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HomeMy WebLinkAbout408 - Investment CITY OF BEDDING, CALIFORNIA COUNCIL POLICY • SUBJECT RESOLUTION POLICY EFFECTIVE PAGE NUMBER NUMBER DATE 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). 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. Reviewing, 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 with reasonable care, skill,and caution. Therefore, the City must operate its idle cash investment pool under the "prudent investor standard" set forth in California Probate Code §16047. 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 §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% 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. 1 CITY OF REDDING, CALIFORNIA COUNCIL POLICY • SUBJECT RESOLUTION POLICY EFFECTIVE PAGE NUMBER NUMBER DATE INVESTMENT POLICY 91-148 408 04/02/1991 2 ADMINISTRATION/RESPONSIBILITY The City Treasurer or designee is responsible for idle cash management. Investments shall be made by the individual so directed by the Treasurer. Cash flow projections shall be provided by the Finance Division. Each investment must be authorized by the Treasurer or Deputy Treasurer in Treasurer's absence. The Director of Finance or designee shall review each investment transmittal to determine if it complies with the allowable investments section of the City Investment Policy and for the purpose of financial tracking. In addition to the City of Redding. Redding Area Bus Authority Bylaws identify the City Treasurer as the designated "Treasurer". Investment of these entity idle funds are directed and administered by the City Treasurer. The Director of Finance designated as"Treasurer"by resolution for select Entities, is responsible for cash management of the Successor Agency to the Redding Redevelopment Agency and the Housing Authority. Investment of entity idle funds are directed by the Director of Finance and administered by the City • Treasurer. Trustee accounts, as well as being governed by the Government Code, shall have guidelines included in their contracts as to the strength of financial institutions in which the Trustee may choose to invest City funds. As designated in the long-term debt resolutions,the Director of Finance or designee shall establish guidelines for Trustee contracts. The Director of Finance shall monitor the monthly accounts, and the account balances shall be reported monthly by the City Treasurer to the City Council as part of the Treasurer's Report. The City Treasurer shall hold an Investment Policy Advisory Committee meeting once a year, or as needed, for the purpose of reviewing and updating this Policy. The Investment Advisory Committee is comprised ofa minimum of five persons, identified as follows: the City Treasurer; two members from the following eligible positions: City Manager,Assistant City Manager, Deputy City Manager,or the Director of Finance or designee; plus two community members representing the finance industry. ALLOWABLE INVESTMENTS The City complies with Government Code §53600 el seq., which is incorporated herein by this reference. CRITERIA FOR SELECTING INVESTMENTS IN PRIORITY ORDER I. 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 invest in only those securities which present no substantial threat to principal CITY OF REDDING, CALIFORNIA COUNCIL POLICY • SUBJECT RESOLUTION POLICY EFFECTIVE NUMBER NUMBER DATE PAGE INVESTMENT POLICY 91-148 408 04/02/1991 3 2. Liquidity - This is the marketability of an investment or the case 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 its daily cash needs while, at the same time, participating in longer term' higher yield instruments with cash that is not currently restricted from expenditure or for which there is not an immediate need. 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, yield shall become a consideration only after all other investment criteria is satisfied. • Whenever possible, interest is to he paid to the City Treasurer monthly. 4. LAIF- When a City LAUF account has reached the maximum deposit and/or to accommodate transfer needs,the City Treasurer,may at his/her discretion,transfer City funds into an Entity LAIF account. 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 he maintained within the statutory limits imposed by California Government Code §53600 et seq. In addition, the following restrictions are imposed: a) Investment securities shall not be purchased by means of leverage; and b) If any investment in commercial paper,as defined by California Government Code§53601(h). downgrades below A2 by Moody's Investors Service, Inc.. A by Standard & Poor's Corporation or A by Fitch,such commercial paper investment shall be sold within a reasonable amount of time to minimize the possible loss of principal. • 'Government Code §53601 restricts the term remaining to maturity for any investment to five(5)years. 'The term "Entity' refers to those public agencies(i.e.. Redding Area Bus Authority, Successor Agency to the Redding Redevelopment Agency. and Redding Housing Authority) related to the City of Redding but separate by law, whose bank accounts and investments the City Treasurer reconciles and reports monthly in the Treasurer's Report provided to City Council. The"Treasurer"of each Entity(see Administration/Responsibility) is responsible for the investment of these Entities' idle cash, in accordance with their respective investment policies. CITY OF REDDING, CALIFORNIA COUNCIL POLICY • SUBJECT RESOLUTION POLICY EFFECTIVE PAGE NUMBER NUMBER DATE INVESTMENT POLICY 91-148 408 04/02/1991 4 COLLATERAL REQUIREMENTS Pursuant to Government Code §53652, collateral requirements to secure the City of Redding's active or inactive deposits are as follows: a) 110% if hacked by those eligible securities described by Government Code§53651,excluding those securities set forth in Government Code §53651(m) and §53651(p); b) 150% if backed by those eligible securities described by Government Code §53651(m); and c) 105% if backed by those eligible securities described by Government Code §53651(p); Pursuant to Government Code §53653, the City of Redding may waive security for that portion of any deposit that is insured pursuant to federal law. WITH WHOM TO TRANSACT The City Treasurer or designee 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 classification as primary dealers with the New York Federal Reserve Bank or currently licensed by the State of California. The Request For Information ("RFI") shall be utilized as a significant factor in the selection and periodic review of the institutions and/or individuals utilized for investment transactions. COMPETITIVE OFFERS The City Treasurer or designee shall obtain at least three (3) offers from investment officers or broker/dealers including the potential yield for each security the City intends to purchase. Each investment officer or broker/dealer shall have on file a current RFI. 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 name of the City of Redding, delivered to the City,or delivered to the City's Trust and Custody Officer with offices within the State ofCalifornia. Investment purchases shall be delivery versus payment. • CITY OF REDDING, CALIFORNIA COUNCIL POLICY • SUBJECT RESOLUTION POLICY EFFECTIVE NUMBER NUMBER DATE PACE INVESTMENT POLICY 91-148 408 04/02/1991 5 SELLING SECURITIES PRIOR TO MA TURITY 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. Further, securities may be sold at a loss prior to maturity for liquidity needs. Gains are acceptable on a sale prior to maturity of the investment and may be taken if the reinvested proceeds and capital gains will generate earnings that are greater than the loss of opportunity should the investment be held to maturity. Further, securities may be sold at a gain prior to maturity for liquidity needs. REPORTING The City Treasurer shall provide a monthly report to the City Council and the City Manager. This report shall show how investments have been made and whether the investments are in conformance with the • Investment Policy. The monthly report shall include information which demonstrates that the City's expenditure requirements can be met in the following six (6) months and shall provide the investment information required by Government Code §53646. DEBT PROCEEDS' Notwithstanding any other provisions to the contrary, the proceeds from a debt issuance shall be invested in "permitted investments" as defined by the trust agreement associated with the debt issue (which may include investment in the State Pool, Local Agency Investment Fund or LAIF), provided that those permitted investments have a rating of no less than A- by Standard & Poor's Corporation or A3 by Moody's Investors Service. The investment of proceeds from a debt issuance shall also be in compliance with the requirements imposed by rating agencies, bond insurers, and federal and state law. The Investment Policy lists the criteria to be utilized for the selection of investments and priority considerations. For purposes of this section, 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. The individual designated as "Treasurer" by the bond documents or amendments of the debt issue shall have custody of all the money of the issuing authority from whatever source and, if the issuing authority is operated pursuant to a Joint Powers Agreement, then that person shall have the powers,duties, and responsibilities specified by Government Code §6505.5. • 'Debt proceeds section added by Resolution No. 91-230 effective June 13. 1991. CITY OF REDDING, CALIFORNIA COUNCIL POLICY • SUBJECT RESOLUTION POLICY EFFECTIVE NUMBER NUMBER DATE PAGE INVESTMENT POLICY 91-148 408 04/02/1991 6 1 . 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. 2. Conflicts of Interest — Underwriters and financial advisors may not receive compensation, tinder'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. Ifa financial advisor or underwriter also acts in an investment capacity, the firm shall certify that its fees (a) do not exceed the fees it customarily charges for investment activity and (b) include no compensation for services provided in the underwriting. 3. 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 in the issuance of its bonds. 4. 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 system • CITY OF REDDING, CALIFORNIA • COUNCIL POLICY SUBJECT RESOLUTION POLICY EFFECTIVE NUMBER NUMBER DATE PAGE INVESTMENT POLICY 91-148 408 04/02/1991 7 Amended June 13, 1991,by Resolution No.91-230 Amended April 7. 1992.by Resolution No.92-143 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 Amended February 21.2006.by Resolution No.2006-21 Amended September 5.2006.by Resolution No.2006-168 Amended September 4,2007,by Resolution No.2007-186 Amended November 18,2008.by Resolution No.2008-179 Revies.ed July 28,2011 and October 27.2011 Amended November 15.2011 by Resolution No.2011-192 Amended May 21,2013.by Resolution No.2013-049 • • 1 1/1 CA Codes (gov:53600-53610) Page 1 of 10 GOVERNMENT CODE • SECTION 53600-53610 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 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. 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. 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, 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 moneys in a sinking fund or moneys in its treasury not required for the immediate needs of the httnr/hvw-.v Ieoinfn on nnv/r„;_h:n/rl nla.,rnAn9cnr.;,,.,_,,,..,P..,.,.....—c1nnt cnnnnv.r.i..—c cnnnnM CA Codes (gov:53600-53610) Page 2 of 10 local agency may invest any portion of the moneys 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 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) Registered treasury notes or bonds of any of the other 49 states in addition to California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states, in addition to California. (e) Bonds, notes, warrants, or other evidences of indebtedness of a 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. (f) 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. (g) 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 shall not exceed 180 days ' maturity or 40 percent of the agency's moneys that may be invested pursuant • to this section. However, no more than 30 percent of the agency's moneys may be invested in the bankers ' acceptances of any one commercial bank pursuant to this section. This subdivision does not preclude a municipal utility district hn„•//nninv lnr.i.ic ,.., .....,/.-,.: CAnnn v.aI,.—c cnn Ylnl'1 CA Codes (gov:53600-53610) Page 3 of 10 from investing moneys in its treaflury in a manner authorized by the Municipal Utility District Ant (Division 6 (commencing with Section 11501) of the Public Utilities Code) . (h) Commercial prPer of "prime" quality of the highest ranking or of the highest let'-er and number rating as provided for by a nationally recrg nized statistical rating organization (NRSRO) . The entity that i°sues the commercial paper shall meet all of the following cinditions in either paragraph (1) or (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 commercial paper, if any, that is rated "A" or higher by an 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 a surety bond. (C) Has commercial paper that is rated "A-1" or higher, or the equivalent, by an NRSRO. Eligible commercial 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 moneys in eligible commercial paper. Local agencies, other than counties or a city and county, may purchase no more than 10 percent of the outstanding commercial paper of any single issuer. Counties or a city and county may invest in commercial paper pursuant to the concentration limits in subdivision (a) of Section 53635. (i) 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 federally licensed or state-licensed branch of a foreign bank. Purchases of negotiable certificates of deposit shall not exceed 30 percent of the agency's moneys that 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 moneys 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 a 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. (j ) (1) Investments in repurchase agreements or reverse repurchase agreements or securities lending agreements of 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 an investment authorized in this section, when the term of the agreement does not exceed one year. The market value of securities that . CA Codes (gov:53600-53610) Page 4 of 10 underlie a repurchase agreement shall be valued at 102 per-,ent or greater of the funds borrowed against those securities and Lhe value shall be adjusted no less than quarterly. Since the market value of the underlying securities is subject to daily market fluctuatio_,s the investments in repurchase agreements shall be in compliance _f 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 agre ements may be utilized only when all of the following conditions are met : (A) The security to be sold using a 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 using 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 be made only upon prior approval of the governing body of the local agency and shall be made only 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 purposes 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 . , . ..:—.--__.o.------_<onni cennn o_c,__c cnnnn, o CA Codes (gov:53600-53610) Page 5 of 10 4 will repurchase the securities on or before a specified date and includes other comparable agreements. • (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, 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 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 any 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. (k) 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 an NRSRO. Purchases of medium-term notes shall not include other instruments authorized by this section and may not exceed 30 percent of the agency's moneys that may be invested pursuant to this section. (1) (1) Shares of beneficial interest issued by diversified • management companies that invest in the securities and obligations as authorized by subdivisions (a) to (k) , inclusive, and subdivisions (m) to (o) , inclusive, 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 market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. B0a-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 NRSROs. (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 (k) , inclusive, and subdivisions (m) to (o) , inclusive, 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 NRSROs. (B) Retained an investment adviser registered or exempt from 1.,4—.// 1.n r n rnnn, r.nnnn r, r <,n.inn 1n CA Codes (gov:53600-536 I 0) Page 6 of I0 \q registration with the Securities and Exchange. Commi:ssion with not less than five years' experience managing money marketlmutual funds with assets under management in excess of five hundred'imillion • dollars ($500, 000, 000) . \ ' (5) The purchase price of shares of beneficial in erest purchased pursuant to this subdivision shall not include commission that the companies may charge and shall not exceed 20 percent of the agency's moneys 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 any one mutual fund pursuant to paragraph (1) . (m) 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. (n) 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. (o) A 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 an NRSRO and rated in a rating category of "AA" or its equivalent or better by an NRSRO. Purchase of securities authorized by this subdivision may not exceed 20 percent of the agency's surplus moneys that may be invested pursuant to this section. (p) 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 (o) , 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 subdivisions (a) to (o) , inclusive. (3) The adviser has assets under management in excess of five hundred million dollars ($500, 000, 000) . V.Mn•//.."..... L,,....C,. .... ,.,.../,.._: LLIJ:__1__._- j_n__ _... n „..... n .nnnn Al A moo. . ,..,.... CA Codes (gov:53600-53610) Page 7 of 10 • 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. 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. • 53601 . 6. (a) A local agency shall not invest any funds pursuant to this article or pursuant to 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. 80a-1 et seq. ) that are authorized for investment pursuant to subdivision (1) of Section 53601 . 53601. 8. Notwithstanding Section 53601 or any other provision of this code, a local agency that has the authority under law to invest funds, at its discretion, may invest a portion of its surplus funds in certificates of deposit at a commercial bank, savings bank, savings and loan association, or credit union that uses a private sector entity that assists in the placement of certificates of deposit, provided that the purchases of certificates of deposit pursuant to this section, Section 53635.8, and subdivision (i) of Section 53601 do not, in total, exceed 30 percent of the agency's • funds that may be invested for this purpose. The following conditions shall apply: (a) The local agency shall choose a nationally or state chartered commercial bank, savings bank, savings and loan association, or credit union in this state to invest the funds, which shall be known httn•//nn,n,, ln..:..l1. ....../....: 1.:..l.J:.._I_..,...J_n___.._..—_._..o.__._...._cnnn, r Arlin n rI ._! r,n.,nn.n CA Codes (gov:53600-53610) Page 8 of 10 , as the "selected" depository institution. (b) The selected depository institution may submit the funds to a private sector entity that assists in the placement of certificates • of deposit with one or more commercial banks, savings banks, savings and loan associations, or credit unions that are located in the United States, for the local agency's account. (c) The full amount of the principal and the interest that may be accrued during the maximum term of each certificate of deposit shall at all times be insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration. (d) The selected depository institution shall serve as a custodian for each certificate of deposit that is issued with the placement service for the local agency's account . (e) At the same time the local agency's funds are deposited and the certificates of deposit are issued, the selected depository institution shall receive an amount of deposits from other commercial banks, savings banks, savings and loan associations, or credit unions that, in total, are equal to, or greater than, the full amount of the principal that the local agency initially deposited through the selected depository institution for investment. (f) Notwithstanding subdivisions (a) to (e) , inclusive, no credit union may act as a selected depository institution under this section or Section 53635.8 unless both of the following conditions are satisfied: (1) The credit union offers federal depository insurance through the National. Credit Union Administration. (2) The credit union is in possession of written guidance or other written communication from the National Credit Union Administration authorizing participation of federally insured credit unions in one or more certificate of deposit placement services and affirming that • the moneys held by those credit unions while participating in a deposit placement service will at all times be insured by the federal government. (g) It is the intent of the Legislature that nothing in this section shall restrict competition among private sector entities that provide placement services pursuant to this section. 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. cinniflni•1 CA Codes (gov:53600-53610) Page 9 of 10 • 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. 536D6. 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 CA Codes (gov:53600-53610) Page 10 of 10 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. 53610. (a) For purposes of this section, "Proposition 1A receivable" means the right to payment of moneys due or to become due to a local agency, pursuant to clause (iii) of subparagraph (B) of paragraph (1) of subdivision (a) of Section 25. 5 of Article XIII of the California Constitution and Section 100. 06 of the Revenue and Taxation Code. (b) Notwithstanding any other law, a local agency may purchase, with its revenue, Proposition 1A receivables sold pursuant to Section 53999. (c) A purchaser of Proposition IA receivables pursuant to this section shall not offer them for sale pursuant to Section 6588 . • • http://www.leginfo.ca.gov/cai-bin/disolavcode?section=eov&croon=53001-54000&file=5... 5/24/2013