Page 268 - FY2020Colleyville
P. 268

Arbitrage

               The  Tax  Reform  Act  of  1986  places  limitations  on  the  City's  yield  from
               investing certain tax-exempt bond proceeds, debt service funds and reserve
               funds.    The  rebate  provisions  require  that  the  City  compute  earnings  on
               investments from certain issues of bonds on a periodic basis to determine if
               rebate is required.

               To determine the City's arbitrage position, the City is required to calculate the
               actual interest income earned on the investment of the funds and compare it
               to the income that would have been earned if the funds had been invested at
               a rate equal to the yield on the applicable bonds sold by the City.  The rebate
               provisions state that periodically (not less than once every five years and not
               later than sixty days after maturity of the bonds), the City is required to pay
               the United States Treasury a rebate of any excess earnings.  These restrictions
               require  extreme  precision  in  the  monitoring  and  record  keeping  of
               investments, particularly in computing yields to ensure compliance.  Failure
               to comply can dictate that the bonds become taxable, retroactively from the
               date of issuance.

               Investment of bond fund proceeds which fall under the arbitrage provisions of
               the Tax Reform Act of 1986, will be made with safety of principal and liquidity
               in  mind,  but  will  attempt  to  earn  a  competitive  rate  of  return  utilizing
               investments permitted by this Investment Policy.


               Reporting Requirements

               The  Investment  Officers  shall  issue  a  written  report  quarterly  to  the  Audit
               Committee and City Council concerning the City's investment transactions for
               the preceding quarter and describing in detail the investment position of the
               City as of the end of the quarter.  The report shall list for each investment
               held during the quarter: the purchase price, the par value, the maturity date,
               the market value at the beginning of the quarter, the market value at the end
               of the quarter, and fully accrued interest for the period.  The report shall be
               signed by all Investment Officers for the City and state its compliance with
               PFIA and the adopted Investment Policy strategy.

               Monthly  market  pricing  information  is  to  be  obtained  through  the  use  of
               appropriate  external  third  party  software,  third  party  safekeeping  service
               providers, or an independent pricing source.

               “Weighted  average  yield  to  maturity”  shall  be  the  standard  on  which





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