KRS 66.480: Investment of public funds -- Limitations -- Written investment policy --

Duties of state local debt officer -- Investment pool -- Rating agency.

(1) The governing body of a city, county, urban -county, charter county, school district

(provided that its general procedure for action is approved by the Kentucky Board

of Education), or other local governmental unit or political subdivision, may invest

and reinvest money subject to its control and jurisdiction in:

(a) Obligations of the United States and of its agencies and instrumentalities,

including obligations subject to repurchase agreements, if delivery of these

obligations subject to repurchase agreements is taken either directly or through

an authorized custodian. These investments may be accomplished through

repurchase agreements reached with sources including but not limited to

national or state banks chartered in Kentucky;

(b) Obligations and contracts for future delivery or purchase of obligations backed

by the full faith and credit of the United States or a United States government

agency, including but not limited to:

1. United States Treasury;

2. Export-Import Bank of the United States;

3. Farmers Home Administration;

4. Government National Mortgage Corporation; and

5. Merchant Marine bonds;

(c) Obligations of any corporation of the United States government, including but

not limited to:

1. Federal Home Loan Mortgage Corporation;

2. Federal Farm Credit Banks;

3. Bank for Cooperatives;

4. Federal Intermediate Credit Banks;

5. Federal Land Banks;

6. Federal Home Loan Banks;

7. Federal National Mortgage Association; and

8. Tennessee Valley Authority;

(d) Certificates of deposit or other interest-bearing accounts issued through a bank

or savings and loan institution having a physi cal presence in Kentucky which

are insured by the Federal Deposit Insurance Corporation or similar entity or

which are collateralized, to the extent uninsured, by any obligations, including

surety bonds, permitted by KRS 41.240(4);

(e) Uncollateralized certificates of deposit issued by any bank or savings and loan

institution having a physical presence in Kentucky rated in one (1) of the three

(3) highest categories by a competent rating agency;

(f) Bankers' acceptances for banks rated in one (1) of the thr ee (3) highest

categories by a competent rating agency;

(g) Commercial paper rated in the highest category by a competent rating agency;

(h) Bonds or certificates of indebtedness of this state and of its agencies and

instrumentalities;

(i) Securities issue d by a state or local government, or any instrumentality of

agency thereof, in the United States, and rated in one (1) of the three (3)

highest categories by a competent rating agency;

(j) Shares of mutual funds and exchange traded funds, each of which sha ll have

the following characteristics:

1. The mutual fund shall be an open -end diversified investment company

registered under the Federal Investment Company Act of 1940, as

amended;

2. The management company of the investment company shall have been

in operation for at least five (5) years; and

3. All of the securities in the mutual fund shall be eligible investments

pursuant to this section;

(k) Individual equity securities if the funds being invested are managed by a

professional investment manager regul ated by a federal regulatory agency.

The individual equity securities shall be included within the Standard and

Poor's 500 Index, and a single sector shall not exceed twenty -five percent

(25%) of the equity allocation; and

(l) Individual high -quality corpo rate bonds that are managed by a professional

investment manager that:

1. Are issued, assumed, or guaranteed by a solvent institution created and

existing under the laws of the United States;

2. Have a standard maturity of no more than ten (10) years; and

3. Are rated in the three (3) highest rating categories by at least two (2)

competent credit rating agencies.

(2) The investment authority provided by subsection (1) of this section shall be subject

to the following limitations:

(a) The amount of money inv ested at any time by a local government or political

subdivision in any one (1) of the categories of investments authorized by

subsection (1)(e), (f), (g), (k), and (l) of this section shall not exceed twenty

percent (20%) of the total amount of money invested by the local government;

(b) The amount of money invested at any one (1) time by a local government or a

political subdivision in the categories of investments authorized in subsection

(1)(j), (k), and (l) of this section shall not, aggregately, excee d forty percent

(40%) of the total money invested unless the investment is in a mutual fund

consisting solely of the investments authorized under subsection (1)(a), (b),

(c), (h), or (i) of this section, or any combination thereof;

(c) No local government or political subdivision shall purchase any investment

authorized by subsection (1) of this section on a margin basis or through the

use of any similar leveraging technique; and

(d) At the time the investment is made, no more than five percent (5%) of the

total amount of money invested by the local governments or political

subdivisions shall be invested in any one (1) issuer unless:

1. The issuer is the United States government or an agency or

instrumentality of the United States government, or an entity wh ich has

its obligations guaranteed by either the United States government or an

entity, agency, or instrumentality of the United States government;

2. The money is invested in a certificate of deposit or other interest-bearing

accounts as authorized by subsection (1)(d) and (e) of this section;

3. The money is invested in bonds or certificates of indebtedness of this

state and its agencies and instrumentalities as authorized in subsection

(1)(h) of this section; or

4. The money is invested in securities issued by a state or local

government, or any instrumentality or agency thereof, in the United

States as authorized in subsection (1)(i) of this section.

(3) The governing body of every local government or political subd ivision that invests

or reinvests money subject to its control or jurisdiction according to the provisions

of subsection (1) of this section shall by January 1, 1995, adopt a written investment

policy that shall govern the investment of funds by the local government or political

subdivision. The written investment policy shall include but shall not be limited to

the following:

(a) A designation of the officer or officers of the local government or political

subdivision who are authorized to invest and oversee the investment of funds;

(b) A list of the permitted types of investments;

(c) Procedures designed to secure the local government's or political subdivision's

financial interest in the investments;

(d) Standards for written agreements pursuant to which investments are to be

made;

(e) Procedures for monitoring, control, deposit, and retention of investments and

collateral;

(f) Standards for the diversification of investments, including diversification with

respect to the types of investments and firms with whom the local government

or political subdivision transacts business;

(g) Standards for the qualification of investment agents which transact business

with the local government, such as criteria covering creditworthiness,

experience, capitalization, size, and any other factors that make a firm capable

and qualified to transact business with the local government or political

subdivision; and

(h) Requirements for periodic reporting to the governing body on the status of

invested funds.

(4) Sheriffs, county clerks, county attorneys, and jailers, who for the purposes of this

section shall be known as county officials, may invest and reinvest money subject to

their control and jurisdiction, including tax dollars subject to the provisions of KRS

Chapter 134 and 160.510, as permitted by this section.

(5) The provisions of this section are not intended to impair the power of a county

official, city, county, urban -county, charter county, school district, or other local

governmental unit or political subdivision to hold funds in deposit accounts with

banking institutions as otherwise authorized by law.

(6) The governing body or county official may delegate the investment authority

provided by this section to the treasurer or other financial officer or officers charged

with custody of the funds of the local government, and the officer or officers shall

thereafter assume full responsibility for all investment transactions until the

delegation of authority terminates or is revoked.

(7) All county officials shall report t he earnings of any investments at the time of their

annual reports and settlements with the fiscal courts for excess income of their

offices.

(8) The state local debt officer is authorized and directed to assist county officials and

local governments, except school districts, in investing funds that are temporarily in

excess of operating needs by:

(a) Explaining investment opportunities to county officials and local governments

through publication and other appropriate means; and

(b) Providing technical ass istance in investment of idle funds to county officials

and local governments that request that assistance.

(9) (a) The state local debt officer may create an investment pool for local

governments, except school districts, and county officials; and countie s and

county officials and cities may associate to create an investment pool. If

counties and county officials and cities create a pool, each group may select a

manager to administer their pool and invest the assets. Each county and each

county official an d each city may invest in a pool created pursuant to this

subsection. Investments shall be limited to those investment instruments

permitted by this section. The funds of each local government and county

official shall be properly accounted for, and earnin gs and charges shall be

assigned to each participant in a uniform manner according to the amount

invested. Charges to any local government or county official shall not exceed

one percent (1%) annually on the principal amount invested, and charges on

investments of less than a year's duration shall be prorated. Any investment

pool created pursuant to this subsection shall be audited each year by an

independent certified public accountant, or by the Auditor of Public Accounts.

A copy of the audit report shall be provided to each local government or

county official participating in the pool. In the case of an audit by an

independent certified public accountant, a copy of the audit report shall be

provided to the Auditor of Public Accounts, and to the state loca l debt officer.

The Auditor of Public Accounts may review the report of the independent

certified public accountant. After preliminary review, should discrepancies be

found, the Auditor of Public Accounts may make his or her own investigative

report or aud it to verify the findings of the independent certified public

accountant's report.

(b) If the state local debt officer creates an investment pool, he or she shall

establish an account in the Treasury for the pool. He or she shall also establish

a separate trust and agency account for the purpose of covering management

costs, and he or she shall deposit management charges in this account. The

state local debt officer may promulgate administrative regulations, pursuant to

KRS Chapter 13A, governing the operat ion of the investment pool, including

but not limited to provisions on minimum allowable investments and

investment periods, and method and timing of investments, withdrawals,

payment of earnings, and assignment of charges.

(c) Before investing in an inves tment pool created pursuant to this subsection, a

local government or county official shall allow any savings and loan

association or bank in the county, as described in subsection (1)(d) of this

section, to bid for the deposits, but the local government o r county official

shall not be required to seek bids more often than once in each six (6) month

period.

(10) (a) With the approval of the Kentucky Board of Education, local boards of

education, or any of them that desire to do so, may associate to create a n

investment pool. Each local school board which associates itself with other

local school boards for the purpose of creating the investment pool may invest

its funds in the pool so created and so managed. Investments shall be limited

to those investment i nstruments permitted by this section. The funds of each

local school board shall be properly accounted for, and earnings and charges

shall be assigned to each participant in a uniform manner according to the

amount invested. Charges to any local school boa rd shall not exceed one

percent (1%) annually on the principal amount invested, and charges on

investments of less than a year's duration shall be prorated. Any investment

pool created pursuant to this subsection shall be audited each year by an

independent certified public accountant, or by the Auditor of Public Accounts.

A copy of the audit report shall be provided to each local school board

participating in the pool. In the case of an audit by an independent certified

public accountant, a copy of the aud it report shall be provided to the Auditor

of Public Accounts, and to the Kentucky Board of Education. The Auditor of

Public Accounts may review the report of the independent certified public

accountant. After preliminary review, should discrepancies be fo und, the

Auditor of Public Accounts may make his or her own investigative report or

audit to verify the findings of the independent certified public accountant's

report.

(b) The Kentucky Board of Education may promulgate administrative regulations

governing the operation of the investment pool including but not limited to

provisions on minimum allowable investments and investment periods, and

methods and timing of investments, withdrawals, payment of earnings, and

assignment of charges.

(11) As used in this section, "competent rating agency" means a rating agency certified

or approved by a national entity that engages in such a process. The certification or

approval process shall include but not necessarily be limited to the following

elements the subject rating agency must possess:

(a) A requirement for the rating agency to register and provide an annual updated

filing;

(b) Record retention requirements;

(c) Financial reporting requirements;

(d) Policies for the prevention of misuse of material nonpublic information;

(e) Policies addressing management of conflicts of interest, including prohibited

conflicts;

(f) Prohibited acts practices;

(g) Disclosure requirements;

(h) Any policies, practices, a nd internal controls required by the national entity;

and

(i) Standards of training, experience, and competence for credit analysts.