This page provides detailed guidance to help local governments in Washington State develop and adopt investment policies, including key questions to consider and sample policies.
It is part of MRSC’s Financial Policies Tool Kit, created in partnership with the State Auditor’s Office Center for Government Innovation.
Why Develop an Investment Policy?
Every city and county that invests its excess funds has an investment policy, but some are more formal and well-developed than others. Even if your jurisdiction has not developed and adopted a written policy, it still has an ad hoc policy resulting from the individual investment decisions made in the past. Those decisions have resulted in a portfolio with certain maturities, yields, liquidity, safety, etc. However, that portfolio might not be what your jurisdiction would choose if it looked at the overall picture.
Establishing and adopting a written investment policy is a good financial practice and can help your jurisdiction improve its financial security. It also provides protection for elected officials and staff by spelling out your jurisdiction’s investment goals and responsibilities.
Key Components of an Investment Policy
There are many components of a successful investment policy. The Washington Public Treasurers Association (WPTA) and Government Finance Officers Association (GFOA) provide lists of recommended areas, which include:
- Scope and investment objectives
- Delegation of authority and responsibilities
- Authorized financial dealers and institutions
- Authorized investments
- Investment diversification
- Performance standards
- Reporting and oversight
Within these components, there are several critical decisions to make to ensure accountability and help your jurisdiction achieve its financial goals, as discussed below.
Scope and Investment Objectives
The purpose statement is the opening statement of the investment policy. It should set a clear and concise picture of the goals of your jurisdiction. For example, Poulsbo states:
The purpose of this document is to identify those funds that are considered available for investment, to invest funds to the fullest extent possible, and to formalize the investment-related activities to assure the highest return with maximum security.
Tailor the scope and investment objectives to the type of investment being made. There may be different objectives for investing excess operating funds (liquidity), bond reserves (return), and capital reserves (safety).
Delegation of Authority and Responsibilities
It is important to clearly identify the person or people empowered to make investment decisions on behalf of your jurisdiction by title and responsibility. The delegation of authority section should define the level of authority granted and the requirement for the officer to establish an appropriate internal control system to regulate the activities of subordinates.
Authorized Financial Dealers and Institutions
The investment policy should consider what dealers and/or financial institutions are authorized to be used, establish criteria for evaluating them, and designate oversight. For example, all authorized broker/dealers and financial institutions must provide a statement of qualifications that will include financial statements or consolidated reports of condition.
It is important to include the requirement that “No public deposit shall be made except in a qualified public depository as provided in RCW 39.58.080.”
Authorized Investments
All municipal corporations in Washington State are empowered to invest in certain types of securities. Eligible investments are provided for in chapter 39.58 RCW and chapter 39.59 RCW. The authority to invest in the Washington State Treasurer’s Local Government Investment Pool (LGIP) is found in chapter 43.250 RCW.
The investment policy should confirm which types of securities your entity is comfortable investing in.
Investment Diversification
Developing a diversification strategy, which sets maximum limits on the amount of funds that can be invested in a given type of instrument (and often sets limits on individual issuers too), is key to achieving your investment objectives. By eliminating the risk of over-concentration in any specific area, diversification can help maximize revenue, minimize risk, and ensure enough liquidity in case you need to access the money.
Performance Standards
To meet these goals, your investment policy should also establish performance standards comparing the yield to other key indexes. Some policies tie their performance to the federal level, typically Treasury bills or federal fund rates, while others tie their performance to the Washington State Local Government Investment Pool (LGIP).
Reporting and Oversight
Good internal controls are key to ensuring your jurisdiction’s financial health and making sure the investment policy is followed. To ensure accountability and safeguard the investments, the investment officer should regularly answer to both management (your administration and/or finance committee) and your legislative body.
The investment officer should report at least once per quarter, and depending on the circumstances and market conditions they should report more frequently.
Investment Policy Certification
The Washington Public Treasurers Association (WPTA) provides a useful Investment Policy Certification Program for members. A WPTA policy review committee will go over your investment policy to make sure it adequately addresses the core policy areas and, if so, certify the policy. Certification provides useful guidance to protect your jurisdiction, as well as reassuring your elected officials and members of the public.
Certification is valid for five years and may be renewed after that. WPTA strongly recommends certifying the policy before submitting it to your governing body for adoption. For an example of the feedback WPTA provides, see:
The Association of Public Treasurers of the United States and Canada (APTUSC) also offers a higher-level investment policy certification program that might interest larger jurisdictions.
Examples of Investment Policies & Reports
Below are some useful investment policies, reports, and related documents, focusing particularly on small and mid-sized jurisdictions.
Investment Policy Template
Cities
Counties
Special Purpose Districts
Investment Reports
Other Investment Documents
Recommended Resources
Below are some useful resources from state agencies, the Government Finance Officers Association (GFOA), and other sources to help you develop an investment policy.
- Washington State Treasurer: Guide to Public Funds Investing for Local Governments (2016) – Useful guide discusses investments permitted under state law, basic elements of a sound investment program, and potential risks of investing public funds.
- Washington State Treasurer: Local Government Investment Pool – Overview of LGIP, including LGIP investment policy, rates, portfolio, and performance measures.
- WPTA Investment Policy Certification Program – Provides guidance for local governments developing investment policies, and includes an investment policy template.
- GFOA Best Practices: Investment Policy and Governance Practices – Includes best practices on creating an investment policy, diversifying the investment portfolio, local government investment pools, selecting securities dealers and investment advisors, and other related topics.
- APTUSC: Investment Policy Certification Program – Technical assistance program provides guidance, a model investment policy, and policy certification. May be especially useful for larger jurisdictions.