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HomeMy WebLinkAboutReso 2005-034 - Investment Policy e e RESOLUTION NO. 2005-34 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF REDDING AMENDING COUNCIL POLICY NO. 408 ENTITLED INVESTMENT POLICY. WHEREAS, on April 2, 1991, the City Council adopted Investment Policy No. 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 and the Investment Advisory Committee; 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 this 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 March, 2005, by the following vote: AYES: NOES: ABSENT: ABSTAIN : COUNCIL MEMBERS: COUNCIL MEMBERS: COUNCIL MEMBERS: COUNCIL MEMBERS: Dickerson, Murray, StegaU, and Mathena None Kight None ( ; , .,... .. . . ~ , ....- ., { Attest:' .," 1_, . , . '. ,:)u:~ .- ~ i' ' . , . I.~ oJ " Form Approved: CONNIE 'STROI!~\Y,; , .. r . ~ \ , ... o 01 \ {)J ---+=- e e SUBJECT RESOLUTION NUMBER POLICY NUMBER EFFECTIVE DATE PAGE INVESTMENT POLICY 91-148 408 04/02/1991 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 ofthe 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 ('"1 have clear guidelines in place for reporting this activity to Council. Therefore, the Investment Policy is de~signed 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 hislher 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 affords 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. e. e SUBJECT RESOLUTION NUMBER POLICY NUMBER EFFECTIVE DATE PAGE INVESTMENT POLICY 91-148 408 04/02/199Jl 2 - ADMINISTRATIONIRESPONSIBILITY The City Treasurer:~or designee 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 are directed by the Finance Officer and administered by the City Treasurer. r 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 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 inyestment. The second, principal protection, refers to the potential loss of principal due to market fluctuations or due to an early liquidation of the investment. e e SUBJECT RESOLUTION NUMBER POLICY NUMBER EFFECTIVE DATE PAGE INVESTMENT POLICY 91-148 408 04/02/199J1. 3 2. c 3. 4. In order for the City to fulfill its public fiduciary responsibility in regard to the funds entrusted to it, the City must invest in only those securities~which present no substantial threat to principal. 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 investm<mts in such a manner as to provide for the daily cash needs of the City while, at the same time, participating in longer term 1 higher yield instruments with cash that is not currently restricted from expenditure or for which there is not an immedia,te need. 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. LAIF - When a City LAIF account has reached the maximum deposit, the City Treasurer, may at hislher discretion, transfer City funds into an Entity LAIF accounr. ~In this case, the Treasurer will keep a separate set of books for City and Entity investments and will allocate the interest earnings proportionately. 1 Legislation effective January 2, 1989 restricts the length of investment term to five (5) years. 2 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. e e SUBJECT RESOLUTION NUMBER POLICY EFFECTIVE NUMBER DATE PAGE INVESTMENT POLICY 91-148 408 04/021199Jl 4 INVESTMENT LIMITATIONS Security purchases and holdings shall be maintained within the statutory limits imposed by the California Government Code. In addition, the following restriction are imposed. a) Investment securities shall not be purchased by means ofleverage. b)Investments whose credit ratings downgrade below single A by Moody's or Standard and Poor's shall be sold within a reasonable amount of time to minimize the possible loss of principal. c COLLATERAL REQUIREMENTS Collateral requirements for government funds are 110 percent ifbacked byU.S. Government securities or 150 percent ifbacked 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 105 percent no later than the next business day in accordance with City Policy 53635 (I). WITH WHOM TO TRANSACT The City Treasurer or designeelshall make investment transactions only with finan(;ial 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 The City Treasurer or designee shall obtain~at least thr~e offers from~investment officers or broker/dealers including the potential yield for each security we plan to~purchase. Each Investment Officer or BrokerlDealer shall have on file a current Request For Information (RFI). The RFI 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. e e SUBJECT RESOLUTION NUMBER POLICY NUMBER EFFECTIVE DATE PAGE INVESTMENT POLICY 91-148 408 04/02/19911 5 SAFEKEEPING Investment securities purchased by the City shall be held in the name of the City of Redding, or delivered to the City, or to its third-party custodian within the State of California. Investment purchases shall be delivery versus payment. SELLING SECURITIES PRIOR TO MATURITY Losses maybe 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 discussed with the Investment Advisory Committee. o 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. DEBT PROCEEDS3 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 st~ted 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.) 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 pow~rs, 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 an ro e of the authorit . 3 Debt proceeds section added by Resolution No. 91-230 effective June 13, 1991. e e {~:~~;1>:~'J+t~~:~~f~{g;~~iit~-J~~t;;~~~it~~i(0~:li.2:~:;;,~;:: DINm'"\G~' " . ,,:~~;~;;+~~~jg~;'iJ~;;;i~{ ,t ' ! .' t.@Il];;.B0EI@,; ,. ......i~........i',.D"'..t;,'~\IH _. "~':'''' .':'-';;<' ~ ... '.1""" ".;'" ~.. 1 1~;,.~'Ii.. SUBJECT RESOLUTION NUMBER POLICY NUMBER EFFECTIVE DATE PAGE INVESTMENT POLICY 91-148 408 04/02/1991 6 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 arid financial advisors, when applicable, during the development of the bond issue documents and shan 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, hon<;>raria or gifts from parties invcilvedin 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 C source broker or intermediary. If a financial advisor or underwriter also acts in an investment capacity, the -==..=-1 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. A VOIDANCE 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 }:)onds. 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. .. Reference: California Government Code Section 53600, et seq. 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 Amended February 15, 2000, by Resolution No. 2000-37 , Amended February 19, 2002, by Resolution No. 2002-32 Amended February 18, 2003, by Resolution No. 2003-21 Amended February 17, 2004, by Resolution No. 2004-23 Amended March 15, 2005, by Resolution No. 2005-34 CA Codes (gOV:53600-53. e Page 1 of 13 t~ o GOVERNMENT CODE SECTION 53600-53609 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. 53600.3. Except as provided in subdivision (a) of Section 27000.3, all governing bodi~s 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. (:;:;:'j \.....::...:...:/ 53600.5. When investing, reinvesting,purch~sing, 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. 53600.6. The Legislature hE~reby finds that the solvency and creditworthiness of each individual local agency can impact the solvency and creditworthinefls of the state and other local agencies within the state. Therefore, 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. 53601. This section shall apply to a local agency that is a city, a district, or other. local agency that does not pool money in deposits or investments with other local agencies, other than local agencies that have the same governing body. However, Section 53635 shall apply to all local agencies that pool money in deposits or investments with other local agencies that have separate governing bodies. The legislative body of a local agency having money in a http://www.leginfo.ca. gov/ cgi -bin/displaycode?section=gov &group= 5 3 00 1- 54000&fi1e=... 01/20/2005 ~"";;., ~.<._J<; -,".-:"..'-'!"- E,;,) CA Codes (gov:53600-536Cl o Page 2 of 13 sinking fund or 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 advisers, 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 or securities lending 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 Ie islative body has granted express authority to make that investment either spec1fically or as a par 0 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) Federal agency or United States government-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-'sponsored enterprises. (f) Bankers acceptances otherwise known as bills of exchange or time drafts that are drawn on and accepted by a commercial bank. Purchases of bankers acceptances may not exceed 180 days' maturity or 40 percent of the agency's money that may be invested pursuant to this section. However, no more than 30 percent of the agency's money may be invested in the bankers acceptances of anyone commercial bank pursuant to this section. This subdivision does not preclude a municipal utility district from investing any 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 http://www.1eginfo.ca. gov/ c gi -bin! displaycode? section=gov & group= 53 001- 54000&file=... 01/20/2005 . o B,.~. ,-..:'<.~,- ~ ,. CA Codes (gOV:53600-53.) e Page 3 of 13 of the highest letter and number rating as provided for by a nationally recognized statistical-rating organization (NRSRO). The entity that issues the co:rnmercial paper shall meet all of the following conditions in either paragraph (1) or paragraph (2): (1) The entity meets the following criteria: (A) Is organized and operating in the United States as a general corporation. (B) Has total assets in excess of five hundred million dollars ($500,000,000) . (C) Has debt other than corrunercial paper, if any, that is rated "An or higher by a nationally recognized statistical-rating organization (NRSRO) . (2) The entity meets the following criteria: (A) Is organized within the United States as a special purpose corporation, trust, or limited liability company. (B) Has programwide credit enhancements including, but not limited to, overcollateralization, letters'of credit, or surety bond. (C) Has corrunercial paper that is rated "A-1" or higher, or the equivalent, by a nationally recognized statistical-rating organization (NRSRO). Eligible corrunercial paper shall have a maximum maturity of 270 days or less. Local agencies, other than counties or a city and county, may invest no more than 25 percent of their money in eligible commercial paper. Local agencies, ,other than counties or a ci ty and county, may purchase no mOlC'e than 10 percent of the outstanding commercial paper of any single issuer. Counties or a city and county may invest in corrunercial paper pursuant to the concentration limits in subdivision (a) of Section 53635. (h) Negotiable certificates of deposit issued by a nationally or state-chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a state-licensed branch of a foreign bank. Purchases of negotia~le certificates of deposit may not exceed 30 percent of the agency's money which may be invested pursuant to this section. For purposes of this ,section, negotiable certificates of deposit 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. The legislative body of a local agency and the treasurer or other official of the local agency having legal custody of the money are prohibited from investing local agency funds, or funds in the custody of the local agency, in negotiable certificates of deposit issued by a state or federal credit union if a member of the legislative body of the local 'agency, or any person with investment decisionmaking authority in the administrative office manager's office, budget office, auditor-controller's office, or treasurer's office of the local agency also serves on the board of directors, or any committee appointed by the board of directors, or the credit committee or the supervisory committee of the state or federal credit union issuing the negotiable certificates of deposit. (i) (1) Investments in rE~purchase agreements or reverse repurchase agreements or securities lending 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 http://www.leginfo.ca. govl cgi-binl displaycode?section=gov & group= 5 3001- 54000&file=... 01/20/2005 ~, lJ CA Codes (gov:53600-536Q o Page 4 of 13 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 or securities lending agreements may be utilized only when all of the following conditions are met: (A) The security to be sold on reverse repurchase agreement or securities lending agreement has been owned and fully paid for by the local agency for a minimum of 30 days prior to sale. (B) The total of all reverse repurchase agreements and securities lending agreements on investments owned by the local agency does not exceed 20 percent of the base value of the portfolio. (C) The agreement 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 or securities lending agreement and the final maturity date of the same security. (D) 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 or securities lending agreement 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 or securities lending agreement, unless the reverse repurchase agreement or securities lending 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 or securities lending agreement and the final maturity date of the same security. (4) (A) Investments in reverse repurchase agreements, securities lending 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 or with a nationally or state-chartered bank that has or has had a significant banking relationship with a local agency. (B) For purposes of this chapter, "significant banking relationship" means any of the following activities of a bank: (i) Involvement in the creation, sale, purchase, or retirement of a local agency's bonds, warrants, notes, or other evidence of indebtedness. (ii) Financing of a local agency's activities. (iii) Acceptance of a local agency's securities or funds as deposits. (5) (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. () http://www.leginfo.ca.gov/ cgi -bin/displaycode?section=gov &group=5 3001- 54000&file=... 01/2 012005 '. o ~, ~-) CA Codes (gOV:53600-53. e Page 5 of 13 (D) "Securities lending agreement" means an agreement under which a local agency agrees to transfer securities to a borrower who, in turn, agrees to provide collateral to the local agency. During the term of the agreement, bot:h the securities and .the collateral are held by a third party. At the conclusion of the agreement, the securities are transferred back to the local agency in return for the collateral. (E) 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 ar.~ amounts obtained through selling securities by way of reverse repurchase agreements, securities lending agreements, or other similar borrowing methods. (F) 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. (j) Medium-term notes, defined as all corporate and depository institution debt securities with a.maximum remaining maturity of five years or less, 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 "A" or better by a nationally recognized rating service. Purchases of medium-term notes shall not include other instruments authorized by this section and may not exceed 30 percent of the agency's money that 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 or securities lending 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 or securities lending 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 ~,rket funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-l 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 organiza.tions. (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. http://www.leginfo.ca. gov/ c gi -bin/ displaycode?section=gov &group=5 3 00 1- 54000&file=,.. 01/20/2005 ~ ~ r:;.~~) \. CA Codes (gov:53600-536~) o Page 6 of 13 (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 money that may be invested pursuant to this section. However, no more than 10 percent of the agency's funds may be invested in shares of beneficial interest of anyone mutual fund pursuant to paragraph (1). (1) 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, 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 that 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. (0) Shares of beneficial interest issued by a joint powers authority organized pursuant to Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a) to (n), inclusive. Each share shall represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. To be eligible under this section, the joint powers authority issuing the shares shall have retained an investment adviser that meets all of the following criteria: (1) The adviser is registered or exempt from registration with the Securities and Exchange Commission. (2) The adviser has not less than five years of experience investing in the securities and obligations authorized in .' http://www.leginfo.ca.gov/cgi -bin/displaycode?section=gov&group=53 00 1-54000&file=... 01/20/2005 CA Codes (gOV:53600-53.) e Page 7 of 13 : subdivisions (a) to (n), inclusive. (3) The adviser has assets under management in excess of five hundred million dollars ($500,000,000). ()...\ ",,-,' .... . . 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 enrnnerated in that section. 53601.2. As used in this article, "corporation" includes a limited liability company. 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 of the Corporations Code, or from a member of a federally regulated securities exchange, from a national or state-chartered bank, from a savings association or federal association (as defined by Section 5102 of the Financial Code) or from a brokerage firm designated as a primary government dealer by the Federal Reserve bank. e 53601.6. (a) A local agency shall not invest any funds pursuant to this article or pursuant tel Article 2 (commencing with Section 53630) in inverse floaters, range notes, or mortgage-derived, interest-only strips. (b) A local agency shall not invest any funds pursuant to this article or pursuant to Article 2 (commencing with Section 53630) 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. aOa-1 et seq.) that are authorized for investment pursuant to subdivision (k) of Section 53601. 53601.7. Notwithstanding the investment parameters of Sections 53601 and 53635, a local agency that is a county or a city and county may invest any portion of the funds that it deems wise or expedient, using the following criteria: (a) No investment shall be made in any security, other than a security underlying a repurchase or reverse repurchase agreement or a securities lending agreement, that, at the time of purchase, has a term remaining to maturity in excess of 397 days, and that would cause the dollar-weighted a'rerage maturity of the funds in the investment pool to exceed 90 days. (b) All corporate and depository institution investments shall http://www.leginfo.ca. gov/ cgi -bin/displaycode?section=gov &group=5 3 00 1- 54000&file=... 01/20/2005 ~i'lI' .~t.c. :,;'; "':',~~\.~l c) CA Codes (gov:53600-5360\ . ~) o meet or exceed the following credit rating criteria at time of purchase: (1) Short-term debt shall be rated at least "A-1" by Standard & Poor's Corporation, "P-1" by Moody's Investors Service, Inc., or "F-1" by Fitch Ratings. If the issuer of short-term debt has also issued long-term debt, this long-term debt rating shall be rated at least "A," without regard to +/- or 1, 2, 3 modifiers, by Standard & Poor's Corporation, Moody's Investors Service, Inc., or Fitch Ratings. (2) Long-term debt shall be rated at least "A," without regard to +/- or 1, 2, 3 modifiers, by Standard & Poor's Corporation, Moody's Investors Service, Inc., or Fitch Ratings. (c) No more than 5 percent of the total assets of the investments held by a local agency may be invested in the securities of any one issuer, except the obligations of the United States government, United States government agencies, and United States government-sponsored enterprises. No more than 10 percent may be invested in anyone mutual fund. (d) Where this section specifies a percentage limitation for a particular category of investment, that percentage is applicable only at the date of purchase. A later increase or decrease in a percentage resulting from a change in values or assets shall not constitute a violation of that restriction. If subsequent to purchase, securities are downgraded below the minimum acceptable rating level, the securities shall be reviewed for possible sale within a reasonable amount of time after the downgrade. (e) Within the limitations set forth in this section, a local agency electing to invest its funds pursuant to this section may invest in the following securities: (1) Direct obligations of the United States Treasury or any other obligation guaranteed as to principal and interest by the United States government. (2) Bonds, notes, debentures, or any other obligations of, or securities issued by, any federal government agency, instrumentality, or government-sponsored enterprise. (3) 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 other entity of the state. (4) Bonds, notes, warrants, or other indebtedness of the local agency, or 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. (5) Bankers acceptance, otherwise known as bills of exchange or time drafts drawn on and accepted by a commercial bank, primarily used to finance international trade. Purchases of bankers acceptances may not exceed 180 days to maturity. (6) Short-term unsecured promissory notes issued by corporations for maturities of 270 days or less. Eligible commercial paper is further limited to the following: (A) Issuing corporations that are organized and operating within the United States, having total assets in excess of five hundred million dollars ($500,000,000). (B) Maturities for eligible commercial paper that may not exceed 270 days and may not represent more than 10 percent of the outstanding paper of an issuing corporation. (7) A certificate representing a deposit of funds at a commercial bank for a specified period of time and for a specified return at maturity. Eligible certificates of deposit shall be issued by a Page 8 of 13 .';>".. h http://www.leginfo.ca.gov/ cgi -bin! displaycode?section=gov &group=53 00 1- 54000&file=... 01/20/2 005 o OJ ..:.=.-".:....../ CA Codes (gOv:53600-53W) e Page 9 of 13 nationally or state-chartered bank or a state or federal association, as defined in Section 5102 of the Financial Code, or by a state-licensed branch of a foreign bank. For purposes of this subdivision, certificates of deposits shall not come within Article 2 (commencing with Section 53630), except that the amount so invested shall be subject to the limitations of Section 53638. The legislative body of a local agency and the treasurer or other official of the local agency having legal custody of the money may not invest local agency funds, or funds in the custody of the local agency, in negotiable cert:ificates of deposit issued by a state or federal credit union if a member of the legislative body of the local agency, or any person with investment decisionmaking authority in the administrative office, manager's office, budget office, auditor-controller's offic:e, or treasurer I s office of the local agency also serves on the board of directors, or any committee appointed by the board of directors, other credit committee or the supervisory committee of the state or federal credit union issuing the negotiable certificate of deposit. (8) Repurchase agreements, reverse repurchase agreements, or securities lending agreements of any securities authorized by this section, if the agreements meet the requirements of this paragraph .and the delivery requirements specified in Section 53601. Investments in repurchase agreements may be made, on any investment authorized by this section, when the term of the agreement does not exceed one year. The market value of the securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against thane securities, and the value shall be adjusted no less than quarterly. Because the market value of the underlying securities is s\mject to daily market fluctuations, the investments in repurchase cLgreements shall be in compliance with this section if the value of thE! underlying securities is brought back to 102 percent no later than the next business day. Reverse repurchase agreements may be utilized only when all of the following criteria are met: .dA) The security being sold on reverse repurchase agreement or securities lending agreement has been owned and fully paid for by the local agency for a minimum of 30 days prior to the sale. (B) The total of all reverse repurchase agreements on investments owned by the local agency not purchased or committed to purchase does not exceed 20 percent of the market value of the portfolio. (e) The agreement 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. (D) Funds obtained or fm~ds within the pool of an equivalent amount to that obtained from selling a security to a counterparty by way of a reverse repurchase agreement or securities lending agreement, may not be used 1:0 purchase another security wi th a maturity longer than 92 daYf; from the initial settlement date of the reverse repurchase agreement: or securities lending agreement, 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 or securities lending agreement and the final maturity date of the same security. (E) 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, shall only be made with prior approval of the governing body of the local agency and shall only be made with primary dealers of the http://www.leginfo.ca.gov/cgi-binldisplaycode?section=gov&group=53001- 54000&file=... 01120/2005. 0..,..; w c.....) .. ---'~' .. CA Codes (gov:53600-5360 o Page 10 of 13 Federal Reserve Bank of New York or with a nationally or state-chartered bank that has or has had a significant banking relationship with a local agency. "Securities," for purposes of this paragraph, means securities of the same issuer, description, issue date, and maturity. (9) All debt securities issued by a corporation or depository institution with a remaining maturity of not more than 397 days, including securities specified as "medium-term notes," as well as other debt instruments originally issued with maturities longer than 397 days, but which, at time of purchase, have a final maturity of 397 days or less. Eligible medium-term notes shall be 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. (10) (A) Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations described in this subdivision and that comply with the investment restrictions of this section. However, notwithstanding these restrictions, a counterparty to a reverse repurchase agreement shall not be 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. 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. (B) Shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the federal Investment Company Act of 1940 (15 U.S.C. Sec. 80a-l et seq.). (Cl All shares of beneficial interest described in this paragraph shall have met either of the following criteria: (i) Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (ii) Retained an investment adviser registered or exempt from registration with. the Securities and Exchange Commission and who has not less than five years' experience investing in money market instruments and with assets under management in excess of five hundred million dollars ($500,000,000). (11) 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. Securities eligible for investment under this paragraph shall be issued by an issuer having an "An or higher rating from the issuer's debt as provided by a nationally recognized rating service and rated in a rating category of "M" or its equivalent or better by a nationally recognized rating. (12) Contracts issued by insurance companies that provide the policyholder with the right to receive a fixed or variable rate of interest and the full return of principal at the maturity date. (13) Any investments that would qualify under SEC Rule 2a-7 of the Investment Company Act of 1940 guidelines. These investments shall also meet the limitations detailed in this section. (f) For purposes of this section, all of the following definitions shall apply: (1) "Repurchase agreement" means a purchase of securities 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 http://www.leginfo.ca. gOY / cgi -bin! displaycode?section=gov &group=5 3001- 54000&file=... 01/20/2005 CA Codes (gov:53600-53.) e Page 11 of 13 o . . custodial agreement. (2) "Significant banki.ng relationship" means any of the following activities of a bank: (A) Involvement in the: creation, sale, purchase, or retirement of a local agency's bands, warrants, notes, or other evidence of indebtedness. (B) Financing of a local agency's securities or funds as deposits. .. (C) Acceptance of a local agency's securities or funds as deposits. (3) "Reverse repurchas,e 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. (4) "Securities lendin~J agreement" means an agreement with a local agency that agrees to transfer securities to a borrower who, in turn agrees to provide collateral to the local agency. During the term of the agreement, both thE! securities and the collateral are held by a third party. At the conclusion of the agreement, the securities are transferred back to the local agency in return for the collatera-l. (5) "Local agency" mean.s a county or city and county. (g) 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. (h) 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. 0\..'...... \~~) (i) This section shall remain in effect only until January 1, 2007, and as of that date :Ls repealed, unless a later enacted statute, that is enacted before January-1, 2007, deletes or extends that date. 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. 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. 53604. The legislative body may sell, or exchange for other eligible, securities, and reinvest the proceeds of, the securities purchased. http://www.leginfo.ca.gov/cgi-bin/displaycode?section=gov&group=53001- 54000&file=... 01/20/2005 ~k" 'It"'" ..~'t.. ;l.., \ ~~:l.:_'Jf:'; c,,: ,---.-) CA Codes (gOV:53600-5360 o Page 12 of 13 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. 53606. The bonds purchased, which were issued by the purchaser, may be canceled either in satisfaction or sinking fund obligations or otherwise. When canceled, they are no longer outstanding, unless in its discretion, the legislative body holds then uncanceled. While held uncanceled, the bonds may be resold. 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. 53608. The legislative body of a local agency may deposit for safekeeping with a federal or state association (as defined by Section 5102 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. 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 http://www.leginfo.ca.gov/cgi-binldisplaycode?section=gov&group=5300 1-54000&file=... 01/20/2005 "; ~... ..'.'.u......'.......'" '~":~~ll- ;r . t~ ~, \;,.) CA, Codes (gOV:53600-53. e .. .... ,: 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. Page 13 of 13 http://www.leginfo.ca.gov/cgi-binldisplaycode?section=gov&group=5300 1-54000&file=... 01/2012005