Jump to Fund Balance Policy

RESOLUTION NO. R-15-025

A   RESOLUTION   ADOPTING   A   FUND   BALANCE   POLICY   FOR GOVERNMENTAL FUNDS FOR THE CITY OF BRENHAM

WHEREAS, the Governmental Accounting Standards Board (GASB) issued “Statement No. 54 Fund Balance Reporting and Governmental Fund Types” which establishes criteria for classifying fund balances into specifically defined classifications and clarifies definitions for governmental fund types; and

WHEREAS, the fund balance policy dated October 1, 2015 complies with the provision of the Standard; and

WHEREAS, the governing body desires to adopt a fund balance policy for the City of Brenham; and

NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF BRENHAM, TEXAS THAT:

Section 1: The City of Brenham Fund Balance Policy for Governmental Funds attached hereto as “Exhibit A” is hereby adopted as the fund balance policy of the City of Brenham effective October 1, 2015.

Section 2: This Resolution shall take effect immediately upon its passage.

APPROVED on this 1^st day of October, 2015.

Milton Y. Tate, Jr., Mayor

ATTEST: Jeana Bellinger, TRMC, City Secretary

FUND BALANCE POLICY FOR GOVERNMENTAL FUNDS

I. PURPOSE

The following policy has been adopted by the City of Brenham in order to address the implications of Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Definitions. The policy is created in consideration of unanticipated events that could adversely affect the financial condition of the City and jeopardize the continuation of necessary public services. This policy will ensure that the City maintains adequate fund balances and reserves in order to:

1. Provide sufficient cash flow for daily financial needs,
2. Secure and maintain investment grade bond ratings,
3. Offset significant economic downturns or revenue shortfalls, and
4. Provide funds for unforeseen expenditures related to

II. DEFINITIONS

Fund balance is a measurement of available financial resources and is the difference between total assets and total liabilities in each governmental fund.

GASB Statement No. 54 distinguishes fund balance classified based on the relative strength of the constraints that control the purposes for which specified amounts can be spent. Beginning with the most restrictive constraints, fund balance amounts will be reported in the following categories:

1. Nonspendable Fund Balance – Includes amounts that cannot be spent because they are either not in spendable form, or, for legal or contractual reason, must be kept intact. This classification includes inventories, prepaid amounts, assets held for sale, and long-term receivables.
2. Restricted Fund Balance – Constraints placed on the use of these resources are either externally imposed by creditors (such as through debt covenants), grantors, contributors or other governments; or are imposed by law (through constitutional provisions or enabling legislation).
3. Committed Fund Balance – Amounts that can only be used for a specific purpose because they are constrained by limitation that the government imposes upon itself through formal action by the City Council, the government’s highest level of decision making authority. Formal action consists of either Council resolution or the approval of a council meeting agenda item. These restraints remain binding unless removed by formal action of City Council.
4. Assigned Fund Balance – Amounts that are constrained by the City’s intent to be used for specific purposes, but that do not meet the criteria to be classified as restricted or committed. Intent can be stipulated by the City Council, committees, or officials to whom the City Council has delegated authority.
5. Unassigned Fund Balance – This is the residual classification of the General Fund. Only the General Fund reports a positive unassigned fund balance. Other governmental funds might report a negative balance in this classification, as the result of overspending for specific purposes for which an amount had been restricted, committed or assigned.

III. PRIORITIZATION OF FUND BALANCE USE

When an expenditure is incurred for purposes for which both restricted and unrestricted (committed, assigned, or unassigned) amounts are available, it shall be the policy of the City to consider restricted amounts to have been reduced first. When an expenditure is incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used, it shall be the policy of the City that committed amounts would be reduced first, followed by assigned amounts and then unassigned amounts.

IV. MINIMUM UNRESTRICTED GENERAL FUND BALANCE

The City will maintain a minimum unrestricted fund balance (total fund balance less nonspendable and restricted fund balance) in its General Fund that is sufficient to provide financial resources for the City in the event of an emergency or the loss of a major revenue source. Therefore, the City has set the minimum unrestricted fund balance for the General Fund at an amount equal to three months (90 days) of General Fund operating expenditures. The City also strives to maintain an additional reserve amount equivalent to five (5) days of General Fund operating expenditures for unanticipated renovations and repairs (R&R). The minimum unrestricted fund balance is to protect against cash flow shortfalls related to unforeseen revenue fluctuations, unanticipated expenditures and similar circumstances.

V. USE AND REPLENISHMENT OF UNRESTRICTED GENERAL FUND BALANCE

The City should strive to minimize the use of General Fund unrestricted fund balance, except in very specific circumstances. At City Council’s discretion, unrestricted fund balance may be used for emergencies, unanticipated economic downturns, and one-time opportunities. If feasible, minimum fund balances shall be restored in the following year (or as soon as economic conditions allow) utilizing year-end surpluses and non-recurring revenues.

VII. FUND BALANCE POLICY

The City of Brenham’s Fund Balance Policy shall be adopted by resolution of the City Council. The City of Brenham’s Fund Balance Policy shall be subject to revisions consistent with changing laws, regulations, and needs of the City but any such changes must be adopted by the Council before use. The resolution adopting the policy and strategies must include any changes or modifications to the Policy.

Authority/Date Issued:

City Council Resolution # R-15-025                             October 1, 2015

Jump to Debt Management Policy

RESOLUTION NO. R-19-019

A RESOLUTION FOR ADOPTING A DEBT MANAGEMENT POLICY FOR THE CITY OF BRENHAM, TEXAS.

WHEREAS, the Government Finance Officers Association (GFOA) recommends that state and local governments adopt a comprehensive, written Debt Management Policy; and

WHEREAS, the Debt Management Policy dated August 1, 2019 complies with the GFOA recommendation; and

WHEREAS, the governing body desires to adopt a Debt Management Policy for the City of Brenham; and

NOW THEREFORE, BE IT RESOLVED by the City Council of the City of Brenham, Texas that:

Section 1: The City of Brenham Debt Management Policy attached hereto as “Exhibit A” is hereby adopted as the debt management policy of the City of Brenham effective August 1, 2019.

Section 2: This Resolution shall take effect immediately upon its passage.

PASSED and APPROVED on this 1^st day of August, 2019.

Milton Y. Tate, Jr. Mayor

ATTEST: Jeana Bellinger, TRMC, CMC City Secretary

CITY OF BRENHAM DEBT MANAGEMENT POLICY

August 1, 2019

1.0 POLICY

It is the policy of the City of Brenham to develop and maintain a sound, debt management program. This policy sets forth the criteria for debt financing decisions and establishes the parameters for issuing new debt, as well as, managing the outstanding debt portfolio. The Policy identifies the types and amounts of permissible debt that preserves the current bond rating in order to minimize borrowing costs and ensure access to credit.

2.0 SCOPE

The City of Brenham Debt Management Policy applies to all debt instruments issued by the City of Brenham, regardless of funding source. Funding sources can be derived from ad valorem taxes, general City revenues, enterprise fund revenues, internal service fund revenues, component unit revenues, or any other identifiable source of revenue that may be deemed as appropriate pledging for bonded indebtedness.

3.0 OBJECTIVES

 The primary objective of the Debt Management Policy is to ensure that the City establishes and maintains a solid position with respect to its Debt Service Fund. The Policy is intended to demonstrate that proceeds from long-term debt will not be used for current operations but rather for capital improvements and other long-term assets. Compliance with the Debt Policy will facilitate compliance with applicable federal, state and local laws, the City’s charter provisions, and GFOA best practices.

Other objectives include:

1. Bonds will be paid back within a period not to exceed, and preferably sooner than, the expected useful life of the capital asset.
2. Debt decisions will be based on a number of criteria and will be evaluated against long-term goals rather than short-term fix.
3. Debt decisions will be integrated with the City’s Capital Improvement
4. Debt service funds will be managed and invested in accordance with all federal, state and local

4.0 CRITERIA

Debt funding is one of three methods for financing capital assets. Capital assets include vehicles, equipment, facilities, IT hardware/software, and infrastructure (e.g. streets, drainage, utility plants, utility distribution lines) with useful lives that exceed one year and costs that exceed $15,000. Major, non-routine, maintenance that increases an existing capital asset’s service capacity, useful function, or useful life is a capital investment and is eligible for long-term financing. In addition to debt funding, capital assets may be funded by pay-as-you-go (PAYGO) financing and public-private partnerships (P3). Historically, the City of Brenham has used PAYGO and debt financing for capital assets. PAYGO funds come from operating revenues and/or excess reserves.

The pros and cons in deciding PAYGO versus debt financing recommendations include:

Source: OpenGov – Capital Financing 101

5.0 RECOMMENDATION RESPONSIBILITY

The primary responsibility for developing financing recommendations rests with the Chief Finance Officer. In developing the recommendations, the Chief Finance Officer shall be assisted by the Financial Advisor, City Manager, Strategic Budget Officer, and Controller. The Chief Finance Officer will be responsible for the following activities:

1. Meeting held no less than once a year with the City Manager and Strategic Budget Officer to consider the need for financing and assess progress on the Capital Improvement Program.
2. Annual update and review of Peer Benchmarking and Debt Capacity
3. Annual review of Financial Advisor, Bond Counsel, Paying Agent and other service providers to evaluate the effectiveness and quality of services being provided.

6.0 DEBT STRUCTURE

Debt service will be structured, to the greatest extent possible, to match projected cash flows, minimize the impact of future property tax levies, and maintain a relatively rapid payment of principal. The term of the debt issuance should equal the lesser of the useful life of the asset being financed or the maximum maturity permitted by State law for the obligations issued to finance the acquisition and construction of the asset.

6.1 Fixed Interest versus Variable Interest

The City primarily issues fixed rate bonds to protect the City against interest rate risk. The City has the option to issue variable rate bonds and may, should market conditions warrant, consider such a structure after adoption of a separate variable rate policy. Commercial paper notes, due to their short term maturities (270 days or less), are treated as variable rate obligations.

6.2 Other Considerations

Usually, bonds are issued with a final maturity of approximately 20 years or less for general obligation bonds, certificates of obligation and revenue bonds but may be greater for some projects whose lives are greater than 20 years.

Typically, interest is paid in the first fiscal year after a bond sale and principal is paid no later than the second fiscal year after the debt is issued.

Call provisions for bond issues shall be made as short as possible consistent with the low interest rate cost to the City. The targeted maximum length to call is 10 years. However, the City may opt for a call date longer than 10 years in order to achieve the necessary goals of the particular issue.

A Reimbursement Resolution must be adopted by the City Council if it is anticipated that any costs will be funded prior to closing of the corresponding debt issuance. The Reimbursement Resolution must indicate the maximum amount that can be funded, the source of cash for the funding and that if the corresponding debt issue does not close, the City Council is willing to approve the appropriation of funding for the advance. No exceptions are allowed without formal City Council approval.

7.0 FINANCING ALTERNATIVES

It is the City’s intent to develop a level of cash and debt funded capital improvement projects that provide citizens with the desired amount of City services at the lowest cost. The City may utilize several types of municipal debt obligations to finance long-term capital assets. Although debt is an obligation to be repaid, it can assume many forms. The form and character of debt is typically determined by the nature of the funding source and nature of the asset to be purchased or improved. In determining the type of security for financing an improvement or purchase of a capital asset, the City may consider the following types and forms of debt, but is not limited to the following:

• General Obligation Bonds (GOB) will be used if the following criteria are met:
• Quality-of-life projects – Projects such as but not limited to the City’s parks, museums, libraries, non-public safety facilities, aquatics, entertainment, sports and amusement-type facilities
• Any non-essential strategic initiative or project
• The size of the total issuance may result in a 5% or greater increase to the debt service I&S tax rate
• Useful life of assets acquired will be twenty (20) year or more or will extend the useful life of an asset for more than twenty (20) years
• Voter authorized

7.1.1 The total dollar amount of the bond election propositions recommended to the voters shall not exceed the City’s estimated ability to issue said bonds within a normal 6 year

7.1.2 The use of reimbursement resolutions shall be encouraged as a cash management tool for general obligation debt funded projects.

7.2 Certificates of Obligation will be used if the following criteria are met:

• Essential, non-quality-of-life projects
• Capital asset acquisitions (heavy equipment, fire vehicles with useful lives 20 years or greater and costs greater than $500,000)
• Rehabilitation and/or extension of the useful life of existing facilities
• Street reconstruction and improvements
• Drainage improvements
• Unpaved Rights of Way
• ADA retrofitting/rehabilitation projects
• Projects arising from federal or state mandates
• Street lighting
• Major core facilities (police, fire, streets, )
• Emergency city facilities and/or infrastructure rehabilitation

Notwithstanding the Policy set forth herein and in section 7.1, certificates of obligation or other long-term debt may be considered if the following criteria are met:

• The need for the project is urgent and immediate
• The project(s) is necessary to prevent an economic loss to the City
• Source of revenue is specific and can be expected to cover the additional debt
• The expected debt is the most cost effective financing option available

In addition, the average maturity of non-voter approved debt shall not exceed the average life of the project financed. Reimbursement resolutions may be used for projects funded through certificates of obligation.

7.3 Certificates of Obligation – Enterprise Fund

Certificates of obligation for an enterprise system will be limited to only those projects which can be demonstrate the capability to support the certificate debt through its own revenues, or other pledged source other than ad valorem taxes and meet the same criteria as outlined in 7.2 above.

7.4 Revenue Bonds

Revenue bonds will be issued for projects that generate revenues that are sufficient to repay the debt. Except where otherwise required by State Statutes, revenue bonds may be issued without voter approval and only in accordance with the laws of Texas.

7.5 Other Debt Obligations

The use of other debt obligations, permitted by law, including but not limited to public property finance act contractual obligations, pension obligations, tax notes, notes payable, and lease purchase obligations, will be reviewed on a case-by-case basis. The findings in 7.2 and 7.3 above will be considered for the use of these obligations.

7.6 Use of Derivatives

The use of derivatives is prohibited.

8.0 CREDIT ENHANCEMENTS

Credit enhancements are mechanisms which guarantee principal and interest payments. They include bond insurance and a line or letter of credit. A credit enhancement, while costly, will usually bring a lower interest rate on debt and higher rating from the rating agencies, thus lowering overall costs.

During debt issuance planning, the Financial Advisor will advise the City whether or not a credit enhancement is cost effective under the circumstances and what type of credit enhancement, if any, should be purchased. In a negotiated sale, bids will be taken during the period prior to the pricing of the sale. In a competitive sale, bond insurance may be provided by the purchaser if the issue qualifies for bond insurance.

9.0 DEBT APPROVAL PROCEDURES

9.1 Approval by the City Manager

All City financing transactions shall be prepared by the Chief Financial Officer for approval by the City Manager, prior to submittal to the Audit Committee.

All financing transactions for City subsidiary corporations and agencies shall be prepared and presented jointly to the City Manager and Chief Financial Officer and the Executive Director of the corporation and agency. The debt transactions must be approved by the City Manager prior to submittal to the corporation or agency board for approval and forwarding to the City Audit Committee.

9.2 Review by Audit Committee

All proposed long-term financing transactions for capital improvements and assets shall be reviewed by the City’s Audit Committee. For matters related to review by the Audit Committee, “long-term financing” means financing that constitutes an obligation beyond one fiscal year.

1. The City Council should not authorize the issuance of any long-term financing until the Audit Committee completes its review of the proposed transaction and submits its recommendation to the City Council.
2. The Chief Financial Officer, City Manager and City Attorney should review proposed transactions submitted to the Audit Committee prior to submission.
3. Upon approval by the Audit Committee, the proposed transaction shall then be presented to the full City Council.
4. In the absence of a quorum of the Audit Committee, the Chief Finance Officer has the authority to present the proposed transaction to the City Council without prior review of the Audit Committee.
5. The City Council shall comply with all public hearing requirements applicable to the specific type of bond being approved.

10.0 METHODS OF SALE

The City will use the method of sale that results in the most cost effective, efficient debt issuance process. The City will engage the services of an independent financial advisor to assist with determining the method of sale and the selection of other financing team members.

11.0 PERMITTED INVESTMENTS

All investments of bond proceeds shall adhere to the City’s Investment Policy, approved periodically by City Council. Investments shall not allow security types or credit standards less than those of the City’s Investment Policy and the term of the investments must not be in excess of the term of the bonds.

12.0 REFUNDING OF DEBT

The City will engage the services of an independent financial advisor when considering potential saving from refunding of debt. From time to time, the City may also issue refunding debt for purposes of restructuring debt, changing covenants, and/or changing the repayment source of the bonds. Such purpose should be specifically recognized by City Council.

12.1 Advance refunding and forward delivery refunding transactions for savings should be considered when the net present value savings as a percentage of the par amount of refunded bonds is at least 3%.

12.2 Current refunding transactions issued for savings should be considered when the net present value savings as a percentage of the par amount of refunded bonds is at least 2%.

13.0 DEBT SERVICE TAX RATE

Council shall adopt the necessary debt service tax rate in order to meet debt service principal, interest and fee payments, net of transfers, for each particular fiscal/budget year, subject to any reserve availability. State statutes limit the amount of general obligation debt a governmental entity may issue to $2.50 per $100 valuation of its total assessed valuation. Additionally, the City’s charter allows a tax rate limit not exceeding $1.65 per $100 valuation for any one year.

14.0 DEBT LIMITS

Direct debt outstanding includes bonded debt principal, capital leases and notes payable that are tax-supported and self-supported. For tax-supported debt, the following debt limits apply.

14.1 The total principal amount outstanding of tax-supported debt of the City shall not exceed three percent of the total assessed valuation of the City’s tax rolls.

14.2 The total tax-supported debt payment of the City shall not exceed 5 percent of non-capital expenditures for Governmental Funds.

For self-supported debt, such as enterprise fund (utilities) debt, the debt limit is based on the debt coverage ratio. Debt coverage ratio refers to the number of times the current combined debt service requirements or payments are covered by the current operating revenues net of on-going operating expenses.

14.3 The City will maintain a minimum debt service coverage ratio of 15 times unless otherwise dictated by bond covenants.

14.4 Conduit debt limitations will be determined on a case-by-case Creditworthiness of the borrower, credit rating and purpose for the debt are factors that will be considered.

15.0 MATURITY LEVELS/STRUCTURE

15.1 The term of debt shall not exceed the useful life of the capital asset being financed, and in no case shall exceed twenty-five (25) years. The average life (weighted) of each general obligation bond series shall be kept at or below 12.5 years.

15.2 Debt structure should approximate level debt service unless operational matters dictate otherwise. Market factors, such as the effects of tax-exempt designations, the cost of early redemption options and the like, will be given consideration during the structuring of long-term instruments.

16.0 MANAGEMENT OF DEBT SERVICE FUND

16.1 Interest earnings from general obligation bonds and certificates of obligation shall be used solely to fund direct or related capital expenditures or to service current and future debt payments. Interest earnings will be allocated in accordance with the City’s Investment Policy.

16.2 Debt service reserves for tax-supported debt shall maintain between a two-month (minimum) and three-month (maximum) reserve of the current year total debt service expenditure budget (i.e. Total Annual Debt Service Budget/12 months x 3 months). If this reserve balance is below minimum or exceeds maximum during any given fiscal year, a plan should be adopted to increase or reduce the size of the reserves as quickly as possible without causing large variances in the ad valorem property tax rate.

16.3 Debt service reserves for revenue bonds shall be maintained at levels required by controlling bond ordinances.

16.4 The City shall comply with all Internal Revenue Service rules and regulations including but not limited to arbitrage.

17.0 RATINGS

The City’s goal is to achieve and maintain the highest possible bond ratings that result from managing the City to best meet the needs and goals of the citizens.

17.1 The City will strive to maintain good relationships with bond rating agencies as well as disclose financial reports and information to these agencies and to the public.

17.2 The City will obtain a rating from at least one nationally recognized bond-rating agency on all issues being sold on the public market.

17.3 Timely disclosure of annual financial information including other information will be provided to the rating The Comprehensive Annual Financial Report (CAFR) will be prepared by management and attested to by an external audit firm. The rating agencies will also be notified in advance when the City begins preparation for a debt issuance, and the Chief Financial Officer will be responsible for coordination and interaction during the bond rating process and periodic rating reviews.

18.0 FINANCIAL ADVISOR

The City will use a financial advisor to assist the City in bond issuance and debt management oversight. The City’s financial advisor must be a firm that is independent of banking, underwriting, or other interests to assure that the selected financial advisor can effectively represent the City in negotiations with bankers, underwriters, and other service providers needed for the issuance of debt.

19.0 DEBT MANAGEMENT POLICY REVIEW

Compliance with the Debt Management Policy shall be performed annually by the Controller and the Strategic Budget Officer and any modifications reviewed by the Audit Committee and adopted by City Council.

Investment Policy

I.   POLICY

It is the policy of the City of Brenham that all available funds shall be invested in conformance with these legal and administrative guidelines with consideration for anticipated cash flow requirements and consideration of the safety and risk of investments. The City shall seek to optimize interest earnings to the extent possible based on these risk parameters.

Effective cash management is recognized as essential to good fiscal management. Investment interest is a source of revenue to City of Brenham funds. The City of Brenham’s investment portfolio shall be designed and managed in a manner designed to obtain the highest reasonable earnings from this revenue source, to be responsive to public trust, and to be in compliance with legal requirements and limitations.

Investments shall be made with the primary objectives of:

• Safety and preservation of principal
• Maintenance of sufficient liquidity to meet operating needs
• Diversification to avoid concentrated risk
• Public trust from prudent investment activities
• Optimization of interest earnings on the portfolio

The Investment Policy addresses the methods, procedures and practices that must be exercised to ensure effective and judicious fiscal management of the City of Brenham’s funds. This Policy serves to satisfy the statutory requirements of the Public Funds Investment Act, the “Act”, (Texas Government Code, Chapter 2256) in defining and adopting a formal investment policy and strategy. The policy and strategy shall be reviewed by the Audit / Investment Committee and adopted by resolution of the City Council no less than annually. Any modifications to the Policy will be noted in the written resolution.

II.  SCOPE

This Investment Policy shall govern the investment of all financial assets of the City of Brenham. These funds are accounted for in the City of Brenham’s Annual Audited Financial Statements and include:

• General Fund
• Special Revenue Funds
• Capital Projects Funds
• Enterprise Funds
• Trust and Agency Funds, to the extent not required by law or existing contract to be kept segregated and managed separately
• Debt Service Funds, including reserves and sinking funds, to the extent not required by law or existing contract to be kept segregated and managed separately
• Brenham Community Development Corporation Funds
• Internal Service Funds
• Self-Insurance Funds
• Any new fund created by the City of Brenham, unless specifically exempted from this Policy by the City Council or by law.

The City of Brenham may consolidate cash balances from all funds for investment purposes and efficiencies. Investment income will be allocated to the various funds based on their respective participation and in accordance with generally accepted accounting principles. The consolidated portfolio will address the varying needs, goals, and objectives of each fund.

This Investment Policy shall apply to all transactions involving the financial assets and related activity for all the foregoing funds. However, this Policy does not apply to the assets administered for the benefit of the City of Brenham by outside agencies or under deferred compensation programs.

III.  INVESTMENT OBJECTIVES

The City of Brenham shall manage and invest its cash with five primary objectives, listed in order of priority: safety, liquidity, diversification, public trust, and yield. The safety of the principal invested always remains the primary objective. All investments shall be designed and managed in a manner responsive to the public trust and consistent with state and local law.

The City of Brenham shall maintain a comprehensive cash management program, which includes timely collection of account receivables, vendor payments in accordance with invoice terms, and prudent investment of funds. Cash management is defined as the process of managing monies in order to ensure cash availability and reasonable market earnings on the City’s assets.

Safety

Safety of principal is the foremost objective of the investment program. Investments of the City of Brenham shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. Competitive bidding and perfected ownership of investments will be in place at all times. The objective will be to mitigate credit and interest rate risk. Each investment transaction shall be conducted in a manner to control the risk of capital loss by investing in high credit quality securities.

• Credit Risk – The Entity will minimize credit risk, the risk of loss due to the failure of the issuer or backer of the investment, by:
  • Limiting investments to the highest credit quality investments
  • Pre-qualifying the financial institutions and broker/dealers with which the City of Brenham transacts business
  • Perfecting City ownership by delivery versus payment settlement, and
  • Diversifying the investment portfolio so that potential credit or market risk is
• Market Risk – the City will minimize the risk from interest rate volatility by:
  • Structuring the investment portfolio to meet cash requirements for ongoing operations, thereby avoiding the need to liquidate investments prior to maturity.
  • Investing operating funds in laddered securities and maintaining a liquidity portion to cover unanticipated expenses.

Liquidity

The City of Brenham investment portfolio shall be structured in a ladder of maturities to match expected liabilities along with a liquidity portion to meet unanticipated liabilities. Securities will have active secondary markets.

Public Trust

All participants in the City of Brenham’s investment process shall seek to act responsibly as custodians of the public trust. Investment officers shall avoid any transaction that might impair public confidence in the City of Brenham’s ability to govern effectively.

Diversification

The portfolio will be diversified by market sector and maturity based on the cash flow and risk tolerances of the City.

Yield

The City of Brenham investment portfolio shall be designed with the objective of attaining a reasonable market yield throughout budgetary and economic cycles, taking into account the City’s investment risk constraints and the cash flow characteristics of the portfolio. Yield is secondary to the safety and liquidity objectives described above.

Based upon the cash flow of the City the maximum dollar-weighted average maturity of the consolidated portfolio shall be one (1) year. The benchmark used to determine whether reasonable yields are being achieved shall be the one year U.S. Treasury Bill.

IV.  INVESTMENT STRATEGY

The City of Brenham maintains a consolidated portfolio which is designed to address the unique characteristics of the fund groups represented in the portfolio.

Operating Funds: The primary objective for operating funds is to assure anticipated cash flows are matched with adequate investment liquidity. The secondary objective is to create a portfolio structure which will experience minimal volatility during economic cycles. This may be accomplished by purchasing high credit quality, short to medium term securities in a laddered structure. The maximum dollar weighted average maturity of one year reflects the expenditure cash flow of operating funds and will be calculated using the stated final maturity dates of each security.

Capital Project Funds: Funds for capital projects or special purposes should be invested based on anticipated cash flows and allow for flexibility and unanticipated project outlays. At no time will the stated final maturity dates of investments exceed the estimated project completion date on capital project funds.

Debt Service Funds: Debt service funds shall be invested with the primary objective of funding debt service obligations on the required payment date. Priority will be given to funding the next debt service due before any extensions are made in the funds.

Debt Service Reserve Funds: Debt Service Reserves should be invested to generate a dependable revenue stream from securities with a low degree of volatility. Securities should be short to medium term maturities and of high credit quality.

The City primarily utilizes a passive “buy and hold” portfolio strategy. Maturity dates are primarily matched with cash flow requirements and investments are purchased with the intent to be held until maturity. However, investments may be liquidated prior to maturity for the following reasons:

• An investment with declining credit may be liquidated early to minimize loss of principal
• Cash flow needs require that the investment be liquidated
• Market conditions present an opportunity to benefit from the trade

1. RESPONSIBILITY AND CONTROL CITY COUNCIL RESPONSIBILITIES

The City Council, in accordance with the Act, shall:

• Designate Investment Officers by resolution
• Receive and review quarterly investment reports
• Annually review and approve the City’s broker list – As noted in Section VIII, the governing body has designated this responsibility to the Audit & Investment Committee
• Review and adopt the investment policy and strategy at least annually
• Provide for investment training for investment officers

Investment Officers

The Chief Financial Officer and the Director of Finance are hereby designated as “Investment Officers” pursuant to the Act. Investment Officers are delegated authority to invest the funds on behalf of the City and such authorization shall remain in effect until rescinded by the City Council or until the Officer resigns or is terminated. The Investment Officers are authorized to execute investment transactions on behalf of the City. No person may engage in an investment transaction or the management of City of Brenham funds except as provided under the terms of this Investment Policy as approved by the City Council.

Investment Officers shall:

• Obtain training as defined by the Act and this Policy
• Prepare, sign, and submit quarterly investment reports to Council
• Maintain compliance files on all counter-parties (brokers) and provide the list for Council approval at least annually
• Provide for competitive bidding
• Disclose personal business relationships in accordance with policy
• Maintain full and complete records of the City’s portfolio and

Quality and Capability of Investment Management

The Investment Officers shall obtain training in investments. The seminars should be offered by professional organizations, associations, and other independent sources approved by Council. The training is to ensure the quality and capability of investment management in compliance with the Act.

In accordance with the Act, the designated Investment Officers shall attend 10 hours of investment training session within 12 months of their designation and every successive two fiscal years shall attend eight hours of training. A newly appointed Investment Officer must attend a training session of at least 10 hours of instruction within twelve months of the date the officer took office or assumed the officer’s duties. For purposes of this policy, an “independent source” from which investment training shall be obtained shall include a professional organization, an institution of higher education or any other sponsor other than a business organization with whom the City of Brenham may engage in an investment transaction.

Internal Controls

The Chief Financial Officer is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft, or misuse. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management.

The Chief Financial Officer shall establish a process for a compliance audit on policies and procedures. The internal controls shall address the following points at a minimum.

• Control of collusion
• Separation of transactions authority from accounting and record keeping
• Custodial safekeeping
• Clear delegation of authority to subordinate staff members
• Written confirmation for all transactions for investments and wire transfers
• Review of wire transfer agreements with the depository bank or third party custodian
• Review of compliance with the Act and this Policy

The Chief Financial Officer shall monitor, on no less than a monthly basis, the credit rating on all authorized investments in the portfolio based upon independent information from a nationally recognized rating agency. If any security falls below the minimum rating required by Policy, the Investment Officer shall notify the City Manager of the loss of rating, conditions affecting the rating and possible loss of principal with liquidation options available, within three days after notification of the loss of the required rating.

Prudence

The standard of prudence to be applied to all transactions shall be the “prudent person rule". This rule states that “Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived.”

In determining whether an Investment Officer has exercised prudence with respect to an investment decision, the determination shall be made taking into consideration:

• The investment of all funds, or funds under the City’s control, over which the Officer had responsibility rather than a consideration as to the prudence of a single investment.
• Whether the investment decision was consistent with the written approved Investment Policy of the City.

Indemnification

The Investment Officer, acting in accordance with written procedures and exercising due diligence, shall not be held personally liable for a specific investment’s credit risk or market price changes, provided that these deviations are reported immediately and the appropriate action is taken to control adverse developments.

Ethics and Conflicts of Interest

All participants in the investment process shall seek to act responsibly as custodians of the public trust. Investment officers shall avoid any transaction that might impair public confidence in the City’s ability to govern effectively. Officers and employees involved in the investment process shall refrain from personal business activity that would conflict with the proper execution and management of the investment program, or that would impair their ability to make impartial decisions.

Council members, employees and Investment Officers shall disclose to the Texas Ethics Commission and the City Manager, and the City Manager discloses to the City Council if:

1. The officer has a personal business relationship with a business organization offering to engage in an investment transaction with the City; or
2. The officer is related within the second degree by affinity of consanguinity, as determined under Chapter 573 of the Texas Government Code, to an individual seeking to transact investment business with the City; or
3. The officer has any material interests in financial institutions with which they conduct business; or
4. The officer has any personal financial/investment positions that could be related to the performance of the investment portfolio.

Employees and officers shall refrain from undertaking personal investment transactions with the same individual with which business is conducted on behalf of the City of Brenham.

VI.  SUITABLE AND AUTHORIZED INVESTMENTS

City funds may be invested only in the instruments described below, all of which are authorized and further defined by the Act. The City will not be required to liquidate an investment that becomes unauthorized subsequent to its purchase.

I.            Authorized Investments

1. Obligations of the United States of America, its agencies and instrumentalities with stated maturities not to exceed three (3) years excluding mortgage backed securities.
2. Obligations of this State or any State or agency thereof including political subdivisions having been rated as investment quality by two nationally recognized investment rating firm and having received a rating of not less that “A” or its equivalent with maturities not to exceed three (3)
3. Fully insured or collateralized depository Certificates of Deposit issued by a bank doing business in Texas insured by the Federal Deposit Insurance Corporation or its successor and secured by pledged obligations in a manner provided for by this Policy and state law with maturities not to exceed 12 months.
4. Local government investment pools, which 1) are created under and conform to the requirements of the Act, 2) are rated no lower than AAA or an equivalent rating by at least one nationally recognized rating service, 3) seek to maintain a $1.00 net asset value, and 4) are authorized by resolution or ordinance by the City Council.
5. Fully insured or collateralized interest bearing or money market accounts in any FDIC insured bank in Texas collateralized in accordance with this Policy, to include spread products.
6. AAA rated money market funds which strive to maintain a $1 net asset value and comply with SEC Rule 2a-7.
7. Commercial paper rated A1/P1 or the equivalent by two national rating agencies no longer than 270 days to maturity. No more than 20% of the portfolio may be held in commercial paper.

II.            Un-authorized Investments

The Act and this Policy prohibits investment in the following investment instruments:

• Obligations whose payment represents the coupon payments of the outstanding principal balance of the underlying mortgage-backed security collateral and pay no principal (Interest Only mortgage backed securities);
• Obligations whose payment represents the principal stream of cash flow from underlying mortgage-backed security collateral and bear no interest (Principal only mortgage backed securities);
• Collateralized mortgage obligations that have a stated final maturity date of greater than 10 years;
• Collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in a market index; and

The practice of “leveraging” whereby funds are borrowed for the sole purpose of investing is prohibited.

• INVESTMENT PARAMETERS MAXIMUM MATURITIES

The longer the maturity of investments, the greater their price volatility; therefore, it is the City’s policy to concentrate its investment portfolio in shorter-term securities (one to two years) in order to limit principal risk caused by changes in interest rates.

The City shall attempt to match its investments with anticipated cash flow requirements. The City will not directly invest in securities maturing more than three (3) years from the date of purchase; however, the above described obligations, certificates, or agreements may be collateralized using longer dated investments.

The consolidated portfolio will have a maximum dollar-weighted average maturity of one year. This dollar-weighted average will be calculated using the stated final maturity dates of each security.

Diversification

The City of Brenham recognizes that investment risks can result from issuer defaults, market price changes or various technical complications leading to temporary illiquidity. Risk is controlled through portfolio diversification that shall be achieved by the following general guidelines:

• Limiting investments to avoid over concentration in investments from a specific issuer or business,
• Limiting investment in investments that have higher credit risks
• Investing in investments with varying maturities, and
• Continuously investing a portion of the portfolio in readily available funds such as local government investment pools (LGIPs), or money market funds to ensure that appropriate liquidity is maintained in order to meet ongoing obligations.

Securities which lose their policy or State required credit rating must be liquidated in a reasonable period of time.

Securities which become unauthorized under State law or by a change in City Policy, do not require liquidation but after maturity funds must be re-invested in authorized securities.

• SELECTION OF BANKS AND DEALERS DEPOSITORY

As required by the City of Brenham Charter and state law, every five (5) years a primary banking services depository shall be selected through a competitive process, which shall include a formal request for proposal (RFP) and be consistent with state law. The selection of a depository will be determined by competitive bid and evaluation of bids will be based on the following selection criteria:

• The ability to qualify as a depository for public funds in accordance with state
• The ability to provide required
• The ability to meet all requirements in the banking
• The lowest net banking service cost, consistent with the ability to provide an appropriate level of
• The earning potential for funds in the
• The credit worthiness and financial stability of the

All banks will execute a written depository agreement in accordance with FIRREA¹ designating authorized collateral.

Authorized Brokers/Dealers

The City Audit/Investment Committee shall, at least annually, review, revise, and adopt a list of qualified broker/dealers authorized to engage in securities transactions with the City. Those firms that request to become qualified bidders for securities transactions will be required to provide information for the City’s questionnaire that provides information regarding creditworthiness, contact information, and experience. They must be registered with the Texas State Securities Board. All local government pools in which the City participates shall provide the City with certification stating the pools have received, read and understood the City of Brenham’s Investment Policy and have in place controls to prohibit selling the City any security not authorized by that Policy.

The City shall have a minimum of three broker/dealers to assure competitive bidding. Authorized firms may include primary dealers or regional dealers and qualified depositories. All local government investment pools, must sign the City’s certification. Every provider will be furnished the City’s Investment Policy.

Competitive Bids

All transactions will be made on a competitive basis. The Director of Finance shall develop and maintain procedures for ensuring a competition in the investment of the City funds.

Delivery vs. Payment

Securities shall be purchased only using the delivery vs. payment method with the exception of investment pools and money market mutual funds. Funds will be released after notification that the purchased security has been received by the custodian.

1. SAFEKEEPING OF SECURITIES AND COLLATERAL SAFEKEEPING AND CUSTODIAN AGREEMENTS

Securities owned by the City. The City of Brenham shall contract with a depository for the safekeeping/custody of securities owned by the City of Brenham as part of its investment portfolio. Securities owned by the City of Brenham shall be held in the City’s name as evidenced by safekeeping receipts of the institution holding the securities.

Collateral pledged to the City. Collateral for time and demand deposits will be held by an independent third party custodian designated by the depository and approved by the City outside of the pledging bank and evidenced by original safekeeping receipts of the pledging institution with which the collateral is deposited. Original safekeeping receipts and monthly collateral reports shall be delivered to the City.

¹ The Financial Institutions Resource and Recover Enforcement Act governs the actions of the FDIC in cases of bank default.

Collateral Policy

Consistent with the requirements of the Public Funds Collateral Act, it is the policy of the City to require collateralization of City funds in time and demand deposit with any depository bank for time and demand deposits above the FDIC insurance level. In order to anticipate market changes and provide a level of security for all funds, the collateralization level will be 102% market value of the total principal and accrued interest on the deposits or investments less an amount insured by the FDIC. At its discretion, the City of Brenham may require a higher level of collateralization for certain investment securities.

Securities pledged as collateral shall be held by an independent third party outside the holding company of the pledging bank with whom the City has a current depository agreement. The depository agreement must be written and is to specify the acceptable investment security types of collateral, including provisions relating to possession of the collateral, the substitution or release of investment securities, ownership of securities, and the method of valuation of securities. The bank must provide evidence that the collateral has been approved by action of the Bank Board or bank’s Loan Committee under the terms of FIRREA. Clearly marked evidences of ownership (safekeeping receipts) must be supplied to and retained by the City. Collateral shall be priced weekly at a minimum to assure that the market value of the pledged securities is adequate.

The Director of Finance is responsible for all substitutions and the substitution process. The substituted security’s market value will be equal to or greater than the required security value. Written notification of the substitution must be provided by the bank or custodian .

Collateral Defined

The Entity shall accept only the following types of collateral:

• Obligations of the United States or its agencies and instrumentalities including mortgage backed securities and collateralized mortgage obligations (CMO) which pass the Federal Reserve bank test
• Direct obligations of the state of Texas or its agencies and instrumentalities rated as to investment quality by a nationally recognized rating firm not less than A or its equivalent
• Obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized rating firm not less than A or its equivalent
• FHLB Irrevocable letters of credit Preference will be given to pledged

Subject to Audit

All collateral shall be subject to inspection and audit by the Director of Finance or the City of Brenham’s independent auditors.

At least annually, the Investment Officers shall conduct a compliance audit to ensure that investment practices are made in compliance with this policy and state law.

X. PERFORMANCE

Performance Standards

The City of Brenham’s investment portfolio will be managed in accordance with the parameters specified within this Policy. The portfolio shall be designed with the objective of obtaining a reasonable yield throughout budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow requirements of the City.

Performance/Risk Benchmark

It is the policy of the City of Brenham to purchase investments with maturity dates coinciding with cash flow needs. Through this strategy, the City shall seek to optimize earnings utilizing allowable investments available on the market at that time. Market value will be calculated on a monthly basis on all securities owned and compared to current book value. The City of Brenham’s portfolio shall be designed with the objective of regularly meeting or exceeding the period average yield on the one year U.S. Treasury Bill which is comparable to the City’s maximum weighted average maturity in days based on its cash flow analysis.

1. REPORTING METHODS

The Investment Officer(s) shall prepare an internal investment report on a monthly basis and on a quarterly basis for Council that summarizes investment strategies employed in the most recent monthly/quarter and describes the portfolio in terms of investment securities, maturities including the yield for the quarter.

The quarterly investment report shall be in compliance with the Act and include a summary statement of investment activity prepared in compliance with generally accepted accounting principles. This summary will be prepared in a manner that will allow the City Audit/Investment Committee to ascertain whether investment activities during the reporting period have conformed to the Investment Policy. The report will be provided to the City Council for review. The report will include the following:

• A listing of individual securities held at the end of the reporting period including book and market
• Unrealized gains or losses as calculated on the beginning and ending book and market value of securities for the period.
• Additions and changes to the market value during the
• Average weighted yield of portfolio as compared to the City’s
• Listing of investments by maturity
• Fully accrued interest and earnings for the reporting period
• The percentage of the total portfolio that each type of investment
• Any additional reporting information as required by the
• Statement of compliance of the City of Brenham’s Investment Policy and the

Market value of all securities in the portfolio will be determined on a monthly basis. These values will be obtained from a reputable and independent source reported in the quarterly report.

An independent auditor will perform an annual formal review of the quarterly reports with the results reported to the governing body.

XII.  INVESTMENT POLICY ADOPTION

The City of Brenham’s Investment Policy shall be adopted no less than annually by resolution of the City Council. The City of Brenham’s Investment Policy shall be subject to revisions consistent with changing laws, regulations, and needs of the City but any such changes must be adopted by the Council before use. The resolution adopting the policy and strategies must include any changes or modifications to the Policy.

Prior Authority/Date Issued:

City Council Resolution #R-24-012                             September 19, 2024

FINANCIAL POLICIES

The City of Brenham is responsible to its citizens and customers to carefully account for public funds, to manage City finances wisely and to plan for the adequate funding of services desired by the public. The primary objective of financial policies is to help the City achieve a long-term, stable and positive, financial condition. Hence, the following financial policies have been adopted by the City of Brenham.

Budget Policy

1. The budget process of the City shall conform to the Texas Uniform Budget
2. The City Manager, as chief executive officer, has ultimate responsibility for the
3. The City Manager formulates the budget goals for the City under the direction of City
4. All agencies of the City are required to submit requests for appropriations to the City Manager on or before the 15^th of July each year.
5. All budgets are prepared and adopted on a basis consistent with generally accepted accounting principles which is the same basis of accounting used for financial reporting.
6. The appropriated budget is prepared by fund and
7. The City Manager must present a proposed budget to the City Council for review prior to August 30th each year.
8. The City Council will hold public hearings on the proposed budget and adopt a final budget by ordinance no later than September 30th each year.
9. The City Council shall adopt a balanced budget; the revenues must equal the The budget may include a fund balance transfer as a resource to balance the budget.
   1. The City will strive to maintain an unrestricted fund balance reserve in the General Fund sufficient to cover 90 days of operating expenditures.
   2. The City will strive to maintain an unrestricted fund balance reserve in the Utility Funds sufficient to cover 60 days of operating expenditures.
10. Annual appropriated budgets are adopted for all governmental fund types except the following:
    1. Budgets for certain grants, established as special revenue funds, which are created pursuant to the terms of the related grant documents.
    2. Budgets for funds set up to receive special donations or assessments for specific purposes, which are established as special revenue funds.
    3. Budgets for certain major capital improvements that are set up as capital projects funds. Annual budgets are not adopted because these projects span more than one fiscal year.

11. All annual budget appropriations lapse at the end of the fiscal
12. Department heads may make transfers of appropriations within a department up to $2,500. Transfers over this amount require the approval of the City Manager or Assistant City Manager.
13. The City Manager is authorized to transfer budgeted amounts between line items and departments within any fund.
14. Any budget revisions that alter the total expenditures of any fund must be approved by the City
15. The legal level of budgetary control (the level at which expenditures may not legally exceed appropriations) is the fund level.
16. The budget is originally enacted by ordinance; therefore, any amendments to the budget must also be made by ordinance.
    1. Proposed amendments and the justification thereof will be presented during a work session of a meeting of the City Council.
    2. The proposed ordinance amending the budget will be presented during a formal session at two subsequent meetings of the City Council.

Fund Balance Policy

1. See the City of Brenham’s adopted written fund balance policy.

Investment Policy

1. The City of Brenham adopts a written investment policy annually.

Debt Policy

1. See the City of Brenham’s adopted written debt policy.

Purchasing Policy

1. The City of Brenham will comply with Purchasing Laws of the State as adopted by Resolution R-07-
2. Department heads may authorize purchases less than $3,000.
3. Three vendor quotes are required on all purchases between $3,000 and $99,999.
4. Division directors may authorize non-contractual purchases between $3,000 and $24,999.
5. The City Manager may authorize all purchases between $3,000 and $50,000, as approved in Resolution R-12-019.
6. The City Council must authorize all purchases greater than $50,000.
7. Purchases of $100,000 or more must go through a formal bid process and be authorized by City

Capital Asset Policy

1. Infrastructure assets (e.g. roads, bridges, sidewalks, utility lines and plants, and similar items) in excess of $50,000 and an estimated useful life of 40 to 50 years will be capitalized and recorded at historical cost.
2. Capital assets, other than infrastructure assets, costing more than $15,000 and possessing an estimated useful life in excess of one year, will be capitalized and recorded at historical cost.
3. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives will not be capitalized.
4. Major outlays for capital assets and improvements will be capitalized as projects are
5. Property, plant and equipment will be depreciated using the straight line method over the useful

Procurement Policy – Federal Grants and Agreements

1. The City of Brenham will comply with procurement requirements and/or subsequent amendments in Title 2 Code of Federal Regulations (CFR) Grants and Agreements.
2. The procurement process must be carried out in a fair, uniform and thorough manner to provide open competition in securing all products and services.
3. The required procurement documentation must include the rationale for procurement method, selection of contract type, contractor selection/rejection and basis for contract
4. Every procurement in excess of the Simplified Acquisition Threshold ($150,000) must have a cost or price analysis performed, including contract modifications.
5. Cost plus a percentage of cost must not be used and are explicitly
6. Contracts must contain the applicable provisions of Appendix II of 2 CFR 200.326.
7. The City will maintain good administrative practices and sound business judgment during the procurement process.
8. Prepare the Checklist for Reviewing Procurements Under Grants by Non-Federal Entities which was created to assist recipients in complying with the federal requirements that procurements must meet for expenses to be eligible for reimbursement.

Adopted by Council: October 15, 2009 (R-09-023) Amended: April 4, 2013

Amended: March 19, 2020 (R-20-013)

Amended: September 4, 2025 (R-25-021)