,,
Formatted: Line spacing: single
Formatted: Justified, Line spacing:
single
Formatted: Line spacing: single
Formatted: Font: 12 pt
0
Deleted: q
, 1 �... ... a�-�,,,,,,-
Formatted: Font: 12 pt
Formatted: Justified, T ine spacing single
10.0 Safekeeping and Custody
All security transactions, including collateral for repurchase agreements, entered into by the- Formatted: Line spacing single J
Village, shall be conducted on a delivery-verses-payment i ( DVP ) basis. Securities Treasurer
es will be __
held by an independent third party custodian designate y the 1"i fu,finc t elated: Director of Finance
and evidenced by safekeeping receipts and a written custodial agreement.
Formatted: Justified, Line spacing single
11.0 Diversification
The Village shall diversify its investments to the best of its ability based on the type o (Formatted: Line spacing: single
f
funds invested and the cash flow needs of those funds. Diversification can be by type of
investment, number of institutions invested in, and length of maturity.
In order to reduce the risk of default, the investment portfolio of the Village shall not
exceed the following limits:
Formatted Justified, Line spacing: single
• No financial institution shall hold more than �Q% of the Village's investment- Formatted Line spacing single
portfolio, exclusive of any securities held in safekeeping. Deleted zo
...
• Investment in the Illinois Funds shall not exceed 5 of the investment portfolio. Deleted ao
------ -- -
• Investment in the Illinois Metropolitan Investment Fund shall not exceed 0% of the o
p - _ � Deleted l o
investment portfolio,
Form atted: Justified, Line sp acing: single
12.0 Maximum Maturities
To the extent possible, the Village shall attempt to match its investments with anticipated [ Line spacing single
......... .... .........
cash flow requirements. Unless matched to a specific cash flow, the Village will not
directly invest in securities maturing more than two (2) years from the date of purchase.
..... ....
Reserve funds may .......
be invested in securities exceedi two 2 °aouit of �ii, Deleted maturity of such investments are
y g O ears if thei ry Y�a_�._ ._ cs �....
inve stments i s made to coincide as nearly as practicable with the expected use of the funds.
m
6 Formatted: Justified Line spacing: single
13.0 Internal Control
The Xinance DirectortYreasurer is responsible for establishing and _maintaining an internal- Formatted Line spacing single
g g p hector of Finance
theft or misuse. The internal control structure shall be des
control structure designed to ensure that the assets of the Village
to illa e are protected from loss,neieted n
i provide reasonable not
absolute, assurance that these objectives are met. The internal controls shall address the
following points: F ormatted
• Control of collusion single
]us h5ed Line spacing
• Separation of transaction authority from accounting
• Custodial safekeeping
• Written confirmation of telephone transactions for investments and wire transfers
14.0 Performance Standards
The Village's investment portfolio will be managed in accordance with the parameters- Formatted: Line spacing: single
specified within this policy. The portfolio should obtain a comparable rate of return during
a market /economic environment of stable interest rates. Portfolio performance should be
compared to benchmarks with similar maturity, liquidity, and credit quality as the portfolio.
The Village will use the ninety -day Treasury bill rate as its benchmark.
Formatted: Justified, Line spacing single
15.0 Reporting w
The l?_ar
inance Director /Treasurer shall prepare i at least uarterl and - D
_- - - -- - - - - -- - -- -- p - an investment re p ort ��/ elated Director of Finance
submit said report to the Board of Trustees. The report shall Include a management Deleted monthl
summa that provides an analysis of the status of the current investment portfolio. The F o rm at t e d: n '
ry p y 1> E / Line spacing: sing
report will also include the following information:
• Listing of individual securities held at the end of the reporting period by maturity
date.
• Average weighted yield to maturity of the portfolio.
• Average weighted maturity.
• Percentage of the total portfolio that each type of investment represents
Summary of the unrealized gains or loss_ es resulting from appreciation or depreciation,
by listing the cost and market values of all securities with an original maturity of over
three months,
± fist of transactions made over the last quarter.
16.0 Investment Policy Adoption
The investment policy shall be adopted by the Board of Trustees. The policy shall be
reviewed on an annual basis by the Finance Director /Treasurer and any modifications made
thereto must be approved by the Board of Trustees, _ _
Formatted: Justified Line spacing single
Bulleted + Level 1 + Aligned at 0.5" + Tab
after 0.75" + Indent at 0.75
Deleted: q
< # >I
At least quarterly, the investment report shall include
a
Formatted: Font: 12 pt G
Formatted: List Paragraph Line spacing:
single No bullets or numbering
D ,.
Deleted s
Formatted Justified Line spacing single
Bulleted + Level 1 + Aligned at 0.5" + Tab
after 0.75" + Indent at 0.75
Deleted
Formatted Font 12 pt
Formatted: List Paragraph, Line spacing
single No bullets or numbering
Deleted Tfre quarterly report will also include a I'
Formatted: Justified, Line spacing single
Bulleted + Level 1 + Aligned at 0.5" + Tab
after 0.75"+ Indent at 0.75
Formatted: Justified Line spacing single
Deleted Director of Finance
elete& I
11
This policy was adopted by the Village Board this
20th day of July 1999 pursuant to Resolution 36 -99
Exhibit A of the policy was first amended on April
17, 2001 then again on February 17, 2004 ¶
9
Further revisions to the policy and amendment of
Exhibit A were accepted on February 21, 2006 and
November 20, 2007
Exhibit A
Village of Mount Prospect, Illinois
Investment Policy
Listing of Financial Institutions, Brokers /Dealers
and Authorized Investment Advisors
Authorized Financial Institutions
PNC Financial Services Group
Wells Fargo & Company
US Bancorp
JP Morgan Chase
Mount Prospect State Bank
First Merit Bank
Fifth Third Bancorp
MB Financial Bank
Bank of America
American Chartered Bank
Northern Trust Bank
Authorized Investment Brokers /Dealers
Chase Investement Services
Nothern Trust Securities
Mesirow Financial
Capital Gains
Segall Bryant & Hamill
PMA Financial Network
William Blair & Compnay
Fifth Third Securities
Authorized Investment Advisors
Becker Burke Associates
VILLAGE OF MOUNT PROSPECT, ILLINOIS
INVESTMENT POLICY
1.0 Policy
It is the policy of the Village of Mount Prospect to invest public funds in a manner which
will provide the highest investment return with the maximum security while meeting the
daily cash flow demands of the Village and conforming to all state and local statutes
governing the investment of public funds. The following investment policy is hereby
promulgated for use by the Village of Mount Prospect.
2.0 Scope
This investment policy applies to the investment activities of all funds of the Village of
Mount Prospect, except for the Police and Firefighters' Pension Funds that are subject to the
order of the Board of Trustees of each respective Fund. The Illinois Compiled Statutes will
take precedence except where this policy is more restrictive wherein this policy will take
precedence.
Except for cash in certain restricted and special funds, the Village will consolidate cash
balances from all funds to maximize investment earnings. Investment income will be allocated
to the various funds based on their respective participation and in accordance with generally
accepted accounting principles.
3.0 Prudence
The standard of prudence to be used by the investment officials shall be the "prudent
person" standard and shall be applied in the context of managing an overall portfolio.
The "prudent person" standard states: Investments shall be made with the judgement 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.
Investment officials of the Village of Mount Prospect acting in accordance with this
investment policy and written procedures and exercising due diligence shall be relieved of
personal responsibility for an individual security's credit risk or market price changes,
provided that material deviations from expectations are reported to the Village Manager in a
timely fashion, and appropriate action is taken to control adverse developments.
4.0 Investment Objectives
The primary investment objectives, in order of priority, shall be Legality, Safety, Liquidity
and Return:
• Legality — Except as modified herein, pursuant to home rule authority, all investments
purchased under this policy shall be guided by the Public Funds Investment Act 30
ILCS 235 et seq. and all revisions thereto, as may be made by the Illinois Legislature.
• Safety - 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.
Credit Risk - The Village will minimize credit risk, the risk of loss due to the
failure of the security issuer or backer by:
• Limiting investments to the safest types of securities
• Pre - qualifying the financial institutions, brokers, intermediaries and advisers
with which the Village will do business,
Diversifying the investment portfolio so potential losses on individual
securities will be minimized.
• Interest Rate Risk - The Village will minimize the risk that the market value of
the securities in the portfolio will fall due to changes in general 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 or investment
pools.
Liquidity - 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. A portion of the portfolio also may be placed in local government investment
pools which offer same -day liquidity for short-term funds.
• Total Return - The investment portfolio shall be designed with the objective of attaining
a market rate of return throughout budgetary and economic cycles, taking into account
the investment risk constraints and liquidity needs. The core of investments is limited to
relatively low risk securities in anticipation of earning a fair return relative to the risk
being assumed.
The portfolio should be reviewed at least quarterly as to its effectiveness in meeting the
Village's needs for compliance with applicable state statutes, safety, liquidity, rate of return,
diversification and its general performance.
When deposits of Village monies become collected funds, and it is determined that those
funds are not needed for immediate disbursement, those funds shall be invested within two
working days at prevailing rates of return.
5.0 Delegation of Authority
Authority to manage the investment program is granted to the Finance Director derived
from the following: 30 ILCS 235 et. seq. The Finance Director or designee, under the
delegation of the Board of Trustees, shall establish written procedures and internal controls
for the operation of the investment program that is consistent with the investment policy.
Procedures should include references to: safekeeping, delivery versus 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 Finance Director. The
Finance Director shall be responsible for all transactions undertaken and shall establish a
system of controls to regulate the activities of subordinate officials, including outside
investment managers. Internal controls over investment transactions shall be reviewed by
the Village's Finance Department, for ultimate review by the Village's external auditor, at
least annually. Any exceptions noted by the internal or external parties shall be reported to
the Audit Committee.
6.0 Ethics and Conflicts of Interest
The Village Manager, Finance Director, or other financial officer employed by the Village
shall refrain from personal business activity that could conflict with the proper execution and
management of the investment program, or could impair their ability to make impartial
decisions. Prohibited activities include, but are not limited to, the following:
• Having any interest, directly or indirectly, in any institution in which investments are
permitted, except for a market rate mortgage or loan on his or her personal residence or
personal property.
Having any interest, directly or indirectly, with the management of any institution or
company in which the Village of Mount Prospect has a depository relationship or
investment management contract.
Receiving compensation of any type, including preferred treatment from any institution
or company with which the Village has a depository relationship or investment
management contract.
7.0 Authorized Investment Advisors, Broker/Dealers and Financial Institutions
The Finance Director /Treasurer shall maintain a list of all investment advisors,
broker /dealers and financial institutions authorized by the Village Board to provide
investment services, attached hereto as Exhibit A.
It shall be the policy of the Village of Mount Prospect to select financial institutions on the
following basis:
•
Security: The Village will not maintain funds in any financial institution that is not
covered by the Federal Deposit Insurance Corporation. Furthermore, the Village will
not maintain funds in any financial institution not willing or capable of posting
required collateral for funds in excess of the FDIC limits.
• Size The Village will not select as depository any financial institution in which the
Village funds on deposit will exceed 50% of the institutions stated capital stock and
surplus.
• Location The Village will maintain operating and investment accounts in financial
institutions located within the corporate boundaries of the Village of Mount Prospect
whenever economically beneficial to the Village, and when not precluded by other
standards of this policy. However, the Village may approve qualified depositories
regardless of location.
• Statement of Condition The Village will maintain for public and managerial
inspection the last two sworn statements of resources and liabilities that the institution
is required to file with the Commissioner of Banks or the Comptroller of the
Currency.
• Services and Fees Fees for banking services shall be mutually agreed to by the
depository bank and the Finance Director /Treasurer on an annual basis. Whenever
possible, the Village shall cover fees for services by means of compensated balances.
Investment advisors and broker /dealers shall be selected based upon their overall experience
with Illinois municipalities and the Illinois Compiled Statutes with regard to the Investment
of Public Funds Act. Broker /dealers will also be selected on the basis of credit worthiness
as well as their ability to obtain competitive prices on securities purchased and sold on
behalf of the Village.
8.0 Authorized and Suitable Investments
Except as modified herein, pursuant to home rule authority, all investments purchased under
this policy shall be guided by the Public Funds Investment Act 30 ILCS 235 et seq. and all
revisions thereto, as may be made by the Illinois Legislature. Below is a summary of
acceptable investments as determined by the Finance Director in compliance with the
applicable statute:
• Bonds, notes, certificates of indebtedness, treasury bills or other securities guaranteed by
the United States including the Government National Mortgage Association, the
Tennessee Valley Authority, Small Business Administration, Farmers Home
Administration, General Services Administration, and the Export-Import Bank.
4
• Interest- bearing savings accounts, interest- bearing certificates of deposit or interest -
bearing time deposits or any other investments that are direct obligations of any local
banks.
• Commercial paper - in that no single investment shall exceed $2.0 million in face
value with a maturity of no longer than 180 days and must have two ratings which
must be either A 1, P -1, F -1 or D -1. (As currently exists or hereinafter amended by
the following rating agencies: Moody's Investors Service, Standard & Poor's, and
Fitch). In the event that the rating assigned by the rating agencies falls below the
required level as stated above, the Village or its investment agent shall take steps to
preserve the capital of the investment.
• Securities legally issued by state or federal savings and loan associations which are
insured by the F.D.I.C.
• Money - market mutual funds registered under the amended Investment Company Act of
1940 provided that the portfolio is limited to bonds, notes, and certificates of
indebtedness, treasury bills, or other securities which are guaranteed by the United
States or agreements to repurchase these same types of obligations, and qualified
agencies under 30 ILCS 235 et seq.
• Repurchase Agreements through any bank or other financial institution, or a regional
investment pool, or the State of Illinois Treasurers Investment Pool. (Physical
possession of the collateral security shall be obtained or a safekeeping receipt describing
the collateral from the safekeeping bank shall be received.)
• Agency bonds with a rating of AAA of the following federal agencies: Federal National
Mortgage Association, Federal Housing Administration (FHA), Public Housing Boards
(HUD), Federal Farm Credit Banks, Farmers Home Administration, Federal Land
Banks, Federal Home Loan Banks, Federal Loan Home Mortgage Corporation (Freddie
Mac), Student Loan Mortgage Corporation, and other agencies authorized under the
statutes so long as they are approved by the Finance Director.
• Collateralized Mortgage Obligations (CMO) and Mortgage pass - throughs issued by a
AAA rated federal agency as specified in section seven (7) above are allowed so long
as no more than 35% of the total portfolio at the time of purchase is invested in a
combination of Agency CMO's, Agency Pass - through Mortgages, and taxable
municipal bonds at any one time. All Mortgage Backed Securities (MBS) must be
FFIEC (Federal Financial Institution Examination Council) qualified. The CMO's
average life may extend to no longer than a 10 -year average life at 100 PSA. At 100
PSA the CMO's must have at least a 50 basis point positive spread in yield over a
comparable maturity treasury security before it is added to the portfolio. Leveraged,
interest only, principal only, and companion tranche CMO's are strictly prohibited
from purchase.
5
Taxable Municipal Bonds with a credit rating of AA or higher from one rating
agency, or bonds which are insured to equate to a AAA rating are allowed so long as
no more than 35% of the total portfolio is invested in taxable municipal bonds,
Agency CMO's and Agency Mortgage pass - throughs at any one time.
• Agency structured notes, index amortizing notes, and other derivative securities, except
the CMO's and Mortgage pass - throughs described in section eight (8), are specifically
prohibited under this policy.
Bond mutual funds registered under the Investment Company Act of 1940, as amended
from time to time, provided that the portfolio is limited to bonds, notes, treasury bills, or
other securities which are guaranteed by the United States government or agreements to
repurchase these same types of obligations, and qualified U.S. agencies under 30 ILCS
235 et. seq. The duration shall not exceed the criteria noted in section VII (2.).
• No single investment, except those guaranteed by the United States government, may
exceed 5% of the fund's total market value.
• Other types of investments may be added to this list as changes to the statutes governing
such investments are revised.
Investments shall be made that reflect the cash flow needs of the fund type being invested.
The Village will specifically avoid any purchase of financial forwards or futures, any
leveraged investments, and lending securities or reverse repurchase agreements.
9.0 Collateralization
Funds on deposit in checking accounts and certificates of deposit in excess of FDIC
insurance limits must be secured by some form of collateral, witnessed by a written
agreement and held in the name of the Village at an independent/third party institution. The
Village will accept any of the following assets as collateral:
• U.S. Government Securities
• Obligations of Agencies or Instrumentalities of the U.S. Government
• Obligations of the State of Illinois
• Obligations of the Village of Mount Prospect
• General Obligation Municipal Bonds rated "A" or better
• Any other collateral acceptable for use by the Treasurer of the State of Illinois
The amount of collateral provided will not be less than 105% of the fair value of the net
amount of public funds being secured. The ratio of fair value of collateral to the amount of
funds being secured will be reviewed at least quarterly.
10.0 Safekeeping and Custody
All security transactions, including collateral for repurchase agreements, entered into by the
Village, shall be conducted on a delivery- verses - payment (DVP) basis. Securities will be
held by an independent third party custodian designated by the Finance Director /Treasurer
and evidenced by safekeeping receipts and a written custodial agreement.
11.0 Diversification
The Village shall diversify its investments to the best of its ability based on the type of
funds invested and the cash flow needs of those funds. Diversification can be by type of
investment, number of institutions invested in, and length of maturity.
In order to reduce the risk of default, the investment portfolio of the Village shall not
exceed the following limits:
No financial institution shall hold more than 50% of the Village's investment
portfolio, exclusive of any securities held in safekeeping.
Investment in the Illinois Funds shall not exceed 50% of the investment portfolio.
Investment in the Illinois Metropolitan Investment Fund shall not exceed 50% of the
investment portfolio.
12.0 Maximum Maturities
To the extent possible, the Village shall attempt to match its investments with anticipated
cash flow requirements. Unless matched to a specific cash flow, the Village will not
directly invest in securities maturing more than two (2) years from the date of purchase.
Reserve funds may be invested in securities exceeding two (2) years if the maturity of such
investments is made to coincide as nearly as practicable with the expected use of the funds.
13.0 Internal Control
The Finance Director /Treasurer is responsible for establishing and maintaining an internal
control structure designed to ensure that the assets of the Village are protected from loss,
theft, or misuse. The internal control structure shall be designed to provide reasonable, not
absolute, assurance that these objectives are met. The internal controls shall address the
following points:
• Control of collusion
• Separation of transaction authority from accounting
• Custodial safekeeping
• Written confirmation of telephone transactions for investments and wire transfers
14.0 Performance Standards
The Village's investment portfolio will be managed in accordance with the parameters
specified within this policy. The portfolio should obtain a comparable rate of return during
a market/economic environment of stable interest rates. Portfolio performance should be
compared to benchmarks with similar maturity, liquidity, and credit quality as the portfolio.
The Village will use the ninety -day Treasury bill rate as its benchmark.
15.0 Reporting
The Finance Director /Treasurer shall prepare an investment report at least quarterly, and
submit said report to the Board of Trustees. The report shall include a management
summary that provides an analysis of the status of the current investment portfolio. The
report will also include the following information:
• Listing of individual securities held at the end of the reporting period by maturity
date.
• Average weighted yield to maturity of the portfolio.
• Average weighted maturity.
• Percentage of the total portfolio that each type of investment represents.
• Summary of the unrealized gains or losses resulting from appreciation or depreciation
by listing the cost and market values of all securities with an original maturity of over
three months.
• List of transactions made over the last quarter.
16.0 Investment Policy Adoption
The investment policy shall be adopted by the Board of Trustees. The policy shall be
reviewed on an annual basis by the Finance Director /Treasurer and any modifications made
thereto must be approved by the Board of Trustees.
8
Prospect
Village of Mount Prospect
Mount Prospect, Illinois
INTEROFFICE MEMORANDUM
1 li
TO: MICHAEL E. JANONIS, VILLAGE MANAGER
FROM: FINANCE DIRECTOR
DATE: NOVEMBER 12, 2012
SUBJECT: GENERAL AND AUTO LIABILITY THIRD -PARTY CLAIMS
ADMINISTRATION
PURPOSE:
To present a recommendation for renewal of the annual service agreement for third -
party liability claims administration for the period January 1, 2013 - December 31, 2013.
BACKGROUND:
To assist in the administration of general and auto liability claims the Village has
contracted out the service to a third -party administrator. The Village's current
agreement for claims administration expires on December 31, 2012. A new agreement
is needed at this time for the current provider to continue to service the Village.
DISCUSSION:
Gallagher Bassett Services (GBS) is the current service provider for general and auto
liability claims administration. The agreement for 2013 contains no changes to the
terms and conditions from the prior year. The Simms Banking Fee was reduced from
$1,008 to $456. Below is a summary of fees for the prior year and 2013.
Service
2012 Ra
2013 Rates
Claim Ad ministration
Simms Bankinq Fee
$ 1, 000
1,008
...........
1,040
456
Minimum Annual Fee
8,000
8,000_
Total Fee.......
$1 008
$9,496
The claims administration fee is a flat fee assessed annually for utilizing GBS services.
The Simms Banking fee is also an annual flat fee assessed for maintaining the escrow
and processing and making payment on claims. This service relieves the Village from
having to process payments internally. A reduction in overall processing costs account
for the reduction in this portion of the annual fee.
General and Auto Liability Third -Party Claims Administration
November 12, 2012
Page 2
The Village is subject to an $8,000 minimum annual fee. Time and expense charges
are invoiced against the annual fee until the balance is exhausted. When the entire
annual fee is depleted, the Village will begin making payments for charges incurred in
managing the open claims. Our liability ends when all the claims for a particular period
are closed.
Our experience with GBS continues to be very positive. Communication between the
Finance Department, Corporation Counsel and GBS continues to be strong, working to
control overall claims costs. Based on our satisfaction with the service provided and no
changes to the funding schedule I recommend we continue the relationship with GBS.
RECOMMENDATION:
It is recommended we approve the agreement for GBS to provide general and auto
liability claims administration services during 2013 according to the proposed funding
and fee schedule.
David O. Erb
Finance Director
DOE/
Attachment
I: \Insurance \GAB -GBS \Renewal - 2013.docx
LOP - deposit C &T 8- 11.xls
VILLAGE OF MOUNT PROSPECT
TIME AND EXPENSE HANDLING
COSTS AND TERMS
Effective Date: 1/1/13 -1 /1 /14
TERMS & CONDITIONS -LIFE OF PARTNERSHIP
(1) This program is quoted at a total minimum fee of $9,496 (including the admin fee and Simms fee). This amount will
be billed quarterly throughout the contract year.
(2) Claims will be audited only after the minimum has been met and then at the 18th, 24th, 36th and 48th month.
(3) Claims will be handled on a Time and Expense basis. If you should decide to stop using GB in a specific state, the
existing open files can be returned to the client (contingent upon Carrier approval) at the client's expense.
Note: There will be additional charges for ongoing Data Management (RISX- FACSO), risxfacs. cam users,
Administration, Banking fees and monthly reports for as long as GB handles claims.
(4) Data Management includes the following:
► New Claim Setup
► Historical Claims
► Monthly Report by Email or the Website
► Carrier Report Package by Email or Website
(5) Account Administration includes the following:
► Designated Account Manager
► Detailed Status Reports @$0
► Settlement Authority @$0
► Reserve Alerts @ $25,000
► Acknowledgement Letter
(6) Claim Reporting
► Directly reported to our Control Branch
(7) risxfacs.com : Standard internet browser access to Gallagher Bassett claim database
(8) Billing and Payment Terms: Fees will be billed quarterly during the calendar year. Fees are payable upon receipt of
the invoice. Gallagher Bassett reserves the right to charge 1 % per month, or the maximum legal rate, on balances
unpaid after 30 days.
(9) Material Change - GB reserves the right to modify its fees if:
► It is determined that the historical data upon which GB's fees and service charges developed were based upon
erroneous, obsolete or insufficient information, or that a change in Mt. Prospect's business will materially change
the nature and /or volume of its business or claims as contemplated at the inception of the Agreement.
► During the term of the Agreement, legislative and /or regulatory requirements materially impact or change the
scope of GB's services or responsibilities.
(10) Taxes - Applicable taxes will be added to the service fee where required
This material is the proprietary, confidential property of Gallagher Bassett Services, Inc, It has been provided to Village of Mount Prospect for the sole
purpose of considering a quote for claims administration services, It is not to be duplicated or shared in any form with anyone other than the
individuals of Village of Mount Prospect that have a business need to know the information, It must be destroyed or returned to Gallagher Bassett
Services, Inc after its intended use,
Gallagher Bassett Services, Inc. will not pay a fee, cornrnission, or rebates to any party for the privilege of presenting our proposal or in order to secure
the awarding of any program to Gallagher Bassett Services.
LOP- deposit C &T 8- 11.x1s
VILLAGE OF MOUNT PROSPECT
TIME AND EXPENSE HANDLING
COSTS AND TERMS
Effective Date: 1/1/13 -1/11/14
GENERAL TERMS & CONDITIONS
Claim Charges:
Time & Expense at standard published rates as determined by Branch location and adjuster expertise level.
Allocated Expenses: Shall be your responsibility and shall include, but not be limited to:
►
Legal Fees
►
Medical Examinations
►
Professional Photographs
►
Travel made at client's request
►
Costs for witness statements
►
Court reports
►
Medical records
►
Accident reconstruction
►
Experts' rehabilitation costs
►
Chemist
►
Fees for service of process
►
Collection cost payable to third parties on
►
Architects, contractors
subrogation
►
Engineer
►
Any other similar cost, fee or expense
►
Police, fire, coroner, weather, or other such reports
reasonably chargeable to the investigation,
►
Property damage appraisals
negotiation, settlement or defense of a claim
►
Sub rosa investigation
or loss which must have the explicit prior
►
Official documents and transcripts
approval of the client
►
Pre- and post - judgment interest paid
►
Outside Investigation
►
Subrogation at 15% of gross recovery - POF
►
Second Injury Fund Recovery
►
Managed Care
This inaterlat is the proprietary, confidential property of Gallagher Bassett Services, Inc. It has been provided to Village of Mount Prospect for the
sole purpose of considering a quote for claims administration services. It is not to be duplicated or sh,:ared in any form with anyone other than the
Individuals of Vitbage of Mount Prospect that have a business need to know the Information, It must be destroyed or returned to Gallagher Bassett
Services, Inc, after its Intended use
Gallagher Bassett Services, Inc. milli not pay a fee, commission, or rebate to any party for the privilege of presenting our proposal or in order to
secure the awarding of any program to Gallagher Bassett Services,
4 LOP-deposit C &T 6 -11 As
A ,
J £�
VILLAGE OF MOUNT PROSPECT
TIME AND EXPENSE HANDLING
COSTS AND TERMS
Effective Date: 1/1/13 - 1/1/14
DEFINITIONS
Liability Claims
Investigate, evaluate and adjudicate all third-party claims for which you may be legally obligated. Third-party claims
will be managed and administered in accordance with our product guidelines.
This rnalerial is the proprietary, confidential property of Gallagher Bassett Services, loc /I has been provided to Village of Mount Prospect for the
sole purpose of considering a quote for claims administration services It is not to be duplicated or shared in any form with anyone other than the
individuals of Village ol'Adount Prospect that have a business need to know the information It must be destroyed or returned to Gallagher Bassett
Services, Inc, after its intended use,
Gallagher Bassett Services, Inc. will not pay a fee, commission, or rebate to any party for the privilege of presenting our proposal or in order to
secure (ho awarding of any prograrn to Gallagher Bassett Services,
LOP-deposit C&T 8-1 I.As