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HomeMy WebLinkAboutReso 2000-037 - Amend Investment Policy • A RESOLUTION NO. 2000-3_7 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF REDDING AMENDING INVESTMENT POLICY 408. WHEREAS, on April 2, 1991, the City Council adopted an Investment Policy numbered 408 to provide guidelines for the prudent investment of the City's idle funds, which Policy has been amended from time-to-time; and WHEREAS, the City Council wishes to further amend its Investment Policy, as recommended by the City Treasurer; NOW, THEREFORE, IT IS RESOLVED by the City Council that the City's Investment Policy No. 408 be amended as set forth in the attached annual update, made a part hereof by reference. I HEREBY CERTIFY that the foregoing resolution was introduced, read and adopted at a regular meeting of the City Council on the 15th day of February, 2000, by the following vote: AYES: COUNCIL MEMBERS: Cibula, Kight, McGeorge, Pohlmeyer and Anderson NOES: COUNCIL MEMBERS: None ABSENT: COUNCIL MEMBERS: None ABSTAIN: COUNCIL MEMBERS: None w�J ROBERT C. ANDERSON, Mayor Attet: Form Approved: _ __ Connie_S'trohmayer, City C/k W. Leonard Wingate, City ' ttorney • CITY OF REDG„JG, CALIFORNIA Council Policy SUBJECT Resolution Policy Effective Number Number Date Page INVESTMENT POLICY 91-148 408 0410/91 1 BACKGROUND The Treasurer or Chief Fiscal Officer shall annually render to the legislative body of the local agency and any oversight committee a statement of investment policy, which the legislative body of the local agency shall consider at a public meeting. Any changes in the policy shall also be considered by the legislative body of the local agency at a public meeting. Government Code 53646(a) amended January 2, 1996. It is in the best interest of the City to have the Treasurer's Investment Policy adopted by resolution in order to have consistent guidelines for reporting and updating procedures relating to the investment of City funds. PURPOSE The City Treasurer, who has been given the authority by Council to invest and reinvest City funds, should have clear guidelines in place for reporting this activity to Council. Therefore, the Investment Policy is designed to provide guidelines for the prudent investment of the City's idle funds and reporting of the same. Amending or updating of this policy shall be conducted no less than once a year. POLICY The City Treasurer has the fiduciary responsibility to maximize the productive use of assets entrusted to his/her care and to invest and manage those funds wisely and circumspectly. Therefore, the City must operate its idle cash investment pool under the "prudent man rule" (Probate Code Article 2, Sections 16040/042). This afford3 the City a broad spectrum of investment opportunities as long as the investment is deemed prudent and is allowable under current legislation of the State of California (Government Code Section 53600, et seq.). The City recognizes that it has an obligation to be aware of the possible social and political impacts of its investments and will act responsibly if issues of this nature arise. Priority will be given to investments that promote community economic development (i.e., dealing with local financial institutions, etc.) provided that the investment selection criteria is met and yield is not significantly impacted. The City Treasurer shall strive, whenever possible, to make investments that benefit the local area. The City Treasurer shall strive to maintain the level of investment of all idle funds as near 100 percent as possible. Concurrently, the City Treasurer shall layer investment maturities to meet anticipated cash needs and attempt to maximize investment yields while satisfying the guidelines herein presented. F-0091 -7/93 CITY OF REDL„ bG, CALIFORNIA Council Policy SUBJECT Resolution Policy Effective Number Number Date Page INVESTMENT POLICY 91-148 408 0410191 2 The City shall be watchful of economic changes and as interest rates are initially falling, invest longer term; when interest rates are initially rising, invest shorter term, as practicable to meet the City cash flow demands. ADMINISTRATION/RESPONSIBILITY The City Treasurer and the Deputy City Treasurer are responsible for idle cash management. Investments shall be made by the individual so directed by the Treasurer. Cash flow and technical information shall be provided by the Finance Division. Each investment must be authorized by the Treasurer or Deputy in Treasurer's absence. The Finance Officer or designee shall review each investment transmittal to determine if it complies with the allowable investments section of the City Policy and for the purpose of financial tracking. The Finance Officer designated as Treasurer by resolutions for City entities, is responsible for cash management of RABA, Redding Redevelopment Agency, and Housing Authority. Investment of entity idle funds is administered by the City Treasurer and reviewed by the Finance Officer. Trustee accounts, as well as being governed by State Code, shall have guidelines included in their contracts as to the strength of financial institutions in which they may choose to invest City funds. As designated in the long-term debt resolutions, the City Treasurer, Finance Officer, or designee shall establish guidelines for Trustee contracts and jointly monitor the monthly accounts. The City Treasurer shall call together an Investment Policy Advisory Committee meeting once a year, or as needed, for the purpose of reviewing and updating this Policy. A minimum of two conferring with the Treasurer shall be among the following: the City Manager, the Assistant City Manager, the Finance Officer or designee, and the Director of Administrative Services. In addition; the committee will include two community members representing the finance industry bringing the committee total membership to five.. INVESTMENTS ALLOWABLE • '.'. ' • C '.' '• , •. '9. '• , • . • • • • • • • • •. . 111 • ' . • • . : I ' e . • I. I . • :1 . . - . •• '. I • • . 9 . .. • . •• •:• •• I . •. • • ' • - - ' • • . •. • • • :•. • - 1 . - . • - •• - • - •• • . -• •'' • - '. •. . • • .• • •. companies;--and-eredit-unions' • . '. . . - • . •• Prohibits the deposit or investing of City funds in a credit union if a member of the legislative body of the local agency, or any person with investment decision making authority of the administrative office,manager's office,budget office, or treasurer's office also serves on the board of directors of the state or federal credit union. 53635 (h) F-0091 •7/93 CITY OF REDD G, CALIFORNIA Council Policy SUBJECT Resolution Policy Effective Number Number Date Page INVESTMENT POLICY 91-148 408 04/0191 3 Co►ninei tial papui - _ • • - . . . - • I I I I ' . • - ••• _ . I I . . Page-4) Local^Agyncy env sty ent Fumd--deposit of bond proceeds not subtest to arbitrage(SB614) Mortgage Pass-Through-Secaritics with maximum maturity of five(5)yea,•s-CAB3576) The City complies with current California Code Section 53600 et seq., and is incorporated herein. See attachment. . .................................. .............. ................... CRITERIA FOR SELECTING INVESTMENTS IN PRIORITY ORDER 1. Safety - The safety and risk associated with an investment refers to the potential loss of principal and/or interest. There are basically two types of risk in cash investment. The first, credit risk, refers to the financial strength of the entity that is obligated to repay the investment. The second, principal protection, refers to the potential loss of principal due to market fluctuations or due to an early liquidation of the investment. In order for the City to fulfill its public fiduciary responsibility in regard to the funds entrusted to it, the City must participate in only those investments which present no substantial threat to principal. 2. Liquidity - This is the marketability of an investment or the ease with which it can be converted to cash. Generally, the more liquid or marketable the security, the lower the yield. The importance of this factor in investment selection is dependent upon the possibility of the circumstances arising that would necessitate the investment being converted to cash before maturity. Funds must be available in varying amounts to meet the City's daily cash needs. The City, therefore, shall structure its investments in such a manner as to provide for the daily cash needs of the City while, at the same time, participating in longer term2 higher yield instruments with cash that is not currently restricted from expenditure or for which there is not an immediate need. 2 Legislation effective January 2, 1989 restricts the length of investment term to five(5)years. F-0091 -7/93 CITY OF REDG,, IG, CALIFORNIA Council Policy SUBJECT Resolution Policy Effective Number Number Date Page INVESTMENT POLICY 91-148 408 0410191 4 3. Yield - The yield is the earnings an investment provides. It is usually expressed as an annual rate of return (the percentage annual earnings are of the invested principal). Since obtaining investment earnings is the motivation for investing, yield is a significant factor in all investment transactions. However, it shall become a consideration only after all other investment criteria is satisfied. Whenever possible, interest is to be paid to the City Treasurer monthly. 4. LAIF - When a City LAIF account has reached the maximum deposit, the City Treasurer, may at his/her discretion, transfer City funds into an Entity LAIF account' if in so doing the yield will be significantly higher than other lawful investments. In this case, the Treasurer will keep a separate set of books for City and Entity investments and will allocate the interest earnings proportionately. INVESTMENT LIMITATIONS Security purchases and holdings shall be maintained within the statutory limits imposed by the California Government Code. Investment securities shall not be purchased by means of leverage. COLLATERAL REQUIREMENTS Collateral requirements for government funds are 110 percent if backed by U.S. Government securities or 150 percent if backed by a Real Estate pool. The City of Redding funds are backed by Government Security pools. Securities underlying a repurchase agreement must have a market value of at least 105 percent of the cost of the repurchase agreement. If the market value of the underlying security falls below this requirements, the dealer bank shall assign additional securities to the repurchase agreement so that the margin requirement is met, or the dealer bank shall return the City's investment. Repurchase Agreements must include this in writing. A current law provides that investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. (City Policy requirement is 105 percent) 53635 (I) WITH WHOM TO TRANSACT The City Treasurer or Deputy City Treasurer shall make investment transactions only with financial institutions, national firms, or security dealers that are reputable and that exhibit financial stability. In addition, the security dealers must be able to meet the requirements for classifications as primary dealers with the New York Federal Reserve Bank. COMPETITIVE OFFERS 3 Entity in this case is referring to public agencies related to the City of Redding but separate by law,whose funds the City Treasurer manages in the area of bank reconciliation and investment of idle cash pursuant to cooperative investment policies. (i.e. Redding Area Bus Authority,Redding Redevelopment Agency,and Housing Authority. F-0091 -7/93 • CITY OF REDDIPIG, CALIFORNIA Council Policy SUBJECT Resolution Policy Effective Number Number Date Page INVESTMENT POLICY 91-148 408 04/0/91 5 The City Treasurer or.Deputy City Treasurer shall contact at least three investment officers or broker/dealers . • •• • • . • • . . . . . and obtainthe potential yield for each security purchase and calculate the estimated cost of services that would result from dealing with that institution or individual. Each Investment Officer or Broker/Dealer shallhave on file a current Request For Information;(IAF ;; :The.;RFT shall be utilized as a significant factor in the selection and periodic review of the institutions and/or individuals utilized for investment transactions. DIVERSIFICATION The portfolio shall contain a variety of security types, issuers, and maturities. SAFEKEEPING Investment securities purchased by the City shall be held in the same name of the City of Redding, or delivered to the City, or it its third-party custodian within the State of California. Investment purchases shall be delivery versus payment. SELLING SECURITIES PRIOR TO MATURITY Losses may be acceptable on a sale and should be taken if the reinvested proceeds will generate earnings (net of the resultant capital loss or early withdrawal penalty) that are greater than the earnings that would be generated if the existing investment were held to maturity. Any sale of securities at a loss, without this purpose of reinvestment, must be reviewed by the Investment Policy Advisory Committee. MON L-V REPORTING The City Treasurer shall file a monthly report to the City Council and the City Manager. This report shall show how the investments have been made and whether they are in conformance to the investment policy, shall include information that demonstrates that the City's expenditure requirements can be met in the following six (6) months and shall disclose the investment information that is required by Government Code Section 53646. In addition, the report shall list the number of wire transfer investment transactions which took place during the month. DEBT PROCEEDS' Notwithstanding any other provisions to the contrary, debt issue proceeds shall be invested in "permitted investments" as defined by the trust agreement associated with the debt issue. Such investment shall be in compliance with requirements imposed by rating agencies, bond insurers, and Federal and State law. Investments allowable under current California Government Code No. 53601 are stated in the City Council Investment Policy. (Amendment 04/07/92, Council approval for the investment of bond proceeds in the State Pool, Local Agency Investment Fund, LAIF.) 4 Debt proceeds section added by Resolution No.91-230 effective June 13, 1991. F-0091 - 7/93 D!G CALIFORNIA CITY OF RED , Council Policy SUBJECT Resolution Policy Effective Number Number Date Page • INVESTMENT POLICY 91-148 408 04/0191 6 Included in the investment policy is the criteria to be utilized for the selection of investments and the order of priority. For purposes of this policy, the term "Treasurer" is that individual defined in the bond documents and amendments of the debt issue. The Treasurer is subject to the applicable provisions of any indenture, trust agreement, or resolution providing for a trustee or other fiscal agent. This individual is designated as the depository of the issuing authority to have custody of all the money of the issuing authority from whatever source and, as such, shall have the powers, duties, and responsibilities specified in 6505.5 of the Government Code. The Treasurer is designated as the public officer or person who has charge of, handles, or has access to any property of the authority. DUE DILIGENCE It shall be the responsibility of the Treasurer to structure and monitor the bond proceeds investment process and to verify that fees paid to brokers are reasonable and commensurate with the work performed. The Treasurer shall consult with bond counsel and financial advisors, when applicable, during the development of the bond issue documents and shall be responsible for determining whether the proceeds shall be actively or passively invested as a result of Federal regulations that may govern the issue. CONFLICTS OF INTEREST Underwriters and financial advisors may not receive compensation, finder's fees, honoraria or gifts from parties involved in investment transactions. Subject to any restrictions imposed by Federal regulations, the bond underwriter or advisor may bid for investment funds in an openly competitive bidding, but not as sole source broker or intermediary. If a financial advisor or underwriter also acts in an investment capacity, the firm shall certify that its fees do not exceed the fees it customarily charges for investment activity and include no compensation for services provided in the underwriting. AVOIDANCE OF ABUSES The City will refrain from abusive practices in the investment of bond proceeds and will obtain market price instruments. For bond issues to which Federal yield or regulatory restrictions apply, the primary objective shall be to prudently obtain satisfactory market yields and to minimize the costs associated with investment of such funds. The Treasurer shall obtain full disclosure of brokerage and other fees associated with investment of bond proceeds and shall require written disclosure of any payments made by investment firms or brokers to third parties associated with the City of the issuance of its bonds. ARBITRAGE RECORD KEEPING The Treasurer shall establish systems and procedures to comply with Federal regulations governing the investment of bond proceeds, including investment record keeping systems. Attachment: California Code Section 53600,et Seq. F-0091 -7/93 CITY OF REDG„ 4G, CALIFORNIA Council Policy SUBJECT Resolution Policy Effective Number Number Date Page INVESTMENT POLICY 91-148 408 0410191 7 Amended March 16, 1993, by Resolution No. 93-085. Amended April 5, 1994, by Resolution No. 94-080. Amended April 18, 1995, by Resolution No. 95-102. Amended February 4, 1997, by Resolution No. 97-019. Amended December 1, 1998, by Resolution No. 98-170. F-0091 •7/93 Article 1 Investment of Surplus [Title 5, Local Agencies--Division 2, Cities, Counties,and Other Agencies--Part 1, Powers and Duties Common to Cities, Counties, and Other Agencies--Chapter 4, Financial Affairs--Article 1, Investment of Surplus; added by Stats 1949 ch 81 §1.1 § 53600. As used in this article, "local agency" means county, city, city and county, including a chartered city or county, school district, community college district, public district, county board of education, county superintendent of schools, or any public or municipal corporation. Added Stats 1949 ch 81 §1; Amended Stats 1984 ch 124§2, ch 1226 §1. Amended Stats 1987 ch 887§2. § 53600.3. Except as provided in subdivision (a) of Section 27000.3, all governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to,the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims,to safeguard the principal and maintain the liquidity needs of the agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law. Added Stats 1995 ch 784§11 (SB 866). Amended Stats 1996 ch 749 §4 (SB 109). § 53600.5. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds,the primary objective of a trustee shall be to safeguard the principal of the funds under its control. The secondary objective shall be to meet the liquidity needs of the depositor. The third objective shall be to achieve a return on the funds under its control. Added Stats 1995 ch 784§12 (SB 866). Amended Stats 1996 ch 749§5(SB 109). § 53600.6. The Legislature hereby finds that the solvency and creditworthiness of each individual local agency can impact the solvency and creditworthiness of the state and other local agencies within the state. Therefore, California Codes, Rules, BAJI and CALJIC Copyright 1999 Matthew Bender&Co., Inc. to protect the solvency and creditworthiness of the state and all of its political subdivisions, the Legislature hereby declares that the deposit and investment of public funds by local officials and local agencies is an issue of statewide concern. Added Stats 1995 ch 784§13 (SB 866). § 53601. The legislative body of a local agency having money in a sinking fund of, or surplus money in, its treasury not required for the immediate needs of the local agency may invest any portion of the money that it deems wise or expedient in those investments set forth below. A local agency purchasing or obtaining any securities prescribed in this section, in a negotiable, bearer, registered, or nonregistered format, shall require delivery of the securities to the local agency, including those purchased for the agency by financial advisors, consultants, or managers using the agency's funds, by book entry, physical delivery, or by third party custodial agreement. The transfer of securities to the counterparty bank's customer book entry account may be used for book entry delivery. For purposes of this section "counterparty" means the other party to the transaction. A counterparty bank's trust department or separate safekeeping department may be used for the physical delivery of the security if the security is held in the name of the local agency. Where this section specifies a percentage limitation for a particular category of investment,that percentage is applicable only at the date of purchase. Where this section does not specify a limitation on the term or remaining maturity at the time of the investment, no investment shall be made in any security, other than a security underlying a repurchase or reverse repurchase agreement authorized by this section, that at the time of the investment has a term remaining to maturity in excess of five years, unless the legislative body has granted express authority to make that investment either specifically or as a part of an investment program approved by the legislative body no less than three months prior to the investment: (a) Bonds issued by the local agency, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency or by a department, board, agency, or authority of the local agency. (b) United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. (c) Registered state warrants or treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. (d) Bonds, notes, warrants, or other evidences of indebtedness of any local agency within this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency. (e) Obligations issued by banks for cooperatives, federal land banks, federal intermediate credit banks, federal home loan banks,the Federal Home Loan Bank Board, the Tennessee Valley Authority, or in obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association; or in guaranteed portions of Small Business Administration notes; or in obligations, participations, or other instruments of, or issued by, a federal agency or a United States government-sponsored enterprise. (f) Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers acceptances. Purchases of bankers acceptances may not exceed 270 days maturity or 40 percent of the agency's surplus money that may be invested pursuant to this section. However, no more than 30 percent of the agency's surplus funds may be invested in the California Codes, Rules, BAJI and CALJIC 2 Copyright 1999 Matthew Bender&Co., Inc. bankers acceptances of any one commercial bank pursuant to this section. This subdivision does not preclude a municipal utility district from investing any surplus money in its treasury in any manner authorized by the Municipal Utility District Act (Division 6 (commencing with Section 11501) of the Public Utilities Code). (g) Commercial paper of"prime"quality of the highest ranking or of the highest letter and numerical rating as provided for by Moody's Investors Service, Inc., or Standard and Poor's Corporation. Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000) and having an "A" or higher rating for the issuer's debt, other than commercial paper, if any, as provided for by Moody's Investors Service, Inc., or Standard and Poor's Corporation. Purchases of eligible commercial paper may not exceed 180 days maturity nor represent more than 10 percent of the outstanding paper of an issuing corporation. Purchases of commercial paper may not exceed 15 percent of the agency's surplus money that may be invested pursuant to this section. An additional 15 percent, or a total of 30 percent of the agency's surplus money, may be invested pursuant to this subdivision. The additional 15 percent may be so invested only if the dollar-weighted average maturity of the entire amount does not exceed 31 days. "Dollar-weighted average maturity" means the sum of the amount of each outstanding commercial paper investment multiplied by the number of days to maturity, divided by the total amount of outstanding commercial paper. (h) Negotiable certificates of deposits issued by a nationally or state-chartered bank or a state or federal association (as defined by Section 5102[Deering's] of the Financial Code) or by a state-licensed branch of a foreign bank. Purchases of negotiable certificates of deposit may not exceed 30 percent of the agency's surplus money which may be invested pursuant to this section. For purposes of this section, negotiable certificates of deposits do not come within Article 2 (commencing with Section 53630), except that the amount so invested shall be subject to the limitations of Section 53638. (i) (1) Investments in repurchase agreements or reverse repurchase agreements of any securities authorized by this section, as long as the agreements are subject to this subdivision, including, the delivery requirements specified in this section. (2) Investments in repurchase agreements may be made, on any investment authorized in this section, when the term of the agreement does not exceed one year. The market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. Since the market value of the underlying securities is subject to daily market fluctuations,the investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. (3) Reverse repurchase agreements may be utilized only when either of the following conditions are met: (A) The security was owned or specifically committed to purchase, by the local agency, prior to December 31, 1994, and was sold using a reverse repurchase agreement on December 31, 1994. (B) The security to be sold on reverse repurchase agreement has been owned and fully paid for by the local agency for a minimum of 30 days prior to sale; the total of all reverse repurchase agreements on investments owned by the local agency not purchased or committed to purchase, prior to December 31, 1994, does not exceed 20 percent of the base value of the portfolio; and the agreement California Codes, Rules, BAJI and CALJIC 3 Copyright 1999 Matthew Bender&Co., Inc. does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security. (4) After December 31, 1994, a reverse repurchase agreement may not be entered into with securities not sold on a reverse repurchase agreement and purchased, or committed to purchase, prior to that date, as a means of financing or paying for the security sold on a reverse repurchase agreement, but may only be entered into with securities owned and previously paid for a minimum of 30 days prior to the settlement of the reverse repurchase agreement, in order to supplement the yield on securities owned and previously paid for or to provide funds for the immediate payment of a local agency obligation. Funds obtained or funds within the pool of an equivalent amount to that obtained from selling a security to a counterparty by way of a reverse repurchase agreement, on securities originally purchased subsequent to December 31, 1994, shall not be used to purchase another security with a maturity longer than 92 days from the initial settlement date of the reverse repurchase agreement, unless the reverse repurchase agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security. Reverse repurchase agreements specified in subparagraph (B) of paragraph (3) may not be entered into unless the percentage restrictions specified in that subparagraph are met, including the total of any reverse repurchase agreements specified in subparagraph (A) of paragraph (3). (5) Investments in reverse repurchase agreements or similar investments in which the local agency sells securities prior to purchase with a simultaneous agreement to repurchase the security, may only be made upon prior approval of the governing body of the local agency and shall only be made with primary dealers of the Federal Reserve Bank of New York. (6) (A) "Repurchase agreement" means a purchase of securities by the local agency pursuant to an agreement by which the counterparty seller will repurchase the securities on or before a specified date and for a specified amount and the counterparty will deliver the underlying securities to the local agency by book entry, physical delivery, or by third party custodial agreement. The transfer of underlying securities to the counterparty bank's customer book-entry account may be used for book-entry delivery. (B) "Securities," for purpose of repurchase under this subdivision, means securities of the same issuer, description, issue date, and maturity. (C) "Reverse repurchase agreement" means a sale of securities by the local agency pursuant to an agreement by which the local agency will repurchase the securities on or before a specified date and includes other comparable agreements. (D) For purposes of this section, the base value of the local agency's pool portfolio shall be that dollar amount obtained by totaling all cash balances placed in the pool by all pool participants, excluding any amounts obtained through selling securities by way of reverse repurchase agreements or other similar borrowing methods. (E) For purposes of this section, the spread is the difference between the cost of funds obtained using the reverse repurchase agreement and the earnings obtained on the reinvestment of the funds. California Codes, Rules, BAJI and CALJIC 4 Copyright 1999 Matthew Bender&Co., Inc. (j) Medium-term notes of a maximum of five years maturity issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment under this subdivision shall be rated in a rating category of"A" or its equivalent or better by a nationally recognized rating service. Purchases of medium-term notes may not exceed 30 percent of the agency's surplus money which may be invested pursuant to this section. (k) (1) Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subdivisions (a) to (j), inclusive, or subdivisions (m) or (n) and that comply with the investment restrictions of this article and Article 2 (commencing with Section 53630). However, notwithstanding these restrictions, a counterparty to a reverse repurchase agreement is not required to be a primary dealer of the Federal Reserve Bank of New York if the company's board of directors finds that the counterparty presents a minimal risk of default, and the value of the securities underlying a repurchase agreement may be 100 percent of the sales price if the securities are marked to market daily. (2) Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.). (3) If investment is in shares issued pursuant to paragraph (1), the company shall have met either of the following criteria: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience investing in the securities and obligations authorized by subdivisions (a) to (j), inclusive, or subdivisions (m) or (n) and with assets under management in excess of five hundred million dollars ($500,000,000). (4) If investment is in shares issued pursuant to paragraph (2),the company shall have met either of the following criteria: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience managing money market mutual funds with assets under management in excess of five hundred million dollars ($500,000,000). (5) The purchase price of shares of beneficial interest purchased pursuant to this subdivision shall not include any commission that the companies may charge and shall not exceed 20 percent of the agency's surplus money that may be invested pursuant to this section. However, no more than 10 percent of the agency's surplus funds may be invested in shares of beneficial interest of any one mutual fund pursuant to paragraph (1). (I) Notwithstanding anything to the contrary contained in this section, Section 53635, or any other provision of law, moneys held by a trustee or fiscal agent and pledged to the payment or security of bonds or other indebtedness, or obligations under a lease, California Codes, Rules, BAJI and CALJIC 5 Copyright 1999 Matthew Bender&Co.. Inc. installment sale, or other agreement of a local agency, or certificates of participation in those bonds, indebtedness, or lease installment sale, or other agreements, may be invested in accordance with the statutory provisions governing the issuance of those bonds, indebtedness, or lease installment sale, or other agreement, or to the extent not inconsistent therewith or if there are no specific statutory provisions, in accordance with the ordinance, resolution, indenture, or agreement of the local agency providing for the issuance. (m) Notes, bonds, or other obligations that are at all times secured by a valid first priority security interest in securities of the types listed by Section 53651 as eligible securities for the purpose of securing local agency deposits having a market value at least equal to that required by Section 53652 for the purpose of securing local agency deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank which is not affiliated with the issuer of the secured obligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. (n) Any mortgage passthrough security, collateralized mortgage obligation, mortgage-backed or other pay-through bond, equipment lease-backed certificate, consumer receivable passthrough certificate, or consumer receivable-backed bond of a maximum of five years maturity. Securities eligible for investment under this subdivision shall be issued by an issuer having an "A" or higher rating for the issuer's debt as provided by a nationally recognized rating service and rated in a rating category of"AA" or its equivalent or better by a nationally recognized rating service. Purchase of securities authorized by this subdivision may not exceed 20 percent of the agency's surplus money that may be invested pursuant to this section. Added Stats 1949 ch 81 §1.Amended Stats 1951 ch 1643§1; Stats 1953 ch 537 §1; Stats 1st Ex Sess 1954 ch 10 §1, effective April 6, 1954; Stats 1967 ch 275§1, ch 1316 §2; Stats 1974 ch 1354§1; Stats 1975 ch 649 §1; Stats 1977 ch 1138§1.5; Stats 1978 ch 65§1; Stats 1979 ch 158 §1, ch 275§2.5; Stats 1981 ch 185§2; Stats 1982 ch 508 §2; Stats 1983 ch 550 §1, ch 567§1.5; Stats 1984 ch 741 §1; Stats 1983 ch 567 §1.5, operative January 1, 1988; Stats 1985 ch 983 §15. effective September 26, 1985, ch 1526 §1.5,Stats 1983 ch 567 §1.5, operative January 1, 1988; Stats 1986 ch 784 §§1, 2, ch 853 §1,effective September 17, 1986, ch 853 §1.5, ch 853 §2, effective September 17, 1986, ch 853 §2.5. Amended Stats 1987 ch 446 §1, ch 887§3.5; Stats 1988 ch 294§1, effective July 7, 1988, ch 491 §1; Stats 1992 ch 173 §1 (AB 3576); Stats 1994 ch 705§10 (SB 1804); Stats 1995 ch 784 §14 (SB 866); Stats 1996 ch 156 §7 (SB 864), effective July 12, 1996; Stats 1998 ch 588 §1 (SB 1793). § 53601.1. The authority of a local agency to invest funds pursuant to Section 53601 includes, in addition thereto, authority to invest in financial futures or financial option contracts in any of the investment categories enumerated in that section. Added Stats 1983 ch 534§3. § 53601.5. The purchase by a local agency of any investment authorized pursuant to Section 53601 or 53601.1, not purchased directly from the issuer, shall be purchased either from an institution licensed by the state as a broker-dealer, as defined in Section 25004[Deering's] of the Corporations Code, or from a member of a federally regulated securities exchange, from a national or state-chartered bank, from a federal or state association (as defined by Section 5102[Deering's] of the Financial Code) or from a brokerage firm California Codes, Rules, BAJI and CALJIC 6 Copyright 1999 Matthew Bender&Co., Inc. • designated as a primary government dealer by the Federal Reserve bank. Added Stats 1984 ch 929 §1; Amended Stats 1985 ch 983 §16, effective September 26, 1985. § 53601.6. (a) A local agency shall not invest any funds pursuant to this article in inverse floaters, range notes, or mortgage derived interest-only strips. (b) A local agency shall not invest any funds pursuant to this article in any security that could result in zero interest accrual if held to maturity. However, a local agency may hold prohibited instruments until their maturity dates. The limitation in this subdivision shall not apply to local agency investments in shares of beneficial interest issued by diversified management companies registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, and following) that are authorized for investment pursuant to subdivision (k) of Section 53601. Added Stats 1995 ch 784§15 (SB 866).Amended Stats 1996 ch 156§8 (SB 864), effective July 12, 1996. § 53602. The legislative body shall invest only in notes, bonds, bills, certificates of indebtedness,warrants, or registered warrants which are legal investments for savings banks in the State, provided, that the board of supervisors of a county may, by a four-fifths vote thereof, invest in notes,warrants or other evidences of indebtedness of public districts wholly or partly within the county, whether or not such notes, warrants, or other evidences of indebtedness are legal investments for savings banks. Added Stats 1949 ch 81 §1; Amended Stats 1953 ch 537 §3; Stats 1st Ex Sess 1954 ch 10 §2, effective April 6, 1954. § 53602.1. Added Stats 1981 ch 594§1.Amended Stats 1986 ch 803 §1. Amended Stats 1987 ch 1028 §1. Inoperative January 1, 1989, by its own terms. Repealed Stats 1990 ch 216 §40 (SB 2510). § 53603. The legislative body may make the investment by direct purchase of any issue of eligible securities at their original sale or after they have been issued. Added Stats 1949 ch 81 §1; Amended Stats 1953 ch 537 §4. § 53604. The legislative body may sell, or exchange for other eligible securities, and reinvest the proceeds of,the securities purchased. California Codes, Rules, BAJI and CALJIC 7 Copyright 1999 Matthew Bender&Co., Inc. Added Stats 1949 ch 81 §1; Amended Stats 1953 ch 537§5. § 53605. From time to time, the legislative body shall sell the securities so that the proceeds may be applied to the purposes for which the original purchase money was placed in the sinking fund or the treasury of the local agency. Added Stats 1949 ch 81 §1; Amended Stats 1953 ch 537 §6. § 53606. The bonds purchased,which were issued by the purchaser, may be canceled either in satisfaction of sinking fund obligations or otherwise. When canceled, they are no longer outstanding, unless in its discretion, the legislative body holds them uncanceled. While held uncanceled, the bonds may be resold. Added Stats 1949 ch 81 §1. § 53607. The authority of the legislative body to invest or to reinvest funds of a local agency, or to sell or exchange securities so purchased, may be delegated for a one-year period by the legislative body to the treasurer of the local agency, who shall thereafter assume full responsibility for those transactions until the delegation of authority is revoked or expires, and shall make a monthly report of those transactions to the legislative body. Subject to review,the legislative body may renew the delegation of authority pursuant to this section each year. Added Stats 1957 ch 220 §1. Amended Stats 1996 ch 749§6 (SB 109). § 53608. The legislative body of a local agency may deposit for safekeeping with a federal or state association (as defined by Section 5102[Deering's] of the Financial Code), a trust company or a state or national bank located within this state or with the Federal Reserve Bank of San Francisco or any branch thereof within this state, or with any Federal Reserve bank or with any state or national bank located in any city designated as a reserve city by the Board of Governors of the Federal Reserve System,the bonds, notes, bills, debentures, obligations, certificates of indebtedness, warrants, or other evidences of indebtedness in which the money of the local agency is invested pursuant to this article or pursuant to other legislative authority. The local agency shall take from such financial institution a receipt for securities so deposited. The authority of the legislative body to deposit for safekeeping may be delegated by the legislative body to the treasurer of the local agency; the treasurer shall not be responsible for securities delivered to and receipted for by a financial institution until they are withdrawn from the financial institution by the treasurer. Added Stats 1959 ch 1392 §1; Amended Stats 1967 ch 582§1; Stats 1980 ch 689 §1; Stats 1985 ch 983 §17, effective September 26, 1985. California Codes, Rules, BAJI and CALJIC 8 Copyright 1999 Matthew Bender&Co., Inc. § 53609. Notwithstanding the provisions of this chapter or any other provisions of this code, funds held by a local agency pursuant to a written agreement between the agency and employees of the agency to defer a portion of the compensation otherwise receivable by the agency's employees and pursuant to a plan for such deferral as adopted by the governing body of the agency, may be invested in the types of investments set forth in Sections 53601 and 53602 of this code, and may additionally be invested in corporate stocks, bonds, and securities, mutual funds, savings and loan accounts, credit union accounts, life insurance policies, annuities, mortgages, deeds of trust, or other security interests in real or personal property. Nothing herein shall be construed to permit any type of investment prohibited by the Constitution. Deferred compensation funds are public pension or retirement funds for the purposes of Section 17 of Article XVI of the Constitution. Added Stats 1971 ch 1629§2; Amended Stats 1972 ch 1370 §12; Stats 1974 ch 544§26; Stats 1975 ch 822 §1; Stats 1979 ch 373§162. California Codes, Rules, BAJI and CALJIC 9 Copyright 1999 Matthew Bender&Co., Inc.