Budget and Financial Planning

The investment policy of Johnson County is adopted pursuant to the authority granted to the Board of County Commissioners under K.S.A. 12-1675, K.S.A.19-101 et seq. and other statutory provisions such as K.S.A. 10-131.

Procedure 180.3 Adoption of Procedures

These investment procedures are, and any related changes will be, proposed by the IRG and staff and are approved by the County Manager.

The following policies will assist the County with attaining the objectives stated in Section 180.2

Acceptable Investments

In accordance with and subject to restrictions imposed by current statutes applicable to both the operating fund and proceeds of bonds or temporary notes, the following list represents the entire range of investments that Johnson County will consider and which shall be authorized for the investments of aforementioned funds by the County. Cited maturities represent maximum durations, which may be reduced depending upon applicable statutory authority:

1. United States Treasury and Agency Securities. The County may invest in obligations of the United States government or any agency thereof insured as to principal and interest by the United States or any agency thereof and obligations and securities of Government Sponsored Enterprises (GSE’s) which under federal law may be accepted as security for public funds and shall not exceed the maximum length of maturity allowed by statute. The Agency Securities include GSE’s, which include the Federal Home Loan Bank, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Federal Farm Credit Bank and the Student Loan Marketing Association, except that proceeds of bonds or temporary notes cannot be invested in Federal Farm Credit Bank or the Student Loan Marketing Association per KSA 10-131.
2. Repurchase Agreements (Repo). The County may invest in contractual agreements between the County and commercial banks, state or federally chartered saving and loan associations, federally chartered savings banks, or primary government securities dealers. The purchaser in a repurchase agreement (repo) enters into a contractual agreement to purchase Treasury and government agency securities while simultaneously agreeing to resell the securities at predetermined dates and prices.
3. Collateralized Public Deposits (Certificates of Deposit). Instruments issued by financial institutions which state that specified sums have been deposited for specified periods of time and at specified rates of interest. The certificates of deposit are required to be backed by acceptable collateral securities as dictated by State statute. Interest will be calculated on a 365-day year/actual-day month basis, or another method approved by the Director of Treasury and Financial Management or designee in writing.
4. State Municipal Investment Pool Fund. A pool of funds which are managed by and under the authority of the Pooled Money Investment Board (PMIB).
5. Bank Trust Departments with commercial banks. Investments with trust departments of commercial banks with offices located in Johnson County or with trust companies which have contracted to provide trust services under the provisions of K.S.A. 9-1402, and amendments thereto, with commercial banks which have offices located in Johnson County. Investments under this category are limited to (1) time deposits of depository institutions doing business in Kansas with maturities as noted in (c) above, (2) Treasury or government agency securities with maturities as noted in (a) above, and (3) repurchase agreements of less than 30 days' duration as noted in (b) above.
6. Investments in shares or units of a money market fund. Money market funds are mutual funds that invest in short term debt instruments. The County may only invest in money market funds comprised entirely of securities in direct obligations of the U.S. government or any agency thereof, including GSE’s as described in sub-paragraph a. above.
7. Municipal bonds. Bonds or other obligations issued by any municipality of the State of Kansas as defined in K.S.A. 10-1101, and amendments thereto, which are general obligations of the municipality issuing the same.
8. Federal Deposit Insurance Corporation (FDIC) guaranteed instruments. Fixed income bonds, including corporate bonds that are explicitly guaranteed by the FDIC.

Investment Instrument Guidelines

The Cash Manager will consider the composition of the current investments and determine whether the securities being considered will maintain the investments within procedural guidelines.

The following maximum limits, by instrument, are established for the County's total investments:

1. Repurchase Agreements ……………………………….………………………………………….40%
2. Collateral Time and Demand Deposits ………………………………….………………………100%
3. U.S. Treasury Notes and Bills…………………………………………..……………………….100%
4. U.S. Govt Agency Coupon Obligations…………………………………………………..………80%
5. U.S. Govt Agency Discount Obligations……………………………………...…………………50%*
6. U.S. Govt Agency Callable Obligations ……………………………………………………..…30%
7. U.S. Govt Agency Step-Up Obligations ………………………………………………………..15%
8. Money Market Funds and Instruments…………….……………………………..……………..25%*
9. Kansas Municipal Investment Pool Fund (MIP)…………………………………………………25%*
10. Federal Deposit Insurance Corporation (FDIC) guaranteed instruments............................25%

* These limits are adjusted during tax collection periods which run from ten days prior to the due date for taxes to be remitted through the distribution dates set by Kansas Statute. The Discount Obligation percent increases to 65%, Money Market Funds and Instruments percent increases to 50% and the limit on the MIP may be increased to 50%

To allow efficient and effective placement of proceeds from bond sales, the limit on either repurchase agreements or the MIP may be exceeded for up to five consecutive days, per bond issue, following the receipt of bond proceeds.

Portfolio Management

All investments of County funds shall be managed through the Treasury and Financial Management department consistent with this policy and in compliance with all applicable state and federal laws and regulations. The Treasury Division shall establish operating procedures to coordinate all financial transactions with the Cash Manager. The Cash Manager shall provide to the Treasury Division complete written records of all investment information.

As provided by statute, this policy shall be submitted to the State’s Pooled Money Investment Board (PMIB) for their review and approval annually, or at such time as the policy may be amended, and upon approval, investments may include those authorized through the PMIB. Investments made utilizing the “Expanded Powers” available through the PMIB shall be managed in accordance with the provisions of K.S.A. 12-1675, as amended, and the requirements of the PMIB.

Investment Strategy

The County shall follow the most aggressive investment guidelines allowed by State law. County funds shall be managed as multiple portfolios in order to meet liquidity needs of the organization while enhancing total yield of the portfolio.

Cash Management & Investment Practices

It is the policy of the County that its cash management practices shall ensure that funds held by, and belonging to, the County are managed in a manner that complies with all State and Federal Laws, and the policies and strategies of the Board, and that provides for adequate funds to be available to timely meet all disbursement requirements and obligations of the County.

Competitive Placement

It is in the interest of the County to solicit competitive rate quotations for all investment purchases and for the deposit of public funds. Therefore, the investment and/or deposit of County funds will be made on the basis of competitive investment rates that support the County’s investment strategies and objectives, as identified in Section 180.2. In addition, it is in the interest of the County to establish and use business relationships with financial institutions located in Johnson County for the investment and deposit of public funds, consistent with the requirements of K.S.A. 12-1675 and 12-1676. Therefore, investment and/or deposit of the County's public funds will be offered first, on a competitive basis to qualified financial institutions located within the County. The County Treasurer and the County’s Cash Manager shall establish and implement procedures for posting notice on a County website when funds are available for deposit or investment; for notifying local financial institutions of this website and the process for submitting bids; and for ensuring that, on days that funds are available, local financial institutions have a fair opportunity, until a designated time, as posted on the website, to respond with an offered rate for maturities matching the County’s cash flow needs. Financial institutions unable to access the website shall be given the opportunity to contact the Cash Manager by phone or email.

In the event that the County does not receive any qualified or responsive offerings to the posting or the offered rates do not equal or exceed the "investment rate" as defined by the State Treasurer, then the County may solicit offers for investments of those available funds in the State's investment pool or through brokers and dealers. At least three quotes must be obtained for all types of investments. All quotations received must be documented and filed for auditing purposes. In the case of tie bids, all bidders will be asked if they wish to break the tie. The first bidder who breaks the tie will win the bid. If no bidder breaks the tie then the Cash Manager will decide which broker wins the bid.

Trading Accounts

All trading accounts will be held in the name of “Johnson County, Kansas”. The Board shall have all trading authority for the investment of County funds, and that trading authority shall be exercised by the Cash Manager and the County Treasurer.

Compliance Reporting

The Cash Manager shall be responsible for ensuring that the County’s investment practices comply with state and federal laws and regulations. The Cash Manager shall prepare and file such documents, applications, and other information as may be necessary or is required to comply with state statutes, including the information required by the provisions of K.S.A. 12-1675 (c). 

Procedure 180.5 Investment Structure

1. Safekeeping of Securities
   1. Safekeeping Agreement - The County shall contract with a safekeeping (custodial) agent(s) for the safekeeping of securities. All securities which serve as collateral against the deposits of a depository institution must be safekept either with a non-affiliated custodial facility located within the State of Kansas, with the Federal Reserve Bank in Kansas City, or with the Federal Home Loan Bank in Topeka. All securities purchased by the County, both outright and under repurchase agreements, must be delivered to the possession of the County's safekeeping agent(s). Depository institutions pledging collateral against deposits must, in conjunction with the custodial agent, furnish the necessary custodial receipts within two business days from the settlement date. The safekeeping agent(s) may not hold any security pledged as collateral for deposits or investment made with it as an institution or any affiliated institution. All security purchases that are eligible for delivery versus payment shall be settled in that manner. All securities shall be perfected in the name of Johnson County and shall be delivered to the safekeeping agent(s).
   2. Handling of Certificate of Deposit Collateral - The collateral for certificates of deposit in banks will be registered in the name of "Johnson County, Kansas". Custodial receipts will be received and logged by the County Treasurer's staff. The Cash Manager shall verify that collateral is in place prior to delivery of County funds to the Financial Institution. Letters from custodial agent(s) assigning the collateral and fax transmittals will be acceptable for release of funds.
   3. Handling of Repurchase Agreement Securities - The securities for which repurchase agreements will be transacted will be limited to Treasury and government agency securities that are eligible to be delivered via the Federal Reserve's Fedwire book entry system. Securities will be delivered to the County's designated Custodial Agent. Funds and securities will be transferred on a delivery versus payment basis. Confirmations will be received and logged by the County Treasurer's staff. Securities underlying a repurchase agreement must be maintained at the following levels, with respect to par value accrued interest:

      US Treasury Bonds - 1 Year or Less = 101%, 1 Year to 5 Years = 102%, Over 5 Years = 103%
      US Agencies Securities - 1 Year or Less = 101%, 1 Year to 5 Years = 102%, Over 5 Years = 104%

2. Investment Diversification - In order to enhance total yield and fulfill the objectives of these procedures, the investment management style will be directed toward an active rather than passive investment role. Market risk shall be minimized by diversification of investment types. The County shall diversify its investments so that reliance on any one issuer or financial institution will not place an undue financial burden on the County.

3. Master Repurchase Agreement - The County shall require each issuer of repurchase agreements to sign a copy of the County's Master Repurchase Agreement. An executed copy of this agreement must be on file before the County will enter into any repurchase agreements with an issuer.

4. Maturities for All Investments - Subject to the collateral and authorization statutory requirements, as now adopted or hereafter amended, the maximum maturity length shall strictly follow the Kansas Statutes.

5. Security Marketability - Only U.S. government and agency obligations with active secondary markets will be purchased. Marketability shall be determined by the Cash Manager, the Finance Director or the County Treasurer.

6. General County Funds - As outlined in section 180.5 of the Investment Policy, the General County funds shall be managed as multiple separate portfolios. An operating portfolio shall be managed with sufficient liquidity to meet all operating needs. The weighted average duration of the operating portfolio must be less than one and one half (1.5) years. A long-term portfolio shall be established and managed on a total return basis. The long-term portfolio may be at least 45% of the County’s total portfolio from the previous rolling two-year period but shall not exceed 65% of the total portfolio. The weighted average duration of the long-term portfolio must be less than three (3) years. If the long-term portfolio falls below 45% of the County’s average total portfolio, it should be reported to the IRG. The IRG will monitor the maturity level and recommend changes as appropriate.

7. County Building Funds - No investment shall have a maturity exceeding the next lease payment date, unless the account is fully funded. If fully funded, investments can be made to the next unfunded date.

8. Investment Returns - Johnson County shall seek to optimize return on investments within the constraints of safety and liquidity. The objective of the County investment practices shall be to exceed the average rate of return on U.S. Treasury securities with similar maturities to the average weighted maturity of the County's portfolio or another appropriate performance measure as defined by the Investment Review Group. Progress on this objective will be reported to the Investment Review Group on a quarterly basis at a minimum.

9. Investments Maturity Management - When structuring the maturity composition of the investments, the Cash Manager shall evaluate current and expected interest rate yields. The longer the time remaining to maturity for a security, the greater the price fluctuation that will occur given a change in interest rate levels.

10. Current and Expected Yield Curve Analysis - The Cash Manager will monitor the current and expected yield curves. When interest rates are expected to decline, consideration will be given to extending maturity dates within investment and procedural constraints. When interest rates are expected to rise, consideration will be given to shortening maturity dates.

11. Portfolio Management - As outlined in section 180.5 of the Investment Policy, all investments of County funds shall be managed through Treasury and Financial Management. The office of the County Treasurer shall establish operating procedures to coordinate all financial transactions with Treasury and Financial Management. Treasury and Financial Management shall provide to the Office of the County Treasurer complete written records of all investment information.

    a. Disbursement Scheduling

    i. In order that all necessary disbursements may be met:

    1) The County Treasurer shall submit to the Cash Manager a "Schedule of Anticipated Tax Disbursements". The Schedule should be updated and provided to the Cash Manager on an as needed basis.

    2) The Operations Manager shall submit a schedule of accounts payables and payroll information.

    3) The Accounting Department shall submit the appropriate debt schedules.

    ii. In the interim, if changes are found to be necessary in such Schedules, written notice must be provided to the Cash Manager immediately, and if possible, in less than five business days prior to the anticipated disbursement date, so that funds may be made available with which to make such disbursement.

    iii. The following information is to be provided in the Schedule of Anticipated Tax Disbursements: the date of the anticipated disbursement, the amount of the anticipated disbursement, how the disbursement is to be made (by check, ACH, wire transfer, etc.), and if by check, whether the check will be hand delivered or sent by mail.

    b. Disbursement Funding

    Based upon the County Treasurer’s Schedule of Anticipated Tax Disbursements and the responsibilities of the Cash Manager under this Section (180.5), the Cash Manager will be responsible for managing the County's investment portfolio in such a manner as to timely meet all necessary disbursements and all such other statutory and regulatory responsibilities.

12. Compliance Reporting - The Cash Manager shall be responsible for ensuring that the County’s investment practices comply with state and federal laws and regulations. The Cash manager shall prepare and file such documents, applications, and other information as may be necessary or is required to comply with state statutes, including the information required by the provisions of K.S.A. 12-1675 (c). In addition, the Cash Manager shall submit the County’s investment Policy to the PMIB at least annually or at such time as the County makes changes to the Investment Policy, and will include a certification from the investment management staff that the above procedures were followed and in compliance with all applicable statutes, including the information required by the provisions of K.S.A. 12-1675 (c).

Procedure 180.51 Competitive Placement

The investment and/or deposit of County funds will be made on the basis of competitive investment rates that support the County’s investment strategies and objectives, as identified in Section 180.2 of the Investment Policy. In addition, it is in the interest of the County to establish and use business relationships with financial institutions located in Johnson County for the investment and deposit of public funds, consistent with the requirements of K.S.A. 12-1675 and 12-1676. Therefore, investment and/or deposit of the County's public funds will be offered first, on a competitive basis to qualified financial institutions located within the County. To inform the local financial institutions of the County’s requirements, the County will maintain the following information on the County website: (1) Qualifications of financial institutions that are eligible to respond to the County’s requests, (2) Contact information of County staff, and (3) Procedures that the financial institution will need to follow. Local financial institutions will be notified of this website and the procedures, via e-mail and a letter, and will be reminded at least quarterly of this information. Financial institutions unable to access the website may contact the investment manager by phone or email which will be provided in the letter sent to the financial institutions. When funds are available to the County for investment or deposit, the County will post a notice on the County website which provides the information necessary for local financial institutions to respond to the County’s request. Such information shall include (1) the deadline for responding to the County’s request, (2) the County’s cash flow needs, (3) process for submitting bids, and (4) any other information that the County deems necessary in order for the financial institution to submit a response to the County’s financial needs

If the offered rate does not equal or exceed the "investment rate" as defined by the State Treasurer, the County may solicit offers for investments in the State's investment pool or through brokers and dealers. It is in the interest of the County to solicit competitive rate quotations for all investment purchases. At least three quotes must be obtained for all types of investments. All quotations received must be documented and filed for auditing purposes. In the case of tie bids, all bidders will be asked if they wish to break the tie. The first bidder who breaks the tie will win the bid. If no bidder breaks the tie then the Cash Manager will decide which broker wins the bid.

Procedure 180.52 Investment Acquisition and Redemption

1. Treasury and Agency bonds, Federal Deposit Insurance Corporation (FDIC) guaranteed investments and Repurchase Agreements: The Cash Manager, within guidelines established in the Investment Policy, chooses these instruments for purchase or sale. The Cash Manager will notify the Treasurer’s office of the selected investment transaction and the Treasurer then has the duty of inspecting the transaction for approval. All transactions are conducted with the Fed Wire Book Entry system of Delivery Versus Payment (DVP). The County’s principal bank may be used as the safekeeping custodian. The County’s principal bank will submit funds to the broker for a purchase once the security has been delivered to the custodial account at the bank in the name of the Johnson County Treasurer. Conversely, for a sale, the County’s principal bank will not release the security until the purchasing broker has delivered funds to the Johnson County Treasurer’s designated bank account. Proceeds from the sales(s) will only be sent by the County’s principal bank to this specific Johnson County Treasurer’s designated bank account.
    
2. Money Market Accounts and the Municipal Investment Pool: These instruments are utilized to manage the County’s short-term cash positions. The Cash Manager selects which money market fund is best suited for the County’s needs, once again within guidelines established in the Investment Policy. The Cash Manager will notify the Treasurer’s office of the selected investment transaction and the Treasurer then has the duty of inspecting the transaction for approval. All Money Market accounts are set up in the name of the Johnson County Treasurer. The Treasurer’s office will then initiate the wire transfer for a purchase. The Treasurer also verifies funds have been received for a redemption. Proceeds from the sales(s) will only be sent by the County’s principal bank to this specific Johnson County Treasurer’s designated bank account.
    
3. Certificate of Deposit (CD): The Cash Manager, within guidelines established in the Investment Policy, may choose these instruments for purchase. The Cash Manager will notify the Treasurer’s Office of this decision. The Treasurer’s office completes the approval process by accepting collateral for the CD (within guidelines established in the Investment Policy), and completing the signatory cards for the bank. The Treasurer’s office designates the individuals who can redeem the CD. Two signatures are required for redemption. The banks are also instructed that redemptions can only be wired to the Johnson County Treasurer’s designated bank account.

Procedure 180.53 Portfolio Performance and Evaluation

Investment performance is continually monitored and evaluated by the Cash Manager and the County Treasurer. Investment performance statistics and activity reports are generated by the Cash Manager. The Cash Manager will provide summary reports quarterly for the IRG.

A. Monthly Performance Analysis

The following reports will be produced monthly and be included in the monthly report to the Board of County Commissioners, Finance Director, and County Manager.

1. Month-end Investments - The month-end investments will be listed by type of investment within fund. The report will include cost and market values and settlement and maturity dates for each security.
2. Investments Criteria Reports - This report will outline conformance to the restrictions of the procedures in the areas of diversification and term to maturity.
3. Other Reports.

Other reports may include the following statistics:

1. Earned investment yield for period
2. Interest received for period
3. Interest earned for period
4. Earned interest yield versus performance standard
5. Weighted average days to maturity
6. Investment activity - buys/sells
7. Banks and Savings and Loan transactions
8. Certificates of deposit versus collateral
9. Repurchase agreements versus securitization
10. Distribution by banks and savings and loans
11. Distribution by type of investment
12. Quarterly Performance Analysis

A quarterly report will be prepared for the IRG, relating actual performance to policy and procedural objectives. This report may include:

1. Cash availability
2. Market review
3. Investment strategy - next quarter
4. Performance measurement
5. Investments statistics
6. Security adequacy - repurchase agreements
7. Collateral adequacy - certificates of deposit
8. Investment activity
9. Market valuation
10. Distribution by institution
11. Distribution by type of investment

C. Annual Review Procedures

Due to the constantly changing nature of types of investments, legislative changes, etc., an annual review will be made of the procedures. Every year at the beginning of the County's fiscal year, a review of the Investment Procedures will be made by the IRG. The Cash Manager will provide a summary report of recommended procedural changes to the Investment Review Group for review and deliberation.

The Board of County Commissioners of Johnson County is granted the authority to invest temporarily idle funds under applicable Kansas Statutes. The statutes also identify the types of investments the County may purchase.

The County Manager and the Director of Treasurer and Financial Management shall adopt and implement procedures and practices for the efficient cash management of all funds held by, or belonging to, Johnson County, for the coordination of cash management practices with the operations and duties of the Treasury and Financial Management department, and for the prudent investment of funds.