Board Policy 3120
Investment of Funds
This investment policy applies to all funds of the District. These funds are accounted for in the District’s annual financial report and includes all current funds, and any other funds that may be created from time to time. All transactions involving the funds and related activity of any funds shall be administered in accordance with the provisions of this policy and the canons of the “prudent person rule”.
- Safety of Principal - Investments shall be undertaken in a manner that seeks to ensure the preservation of principal in the overall portfolio. To attain this objective only appropriate investment instruments will be purchased and insurance or collateral may be required to ensure the return of principal.
- Liquidity - The District’s investment portfolio shall be structured in such manner as to provide sufficient liquidity to pay obligations as they come due.
- Return on Investments - The investment portfolio shall be designed to attain a market-average rate of return throughout budgetary and economic cycles, taking into account the risk constraints, the cash flow characteristics of the portfolio and legal restriction for return on investments.
- Maintaining the Public’s Trust - The investment officers shall seek to act responsibly as custodians of the public trust and shall avoid any transaction that might impair public confidence in the District, the Board or the School Treasurer.
The District may invest in any type of security allowed by the Public Funds Investment Act of the State of Illinois as may be amended from time to time. The District has chosen to limit its allowable investments to those instruments listed below:
- Bonds, notes, certificates of indebtedness, treasury bills or other securities now or hereafter issued by the United States of America, its agencies and allowable instrumentalities;
- Interest bearing savings accounts, interest bearing certificates of deposit or interest bearing time deposits, or any other investments constituting direct obligations of any bank as defined by the Illinois Banking Act;
- Certificates of deposit with federally insured institutions that are collateralized or insured in excess of the maximum amount provided by the Federal Deposit Insurance Corporation coverage limit;
- Collateralized repurchase agreements which conform to the requirements stated in paragraph 2(g) or 2(h) of the statutes;
- Commercial paper meeting the following requirements:
- The corporation must be organized in the United States.
- The corporation’s assets must exceed $500,000,000.
- The obligations at the time of purchase must be rated within the two highest classifications by at least two of the four standard rating services (Standard and Poor’s, Duff and Phelp’s, Moody’s and Fitch Investors Service).
- The obligations cannot have a maturity longer than 180 days.
- No more than 33% of the total investment fund can be invested in commercial paper at any time.
- The total investment in any one corporation cannot exceed 10% of the corporation’s outstanding obligations.
- The total investment in any one corporation cannot be more than $20 million.
- The Illinois Public Treasurer’s Investment Pool;
- Investments may be made only in banks, savings and loan associations, or investment certificates which are insured by the Federal Deposit Insurance Corporation.
- Interest bearing bonds of any county, township, city, village, incorporated town, municipal corporation, or school district, of the State of Illinois, of any other state, or of any political subdivision or agency of the State of Illinois or of any other state, whether the interest earned thereon is taxable or tax-exempt under federal law. The bonds shall be registered in the name of the district or held under a custodial agreement at a bank. The bonds shall be rated at the time of purchase within the 4 highest general classifications established by a rating service or nationally recognized expertise in rating bonds of states and their political subdivisions.
- Investment products that are considered as derivatives are specifically excluded from approved investments.
Except as provided herein, investments may be made only in banks, savings banks, savings and loan associations, or credit unions that are insured by the Federal Deposit Insurance Corporation or other approved share insurer.
The Chief School Business Official and Superintendent shall regularly consider material, relevant, and decision-useful sustainability factors in evaluating investment decisions, within the bounds of financial and fiduciary prudence. Such factors include, but are not limited to: (1) corporate governance and leadership factors, (2) environmental factors, (3) social capital factors, (4) human capital factors, and (5) business model and innovation factors, as provided under the Ill. Sustainable Investing Act, 30 ILCS 238/.
It is the policy of the District to diversify its investment portfolio. Investments shall be diversified to eliminate the risk of loss resulting in over concentration in a specific maturity, issuer, or class of securities. Diversification strategies shall be determined and revised periodically by the School Treasurer. The diversification shall be as follows:
- up to 100% of C.1. but not less than 10%
- up to 90% of C.2.,C.3.
- up to 33% of C.4.,C.5.,and C,6.
- It is the policy of the District to require that time deposits in excess of FDIC insurable limits be secured by collateral or private insurance to protect public deposits in a single financial institution if it were to default.
- Eligible collateral instruments are any collateral instruments acceptable under ILCS235. The collateral must be placed in safekeeping at or before the time the District buys the investments so that it is evident that the purchase of the investment is predicated on the securing of collateral.
- Safekeeping of Collateral
- Third party safekeeping is required for all collateral. To accomplish this, the securities can be held at the following locations:
- A Federal Reserve Bank or its branch office
- At another custodial facility in a trust or safekeeping department through book-entry at the Federal Reserve
- By an escrow agent of the pledging institution
- By the trust department of the issuing bank
- Safekeeping will be documented by a District Board and Bank Board approved written agreement that complies with FDIC regulations. This may be in the form of a safekeeping agreement.
- Substitution or exchange of securities held in safekeeping for the District can be approved exclusively by either the Treasurer or Asst. Treasurer provided the market value of the replacement securities is equal to or greater than the market value of the securities being replaced.
Safekeeping of Securities
- Third party safekeeping is required for all securities and commercial paper. To accomplish this, the securities can be held at the following locations:
- A Federal Reserve Bank or its branch office;
- At another custodial facility - generally in a trust or safekeeping department through book-entry at the Federal Reserve unless physical securities are involved;
- In an insured account at a primary reporting dealer
- Safekeeping will be documented by a Board of Education approved written agreement. This may be in the form of a safekeeping agreement, trust agreement, escrow agreement or custody agreement.
- Original certificates of deposits will be held by the originating bank. A safekeeping receipt will be acceptable documentation.
Qualified Financial Institutions and Intermediaries
- Depositories - Demand Deposits
- Any financial institution selected by the District shall provide normal banking services, including, but not limited to: checking accounts, wire transfers and safekeeping services.
- The District will not maintain funds in any financial institution that is not a member of the FDIC system. In addition, the District will not maintain funds in any institution not willing nor capable of posting required collateral for funds or purchasing private insurance in excess of FDIC insurable limits.
- To qualify as a depository, a financial institution must furnish the Treasurer with copies of the latest two statements of condition, which it is required to furnish to the comptroller of Currency as the case may be. While acting as a depository, a financial institution must continue to furnish such statements to the Treasurer within 45 days of the end of each quarter.
- Fees for banking services shall be mutually agreed to by an authorized representative of the depository bank and the Treasurer on an annual basis. Fees for services shall be substantiated by a monthly account analysis.
- All financial institutions acting as a depository for the District must enter into a “Depository Agreement.”
- Banks and Savings and Loans - Certificates of Deposit
Any financial institution selected to be eligible for the District’s competitive certificate of deposit purchase program must meet the following requirements.
- Shall provide wire transfer and certificate of deposit safekeeping services.
- Shall be a member of FDIC system and shall be willing and capable of posting required collateral or private insurance for funds in excess of FDIC insurable limits.
- Shall have met the financial criteria as established in the investment procedures of the District.
Any financial intermediary selected to be eligible for the District’s competitive investment program must meet the following requirements.
- Shall provide wire transfer and deposit safekeeping services.
- Shall be a member of a recognized U.S. Securities and Exchange Commission Self Regulatory Organization such as the New York Stock Exchange, National Association of Securities Dealers, Municipal Securities Rule Making Board, etc.
- Shall provide an annual audit upon request.
- Shall have an office of Supervisory Jurisdiction within the State of Illinois and be licensed to conduct business in this State.
- Shall be familiar with the Board’s policy and accept financial responsibility for any investment not appropriate according to the policy.
Management of Program
- The following individuals are authorized to purchase and sell investments, authorize wire transfers, authorize the release of pledged collateral, and to execute any documents required under this policy:
- Assistant Superintendent for Business
- Head Bookkeeper
These documents include:
- Wire Transfer Agreement
- Depository Agreement
- Safekeeping Agreement
- Custody Agreement
Management responsibility for the investment program is hereby delegated to the Treasurer, who shall establish a system of internal controls and written operational procedures designed to prevent losses of funds that might arise from fraud, employee error, misrepresentation by third parties, or imprudent actions by employees of the entity. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions; check signing, check reconcilement, deposits, bond payments, report preparation and wire transfers. No person may engage in any investment transaction except as provided for under the terms of this policy. The Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinates.
- The wording of agreements necessary to fulfill the investment responsibilities is the responsibility of the Treasurer who shall periodically review them for their consistency with District policy and State law and who shall be assisted in this function by the Assistant Superintendent for Business, District legal counsel and auditors. These agreements include but are not limited to:
- Wire Transfer Agreement
- Depository Agreement
- Safekeeping Agreement
- Custody Agreement
- The Treasurer may use financial intermediaries, brokers, and/or financial institutions to solicit bids for securities and certificates of deposit. These intermediaries shall be approved by the Board.
- All wire transfers made by the Treasurer or Head Bookkeeper shall require a secondary authorization by the Assistant Superintendent for Business.
The Treasurer will seek to earn a rate of return appropriate for the type of investments being managed given the portfolio objectives defined in Section B of this document for all funds. In general, the Treasurer will strive to earn an average rate of return equal to or greater than the U.S. Treasurer Bill rate for a given period of time for the District’s average weighted maturity.
Ethics and Conflicts of Interest
Officers and 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.
Investment officers and employees of the District acting in accordance with this Investment Procedure and written operational procedures as have been or may be established and exercising due diligence shall be relieved of personal liability for an individual security’s credit risk or market changes.
The Treasurer shall submit to the Board and the Superintendent an annual investment report which shall include information regarding securities in the portfolio by class or type, book value, income earned, and market values as of the report date.
This policy shall be reviewed from time to time by the Treasurer with regards to the policies effectiveness in meeting the District’s needs for safety, liquidity, rate of return, diversification, and general performance. Any substantive changes will be referred to the Policy Committee of the Board of Education for revision.