Brunswick Sewer District

           10 Pine Tree Road, Brunswick, Maine 04011

INVESTMENT POLICY

November 2007

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1. INTRODUCTION
  The Brunswick Sewer District (the “District”) hereby establishes this Investment Policy (the “Policy”) to ensure that District funds are invested in a manner which in general provides safety, return, liquidity, and conformance with applicable regulations, so as to preserve the public trust.
           
2. AUTHORITY
  This Policy is promulgated under authority granted by the District Charter, Private & Special Law, Chapter 104(1988), as amended, at section 21, General Powers; at section 31, Borrowing Powers; at section 33, Purposes of Rates; and at section 46, Financial Management.
           
3. SCOPE OF APPLICATION
 

This Policy shall apply to all cash, cash equivalents, and investments of the District (the “Financial Assets”), excepting its employee retirement system fund, which is organized and administered separately by the Maine State Retirement System. All other Financial Assets of the District shall be administered in accordance with provisions of this Policy, including but not limited to funds appropriated for the following purposes:
           
  A. Operating cash;
  B. Reserve for debt service;
  C.

Reserve for entrance charge program;
  D. Reserve for capital projects;
  E. Reserve for operations;
  F. Sinking fund(s) for the extinguishment of debt, established and maintained pursuant to provisions of section 31(7) of the District Charter;
  G. Other reserves considered necessary by the Board of Trustees;
  H. Other funds not specifically identified as reserves.
           
4. CONFORMANCE WITH LAWS AND REGULATIONS
 

District investment activity shall be governed by all applicable State and federal laws and regulations concerning the investment of public funds. The District will look to professional consultants for counsel to ensure that any policy adopted conforms fully to such laws and regulations.
           
5. PRUDENCE
 

The District investment portfolio will be managed in a manner that seeks to attain a market rate of return commensurate with the judgment and care that persons of prudence, discretion and intelligence, under circumstances then prevailing, exercise in the management of their own affairs, not for speculation but for investment, in manners that preserve the public trust.
           
6. OBJECTIVES OF THE DISTRICT INVESTMENT ACTIVITIES
 

The principal objectives of District investment activities, stated in order of their importance and discussed in further detail below, shall be as follows:
           
  A. SAFETY: The first objective is to maximize safety.
           
    1. The safety of principal and preservation of capital in the overall portfolio are identified as the foremost objective of the District investment program. An investment will be deemed safe if it can meet its maturity without jeopardizing value in meeting cash flow objectives.  No investment will be deemed safe if there is reasonable chance it may have to be liquidated, for any reason that was foreseeable at the time of the investment, at a loss of principal.
           
    2. Credit Risk (Custodial Risk and Concentration Risk)
           
      a.

The District will minimize Custodial Risk, which is the risk of loss due to the failure of the issuer, its agent or backer, by limiting investments to the types of securities listed in Section 13 of this Policy; and by pre‑qualifying the financial institutions, broker‑dealers, intermediaries and advisors with which the District will do business in accordance with Section 12 of this Policy.
           
      b. The District will minimize Concentration Risk, which is the risk of loss attributed to the magnitude of the District’s investment in a single type of investment or in a single issuer, by diversifying the investment portfolio so that the impact of potential losses from any one type of security or issuer will be minimized.
           
        i. The District will not invest more than 10% of the total amount of District funds available for investment in the investment offerings of any single issuer, unless, in the opinion of the Board of Trustees, conditions warrant otherwise.
           
        ii. Provisions of Policy section 6.A.2.b shall not apply to investments in United States Treasury obligations, nor to deposits, including Certificates of Deposit, which are fully insured by the Federal Deposit Insurance Corporation (FDIC).
           
    3. Interest Rate Risk
           
     

The District will minimize Interest Rate Risk, which is the risk that changes in market interest rates may cause the Financial Asset to lose value, by structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities in the open market; and investing operating funds primarily in shorter‑term securities, liquid asset funds, money market mutual funds, or similar investment pools and limiting the average maturity in accordance with the District’s cash requirements such that the average life of the short‑term investments does not exceed 30 days.
           
  B. MAINTENANCE OF LIQUIDITY:  The second objective is to maintain liquidity.
           
   

The District investment portfolio will maintain liquidity sufficient to enable the District to meet daily and projected cash flow demands as well as all operating and other cash requirements that can be reasonably anticipated. To the extent possible, the District shall attempt to match its investments with anticipated cash flow requirements. Unless matched to a specifically recognized and identified future cash flow need, the District will not invest in securities maturing more than five (5) years from the date of purchase.
           
  C. INCOME  The third objective is to derive income.
           
   

The District’s investment portfolio will be designed with the objective of attaining a market rate of return commensurate with the judgment and care that persons of prudence, discretion and intelligence, under circumstances then prevailing, exercise in the management of their own affairs, not for speculation but for investment considered reasonable under generally accepted market principles, throughout budgetary and economic cycles, taking into account prudent constraints on District investment risk and the cash flow characteristics of the portfolio.
           
  D. Investment Approaches:
           
    1.

Diversification.  The Board of Trustees recognizes that the potential for market change and other conditions introduces the element of risk to investment of all types. Portfolio diversification is traditionally employed as a means to control risk. The Authorized Investment Administrator shall exercise prudence in the selection of securities as a means to minimize risk of loss and alleviate undue concentration.
           
    2. Local considerations.  In recognition of relevant circumstance specific to the local economy, the District investment portfolio may, to a degree satisfactory to the Board of Trustees and consistent with prudent management, promote local economic strength.
           
7. ETHICS AND CONFLICT OF INTEREST
  A. District Board and staff members in positions of authority in the investment process shall refrain from personal business activity that may in fact or appearance conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions.
           
  B. District Board and staff members and employees of external investment management firms, shall disclose to the Board any material financial interests in financial institutions under consideration, and shall further disclose any meaningful or significant personal financial and‑or investment positions that could relate to performance of the District investment portfolio on an ongoing basis.
           
  C. No District Board or staff member shall participate in the decision to invest or withdraw District funds in any instrument or institution in which he‑she directly or indirectly has any material financial interest that might affect or be affected by the District's investment, nor shall he‑she accept any gift, free service, or payment of any kind for performing their duties under this Policy.
           
  D. For purposes of this article, personal investment by a District Board or staff member in United States Government (as defined herein) or other publicly traded securities on organized exchanges, or routine depository or loan relationships in a financial institution shall not be deemed direct or indirect financial interest.
           
  E. Any Board or staff member who has questions regarding such matters is encouraged to request an opinion from the District Board of Trustees.
           
  F. At the discretion of the Board, periodic written certification by Board, District staff, and‑or employees of external investment management firms confirming their understanding of and covenant to comply with the above ethical considerations may be requested.
           
8. PERSONAL RESPONSIBILITY
  A.

It is anticipated and expected that investment officials and‑or advisors will act in good faith, with due diligence; that deviations from and‑or exceptions to the Policy will be reported in timely fashion; that appropriate action will be taken timely to control adverse developments; and that a strategy for corrective action will be provided for the Board’s consideration.
           
  B. Investment officials and‑or advisors will be relieved of personal responsibility for individual security performance and fluctuations in market price only when they have acted in the manner described herein.
           
9. DELEGATION OF AUTHORITY
 

Section 46.1 of the District’s Charter charges the Board of Trustees with responsibility to exercise sound and prudent management of the financial resources of the District. This Policy delegates authority as follows:
           
  A. For overall compliance of District investment activity with terms and provisions of this Policy, to the Treasurer;
           
  B.

For day‑to‑day investment activity, by the Treasurer in writing to the General Manager;
           
  C.

The General Manager may in turn delegate in writing authority for day‑to‑day investment activity to an Authorized Investment Administrator;
           
  D. The Authorized Investment Administrator shall be an appropriately knowledgeable and responsible member of District administrative staff;
           
  E. The Authorized Investment Administrator shall be responsible for all investment transactions undertaken, except as may, from time to time, be directed by the Board; and
           
  F. No person may engage in any investment transaction involving District funds except as provided under the terms of this Policy.
           
10. EXTERNAL MANAGEMENT
  A. The General Manager or his‑her duly delegated Authorized Investment Administrator may, with the approval of the Board of Trustees, contract with a qualified external independent investment manager and‑or money management agent in order to benefit from portfolio diversification, credit research, full‑time portfolio management, and economies of scale that are unavailable from District staff.
           
  B. Any such contract will incorporate the Policy, and establish performance criteria for monitoring and evaluating results. The external investment manager(s) will be bound by provisions of the Policy.
           
  C. Upon the advice of the Authorized Investment Administrator, District funds may, with the approval of the Board of Trustees, be invested in types of securities authorized elsewhere in this Policy, subject to limitations imposed by law, regulation, and this Policy.
           
11. INTERNAL CONTROL
  A. A system of written internal control shall be established. The internal control system shall be designed so as to prevent loss of District funds arising from employee error, misrepresentation by third parties, unanticipated changes in financial markets, and imprudent actions by Board and staff members.
           
  B.

The Treasurer may establish an annual process of independent review by an external auditor, selected by the Board during the annual District audit. This review will enhance internal control by assessing compliance with policies and procedures. The external auditor’s report shall be presented for annual review and approval by the District Board of Trustees.
           
  C. The internal control shall be presented for periodic review and approval by the District Board of Trustees which, with the assistance of its accounting consultants, will assess the adequacy of control and its compliance with this Policy.
           
  D. Internal control may be changed only upon prior approval of the Board of Trustees.
           
12. QUALIFIED INSTITUTIONS
  A. The Treasurer may maintain a listing of Financial Institutions, as defined below, which are approved for investment purposes.
           
  B. The District Board of Trustees may periodically review the listing.
           
  C. Securities dealers not otherwise affiliated with a Federal Deposit Insurance Corporation (FDIC)‑member banking institution shall be required to demonstrate affiliation with the New York Federal Reserve Bank as primary dealers or, if not so affiliated, demonstrate to the satisfaction of the Board that they are knowledgeable, experienced and have the financial resources to provide investment services that benefit the District (the “Financial Institution”).
           
13. AUTHORIZED INVESTMENTS
 

District funds may be invested in the following types of securities. In order of preference:
           
  A. Obligations of the United States Treasury and its agencies such as Bills, Notes and Bonds, or federal agency securities known as Government Sponsored Enterprise (GSE), (collectively “United States Government securities”);
           
  B. Fully insured or collateralized Certificates of Deposit at commercial banks and savings & loan associations;
           
  C. Repurchase agreements collateralized by United States Treasury securities and accompanied by executed Master Repurchase Agreements in a form recognized by the Public Securities Association (PSA), the Bond Market Association (TBMA), the International Securities Market Association (ISMA), or the Securities Industry and Financial Markets Association (SIFMA), or a similar nationally recognized facsimile thereof; or,
           
  D. Money market mutual funds whose portfolios consist of United States Government securities or broadly diversified money market instruments whose stated purpose is to maintain a stable principal dollar value of $1.00 per share, and which invest exclusively in short‑ and intermediate‑term investments.
           
14. COLLATERALIZATION
  A. Collateralization shall be required for the following types of investments:
           
    1. Certificates of Deposit, for amounts which exceed insurance;
           
    2. Repurchase agreements.
           
  B. Collateral will take the form of United States Government securities.
           
  C. To anticipate market changes and provide the required continued security for all funds, the collateralization level will be an amount of at least 102 % of the market‑to‑market value of principal, for adjustment of value no less frequently than quarterly, and with additional collateral provided if necessary.
           
  D. Collateral will in all instances be held by an independent third party custodian, in the name of the District, with whom the Financial Institution has a current custodial agreement, providing it meets or exceeds the minimum risk category classification of the Governmental Accounting Standards Board (GASB).
           
  E. A clearly marked evidence of ownership (i.e. a safekeeping receipt) will be supplied by the custodial entity to the Financial Institution, with copies to the District, and retained by the Financial Institution while the investment is in force.
           
  F. The right of collateral substitution is granted, provided that it complies with the above requirements.
           
15. REPORTS
  A. No less frequently than quarterly, the Authorized Investment Administrator shall prepare or cause to have prepared a meaningful report on District investment activities and portfolio performance.
           
  B. The report will be submitted to the Treasurer for presentation to the District Board of Trustees. And,
           
  C. The report shall contain information sufficient to permit independent counsel to evaluate the District’s investment program and draw reliable conclusions as to its effectiveness.
           
  D. Referral to independent counsel for such evaluation shall occur as and when directed by the Board of Trustees.
           
16. POLICY REVIEW
 

This Policy shall be reviewed periodically by the District Board of Trustees and amended as necessary to meet the objectives stated herein.
           
17. POLICY ADOPTION AND EFFECTIVE DATE
  A. This Policy shall take effect immediately upon adoption.
           
  B. This Brunswick Sewer District Investment Policy was revised by vote of its Board of Trustees in meetings duly held on 13 November 2007 and 10 December 2007.
           

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