HomeMy WebLinkAboutReg 2025-07-21 Item 5G - Resolutions - Debt Policy / Investment PolicyITEM INFORMATION
STAFF SPONSOR: TONY CULLERTON ORIGINAL AGENDA DATE: 6/23/25
AGENDA ITEM TITLE Resolutions to Update the Debt Policy and Investment Policy
CATEGORY Discussion Motion Resolution Ordinance Bid Award Public Hearing Other
Mtg Date 7/14 Mtg Date Mtg Date Mtg Date Mtg Date
SPONSOR Council Mayor Admin Svcs DCD Finance Fire P&R Police PW
SPONSOR’S
SUMMARY Finance is recommending the repeal and replacement of the City’s current Investment and
Debt Policies. The updated policies reflect best practices by better aligning with industry
standards, expanding on roles and responsibilities, and supporting the City’s broader
financial strategy, including capital planning and passive revenue development.
REVIEWED BY Community Svcs/Safety Finance & Governance Planning & Community Dev.
Arts Comm. Parks Comm. Planning Comm.
Trans&Infrastructure Svcs
LTAC
DATE: 6/23/25 COMMITTEE CHAIR: ARMEN PAPYAN
RECOMMENDATIONS:
SPONSOR/ADMIN. Finance Department/Tony Cullerton
COMMITTEE Unanimous Approval; Forward to the 7/14/25 Committee of the Whole
COST IMPACT / FUND SOURCE
EXPENDITURE REQUIRED AMOUNT BUDGETED APPROPRIATION REQUIRED
$ $ $
Fund Source:
Comments:
MTG. DATE RECORD OF COUNCIL ACTION
7/14/25
MTG. DATE ATTACHMENTS
7/14/25 Staff Informational Memo Dated 6/23/25
Draft Resolution for Debt Policy
Draft Resolution for Investment Policy
7/21/25
COUNCIL AGENDA SYNOPSIS
----------------------------------Initials --------------------------------- ITEM NO.
Meeting Date Prepared by Mayor’s review Council review
7/14/25 TC
Minutes from 6/23/25 Finance and Governance Committee Meeting
7/21/25
Mtg Date 7/21 Mtg Date 7/21
5.G.
Final Resolution for Debt Policy
Final Resolution for Investment Policy
Forward to next Regular Meeting consent agenda
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Version: 6/16/2025
Staff: T. Cullerton
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
TUKWILA, WASHINGTON, ADOPTING A DEBT POLICY;
AND REPEALING RESOLUTION NO. 1840
WHEREAS, on September 2, 2014, the City Council adopted Resolution No. 1840
adopting a debt policy; and
WHEREAS, a debt policy and appropriate management of debt issued by the City is
an important factor in measuring the City’s financial performance and condition; and
WHEREAS, the proper management of borrowing can yield significant advantages;
and
WHEREAS, debt issuance planning with the City’s Capital Improvement Program
(CIP), will ensure alignment between financing strategies and long-term capital priorities;
and
WHEREAS, the use of long-term debt for operating or maintenance costs, except in
declared emergencies authorized by the City Council, promotes fiscal discipline and
responsible debt management; and
WHEREAS, clear delineation of the roles and responsibilities of the City Council and
Finance Director, including authority over interfund loans, delegation of bond issuance
approvals, and oversight of post-issuance compliance activities, will ensure appropriate
checks and balances; and
WHEREAS, expanding the range of eligible financing tools and debt instruments,
including interfund loans, state and federal loan programs, and other legal financing
contracts, provides the City with greater flexibility and cost-effective funding options; and
WHEREAS, enhancing compliance with federal and state laws by establishing
comprehensive procedures for continuing disclosure, arbitrage rebate monitoring, and
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Version: 6/16/2025
Staff: T. Cullerton
post-issuance compliance with IRS and SEC regulations, thereby safeguard s the City's
credit standing and legal obligations.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA,
WASHINGTON, HEREBY RESOLVES AS FOLLOWS:
Section 1. Repealer. Resolution No. 1840 is hereby repealed.
Section 2. Findings Incorporated and Adoption. The above “whereas” recitals are
adopted as findings in support of this resolution, and the City of Tukwila Debt Policy
attached hereto as Exhibit A is adopted.
PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at
a Regular Meeting thereof this _______ day of _________________, 2025.
ATTEST/AUTHENTICATED:
Andy Youn-Barnett, CMC, City Clerk Tosh Sharp, Council President
APPROVED AS TO FORM BY:
Filed with the City Clerk:
Passed by the City Council:
Resolution Number:
Office of the City Attorney
Attachment: Exhibit A – City of Tukwila Debt Policy - 2025
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CITY OF TUKWILA
DEBT POLICY
ADOPTED [DATE]
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TABLE OF CONTENTS
SECTION I. INTRODUCTION 3
SECTION II. GOVERNING PRINCIPLES 3
SECTION III. ROLES AND RESPONSIBILITIES 4
SECTION IV. PROFESSIONAL SERVICES 5
SECTION V. TRANSACTION-SPECIFIC POLICIES 6
SECTION VI. COMPLIANCE POLICIES 9
SECTION VII. OTHER POLICIES 10
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Section I. Introduction
Purpose and Overview
The objective of this policy is to provide general guidance for the issuance and management of all City of
Tukwila (the City) debt. Further, this policy establishes criteria to protect the City’s financial integrity while
providing a mechanism to fund the City’s capital needs prudently and cost effectively. Adherence to this
policy is essential to ensure that the City Council (Council) maintains a debt position which allows the
Council to protect the City, its functionality, and the credit quality of its obligations.
The City’s Finance Department is charged with ensuring compliance with all debt policy requirements.
Capital Planning
The City shall integrate its debt issuance with its Capital Improvement Program (referred to herein as CIP
or Capital Facilities Plan) spending to ensure that planned financing conforms to policy targets regarding
the level and composition of outstanding debt. This planning considers the long-term horizon, paying
particular attention to financing priorities, capital outlays and competing projects.
Long-term borrowing shall be confined to the acquisition and/or construction of capital improvements
and shall not be used to fund operating or maintenance costs. The issuance of debt to fund operating
deficits is not permitted except in emergencies as adopted by formal action by the City Council. For all
capital projects under consideration, the City shall budget and set aside sufficient revenue from
operations to fund ongoing maintenance needs and to provide reserves for periodic replacement and
renewal. The source of funds for the project should reflect the intended use of bond financing.
Section II. Governing Principles
In the issuance and management of debt, the City shall comply with the State of Washington (State)
constitution and with all other legal requirements imposed by federal, State, and local rules and
regulations, as applicable. The following section highlights the legal framework for debt issuance.
Governing Law
State Statutes. The City issues debt in accordance with the Revised Code of Washington (RCW), in
particular chapters 39.36, 39.46, and 39.53, the State constitution along with all other City, State, and
federal laws, rules, and regulations.
Federal Rules and Regulations. The City shall issue and manage debt in accordance with the limitations
and constraints imposed by federal rules and regulations, including but not limited to, Internal Revenue
Code of 1986, as amended, and Treasury Department Regulations thereunder (Tax Law), and the
Securities Acts of 1933 and 1934 (Securities Law).
Local Rules and Regulations. The City shall issue and sell debt in accordance with the limitations and
constraints imposed by the Tukwila Municipal Code (TMC), including but not limited to Title 3 (Revenue
and Finance) and City ordinances, resolutions, policies, procedures, and bond covenants.
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Legal Debt Limits for GO Debt
State law (RCW 39.36.020) allows for the issuance of general obligation (GO) debt, through a public vote,
of up to 7.5% of the City’s assessed property valuation. The limit of 7.5% of assessed valuation for GO
debt is divided between three different use types: 1) 2.5% for municipally owned water, sewer, or electric
facilities; 2) 2.5% for open space and parks; and 3) 2.5% for general government purposes. Within the
2.5% limit for general government purposes, State law allows the Council to issue debt without a vote of
the people. This non-voted debt (also called councilmanic debt) cannot be greater than 1.5% of the
assessed property valuation of the City.
Section III. Roles and Responsibilities
Responsibilities of City Council
• Approve this policy and any updates/changes to this policy to help ensure compliance with all
applicable rules and regulations for debt issuance.
• Approve projects to be financed as part of the City Capital Facilities Plan.
• Adopt an ordinance authorizing the issuance and sale of debt, and, as applicable, setting forth the
delegation requirements provided for in RCW 39.46.040 when appointing a designated
representative, the City Finance Director or their designee, to approve the final terms of the debt.
• Approve budgets sufficient to provide for the timely payment of principal and interest on all debt.
Responsibilities of the Finance Director
• Apply and promote prudent fiscal practices.
• Oversee any debt issuance including sale of bonds and review and approval of disclosure
documents.
• Approve the issuance of debt at the lowest acceptable cost and risk within the parameters
authorized by City Council in the bond ordinance.
• Provide for the timely payment of principal and interest payment on all debt and ensure the fiscal
agent receives funds for payment of debt service on or prior to the payment date.
• Ensure compliance with all Tax Laws, Securities Laws, contractual requirements, and other rules
and regulations governing the issuance of debt.
• Ensure compliance with all terms, conditions, post-issuance requirements, and Tax Law
requirements imposed by law and/or the legal documents governing the debt issued.
• Ensure any annual disclosure reports and notices regarding the occurrence of certain events are
timely posted to the EMMA (Electronic Municipal Market Access) system in accordance with
continuing disclosure undertakings of the City pursuant to Securities Law.
• Maintain records for all outstanding debt.
• Oversee all aspects of debt management.
• Solicit and select professional services providers as necessary, to administer debt financing.
• Consult with the City’s contracted municipal advisor to determine the method of sale best suited
for each issue of debt (competitive sale, negotiated sale, or bank/direct placement).
• Select the manner of sale of debt.
• Monitor opportunities to refund debt and recommend such refunding as appropriate.
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• Provide pertinent information to credit rating agencies when issuing debt and as routine credit
reviews occur.
IV. Professional Services
The City’s Finance Director will be responsible for the solicitation and selection of professional services as
necessary to administer the City’s debt program. Professional service providers necessary to issue debt
may include, but are not limited to bond counsel, disclosure counsel (which may be bond counsel),
municipal advisor, underwriters, banks, rating agencies, and fiscal agent. Selection of the service providers
will consider availability, professional knowledge, accountability, cost, as well as successful partnerships
in previous debt issuances. The City will issue debt considering cost and associated risk.
Professional Service Providers
Bond Counsel – Debt issued by the City will generally include a written opinion by bond counsel affirming
that the City is legally authorized to issue the proposed debt. The opinion shall provide that the obligation
is legal, valid and binding, and enforceable against the City. In the case of tax exempt financing, the legal
opinion will address the treatment of interest for purposes of Tax Law.
Municipal Advisor – A Municipal Advisor may be used to assist in the issuance of the City’s debt. The
Municipal Advisor will provide the City with objective advice and analysis on debt issuance. This includes,
but is not limited to, coordinating of finance team, monitoring of market opportunities, structuring and
pricing of debt, competitive sale execution, and reviewing the preliminary and final official statements.
Disclosure Counsel - The Disclosure Counsel (which may be bond counsel) plays a critical role in ensuring
that the City's preliminary and final official statements comply with Securities Laws and disclosure
requirements. Disclosure Counsel provides legal guidance on the accuracy, completeness, and
transparency of the information presented to investors, helping to mitigate the risk of material
misstatements or omissions. Working closely with the City's finance team, bond counsel, and municipal
advisor, Disclosure Counsel reviews financial and operational disclosures, drafts legal sections of the
official statements, and provides legal advice in connection with the City’s obligations under SEC Rule
15c2-12 and other applicable regulations. Their expertise helps protect the City from potential legal and
regulatory risks while maintaining investor confidence in the bond issuance process.
Underwriters – An Underwriter will be selected in advance for all debt issued in a negotiated sale method.
The Underwriter is responsible for purchasing debt and reselling the debt to investors.
Arbitrage Rebate Consultant – As necessary, the City may engage with an arbitrage rebate consultant to
ensure the City is compliant with Tax Law on tax-exempt bonds by calculating potential arbitrage rebate
liabilities. The consultant will analyze investment earnings, determine rebate amounts owed under IRS
Code 148(f), and assist with documentation, deadlines, and best practices to minimize exposure and avoid
penalties.
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Fiscal Agent – A fiscal agent may be used to provide accurate and timely securities processing and payment
to bondholders. As provided under RCW 43.80, the City will work with the Fiscal Agent that is determined
by the State.
Section V. Transaction-Specific Policies
For any City project planned to be funded through debt, an analysis will be done to consider: (a) other
potential ways to finance the project; (b) future operating and maintenance costs, including debt
repayment; (c) expected cash inflows that could help offset the amount borrowed; and (d) anticipated
cash outflows for construction or equipment to ensure compliance with arbitrage rules.
Method of Sale
The Finance Director, in consultation with the City’s municipal advisor, will determine the method of sale
best suited for each issue of debt (competitive sale, negotiated sale, or bank/direct placement). The type
of debt to be issued and manners of the sale will be submitted to the City Council for approval in the bond
ordinance. The bond ordinance will authorize the issuance and sale of debt, and, as applicable, set forth
the delegation requirements provided for in RCW 39.46.040 when appointing a designated
representative, the City Finance Director or their designee, to approve the final terms of the debt.
Bond Insurance
For each issue, the City, in conjunction with its municipal advisor, will evaluate the costs and benefits of
bond insurance or other credit enhancements. Any credit enhancement purchases by the City must be
competitively procured in a manner deemed reasonable by the City Finance Director.
Bond Ballot Measures
Prior to any unlimited tax general obligation bond (described below) proposition being placed before the
voters, the capital project under consideration must, unless otherwise justified and have found to be in
the best interest of the City, have been included in the City’s Capital Facilities Plan. The source of funds
for the project should reflect the intended use of bond financing.
Investor and Rating Agency Relations
The City will maintain good communications with bond rating agencies and investors about its fiscal
condition. The City will provide full, accurate and complete disclosure on financial reports and in disclosure
documents to comply with the anti-fraud requirements of Securities Laws.
Short-term debt
The City may use short-term debt, defined as a period not to exceed three years, to fund cash flow needs,
which may be caused by a delay in receipting tax revenues or issuing long-term debt. The City will not
issue short-term debt for current operations, except in the event of an emergency.
The City may issue interfund loans rather than issuing outside debt to meet short-term cash flow needs.
The issuance of an interfund loan will be permissible only after an analysis of the loaning fund(s) indicate(s)
that excess funds are available, and the use of these funds will not impact the loaning fund(s) current
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operations or constitute a permanent diversion of funds. All interfund borrowing will bear interest based
upon at least the prevailing LGIP (Local Government Investment Pool) rate.
Council authorizes the City’s Finance Director to approve short-term interfund loans for a period not to
exceed three calendar months and the City Administrator to approve short-term interfund loans for a
period not to exceed 12 calendar months. See long-term debt section below for policy on loans exceeding
12 calendar months. The Finance Director shall notify the Finance & Governance Committee and/or City
Council of any use of directorial or administrator approved interfund loans at the first reasonable
opportunity.
Interfund loans are not considered “debt” for purposes of State law, Securities Law, or Tax Law.
Long-term debt
The City will issue long-term debt, defined as a period greater than three years, for capital projects which
cannot reasonably be financed on a pay-as-you-go funding strategy from anticipated cash flows.
Acceptable uses of bond proceeds are one-time capital projects that can be capitalized and depreciated
in accordance with the City’s accounting principles. (Refunding debt is also an acceptable use. See
refunding debt section below.)
The City Council may issue long-term interfund loans rather than issuing outside debt instruments as a
means of financing capital improvements. The issuance of an interfund loan will be permissible only after
an analysis of the loaning fund(s) indicate that excess funds are available, and the use of these funds will
not impact the loaning fund(s) current operations or constitute a permanent diversion of funds. All
interfund borrowing will bear interest based upon at least the prevailing LGIP (Local Government
Investment Pool) rate.
The decision to use an interfund loan rather than outside debt to fund capital projects will be based on
which is deemed to be the most cost-effective approach to meet City capital needs. The City’s Finance
Department is responsible for making such an assessment. Interfund loans are not considered “debt” for
purposes of State law, Securities Law, or Tax Law.
The City will not issue long-term debt for current operational needs, except in the event of an emergency.
Types of long-term debt the City may issue:
Limited Tax General Obligation (LTGO) Bonds: LTGO debt is secured by a pledge of the full faith and credit
of the City and is payable from regular property taxes and other legally available funds. These bonds can
be issued without a vote of registered voters but are limited in that debt service payments must be paid
from legally available City revenue sources. The amount of LTGO outstanding debt cannot exceed the
threshold stated above.
Unlimited Tax General Obligation (UTGO) Bonds: UTGO debt is secured by a pledge of the full faith and
credit of the City and is payable from excess property taxes and other legally available funds. These bonds
can only be issued when authorized by a 60% majority vote of registered voters (meeting the minimum
voter turnout requirement). As part of the ballot proposition, voters will approve the issuance of the UTGO
debt and an excess property tax levy, as a completely new and dedicated source of revenue, to pay the
debt service. The amount of UTGO debt cannot exceed the thresholds stated above. Proceeds of UTGO
debt are limited to capital purposes only and not the replacement of equipment.
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Revenue Bonds: Revenue bonds are used to finance construction of and/or improvements to facilities of
enterprise systems operated by the City in accordance with the Capital Facilities Plan and are payable
from and secured by a pledge of revenue of the enterprise. No taxing power or general fund pledge is
provided as security, with the exception of double-barrel bonds. Double-barrel bonds are a type of
municipal bond that are backed by enterprise funds and the full faith and credit of the City. Unlike general
obligation bonds, revenue bonds are not subject to the City’s statutory debt limitation nor is voter
approval required. Revenue bonds may contain certain covenants and obligations of the City, including
but not limited to, future parity bond tests, annual debt service coverage requirements, restrictions on
disposal of the enterprise facility/utility, and other terms to protect the stream of revenue pledged to the
repayment of the revenue bonds.
Reserve accounts may be created on a transaction-by-transaction basis. Any reserve account created shall
be maintained and funded as required by bond ordinances and as deemed advisable by the City Council
or the designated representative on behalf of the City. The City shall structure any debt service reserve
fund to not violate the Tax Code.
The City will strive for annual revenue bond debt coverage of at least 1.5 times the annual debt service
paid in such year. Additional bonds issued may be subject to additional bonds tests as described in bond
ordinances.
Special Assessment Bonds: Also referred to as Local Improvement District (LID) bonds, this type of debt is
used to finance capital improvements that benefit property owners within the LID. LID debt is repaid from
annual assessments paid to the City by property owners within the LID. LIDs are formed by City Council
following the process outlined in State statutes and chapter 13.04 TMC. The cost is borne only by those
who receive a special benefit from the improvements. LID debt is not part of the debt capacity calculation.
Other Debt Instruments: Instruments such as Public Works Trust Fund loans or other financing contracts
issued through the State of Washington, federal grant loans, bond anticipation notes (BAN), tax
anticipation notes (TAN), bank loans, and/or other legal debt issues may be incurred as allowed by law.
Refunding Debt
Refunding debt may be issued by the City in accordance with chapter 39.53 RCW. Refunding debt is
typically issued to take advantage of lower interest rates for overall cost savings, restructure debt, or
modify bond covenants. Refunding bonds are an acceptable use of bond proceeds provided that, and
unless otherwise justified and found to be in the best interest of the City, a) the net present value (NPV)
of the overall savings (not by maturity) is at least 3% and b) the final maturity date of the obligation is not
extended.
Other Considerations
The following terms shall be applied to the City’s debt transactions, as appropriate. Individual terms may
change as dictated by the marketplace or the unique qualities of the transaction.
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• Maturity –The City shall issue debt with an average life less than or equal to the average life of
the assets being financed. Unless otherwise stated in law, the final maturity of the debt shall be
no longer than 40 years (RCW 39.46.110).
• Debt Service Structure – Unless otherwise justified, debt service should be structured on a level
basis (i.e., level annual payments). Refunding bonds should be structured to produce equal
savings by fiscal year. Unless otherwise justified, debt shall not have capitalized interest. If
appropriate, debt service reserve funds may be used for revenue bonds.
• Price Structure – The City’s long-term debt may include par, discount, and premium bonds. Call
Provisions – For each transaction, the City shall evaluate the costs and benefits of call provisions.
In general, the City shall opt for a call date no later than 10 ½ years from the date of the bonds.
• Tax-exemption – Unless otherwise justified and deemed necessary, the City shall issue its debt on
a tax-exempt basis.
• Reimbursement declaration – Must be made prior to bond issuance if the City intends to be
reimbursed out of tax exempt bond proceeds for capital costs paid prior to the closing date.
• The City will not use derivatives in connection with any new financings.
• The City will not become obligated for any new City debt or otherwise be involved in any new
financing that would include a variable rate of interest or variable debt service (excluding of any
additional rent payable under a financing lease or other obligation for ongoing transaction fees).
Section VI. Compliance Policies
The City will comply with all federal, State, contractual restrictions and City policies regarding the
investment of bond proceeds and associated funds subject to debt-related investment limitations. Such
requirements may include restrictions on the type of securities allowed the yield on such securities, and
the length of time that such proceeds and funds may be invested.
For refunding escrows, the City may invest funds in State and Local Government Series (SLGS) securities
issued by the U.S. Treasury, or, after satisfying requirements of Tax Law and if determined advisable after
consultation with the City’s municipal advisor and bond counsel, in open-market securities as permitted
under State law and relevant bond covenants.
The City will maintain a system for tracking bond proceeds, including how proceeds are invested, when
they are spent, and for what purpose. Bond proceeds shall, unless otherwise permitted, be tracked
separately from other City funds and on an issue by issue basis.
The City shall maintain records related to the bonds for the life of the bonds (plus any refunding bonds)
plus three years.
The City will, unless otherwise permitted, spend at least 85% of tax-exempt bond proceeds within three
years from the date of issuance pursuant to Tax Law, and take such steps as necessary to avoid or manage
arbitrage. The City will maintain a system of recordkeeping and reporting to meet the arbitrage rebate
compliance requirement of the IRS (Internal Revenue Service, IRC 148) regulation. For each bond issue,
the recordkeeping will include tracking the yield and investment earnings on bond proceeds, calculating
rebate payments, and remitting any rebate earnings to the federal government in a timely manner to
preserve the tax-exempt status of the outstanding debt obligation. Any bond proceeds invested will
comply with the City’s investment policy and strategies, unless further restricted by bond covenant. The
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City may, when determined to be in the best interest of the City or required, contract with an arbitrage
rebate consultant to assist with the arbitrage rebate calculation.
The City will repay principal plus interest in accordance with the payment terms of the bond or contract.
Furthermore, the City will comply with all bond or contract covenants. This includes, but is not limited to,
any undertakings to provide ongoing disclosure and notice of certain listed events under Securities Laws.
Annual disclosure will take the form of the City’s audited annual financial statements as well as other
information required by the bond or contract that is not reasonably contained in the annual report. The
City Finance Director will develop and comply with all post-issuance compliance policies and procedures
related to Tax Law and policies and procedures relating to initial and ongoing disclosure under Securities
Laws.
The Finance Director and bond counsel will coordinate their activities and review all debt issuance to
ensure that all securities are issued in compliance with State and federal legal and regulatory
requirements by the State law, Tax Law, Securities Law, rules and regulations.
The Finance Director may institute procedures to implement this policy and other bond covenants and
provisions related to State law, Tax Law, Securities Law, rules and regulations applicable to the City’s debt.
No derivative products shall be used in connection with City debt.
Section VII. Other Policies
Periodic Review
This debt policy must be adopted by Council. The policy will be reviewed at least every four years by the
Finance Department and modifications must be submitted to and approved by the Council.
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Legislation: Investment Policy Page 1 of 2
Version: 6/16/2025
Staff: T. Cullerton
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
TUKWILA, WASHINGTON, ADOPTING AN INVESTMENT
POLICY; AND REPEALING RESOLUTION NO. 2034
WHEREAS, the investment of public funds must comply with all applicable state and
local requirements; and
WHEREAS, a comprehensive investment policy ensures that public funds are
invested in a manner that will provide maximum security with the highest investment
return while meeting daily cash flow demands; and
WHEREAS, on December 6, 2021, the City Council adopted Resolution No. 2034
adopting an investment policy; and
WHEREAS, the City Council desires to strengthen and align the policy with prudent
and contemporary financial investment practices; and
WHEREAS, the City Council desires to implement an Environmental, Social, and
Governance (ESG) investment strategy utilizing ethical investing as a guiding principle;
and
WHEREAS, the City Council desires to incorporate climate change as a factor in
investment risk and strategy, aligning with broader sustainability goals.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA,
WASHINGTON, HEREBY RESOLVES AS FOLLOWS:
Section 1. Repealer. Resolution No. 2034 is hereby repealed.
Section 2. Findings Incorporated and Adoption. The above “whereas” recitals are
adopted as findings in support of this resolution, and the City of Tukwila Investment Policy
attached hereto as Exhibit A is adopted.
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Version: 6/16/2025
Staff: T. Cullerton
PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at
a Regular Meeting thereof this _______ day of _________________, 2025.
ATTEST/AUTHENTICATED:
Andy Youn-Barnett, CMC, City Clerk Tosh Sharp, Council President
APPROVED AS TO FORM BY:
Filed with the City Clerk:
Passed by the City Council:
Resolution Number:
Office of the City Attorney
Attachment: Exhibit A – City of Tukwila Investment Policy - 2025
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City of Tukwila
Investment Policy
2025
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Table of Contents
1. Introduction .......................................................................................................................... 3
2. Governing Authority ............................................................................................................. 3
3. Policy Statement .................................................................................................................. 3
4. Scope .................................................................................................................................... 3
5. Objectives ............................................................................................................................ 3
A. Safety ............................................................................................................................. 4
B. Liquidity .......................................................................................................................... 4
C. Return on Investment ..................................................................................................... 5
6. Standards of Care ................................................................................................................ 5
A. Delegation of Authority and Responsibilities ................................................................... 5
B. Prudence ........................................................................................................................ 6
C. Ethics and Conflicts of Interest ....................................................................................... 6
7. Safekeeping, Custody and Controls ..................................................................................... 6
A. Delivery vs. Payment ...................................................................................................... 6
B. Third-Party Safekeeping ................................................................................................. 7
8. Authorized Financial Dealers ............................................................................................... 8
A. Broker/Dealers ............................................................................................................... 8
B. Investment Advisors ....................................................................................................... 8
C. Depositories ................................................................................................................... 9
D. Competitive Transactions ............................................................................................... 9
9. Authorized and Suitable Investments ................................................................................... 9
A. Authorized Investments .................................................................................................. 9
B. Suitable Investments .....................................................................................................10
C. Bank Collateralization ....................................................................................................11
D. Prohibited Investments ..................................................................................................11
10. Investment Parameters .....................................................................................................12
A. Diversification ................................................................................................................12
B. Investment Maturity .......................................................................................................12
C. Strategic Philosophy ......................................................................................................13
11. Reporting Requirements ...................................................................................................14
12. Policy Adoption .................................................................................................................15
Glossary of Terms .....................................................................................................................16
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1. Introduction
This Investment Policy defines the parameters within which funds are to be invested by the City
of Tukwila (“City”). This policy also formalizes the framework of the City’s Policy and Procedures
to provide the authority and constraints for the City to maintain an effective and judicious
management of funds within the scope of this policy.
These policies are intended to be broad enough to allow the Finance Director or authorized
designee to function properly within the parameters of responsibility and authority, yet specific
enough to adequately safeguard the investment assets.
2. Governing Authority
The City of Tukwila’s investment authority is derived from RCW 35A.40.050 and 35.39.032. The
investment program shall be operated in conformance with Washington Revised Statutes and
applicable Federal Law. All funds within the scope of this policy are subject to regulations
established by the State of Washington.
3. Policy Statement
This policy establishes standards and guidelines for the direction, management and oversight for
all of the City of Tukwila’s investable cash and funds. Funds must be invested prudently to assure
preservation of principal, provide needed liquidity for daily cash requirements, and provide a
market rate of return. All investments must conform to federal, state, and local statutes governing
the investment of public funds.
4. Scope
This policy applies to activities of the City of Tukwila with regard to investing the financial assets
of the City. The City commingles its funds to maximize investment earnings and to increase
efficiencies with regard to investment pricing, safekeeping, and administration. Investment
income will be allocated to the various funds based on their respective participation and in
accordance with generally accepted accounting principles (GAAP). Principal and interest is
apportioned for the benefit of the various participating funds or for the benefit of the general fund.
(RCW 35.39.034) The city maintains the right to separate certain funds and exclude them from
the scope of this policy. Should bond covenants be more restrictive than this policy, funds shall
be invested in full compliance with those restrictions.
5. Objectives
All funds will be invested in a manner that is in conformance with federal, state and other legal
requirements. In addition, the objectives, in order of priority, of the investment activities will be as
follows:
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A.Safety
Safety of principal is the primary objective of the City. To mitigate credit and interest rate
risk, investment decisions shall be undertaken in a manner that seeks to ensure
preservation of capital in the overall portfolio. To obtain this objective, the following steps
will be taken:
i.Credit risk. This is the risk of loss due to the financial failure of the security issuer or
backer. The city will minimize credit risk by:
1.Limiting exposure to poor credits and concentrating the investments in the
safest types of securities.
2.Diversifying the investment portfolio so that potential losses on individual
securities will be minimized; and
3.Actively monitoring the investment portfolio holdings for rating changes,
changing economic market conditions, etc.
4.Credit rating downgrade. If the credit rating of a security is subsequently
downgraded below the minimum rating level for a new investment of that
security, the Finance Director shall evaluate the downgrade on a case-by-case
basis in order to determine if the security should be held or sold after further
analysis of the credit rating on an ongoing basis. The Finance Director will
apply the general objectives of safety, liquidity, and return to make the decision.
ii.Interest rate risk. This is the risk that the market value of securities in the portfolio will
fall due to increases in general interest rates. The city will mitigate the interest rate risk
by:
1.Structuring the investment portfolio so that securities mature to meet cash
requirements, when known, for ongoing operations, thereby avoiding the need
to sell securities on the open market prior to maturity;
2.Investing liquidity funds primarily in short-term instruments (i.e., investments
maturing in less than one year); and
3.Investing excess liquidity funds in a manner that is consistent with the
established risk/return objectives of this policy within the stated maximum
weighted average maturity constraint.
B.Liquidity
The investment portfolio will be structured to meet all expected obligations in a timely
manner, to avoid premature sale of an investment at a loss of principal. The investment
portfolio will provide liquidity sufficient to enable the City to meet all cash requirements
that might reasonably be anticipated. This will be accomplished by either maintaining a
portion of the portfolio in investment vehicles offering daily liquidity at face value, such as
the Washington State Local Government Investment Pool (LGIP) or structuring the
portfolio so that securities mature concurrently with cash needs to meet anticipated
demands. Because all possible cash demands cannot be anticipated, the portfolio should
consist largely of securities with active secondary or resale markets.
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C. Return on Investment
The investment portfolio will be structured with the objective of attaining a market rate of
return throughout economic cycles, commensurate with the investment risk parameters
and the cash flow characteristics of the portfolio.
D. Legality
The investment portfolio will be invested in a manner that meets RCW statutes and all
legal requirements of the City.
6. Standards of Care
A. Delegation of Authority and Responsibilities
i. Governing Body
The City Council, as the governing body of the City, will retain ultimate fiduciary
responsibility for the portfolio. The Council will designate an investment officer to
manage the investment program in accordance with RCW sections 35A.40.050,
35.39.032, 36.29.020 and City policy and will review and adopt any changes to the
investment policy.
ii. Delegation of Authority
The City Council designates the City’s Finance Director, or their designee, as the
Investment Officer of the City. No person may initiate investment transactions on
behalf of the Investment Officer without the express written consent of the Investment
Officer. Both the City and the investment advisor shall maintain record of individuals
granted consent to initiate transactions by the Investment Officer.
iii. Training: Such procedures shall include explicit delegation of authority to persons
responsible for investment transactions to provide adequate redundancy by properly
trained and informed staff. All staff engaging in investment transactions shall attend
public investment training. Staff shall not engage in any allowable investment
transaction for which they cannot articulate a rationale for having done so.
iv. Finance Committee:
The Finance & Governance Committee shall meet at least annually to receive a report
on investment performance and investment compliance.
v. Registered Investment Advisor
The City may engage the services of an external registered investment adviser to
assist with the management of the City’s investment portfolio in a manner that is
consistent with the City’s objectives and this policy. Such advisers shall provide
recommendation and advice regarding the City investment program including but not
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limited to advice related to the purchase and sale of investments in accordance with
this Investment Policy. Such advisers must be registered under the Investment
Advisers Act of 1940.
B.Prudence
The standard of prudence to be used by the Finance Director or any designees in the
context of managing the overall portfolio is the prudent person rule enacted by State
Statute (RCW 11.100.020) which states:
Investments will 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 in regard to speculation but in regard to the
permanent disposition of the funds considering the probable income as well as the
probable safety of the capital.
The Finance Director and authorized investment officers and employees who act in
accordance with the Finance Director’s written procedures and the City’s Investment
Policy, and who exercise due diligence, shall be relieved of personal responsibility for the
credit risk or market price change of an investment, provided deviations from expectations
are reported in a timely fashion and appropriate action is taken to control adverse
developments.
C.Ethics and Conflicts of Interest
Officers and designated employees involved in the investment process shall refrain from
personal business activity that could conflict with the proper execution of the investment
program, or which could impair their ability to make impartial investment decisions.
Employees and investment officials shall disclose to the City Manager in writing any
material financial interests in financial institutions that conduct business within this
jurisdiction, and they shall further disclose any large personal financial/investment
positions that could be related to the performance of the City’s portfolio. Employees and
officers shall subordinate their personal investment transactions to those of the City of
Tukwila, particularly with regard to the time of purchases and sales.
Persons authorized to invest shall not accept gifts form the institutions with which the City
places investments. Occasional business meals are acceptable and must be reported to
the Finance Director and Finance Committee.
7.Safekeeping, Custody and Controls
A.Delivery vs. Payment
All trades of marketable securities will be executed (cleared and settled) on a delivery vs.
payment (DVP) basis to ensure that securities are deposited in the City’s safekeeping
institution prior to the release of funds.
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B. Third-Party Safekeeping
Prudent treasury management requires that all purchased securities be bought on a
delivery versus payment (DVP) basis and be held in safekeeping by the City, an
independent third-party financial institution, or the City’s designated depository.
The City’s Finance Director shall designate all safekeeping arrangements and an
agreement of the terms executed in writing. All securities will be receipted and recorded
based on the terms in the custodial contract. The third-party custodian shall be required
to provide a monthly statement to the City listing at a minimum each specific security, book
yield, description, maturity date, market value, par value, purchase date, and CUSIP
number. The City will have online access through the safekeeping bank for verification of
the account holdings and transactions.
All collateral securities pledged to the City for certificates of deposit or demand shall be
held in a segregated account at the issuing financial institution that is reporting to the
State’s Public Deposit Protection Commission (PDPC).
C. Performance Standards / Benchmark
The investment portfolio is expected to provide similar returns to the benchmark over
interest rate cycles but may underperform or outperform in certain periods. The City’s cash
management portfolio shall be managed using as comparison for market yield of [Name
a specific benchmark, i.e. 3-Year Constant Maturity US Treasury Index, 0-3 year Treasury
Index, etc.].
D. Downgraded Securities
The City may, from time to time, be invested in a security whose rating is downgraded. In
the event a rating drops below the minimum allowed by this policy, the Finance Director
will review and recommend an appropriate plan of action to the Council via the Finance
Committee. If the City utilizes an Investment Advisor, that Investment Advisor shall notify
the Finance Director and recommend a plan of action within one month. The City may
continue to hold a downgraded investment to maturity if a probable outcome is the
eventual realization of full value, rather than a realized loss if divested prior to maturity.
E. Internal Controls
The Finance Director 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. Specifics for the internal controls shall be documented in an investment
procedures manual.
The internal control structure shall be designed to provide reasonable assurance that
these objectives are met. The concept of reasonable assurance recognizes that the cost
of a control should not exceed the benefits likely to be derived and the valuation of costs
and benefits requires estimates and judgments by management. The internal controls
shall address the following points at a minimum:
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i. Control of collusion
ii. Separation of transaction authority from accounting and recordkeeping
iii. Custodial safekeeping
iv. Avoidance of physical delivery securities of marketable securities
v. Clear delegation of authority to subordinate staff members
vi. Written confirmation of transactions for investments and wire transfers
vii. Dual authorizations of wire transfers
viii. Staff training and
ix. Review, maintenance and monitoring of security procedures both manual and
automated.
F. External Controls
The Office of the State Auditor requires that in accordance with Revised Code of
Washington 43.09.260, the City must undergo annual financial examinations performed
by State Examiners. Investment management is to be included as part of the annual
independent audit to assure compliance with this investment policy.
8. Authorized Financial Dealers
A. Broker/Dealers
The Finance Director or designee shall maintain and review annually a list of all authorized
financial institutions and broker/dealers that are approved to transact with the City for
investment purposes. Any firm is eligible to make an application to the City. Additions
and deletions to the list will be made at the City’s discretion. All broker/dealers and
financial institutions who desire to do business with the City must supply the Finance
Director with the following:
i. Annual audited financial statements.
ii. Proof of FINRA (Financial Industry Regulatory Authority) certification.
iii. Proof of registration with the State of Washington.
iv. A completed Broker/Dealer questionnaire and a certification of having read the
City Investment Policy.
B. Investment Advisors
The City may contract with an external investment advisor to assist with the management
of the City’s investment portfolio in a manner that is consistent with the City’s objectives
and this policy. Advisors must be registered under the Investment Advisers Act of 1940
and must act in a non-discretionary capacity, requiring approval from the City prior to all
transactions.
The Finance Director or designee may utilize the investment advisor’s approved
broker/dealer list in lieu of the City’s own approved list. The advisor must submit the
approved list to the City annually and provide updates throughout the year as they occur.
The advisor must maintain documentation of appropriate license and professional
credentials of broker/dealers on the list. The annual investment advisor broker/dealer
review procedures include:
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i. FINRA Certification check
- Firm Profile
- Firm History
- Firm Operations
- Disclosures of Arbitration Awards, Disciplinary and Regulatory Events
- State Registration Verification
ii. Financial review of acceptable FINRA capital requirements or letter of credit for
clearing settlements.
The advisor may be authorized through the contracted agreement to open accounts on
behalf of the City with the broker/dealers on the approved broker/dealer list. The City will
receive documentation directly from the brokers for account verification and regulatory
requirements.
C. Depositories
The City will only place funds exceeding the current FDIC insurance limits with banks
who are currently participating in the Washington State PDPC program.
Compliance/listing with the PDPC will be verified by the Finance Director or designee
annually.
D. Competitive Transactions
Transactions must be executed on a competitive basis and documented, excluding
securities and interfund loans issued by the City of Tukwila. Competitive prices should be
provided from at least three separate brokers, financial institutions or through a national
electronic trading platform. If the purchased security is only offered by one broker, then
other securities with similar structure may be used for documentation purposes. If an
Advisor handles trade executions, then they must provide the competitive documentation
as requested.
9. Authorized and Suitable Investments
A. Authorized Investments
All investments of the City are limited by RCW, principally RCW 35A.40.050 and
39.59.020.
Additional Specifications:
• This policy recognizes S&P, Moody’s and Fitch as the major Nationally Recognized
Statistical Ratings Organizations (NRSRO).
• Minimum credit ratings and percentage limitations apply to the time of purchase.
• All securities must be purchased on the secondary market and may not be purchased
directly from the issuer.
• Securities rated in the broad single-A category with a negative outlook may not be
purchased. Portfolio holdings of corporate notes downgraded to below single A and
portfolio holdings of securities rated single A with their outlooks changed to negative
may continue to be held. No additional purchases are permitted.
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B.Suitable Investments
U. S Treasury Obligations: Direct obligations of the United States Treasury.
US Agency Obligations: US Government Agency Obligations and US Government
Sponsored Enterprises (GSEs) which may include, but are not limited to the following:
Federal Farm Credit Banks Funding Corporation (FFCB), Federal Home Loan Bank
(FHLB), Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage
Corporation (FHLMC), and Tennessee Valley Authority (TVA).
Supranational Bonds: United States dollar denominated bonds, notes or other
obligations that are issued or guaranteed by supranational institutions, provided, that at
the time of investment, the institution has the United States as its largest shareholder.
These include: International Bank for Reconstruction and Development (IBRD or World
Bank); the International Finance Corporation (IFC); the Asian Development Bank (ADB)
and the Inter-American Development Bank (IADB).
Municipal Debt Obligations: Bonds of the State of Washington, any local government in
the State of Washington, General Obligation bonds outside the State of Washington; at
the time of investment the bonds must have one of the three highest credit ratings of a
nationally recognized rating agency. Debt of the City of Tukwila is not required to be rated.
Corporate Notes: Unsecured debt obligations purchased in accordance with the
investment policies and procedures adopted by the State Investment Board. Corporate
notes must be rated at least weak single A (A-) or better by all the major rating agencies
that rate the note at the time of purchase for inclusion in the corporate note portfolio. The
maturity must not exceed 5.5 years and the maximum duration of the corporate note
portfolio cannot exceed 3 years. The percentage of corporate notes that may be
purchased from any single issuer rated AA- or better by all major rating agencies that rate
the note is 3% of the assets of the total portfolio. The percentage of corporate notes that
may be purchased from any single issuer rated in the broad single A (A-) category from
all the major rating agencies that rate the security is 2% of the total portfolio. The individual
country limit of non-U.S. and non-Canadian exposure is 2% of the total portfolio. The
exposure is determined by the country of domicile of the issuers of portfolio securities.
Commercial Paper: Commercial paper must be rated with the highest short-term credit
rating category of any two major Nationally Recognized Statistical Rating Organizations
(NRSROs) at the time of purchase. If the commercial paper is rated by more than two
major NRSROs, it must have the highest rating from all of them. Commercial paper
holdings may not have maturities exceeding 270 days. Any commercial paper purchased
with a maturity longer than 100 days must also have an underlying long-term credit rating
at the time of purchase in one of the three highest rating categories of an NRSRO. The
percentage of commercial paper that may be purchased from any one issuer is 3% of the
market value of the total portfolio. Issuer constraints will apply to the combined holdings
of corporate notes and commercial paper holdings.
Certificates of Deposit: Non-negotiable Certificates of Deposit of financial institutions
which are qualified public depositories as defined by RCW 39.58.010(2) and in
accordance with the restrictions therein.
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Bank Time Deposits and Savings Accounts: Deposits in PDPC approved banks.
Local Government Investment Pool: Investment Pool managed by the Washington
State Treasury Office.
C. Bank Collateralization
The PDPC makes and enforces regulations and administers a program to ensure public
funds deposited in banks and thrifts are protected if a financial institution becomes
insolvent. The PDPC approves which banks and thrifts can hold state and local
government deposits and monitors collateral pledged to secure uninsured public deposits.
Under the act, all public treasurers and other custodians of public funds are relieved of the
responsibility of executing tri-party agreements, reviewing pledged securities, and
authorizing additions, withdrawals, and exchanges of collateral.
D. Prohibited Investments
i. The City shall not lend securities nor directly participate in a securities lending or
reverse repurchase program.
ii. The City shall not invest in mortgage-backed securities.
iii. The City shall not invest in Equities
iv. The City shall not invest in Cryptocurrency
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10. Investment Parameters
A. Diversification
The City will diversify the investment of all funds by adhering to the constraints listed in
the following table. Investments in securities shall not exceed the following percentages
of the total portfolio at the time of purchase.
Total Portfolio Diversification Constraints
B. Investment Maturity
i. Liquidity Funds – Tier 1
Ratings, S&P,
Issue Type Maximum % Maximum % Moody's, or Maximum
Holdings per Issuer Equivalent Maturity
NR SRO
US Treasury Obligations 100%None N/A 10 years
US Agency Obligations 100%35%N/A 10 years
Supranational Agency Notes 10%5%AA-/Az3 10 years
Municipal Bonds (GO Outside WA 30%5%A-/A3 Short Term 10 years
City of Tukwila Debt Obligations 15%None N/A N/A
Corporate Notes 25%
3% for AA-
2% for A-,
AA+A-/A3 Short Term 5.5 year
Commercial Paper 25%3%
A1{1 Long Term A-
/A3 270 days
Bank Time Deposits/Savings 20%10%
Deposits in
PDPC approved
banks N/A
Certificates of Deposit 25%10%
Deposits in
PDPC approved
banks 5 years
State LGIP 100%None N/A N/a
Issuer constraints apply to the combined issues in corporate and commercial paper holdings.
Sort Term Ratings: Moody's - P1MIG1/VMIG1, S&P - A-1/SP-1, Fitch - F1
Note: Individual country limit of non-US/non-Canadian exposure is 2% of total portfolio
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Liquidity funds will be defined as those funds that are in the State LGIP City, bank
deposits, bank certificates of deposits or money market instruments and will be
available for immediate use.
ii.Investment Core Funds – Tier 2
Investment funds will be defined as the funds in excess of liquidity requirements and
invested in authorized investments and maturity structure listed below.
iii.Total Portfolio Maturity Constraints:
C.Strategic Philosophy
The primary investment philosophy of the City is to match investment maturities with
expected cash outflows. Securities shall generally be held until maturity, with the following
exceptions:
i.A security with a declining credit may be sold early to protect the principal value
of the portfolio.
ii.The portfolio duration or maturity buckets should be adjusted to better reflect
the structure of the underlying benchmark portfolio.
iii.A security exchange that would improve the quality, yield and target maturity
of the portfolio based on market conditions.
iv.A sell of a security to provide for unforeseen liquidity needs.
Maturity Constraints Minimum % of
Total Portfolio
Under 30 days 10%
Under 1 year 25%
Under 5 years 90%
Under 10 years 100%
Maturity Constraints Total Portfolio
Maximum
Weighted Average Maturity 2.0 years
Duration of Corporate Note Portfolio 3.0 years
Security Structure Constraint Maximum % of
Total Portfolio
Callable Agency Securities 25%
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11. Reporting Requirements
A. Reporting
The Finance Director or designee shall be responsible for investment reporting. At a
minimum, monthly reporting (RCW 35.39.032) shall be made available providing detailed
information on the investment portfolio.
Specific Requirements:
• Book Yield
• Holdings Report including mark to market and security description
• Transactions Report
• Weighted Average Maturity or Duration
B. Performance Standards/Evaluation
i. The portfolio shall be managed to obtain a fair rate of return and earnings rate that
incorporates the primary objectives of protecting the City’s capital and assuring
adequate liquidity to meet cash flow needs.
ii. The investment portfolio will be invested into a predetermined structure that will be
measured against a selected benchmark portfolio. The structure will be based upon a
chosen minimum and maximum duration (average maturity) and will have the objective
to achieve market rates of returns over long investment horizons. The purpose of a
benchmark is to appropriately manage the risk in the portfolio through interest rate
cycles. The investment portfolio is expected to provide similar returns to the
benchmark over interest rate cycles but may underperform or outperform in certain
periods. The portfolio will be positioned to first protect principal and then achieve
market rates of return. The benchmark used will be the US treasury 0–3-year index or
US treasury 0–5-year index and comparisons will be calculated monthly and reported
quarterly.
iii. The liquidity component yield will be compared quarterly to the LGIP average yield.
C. Compliance Report
A quarterly compliance report will be generated comparing the portfolio positions to this
investment policy.
The Investment Policy sets forth concentration constraints and minimum credit ratings for
each type of security. These limits apply to the initial purchase of a security and do not
automatically trigger the sale of a security as the portfolio value fluctuates or in the event
of credit rating downgrade. Due to fluctuations in the aggregate surplus funds balance,
maximum percentages for a particular issuer or investment type may be exceeded at a
point in time. Securities need not be liquidated to realign the portfolio; however,
consideration should be given to this matter when future purchases are made to ensure
that appropriate diversification is maintained.
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D. Accounting Method
The City shall comply with all required legal provisions and Generally Accepted
Accounting Principles (GAAP). The accounting principles are those contained in the
pronouncements of authoritative bodies including, but not necessarily limited to, the
Governmental Accounting Standards Board (GASB).
Pooling of Funds: Except for cash in certain restricted and special funds, the City will
consolidate balances from all funds to maximize investment earnings. Investment income
will be allocated to the various funds based on their respective participation in the
investment program and in accordance with generally accepted accounting principles.
12. Policy Adoption
The City’s Investment Policy shall be adopted by the City Council and reviewed by the Council
Finance Committed as needed but not less than every two years. This Policy has been adopted
by the City Council on ____________, 2025.
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Glossary of Terms
Agency Securities: Government sponsored enterprises of the US Government.
Bankers Acceptances: A time draft accepted (endorsed) by a bank or trust company. The
accepting institution guarantees payment of the bill, as well as the issuer. BAs are short-term
non-interest-bearing notes sold at a discount and redeemed by the accepting bank at maturity for
full face value.
Bond: An interest-bearing security issued by a corporation, government, governmental agency,
or other body. It is a form of debt with an interest rate, maturity, and face value, and specific
assets sometimes secure it. Most bonds have a maturity of greater than one year and generally
pay interest semiannually. See Debenture.
Broker: An intermediary who brings buyers and sellers together and handles their orders,
generally charging a commission for this service. In contrast to a principal or a dealer, the broker
does not own or take a position in securities.
Collateral: Securities or other property that a borrower pledges as security for the repayment of
a loan. Also refers to securities pledged by a bank to secure deposits of public monies.
Commercial Paper: Short-term, unsecured, negotiable promissory notes issued by
corporations.
Current Maturity: The amount of time left until an obligation matures. For example, a one-year
bill issued nine months ago has a current maturity of three months.
CUSIP: A CUSIP number identifies securities. CUSIP stands for Committee on Uniform Security
Identification Procedures, which was established under the auspices of the American Bankers
Association to develop a uniform method of identifying municipal, U.S. government, and corporate
securities.
Dealer: An individual or firm that ordinarily acts as a principal in security transactions. Typically,
dealers buy for their own account and sell to a customer from their inventory. The dealer’s profit
is determined by the difference between the price paid and the price received.
Debenture: Unsecured debt backed only by the integrity of the borrower, not by collateral, and
documented by an agreement called an indenture.
Delivery: Either of two methods of delivering securities: delivery vs. payment and delivery vs.
receipt (also called “free”). Delivery vs. payment is delivery of securities with an exchange of
money for the securities.
Duration: A measure used to calculate the price sensitivity of a bond or portfolio of bonds to
changes in interest rates. This equals the sum of the present value of future cash flows.
Full Faith and Credit: Indicator that the unconditional guarantee of the United States government
backs the repayment of a debt.
General Obligation Bonds (GOs): Bonds secured by the pledge of the municipal issuer’s full
faith and credit, which usually includes unlimited taxing power.
Government Bonds: Securities issued by the federal government; they are obligations of the
U.S. Treasury; also known as “governments.”
Interest: Compensation paid or to be paid for the use of money. The rate of interest is generally
expressed as an annual percentage.
Investment Funds: Core funds are defined as operating fund balance, which exceeds the City’s
daily liquidity needs. Core funds are invested out the yield curve to diversify maturity structure in
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the overall portfolio. Having longer term investments in a portfolio will stabilize the overall portfolio
interest earnings over interest rate cycles.
Investment Securities: Securities purchased for an investment portfolio, as opposed to those
purchased for resale to customers.
Liquidity: The ease at which a security can be bought or sold (converted to cash) in the market.
A large number of buyers and sellers and a high volume of trading activity are important
components of liquidity.
Liquidity Component: A percentage of the total portfolio that is dedicated to providing liquidity
needs for the City.
LGIP: Local Government Investment Pool run by the State of Washington Treasurer’s office
established to help cities with short term investments.
Mark to Market: Adjustment of an account or portfolio to reflect actual market price rather than
book price, purchase price or some other valuation.
Municipals: Securities, usually bonds, issued by a state, its agencies, by cities or other municipal
entities. The interest on “munis” is usually exempt from federal income taxes and state and local
income taxes in the state of issuance. Municipal securities may or may not be backed by the
issuing agency’s taxation powers.
Par Value: The value of a security expressed as a specific dollar amount marked on the face of
the security or the amount of money due at maturity. Par value should not be confused with
market value.
Portfolio: A collection of securities held by an individual or institution.
Prudent Person Rule: A long-standing common-law rule that requires a trustee who is investing
for another to behave in the same way as a prudent individual of reasonable discretion and
intelligence who is seeking a reasonable income and preservation of capital.
Quotation or Quote: A bid to buy or the lowest offer to sell a security in any market at a particular
time.
Repurchase Agreement: Range in maturity from overnight to fixed time to open end. Repos
involve a simultaneous sale of securities by a bank or government securities dealer to an investor
with an agreement for the bank or government securities dealer to repurchase the securities at a
fixed date at a specified rate of interest.
Treasury Bill (T-Bill): An obligation of the U.S. government with a maturity of one year or less.
T-bills bear no interest but are sold at a discount.
Treasury Bonds and Notes: Obligations of the U.S. government that bear interest. Notes have
maturities of one to ten years; bonds have longer maturities.
Yield: The annual rate of return on an investment, expressed as a percentage of the investment.
Income yield is obtained by dividing the current dollar income by the current market price for the
security. Net yield, or yield to maturity, is the current income yield minus any premium above par
or plus any discount from par in the purchase price, with the adjustment spread over the period
from the date of purchase to the date of maturity of the bond.
Yield to Maturity: The average annual yield on a security, assuming it is held to maturity; equals
to the rate at which all principal and interest payments would be discounted to produce a present
value equal to the purchase price of the bond.
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Ratings Table – Long-Term Three Highest Rating Categories S&P Moody’s Fitch Definition
AAA Aaa AAA Highest credit quality
AA+, AA, AA- Aa1, Aa2, Aa3 AA+, AA, AA- Very high credit quality
A+, A, A- A1, A2, A3 A+, A, A- High credit quality
BBB+, BBB, BBB- Baa1, Baa2, Baa3 BBB+, BBB, BBB- Good credit quality
BB+, BB, BB- Ba1, Ba2, Ba3 BB+, BB, BB- Non-investment grade
Ratings Table – Short-Term Highest Rating Category S&P Moody’s Fitch Definition
A1+, A1 P1+, P1 F1+, F1 Highest credit quality
Municipal Commercial Paper
A-1, A-1+, SP-1+, SP-1 P1, MIG1, VMIG1 F1+, F1 Highest credit quality
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