Background
K.S.A. 12-1677b allows the governing body of any city, county or school district which has a written investment policy approved by its governing board to seek expanded investment authority from the Pooled Money Investment Board (PMIB). If an entity is successful in obtaining PMIB approval, expanded investment authority would allow said entity to extend their maximum maturity from two (2) years to four (4) years. As a reminder, attaining expanded investment authority status does not allow any entity to bypass the basic public funds investment process of offering any available funds to their local financial institutions as outlined in subsection (c) of
K.S.A. 12-1675. Please note that any investment purchases made under separate authority (i.e. Bond Proceeds Monies) are not to be included as part of the “core” expanded investment authority investment portfolio.
Approval Process
Initial requests for expanded investment authority should be submitted in letter form along with a copy of the written investment policy to the Director of Investments. (Letters may be e-mailed.) The investment policy must be approved by the entity’s governing body prior to submission to the PMIB. The investment policy must address liquidity, (investment) diversification, safety of principal, yield, (maximum) maturity, and the quality and capability of investment management staff. The policy should also address delivery/settlement and custody procedures. The Board would ask applicants to include, within their investment policy, procedures for the orderly liquidation of portfolio holdings should an unforeseen “liquidity event” arise. (The liquidation policy should include the process for identifying potential securities to sell and approval needed to sell a security prior to maturity.) The Board will not approve investment policies which contain either: (a) limits on the percentage of the portfolio allocated to CDs; or (b) credit screening standards for Kansas banks, savings and loan associations and savings which are otherwise eligible under state law to bid on public funds. The Board further requests applicants provide the projected monthly average portfolio size, anticipated maturity distribution, and the expected yield to maturity of the investment portfolio. The Board assumes that the proposed “public funds” investment portfolio will be managed as “hold to maturity”; however, we would strongly recommend that those individuals assigned to manage the portfolio run a “rate shock” test to analyze the impact of various interest rate scenarios on the overall market value of the investment portfolio. Additionally, the investment policy must also include procedures for compliance with subsection (c) of
K.S.A. 12-1675. Applicants will also be asked to submit written certification from the entity's investment management staff that those procedures have been followed during the past year. Once the requested information has been received, it will be submitted to the Board for approval. Applicants may be asked to submit additional information by the Board.
Acting in its statutorily authorized capacity as a prudent fiduciary of public funds, the Board believes that in order to successfully address the fundamental principles of maintaining adequate liquidity and structuring a balanced maturity distribution of diversified investments designed to endure changing interest rate environments, as well as, creating the opportunity for the proposed investment program to earn more than basic fixed costs, the minimum monthly average portfolio size (excluding any Bond Proceeds Monies) should fall within a range of $40 million to $50 million. That said, the Board's policy is not intended to obstruct those entities that may have a special circumstance (i.e. funds that have been allocated for a specific purpose in the future). Interested entities are encouraged to come before the Board with a complete, approved investment policy to discuss their special circumstance.
If Board approval is granted, applicants will receive written confirmation from the Director of Investments. Granting any form of expanded investment authority by the PMIB does not relieve the governing body of their responsibility to manage their investments or indicate the PMIB’s opinion that any particular investment is appropriate for an entity’s unique financial situation. Additionally, the Board would strongly encourage that any entity considering expanded investment authority involve their governing body throughout the entire process; addressing not only the potential benefits, but the underlying risks inherent to any investment program. Ultimately, the cost benefit analysis of pursuing expanded powers is the responsibility of the governing body and not the PMIB.
Annual Review
K.S.A. 12-1677b requires PMIB review and approve each entity's investment policy at least annually. The PMIB will contact each entity with expanded investment authority in the fall of each year with a request to complete a worksheet, provide a detailed listing of the current securities portfolio (excluding any Bond Proceeds Monies), a copy of the current written Investment Policy, and the date of the last review (and approval) of the written Investment Policy Statement by the entity's governing board. Additionally, the PMIB requests that each entity obtain an annual approval of their Investment Policy by their governing body prior to submitting their annual review materials. We will also request written certification from the investment management staff that the procedures for compliance with subsection (c) of
K.S.A. 12-1675 have been followed, and a list of the banks, savings and loan associations and savings banks from which the city, county or school district requested bids in the preceding year.
Once the Board has reviewed the report and taken action on the renewal of expanded investment authority, the Director of Investments will send a letter to each entity indicating the outcome of the review.
Contact for Questions
If you have any questions about expanded investment authority, the initial application process, or the annual review process, please contact Joel Oliver, Director of Investments & Chief Investment Officer, at
(785) 296 - 7053, or by email at
joliver@pmib.ks.gov.