2012 Comprehensive Annual Financial Report - the City of Tukwila
2012 Comprehensive Annual Financial Report - the City of Tukwila
2012 Comprehensive Annual Financial Report - the City of Tukwila
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CITY OF TUKWILA: <strong>2012</strong> CAFRNOTES TO THE FINANCIAL STATEMENTSInterest Rate RiskInterest rate risk is <strong>the</strong> risk that changes in interest rates <strong>of</strong> debt investments will adversely affect <strong>the</strong> fairvalue <strong>of</strong> an investment. As a means <strong>of</strong> limiting its exposure to fair value losses arising from rising interestrates, <strong>the</strong> <strong>City</strong>’s investment policy limits at least half <strong>of</strong> <strong>the</strong> <strong>City</strong>’s cash and investment portfolio tomaturities <strong>of</strong> less than one year. Investment maturities are limited as follows:1) At <strong>the</strong> time <strong>of</strong> investment, a minimum <strong>of</strong> thirty percent (30%) <strong>of</strong> <strong>the</strong> cash andinvestment portfolio will be comprised <strong>of</strong> investments maturing or available within oneyear.2) At <strong>the</strong> time <strong>of</strong> investment, eighty percent (80%) <strong>of</strong> <strong>the</strong> portfolio will be comprised <strong>of</strong>investments maturing or available within five (5) years and no instruments shall havea maturity exceeding ten (10) years, except when compatible with a specific fund’sinvestment needs.3) The average maturity <strong>of</strong> <strong>the</strong> portfolio shall not exceed three and one half (3 ½) yearsor forty-two (42) months.Credit RiskCredit risk is <strong>the</strong> risk that an issuer or o<strong>the</strong>r counterparty to an investment will not fulfill its obligations.State statutes and <strong>the</strong> <strong>City</strong>’s investment policy limit <strong>the</strong> types <strong>of</strong> securities authorized for investment by<strong>the</strong> <strong>City</strong>. The principal governing statutes are RCW 39.59 and RCW 39.60. The Finance Director mayfur<strong>the</strong>r restrict eligible investments by this policy at his/her discretion. Authorized investments include(but are not limited to):1) U.S. Treasury Securities.2) U.S. Agency Securities (i.e., obligations <strong>of</strong> any government-sponsored corporationeligible for collateral purposes at <strong>the</strong> Federal Reserve).3) Certificates <strong>of</strong> Deposit, Money Market Deposit Accounts and savings deposits withqualified depositories within statutory limits as promulgated by <strong>the</strong> PDPC at <strong>the</strong> time<strong>of</strong> investment.4) Bankers Acceptances (BA’s) purchased on <strong>the</strong> secondary market with a rating <strong>of</strong> A-1,P-1, its equivalent or better.5) General Obligation Bonds <strong>of</strong> a state or local government which have at <strong>the</strong> time <strong>of</strong><strong>the</strong> investment one <strong>of</strong> <strong>the</strong> three highest credit ratings <strong>of</strong> a nationally-recognized ratingagency.6) The Washington State Local Government Investment Pool (LGIP).As <strong>of</strong> December 31, <strong>2012</strong>, <strong>the</strong> <strong>City</strong>’s investments in municipal bonds were rated Aa1 to A1 by Moody’sInvestor Service. The <strong>City</strong> currently maintains a rating <strong>of</strong> AA- with Fitch’s Investor Service for its generalobligation debt and A1 with Moody’s Investor Service.67