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Department Approval <br />�. � � <br />t�i � <br />� <br />REQUEST FOR COUNCIL ACTION <br />Date: 10/22/2012 <br />Item No.: 12.c <br />City Manager Approval <br />Item Description: Adopt a Resolution Temporarily Amending the City's Investment Policy <br />BACKGROUND <br />The City maintains an Investment Policy to direct the investment of available funds in accordance with the <br />City's cash flow needs and Minnesota State Statutes. The Council is asked to approve a temporary <br />amendment to the Policy in recognition of the significant changes made over the past several years in the <br />financial industry - specifically to allow greater flexibility with regard to the City's investment of bond <br />proceeds. <br />The current Policy requires all investments placed with financial institutions to carry a minimum credit <br />rating of `AA' — the second highest credit level as classified by national rating agencies such as Moody's, <br />Standard & Poor's, and Fitch. In reaction to the economic downturn and high-profile failures across a <br />number of industries, credit rating agencies have made wholesale changes to their ratings system. As a <br />result, many prominent national financial institutions have had their credit ratings dropped from `AAA' or <br />� `AA' to `A', even though their underlying financial results had not changed. <br />Some of these large institutions that received a credit rating downgrade include: <br />❖ JP Chase Morgan <br />❖ Wells Fargo <br />❖ Us Bank <br />•'• Citigroup <br />. <br />❖ Morgan Stanley <br />These institutions, while having an `A' rating are still regarded as high quality and iinancially strong <br />institutions. There are very few `AA' or higher rated financial institutions anymore. The current Policy has <br />not yet factored in these changes. <br />The current Policy also requires a particular investment — repurchase agreements; to be placed with <br />nationally or state-charted financial institutions. Repurchase agreements are ideal for investing bond <br />proceeds and currently are paying interest rates around 0.35% compared to only 0.15% for US treasuries or <br />money markets which are the next best alternatives. However, there are relatively few domestic banks that <br />� have remained in the repurchase agreement market. They instead have largely chosen to take a secondary <br />� position by pledging collateral on these agreements. <br />If the City intends to use repurchase agreements for investing bond proceeds, it will need to modify its <br />Page 1 of 7 <br />