HomeMy WebLinkAbout2017-049 - City's Statement of Investment PolicyRESOLUTION NO. 2017-049
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
SANTA ANA APPROVING THE CITY'S STATEMENT OF
INVESTMENT POLICY
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SANTA ANA AS
FOLLOWS:
Section 1. The City Council of Santa Ana hereby finds, determines and
declares as follows:
A. California Government Code §53646, provides that each city may have a
written statement of investment policy to govern investment of the City's monies.
B. Pursuant to §53646, the City Treasurer shall annually submit a Statement of
Investment Policy for City Council consideration.
C. The City Treasurer has submitted the attached Statement of Investment
Policy to this Council at its regular meeting of July 5, 2017, for its consideration.
Section 2. The City Council of the City of Santa Ana has duly considered and
approves the City's statement of investment policy submitted by the City Treasurer.
Section 3. The City Treasurer shall submit quarterly reports to the City Council
stating all investments made in the preceding quarter and that such investments have
been made in conformance with the City's investment policy.
Section 4. This Resolution shall take effect immediately upon its adoption by the
City Council, and the Clerk of the Council shall attest to and certify the vote adopting
this Resolution.
ADOPTED this 5th day of July, 2017.
Resolution No. 2017-049
Page 1 of 3
APPROVED AS TO FORM:
Sonia Carvalho, City Attorney
By:
Lisa Storck
Assistant City Attorney
AYES: Councilmembers Benavides, Martinez, Pulido, Sarmiento,
Solorio, Tinalero, Villegas (7)
NOES: Councilmembers None (0)
ABSTAIN: Councilmembers
NOT PRESENT: Councilmembers
CERTIFICATION OF ATTESTATION AND ORIGINALITY
I, MARIA D. HUIZAR, Clerk of Council, do hereby attest to and certify the attached
Resolution No. 2017-049 to be the original resolution adopted by the City Council of the
City of Santa Ana on July 5, 2017.
Date: 7�T7�Lt�/ 7 C//��9//� �' �i✓vh
Maria D. Huizar
Clerk of Council
City of Santa Ana
Resolution No. 2017-049
Page 2 of 3
See LaserFiche
Resolution No. 2017-049
for "Statement of Interest
Policy" attachment.
Resolution No. 2017-049
Page 3 of 3
U
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SAN
Cit of Santa Ana
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I R O
INVESTMENT POLIC
STATEMENT 2017]d
CITY OF SANTA ANA
ANNUAL STATEMENT OF INVESTMENT POLICY
JULY 2017
INTRODUCTION
This statement is intended to outline the policies for prudent investment of idle City funds by
providing guidelines for suitable investments while maximizing the efficiency of the City's Cash
Management Program.
Under the direction of the Executive Director, Finance and Management Services (FMSA), the
responsibility for the day to day investment of the City's funds is delegated to the Treasury and
Customer Services Manager and/or Assistant Finance Director only. The investment policy
applies to all financial assets of the City which are pooled in an actively managed portfolio. The
investment pool or portfolio will be referred to as the "Fund" throughout this document.
Bond proceeds shall be invested in accordance with requirements and restrictions outlined in the
bond documents. Bond proceeds are not considered part of the Fund nor subject to this
Investment Policy.
The City's Cash Management Program is designed to accurately monitor and forecast
expenditures and revenues, thus enabling the investment of funds to the fullest extent possible.
Maturities are matched as close as possible to coincide with cash requirements.
The investment policies and practices of the City of Santa Ana are based upon Federal, State
and Local law and prudent money management. The primary goals of these policies are:
1. To assure compliance with all Federal, State and Local laws governing the investment
of monies.
2. To provide for the safety of principal and sufficient liquidity.
3. To provide an investment return within the parameters of this Statement of Investment
Policy.
Officers and employees involved in the investment process shall refrain from personal business
activity that could conflict with the proper execution and management of the investment program,
or that could impair their ability to make impartial decisions. Employees and investment officials
shall disclose any material interests in financial institutions with which they conduct business.
They shall further disclose any personal financial/investment positions that could be related to the
performance of the investment portfolio. Employees and officers shall refrain from undertaking
personal investment transactions with the same individual with whom business is conducted on
behalf of the City.
OBJECTIVES:
SAFETY OF PRINCIPAL - Safety of principal is the foremost objective of the City of Santa
Ana. Each investment transaction shall be undertaken in a manner that seeks to ensure
preservation of capital in the overall portfolio. The objective will be to mitigate credit risk
and interest rate risk.
Credit Risk is the risk of loss due to the failure of the security issuer or backer to redeem
the outstanding debt at the stated maturity date. Credit risk also applies to the overall
market perception of the financial strength and capacity of the issuer. Credit risk may be
mitigated by:
- Limiting investments to the safest types of securities;
Pre -qualifying the financial institutions, broker/dealers, intermediaries, and
advisors with which the City will do business; and
- Diversifying the investment portfolio so that potential losses on individual
securities will be minimized.
B. Market or Interest Rate Risk
Market or interest rate risk is the risk that the market value of securities in the portfolio
may fall due to changes in general interest rates. Market or interest rate risk may be
mitigated by:
- Structuring the Fund so that securities mature to meet cash requirements for
ongoing operations, thereby avoiding the need to sell securities on the open
market prior to maturity, and
- By investing operating funds primarily in shorter -term securities.
The cash flow is updated on a daily basis and will be considered prior to the investment of
securities, which will reduce the necessity to sell investments for liquidity purposes.
LIQUIDITY - The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated. This is accomplished by structuring the
portfolio so that securities mature concurrent with cash needs to meet anticipated
demands (static liquidity). Furthermore, since all possible cash demands cannot be
anticipated, the portfolio should consist largely of securities with active secondary or resale
markets (dynamic liquidity).
3. YIELD - The City's Fund shall be designed with the objective of attaining a market -average
rate of return throughout budgetary and economic cycles taking into account the
investment risk constraints and liquidity needs. The market -average rate of return is
defined as the average return on three-month U.S. Treasury Bills. Return on investment is
of least importance compared to the safety and liquidity objectives described above. The
core of investments is limited to relatively low risk securities in anticipation of earning a fair
return relative to the risk being assumed. It is the general policy of the City to hold
investments until market value equals or exceeds amortized cost or book value of the
security. Securities shall not be sold prior to maturity with the following exceptions:
1) a declining credit security could be sold early to minimize loss of principal;
2) a simultaneous purchase of a security and the sale of another (security swap) to
enhance the quality, yield, or target duration in the portfolio; or
3) general liquidity needs of the portfolio require that the security be sold;
4) prepayment of a specific City debt or contribution servicing obligation (when
financially advantageous to City); and
5) a sale of a specific security prior to its maturity and a capital gain or loss recorded in
order to improve the credit quality, liquidity, or rate of return of the portfolio in
response to market conditions and/or City risk preferences.
The City strives to maintain one hundred percent (100%) investment of idle funds after
consideration for a compensating balance to cover the cost of services provided by the bank. The
funds available for investment are determined by cash flow projections updated daily.
Investments are monitored so that legal limits on types of investments are not exceeded.
PRUDENT INVESTOR STANDARD:
The City investment program shall be managed in a professional and prudent manner worthy of
the public trust and review. The standard of prudence to be used by City investment officials shall
be the "prudent investor rule" standard and shall be applied in the context of managing the overall
investment portfolio.
The "prudent investor rule" provides, pursuant to California Government Code Section 53600.3,
that investments shall be made with judgment and care. 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.
The City is governed by the California Government Code, Sections 16429.1 and Title 5, Division
2, Part 1, Chapter 4, entitled Financial Affairs, commencing with section 53630. Each investment
transaction and the entire portfolio must comply with California Government Code, Sections
53600 and 53635 et seq. and this policy.
City investment officials/officers shall establish written investment procedures consistent with this
investment policy for the operation of the investment program. Procedures should include but not
be limited to: authorized personnel, segregation of duties, internal controls, wire transfer
agreements, daily cash flow review, basis for awarding bids, portfolio inventory, and reporting.
The procedures document is intended to provide guidance for staff and provide continuity in the
event of an interruption of services of investment officials/officers.
ALLOWABLE INVESTMENT INSTRUMENTS — STATE LAW:
California Government Code Section 53601 establishes allowable investment instruments
applicable to all local agencies along with maximum maturities, maximum specified percentages
of total portfolio, and minimum quality requirements. Section 53601.1 authorizes local agencies
to invest in financial futures or financial option contracts in any of the allowable investment
categories enumerated in section 53601.
INELIGIBLE INVESTMENTS -STATE LAW:
Certain investments, however, are prohibited by California Government Code Section 53601.6.
Accordingly, the City shall not invest in any inverse floaters, range notes, or mortgage derived,
interest -only strips. In addition, the City shall not invest any funds in any security that could result
in zero interest accrual if held to maturity. However, prohibited securities that are in the City's
portfolio, as of the date of this policy adoption, may be held until their maturity dates.
DISALLOWED INVESTMENTS - HIGHER PERCEIVED RISK:
Besides investments prohibited by statute, this policy disallows investments in the following due
to a higher perceived risk:
• Asset-backed securities (ABS) — securities supported by pools of installment loans
or leases or by pools of revolving lines of credit;
• Derivatives — financial instruments which have a principal and/or interest payment
subject to uncertainty as to timing and/or amount including financial instruments
whose return profile is linked to, or derived from, the movement of one or more
underlying index or security, and may include a leveraging factor, or financial
contracts based upon notional amounts whose value is derived from an underlying
index or security (interest rates, foreign exchange rates, equities or commodities);
• Investment agreements — contracts regarding funds deposited by an investor often
separated into those offered by banks and those offered by insurance companies
commonly known as Guaranteed Investment Contracts (GICs) or Guaranteed
Investment Agreements (GIAs);
• Mortgage-backed securities — securities created when a mortgage or purchaser of
residential real estate mortgages creates a pool of mortgages and markets
undivided interests or participation in the pool, including principal only strips;
• Repurchase and Reverse Repurchase agreements — agreements involving the
borrowing of cash from a financial institution for the purchase of securities in which
a financial asset is instead pledged as a collateral for a loan and reverse purchase
agreements in which the roles of borrower and lender are reversed.
• Securities lending agreements — agreements allowing local agencies to earn
incremental income on their investment portfolio by loaning securities in their
portfolio to financial services companies for a limited time;
AUTHORIZED INVESTMENTS:
Santa Ana further restricts permitted investments to those listed below. Within this scope, the
City diversifies its investments by maturity dates and types of investments. Concentration limits
are indicated for all investment categories except Treasury securities, which are considered the
safest investments.
A. United States Treasury Bills, Notes, and Bonds, for which the full faith and credit of the
United States are pledged for payment of principal and interest. Purchases of this
category shall not exceed five years to maturity. There is no percentage limit in this
category.
B. Obligations issued by a Federal Agency or a United States Government Sponsored
Enterprise. Federal Agency Issues include, but are not limited to GNMA (Government
National Mortgage Association), FFCB (Federal Farm Credit Bank), FHLB (Federal Home
Loan Bank), FHLMC (Federal Home Loan Mortgage Corporation), FNMA (Federal
National Mortgage Association), FHA (Federal Housing Administration), and TVA
(Tennessee Valley Authority). Although there is no percentage limitation on these issues,
purchases of this category shall not exceed five years to maturity and the "prudent
investor" rule shall apply for a single agency name as U.S. Government backing is implied
rather than guaranteed.
C. Supranational Obligations in United States dollar denominated senior unsecured
unsubordinated obligations issued or unconditionally guaranteed by the International Bank
for Reconstruction and Development, International Finance Corporation, or Inter -American
Development Bank, with a maximum remaining maturity of five years or less, and eligible
for purchase or sale within the United States. Investments under this subdivision shall be
rated "AX or better by an NRSRO and shall not exceed 30 percent of the cost value of the
Fund.
D. Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise
known as banker's acceptances, which are eligible for purchase by the Federal Reserve
System. Purchases of banker's acceptances may not exceed one hundred, eighty (180)
days or forty percent (40%) of the cost value of the Fund which may be invested pursuant
to this section. However, no more than thirty percent (30%) of the City's cost value of the
Fund may be invested in the banker's acceptances of any one commercial bank pursuant
to this section.
E. Commercial paper of "prime" quality of the highest ranking or of the highest letter and
number rating as provided for by a nationally recognized statistical rating organization
(NRSRO). The entity that issues the commercial paper shall be organized and operating
within the United States, as a general corporation, shall have total assets in excess of five -
hundred, million dollars ($500,000,000), and has debt other than commercial paper, if any,
that is rated "A" or higher by NRSRO The entity is organized within the United States as a
special purpose corporation, trust, or limited liability company; has program wide credit
enhancements including, but not limited to: over -collateralization, letters of credit, or a
surety bond; 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 two -hundred
seventy (270) days or less. The City may purchase no more than ten percent (10%) of the
outstanding commercial paper of any single corporate issue. Purchases of commercial
paper may not exceed forty percent (40%) of the surplus money which may be invested.
F. 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. However, the
City shall not invest in negotiable certificates of deposit issued by a state or federal credit
union if a member of the City Council or any City personnel with investment decision
making authority 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. The City's investment in
negotiable certificates of deposit may not exceed thirty percent (30%) of the cost value of
the Fund. The amount so invested shall be subject to the limitations of Government Code
Section 53638 which generally provides that the deposit shall not exceed the
shareholder's equity of any depository bank, or the total net worth of any depository
savings association or federal association, or the total of the unimpaired capital and
surplus of an insured industrial loan company. Purchases of this category shall not
exceed five years to maturity.
G. Local Agency Investment Fund - State Pool - the City may invest in the Local Agency
Investment Fund (LAIF) established by the State Treasurer under California Government
Code Section 16429.1 for the benefit of local agencies. LAIF provides daily liquidity;
therefore, there is no final stated maturity for this investment category. Although there is
no percentage limitation on this fund, the "prudent investor" rule shall apply for a single
agency name. Investments in LAIF shall not exceed $65 million per account unless a
greater deposit limit for regular accounts is authorized by the State Treasurer during the
term of this Statement of Investment Policy, in which case City LAIF investments may
increase up to that limit.
H. Bonds issued by the City or agency of the City including bonds payable solely out of the
revenues from a revenue-producing property owned, controlled, or operated by the City or
agency of the City. The City shall at all times adhere to restrictions and limitations of the
bond indenture. Purchases of this category shall not exceed five years to maturity. There
is no percentage limit in this category.
I. Other State of California Local Agency bonds, notes, warrants or other evidence 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.
Purchases of this category shall not exceed five years to maturity. There is no percentage
limit in this category.
J. Medium Term Corporate Notes (MTN) 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 shall be rated in a rating category of "A" or its equivalent or better by
a nationally recognized rating service. Purchases in this category shall not exceed five (5)
years to maturity or thirty percent (30%) of the cost value of the Fund. Purchases in a
single issuer in this category shall not exceed five percent (5%) of the cost value of the
Fund.
K. 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. The company shall have met either of the following
criteria:
1. Attain the highest ranking or the highest letter and numerical rating provided by not
less than two NRSROs, and
2. Retained an investment adviser registered or exempt from registration with the
Securities and Exchange Commission with not less than five (5) years' experience
investing in the securities and obligations authorized by subsection (a) to (k),
inclusive, and subdivisions (m) to (o), inclusive, of Section 53601 of the
Government Code and with assets under management in excess of five -hundred,
million dollars ($500,000,000).
The purchase price of shares of beneficial interest, (mutual funds) purchase pursuant to
this subdivision shall not include any commission that these companies may charge.
Investments in this category shall be restricted to money market mutual funds that seek to
maintain a Net Asset Value of $1. Money market mutual funds provide daily liquidity;
therefore, there is no final stated maturity for this investment category. Investments in
mutual funds shall be restricted to Funds that have the highest ranking or the highest letter
and numerical rating provided by not less than two of the following nationally recognized
statistical rating organizations: Moody's, Standard & Poor's or Fitch. Purchases in this
category shall not exceed 20% of the book value of the Portfolio. Purchases in a single
mutual fund shall not exceed 10% of the book value of the Portfolio.
COLLATERAL/SECURITY FOR DEPOSIT OF PUBLIC FUNDS:
Money must be deposited in state or national banks, state or federal savings associations or state
or federal credit unions in the State of California. It may be in inactive deposits, active deposits or
interest-bearing active deposits. The deposits cannot exceed the amount of the bank's or
savings and loan's paid up capital and surplus.
The bank or savings and loan must secure the active and inactive deposits with eligible securities
having a market value of one -hundred, ten percent (110%) of the total amount of the deposits.
State law also allows as an eligible security, first trust deeds having a value of one -hundred, fifty
percent (150%) of the total amount of the deposits. A third class of collateral is letters of credit
drawn on the Federal Home Loan Bank (FHLB).
The Treasurer may waive, at his discretion, security for that portion of a deposit which is insured
pursuant to federal law. Currently, the first two -hundred, fifty -thousand dollars ($250,000) of a
deposit is federally insured. It is to the City's advantage to waive this collateral requirement for
the first $250,000 because we receive a higher interest rate.
QUALIFIED DEALERS AND INSTITUTIONS:
The City shall transact business only with banks, savings and loans and registered investment
securities dealers. The purchase by the City of any investment other than those 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 and registered with
Financial Industry Regulatory Authority (FINRA), or a member of a Federally regulated securities
exchange, a National or State -Chartered Bank, a Federal or State Association (as defined by
Section 5102 of the Financial Code), or a brokerage firm designated as a Primary Government
Dealer by the Federal Reserve Bank, and who is registered with FINRA. The City's investment
staff shall investigate all institutions which wish to do business with the City as a Qualified City of
Santa Ana Broker -Dealer, in order to determine if they are adequately capitalized, make markets
in securities appropriate to the City's needs, and agree to abide by the conditions set forth in the
City of Santa Ana Annual Statement of Investment Policy. This will be done by having the
Financial Institutions complete and return the appropriate City of Santa Ana Broker -Dealer
Questionnaire, along with their most current FINRA Report and Audited Financial Statement
(available within one -hundred, twenty (120) days of the Institution's fiscal year-end). The
Treasury and Customer Services Manager shall maintain a list of Financial Institutions authorized
to provide investment services to the City, along with their FINRA Report. Financial Institutions
previously certified as Qualified City of Santa Ana Broker -Dealers shall complete and return the
appropriate City of Santa Ana Broker -Dealer Questionnaire bi-annually, but shall be subject to the
Audited Financial Statement and FINRA annual reporting requirements. However, if the
interaction with the Broker -Dealer is limited to investment trades through an electronic trading
platform, then the Broker -Dealer is exempt from completion of a questionnaire.
In selecting external Broker -Dealers, past performance, stability, financial strength, reputation,
area of expertise, and willingness and ability to provide the highest investment return at the
lowest cost to the City within the parameters of this Investment Policy and the California
Government Code shall be primary considerations. Investment staff will only conduct business
with registered representatives of broker-dealers that have a minimum of three (3) years
continuous experience working for a primary dealer or five (5) years continuous experience
working for a non -primary dealer. Investment staff will only purchase or sell securities from
registered representatives that possess an active Series 7 license, an active Series 66 license, or
an active Series 63 license, and who submit a FINRA form U4 (employment history) and a
current FINRA form U5 Disclosure Statement and have completed the City's Broker -Dealer
questionnaire.
SAFEKEEPING OF SECURITIES:
In accordance with California Government Code Section 53601, to protect against potential
losses caused by collapse of individual securities dealers, all securities owned by the City except
securities used as collateral for repurchase agreements, shall be kept in safekeeping with
"perfected interest' by the City's custodial bank or a third party bank trust department, acting as
agent for the City under the terms of a custody agreement executed by the bank and by the City.
All securities, excepting investments in the State Pool or money market mutual funds, will be
received and delivered using standard delivery versus payment.
INTERNAL CONTROLS:
The Executive Director for FMSA is responsible for establishing and maintaining an internal
control structure designed to ensure that the assets of the entity are protected from loss, theft or
misuse. The Executive Director for FMSA has developed a system of internal investment
controls and a segregation of responsibilities of investment functions in order to assure an
adequate system of internal control over the investment function. Internal control procedures
address wire controls, separation of duties, delivery of securities to a third party for custodial
safekeeping, and written procedures for placing investment transactions. Cash balances are
reconciled daily by non -investment employees and reconfirmed by the City's accounting staff. In
addition, the City's accounting staff also verifies investment activities and holdings on a monthly
basis. The Executive Director for FMSA, at his/her discretion, shall establish a process for annual
independent reviews by an external auditor to the extent contemplated by generally accepted
auditing standards.
7:12iyftiU4 4r'
Government Code Section 53646 previously mandated that annual investment policies and
quarterly reports be rendered to the legislative body (for the City of Santa Ana - the City Council).
AB 2853 amended Government Code Section 53646 making these requirements permissive
rather than mandatory. Although the Annual Investment Policy and Quarterly Reports to City
Council are no longer required, we believe it to be both prudent and in keeping with the spirit of
the City's Sunshine Policy that these documents continue to provided. The Executive Director for
FMSA shall therefore continue to render to the City Council a statement of investment policy and
a report to the City Council and City Manager containing detailed information on all securities,
investments, and moneys of the City. The report will be submitted on at least a quarterly basis
and provided to the Council within thirty (30) days following the end of the quarter.
The report will contain the following information on the funds that are subject to this investment
policy:
1) Type of investment (name of the issuer)
2) Date of maturity
3) Par and dollar amounts invested in each security
4) Weighted average maturity of the investments
5) Market value as of the date of report
6) Source of the market value information
7) Any funds, investments or programs, including loans, under the management of
contracted parties
In addition, a description of the City's compliance with the Statement of Investment Policy shall be
provided along with a statement denoting the City's ability to meet its expenditure requirements
for the next six months.
POLICY REVIEW & ADOPTION:
This investment policy shall be reviewed at least annually to ensure its consistency with the
overall objectives of preservation of PRINCIPAL, LIQUIDITY, AND YIELD and its relevance to
current law, financial and economic trends, and to meet the needs of the City of Santa Ana. The
Executive Director for FMSA shall annually render this Statement of Investment Policy to the City
Council and City Manager. The City Council shall annually review and adopt this Statement of
Investment Policy by resolution at a public meeting.
Submitted to the City of Santa Ana City Council for approval, this 5th day of July, 2017.
Francisco Gutierrez
Executive Director / City Treasurer
Finance & Management Services Agency
WH:RP
APPENDIX
APPENDIX — TABLE OF CONTENTS...................................................................................................Page 13
CORPORATIONS CODE SECTION 25004..........................................................................................Page 14
FINANCIAL CODE SECTION 5102.......................................................................................................Page 16
GOVERNMENT CODE SECTION 16429.1...........................................................................................Page 17
GOVERNMENT CODE SECTION 53630..............................................................................................Page 19
GOVERNMENT CODE SECTION 53635..............................................................................................Page 20
GOVERNMENT CODE SECTION 53601..............................................................................................Page 21
GOVERNMENT CODE SECTION 53601.1...........................................................................................Page 26
GOVERNMENT CODE SECTION 53601.6.....
GOVERNMENT CODE SECTION 53638..........
..................................Page 27
GOVERNMENT CODE SECTION 53646........................................................................
TABLES
LOCAL AGENCY INVESTMENT GUIDELINES
ALLOWABLE INVESTMENT INSTRUMENTS PER
STATE GOVERNMENT CODE (AS OF JANUARY 1, 2016)
APPLICABLE TOO ALL LOCAL AGENCIES
(FIGURE 1) - LOCAL AGENCY INVESTMENT GUIDELINES
.......Page 27
.......Page 28
....................... Page i
ALLOWABLE INVESTMENT INSTRUMENTS
TABLE OF NOTES FOR FIGURE 1 - LOCAL AGENCY INVESTMENT GUIDELINES ....................... Page ii
CORPORATIONS CODE - CORP
TITLE 4. SECURITIES [25000 - 31516]
( Title 4 added by Stats. 1949, Ch. 384. )
DIVISION 1. CORPORATE SECURITIES LAW OF 1968 [25000 - 257071
( Division 1 repealed and added by Stats. 1968, Ch. 88. )
PART 1. DEFINITIONS [25000 - 250231
( Part 1 added by Stats. 1968, Ch. 88. )
CORPORATIONS CODE
SECTION
25004.
(a) `Broker-dealer" means any person engaged in the business of effecting transactions in securities in this
state for the account of others or for his own account. 'Broker-dealer also includes a person engaged in the
regular business of issuing or guaranteeing options with regard to securities not of his own issue. "Broker-
dealer" does not include any of the following:
(1) Any other issuer.
(2) An agent, when an employee of a broker-dealer or issuer.
(3) A bank, trust company, or savings and loan association.
(4) Any person insofar as he buys or sells securities for his own account, either individually or in some
fiduciary capacity, but not as part of a regular business.
(5) A person who has no place of business in this state if he effects transactions in this state exclusively with
(A) the issuers of the securities involved in the transactions or (B) other broker-dealers.
(6) A broker licensed by the Real Estate Commissioner of this state when engaged in transactions in
securities exempted by subdivision (f) or (p) of Section 25100 or in securities the issuance of which is
subject to authorization by the Real Estate Commissioner of this state or in transactions exempted by
subdivision (e) of Section 25102.
(7) An exchange certified by the Commissioner of Corporations pursuant to this section when it is issuing or
guaranteeing options. The commissioner may by order certify an exchange under this section upon such
conditions as he by rule or order deems appropriate, and upon notice and opportunity to be heard he may
suspend or revoke such certification, if he finds such certification, suspension, or revocation to be in the
public interest and necessary and appropriate for the protection of investors.
(b) For purposes of this section, an agent is an employee of a broker-dealer under paragraph (2) of
subdivision (a) when the agent is employed by or associated with the broker-dealer under all of the following
conditions:
(1) The agent is subject to the supervision and control of the broker-dealer.
(2) The agent performs under the name, authority, and marketing policies of the broker-dealer.
(3) The agent discloses to investors the identity of the broker-dealer.
(4) The agent is reported pursuant to subdivision (c) of Section 25210 and the rules adopted thereunder.
(Amended by Stats. 2004, Ch. 461, Sec. 1. Effective January 1, 2005.)
FINANCIAL CODE - FIN
DIVISION 2. SAVINGS ASSOCIATION LAW [5000 - 100091
( Division 2 repealed and added by Stats. 1983, Ch. 1091, Sec. 2. )
CHAPTER 1. Short Title, General Definitions, and General Provisions [5000 - 5330]
( Chapter 1 added by Stats. 1983, Ch. 1091, Sec. 2. )
ARTICLE 2. General Definitions [5100 - 51241
( Article 2 added by Stats. 1983, Ch. 1091, Sec. 2. )
FINANCIAL CODE
SECTION
5102.
(a) "Association" or "savings association" means a mutual or stock savings association, savings and loan
association or savings bank subject to the provisions of this division, but excluding a federal association.
(b) "Federal association" means a savings and loan association or federal savings bank that is chartered by
the Office of Thrift Supervision under Section 5 of the Home Owners' Loan Act of 1933 (12 U.S.C. Sec.
1464), as amended.
(Amended by Stats. 1990, Ch. 1118, Sec. 8.)
GOVERNMENT CODE -GOV
TITLE 2. GOVERNMENT OF THE STATE OF CALIFORNIA [8000 - 229801
( Title 2 enacted by Stats. 1943, Ch. 134. )
DIVISION 4. FISCAL AFFAIRS [16100 - 17700]
( Division 4 added by Stats. 1945, Ch. 119. )
PART 2. STATE FUNDS [16300 - 16649.95]
( Part 2 added by Stats. 1945, Ch. 120. )
CHAPTER 2. Special Funds [16346 - 16429.41
( Chapter 2 added by Stats. 1945, Ch. 120. )
ARTICLE 11. Local Agency Investment Fund [16429.1 - 16429.4]
( Article 11 added by Stats. 1976, Ch. 730. )
GOVERNMENT CODE
SECTION
16429.1.
(a) There is in trust in the custody of the Treasurer the Local Agency Investment Fund, which fund is hereby
created. The Controller shall maintain a separate account for each governmental unit having deposits in this
fund.
(b) Notwithstanding any other law, a local governmental official, with the consent of the governing body of
that agency, having money in its treasury not required for immediate needs, may remit the money to the
Treasurer for deposit in the Local Agency Investment Fund for the purpose of investment.
(c) Notwithstanding any other law, an officer of any nonprofit corporation whose membership is confined to
public agencies or public officials, or an officer of a qualified quasi -governmental agency, with the consent of
the governing body of that agency, having money in its treasury not required for immediate needs, may remit
the money to the Treasurer for deposit in the Local Agency Investment Fund for the purpose of investment.
(d) Notwithstanding any other law or provision of this section, a local agency, with the approval of its
governing body, may deposit in the Local Agency Investment Fund proceeds of the issuance of bonds,
notes, certificates of participation, or other evidences of indebtedness of the agency pending expenditure of
the proceeds for the authorized purpose of their issuance. In connection with these deposits of proceeds,
the Local Agency Investment Fund is authorized to receive and disburse moneys, and to provide
information, directly with or to an authorized officer of a trustee or fiscal agent engaged by the local agency,
the Local Agency Investment Fund is authorized to hold investments in the name and for the account of that
trustee or fiscal agent, and the Controller shall maintain a separate account for each deposit of proceeds.
(e) The local governmental unit, the nonprofit corporation, or the quasi -governmental agency has the
exclusive determination of the length of time its money will be on deposit with the Treasurer.
(f) The trustee or fiscal agent of the local governmental unit has the exclusive determination of the length of
time proceeds from the issuance of bonds will be on deposit with the Treasurer.
(g) The Local Investment Advisory Board shall determine those quasi -governmental agencies which qualify
to participate in the Local Agency Investment Fund.
(h) The Treasurer may refuse to accept deposits into the fund if, in the judgment of the Treasurer, the
deposit would adversely affect the state's portfolio.
(i) The Treasurer may invest the money of the fund in securities prescribed in Section 16430. The Treasurer
may elect to have the money of the fund invested through the Surplus Money Investment Fund as provided
in Article 4 (commencing with Section 16470) of Chapter 3.
Q) Money in the fund shall be invested to achieve the objective of the fund which is to realize the maximum
return consistent with safe and prudent treasury management.
(k) All instruments of title of all investments of the fund shall remain in the Treasurer's vault or be held in
safekeeping under control of the Treasurer in any federal reserve bank, or any branch thereof, or the
Federal Home Loan Bank of San Francisco, with any trust company, or the trust department of any state or
national bank.
(1) Immediately at the conclusion of each calendar quarter, all interest earned and other increment derived
from investments shall be distributed by the Controller to the contributing governmental units or trustees or
fiscal agents, nonprofit corporations, and quasi -governmental agencies in amounts directly proportionate to
the respective amounts deposited in the Local Agency Investment Fund and the length of time the amounts
remained therein. An amount equal to the reasonable costs incurred in carrying out the provisions of this
section, not to exceed a maximum of 5 percent of the earnings of this fund and not to exceed the amount
appropriated in the annual Budget Act for this function, shall be deducted from the earnings prior to
distribution. However, if the 13 -week Daily Treasury Bill Rate, as published by the United States Department
of the Treasury on the last day of the state's fiscal year is below 1 percent, then the above -noted reasonable
costs shall not exceed a maximum of 8 percent of the earnings of this fund for the subsequent fiscal year,
shall not exceed the amount appropriated in the annual Budget Act for this function, and shall be deducted
from the earnings prior to distribution. The amount of the deduction shall be credited as reimbursements to
the state agencies, including the Treasurer, the Controller, and the Department of Finance, having incurred
costs in carrying out the provisions of this section.
(m) The Treasurer shall prepare for distribution a monthly report of investments made during the preceding
month.
(n) As used in this section, "local agency," "local governmental unit," and "local governmental official"
includes a campus or other unit and an official, respectively, of the California State University who deposits
moneys in funds described in Sections 89721, 89722, and 89725 of the Education Code.
(Amended by Stats. 2014, Ch. 28, Sec. 39. Effective June 20, 2014.)
GOVERNMENT CODE -GOV
TITLE 5. LOCAL AGENCIES [50001 - 575501
( Title 5 added by Stats. 1949, Ch. 81. )
DIVISION 2. CITIES, COUNTIES, AND OTHER AGENCIES [53000 - 558211
( Division 2 added by Stats. 1949, Ch. 81. )
PART 1. POWERS AND DUTIES COMMON TO CITIES, COUNTIES, AND OTHER AGENCIES
[53000 - 54999.71
( Part 1 added by Stats. 1949, Ch. 81. )
CHAPTER 4. Financial Affairs [53600 - 539971
( Chapter 4 added by Stats. 1949, Ch. 81. )
ARTICLE 2. Deposit of Funds [53630 - 536861
( Article 2 added by Stats. 1949, Ch. 81. )
GOVERNMENT CODE
SECTION
53630.
As used in this article:
(a) "Local agency" means county, city, city and county, including a chartered city or county, a community
college district, or other public agency or corporation in this state.
(b) "Treasurer" means treasurer of the local agency.
(c) "Depository' means a state or national bank, savings association or federal association, a state or federal
credit union, or a federally insured industrial loan company, in this state in which the moneys of a local
agency are deposited.
(d) "Agent of depository" means a trust company or trust department of a state or national bank located in
this state, including the trust department of a depository where authorized, and the Federal Home Loan
Bank of San Francisco, which is authorized to act as an agent of depository for the purposes of this article
pursuant to Section 53657.
(e) "Security' means any of the eligible securities or obligations listed in Section 53651.
(f) 'Pooled securities' means eligible securities held by an agent of depository for a depository and securing
deposits of one or more local agencies.
(g) "Administrator" means the Administrator of Local Agency Security of the State of California.
(h) "Savings association or federal association" means a savings association, savings and loan association,
or savings bank as defined by Section 5102 of the Financial Code.
(i) "Federally insured industrial loan company" means an industrial loan company licensed under Division 7
(commencing with Section 18000) of the Financial Code, the investment certificates of which are insured by
the Federal Deposit Insurance Corporation.
Q) "Corporation" includes a limited liability company.
(Amended by Stats. 2004, Ch. 118, Sec. 19.7. Effective January 1, 2005.)
GOVERNMENT CODE
SECTION
53635.
(a) This section shall apply to a local agency that is a county, a city and county, or other local agency that
pools money in deposits or investments with other local agencies, including local agencies that have the
same governing body. However, Section 53601 shall apply to all local agencies that pool money in deposits
or investments exclusively with local agencies that have the same governing body.
This section shall be interpreted in a manner that recognizes the distinct characteristics of investment pools
and the distinct administrative burdens on managing and investing funds on a pooled basis pursuant to
Article 6 (commencing with Section 27130) of Chapter 5 of Division 2 of Title 3.
A local agency that is a county, a city and county, or other local agency that pools money in deposits or
investments with other agencies may invest in commercial paper pursuant to subdivision (h) of Section
53601, except that the local agency shall be subject to the following concentration limits:
(1) No more than 40 percent of the local agency's money may be invested in eligible commercial paper.
(2) No more than 10 percent of the total assets of the investments held by a local agency may be invested in
any one issuer's commercial paper.
(b) Notwithstanding Section 53601, the City of Los Angeles shall be subject to the concentration limits of this
section for counties and for cities and counties with regard to the investment of money in eligible commercial
paper.
(Amended by Stats. 2008, Ch. 709, Sec. 10.7. Effective January 1, 2009.)
GOVERNMENT CODE
SECTION
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 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 from investing moneys in its treasury in a
manner authorized by the Municipal Utility District Act (Division 6 (commencing with Section 11501) of the
Public Utilities Code).
(h) Commercial paper of "prime' quality of the highest ranking or of the highest letter and number rating as
provided for by a nationally recognized statistical rating organization (NRSRO). The entity that issues the
commercial paper shall meet all of the following conditions 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 program wide 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 decision-making 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.
0) (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 underlie a
repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those
securities and the value shall be adjusted no less than quarterly. Since the market value of the underlying
securities is subject to daily market fluctuations, the investments in repurchase agreements shall be in
compliance if the value of the underlying securities is brought back up to 102 percent no later than the next
business day.
(3) Reverse repurchase agreements or securities lending agreements 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 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 shall 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 (q), 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. 80a-1 at 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 (q), 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 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 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 pass-through security, collateralized mortgage obligation, mortgage-backed or other pay -
through bond, equipment lease -backed certificate, consumer receivable pass-through 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 shall 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 (q), 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 (q), inclusive.
(3) The adviser has assets under management in excess of five hundred million dollars ($500,000,000).
(q) United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally
guaranteed by the International Bank for Reconstruction and Development, International Finance
Corporation, or Inter -American Development Bank, with a maximum remaining maturity of five years or less,
and eligible for purchase and sale within the United States. Investments under this subdivision shall be rated
"AX or better by an NRSRO and shall not exceed 30 percent of the agency's moneys that may be invested
pursuant to this section.
(Amended by Stats. 2014, Ch. 59, Sec. 1. Effective January 1, 2015.)
GOVERNMENT CODE
SECTION
53601.1.
The authority of a local agency to invest funds pursuant to Section 53601 includes, in addition thereto,
authority to invest in financial futures or financial option contracts in any of the investment categories
enumerated in that section.
(Added by Stats. 1983, Ch. 534, Sec. 3.)
GOVERNMENT CODE
SECTION
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.
(Amended by Stats. 2009, Ch. 332, Sec. 68.1. Effective January 1, 2010.)
GOVERNMENT CODE
SECTION
53638.
(a) The deposit shall not exceed the shareholder's equity of any depository bank. For the purposes of this
subdivision, shareholder's equity shall be determined in accordance with Section 463 of the Financial Code,
but shall be deemed to include capital notes and debentures.
(b) The deposit shall not exceed the total of the net worth of any depository savings association or federal
association, except that deposits not exceeding a total of five hundred thousand dollars ($500,000) may be
made to a savings association or federal association without regard to the net worth of that depository, if
such deposits are insured or secured as required by law.
(c) The deposit to the share accounts of any regularly chartered credit union shall not exceed the total of the
unimpaired capital and surplus of the credit union, as defined by rule of the Commissioner of Financial
Institutions, except that the deposit to any credit union share account in an amount not exceeding five
hundred thousand dollars ($500,000) may be made if the share accounts of that credit union are insured or
guaranteed pursuant to Section 14858 of the Financial Code or are secured as required by law.
(d) The deposit in investment certificates of a federally insured industrial loan company shall not exceed the
total of the unimpaired capital and surplus of the insured industrial loan company.
(Amended by Stats. 2015, Ch. 190, Sec. 64. Effective January 1, 2016.)
GOVERNMENT CODE
SECTION
53646.
(a) (1) In the case of county government, the treasurer may annually render to the board of supervisors and
any oversight committee a statement of investment policy, which the board shall review and approve at a
public meeting. Any change in the policy shall also be reviewed and approved by the board at a public
meeting.
(2) In the case of any other local agency, the treasurer or chief fiscal officer of the local agency may annually
render to the legislative body of that local agency and any oversight committee of that local agency a
statement of investment policy, which the legislative body of the local agency shall consider at a public
meeting. Any change in the policy shall also be considered by the legislative body of the local agency at a
public meeting.
(b) (1) The treasurer or chief fiscal officer may render a quarterly report to the chief executive officer, the
internal auditor, and the legislative body of the local agency. The quarterly report shall be so submitted
within 30 days following the end of the quarter covered by the report. Except as provided in subdivisions (e)
and (f), this report shall include the type of investment, issuer, date of maturity, par and dollar amount
invested on all securities, investments and moneys held by the local agency, and shall additionally include a
description of any of the local agency's funds, investments, or programs, that are under the management of
contracted parties, including lending programs. With respect to all securities held by the local agency, and
under management of any outside party that is not also a local agency or the State of California Local
Agency Investment Fund, the report shall also include a current market value as of the date of the report,
and shall include the source of this same valuation.
(2) The quarterly report shall state compliance of the portfolio to the statement of investment policy, or
manner in which the portfolio is not in compliance.
(3) The quarterly report shall include a statement denoting the ability of the local agency to meet its pool's
expenditure requirements for the next six months, or provide an explanation as to why sufficient money
shall, or may, not be available.
(4) In the quarterly report, a subsidiary ledger of investments may be used in accordance with accepted
accounting practices.
(c) Pursuant to subdivision (b), the treasurer or chief fiscal officer shall report whatever additional information
or data may be required by the legislative body of the local agency.
(d) The legislative body of a local agency may elect to require the report specified in subdivision (b) to be
made on a monthly basis instead of quarterly.
(e) For local agency investments that have been placed in the Local Agency Investment Fund, created by
Section 16429.1, in National Credit Union Share Insurance Fund -insured accounts in a credit union, in
accounts insured or guaranteed pursuant to Section 14858 of the Financial Code, or in Federal Deposit
Insurance Corporation -insured accounts in a bank or savings and loan association, in a county investment
pool, or any combination of these, the treasurer or chief fiscal officer may supply to the governing body, chief
executive officer, and the auditor of the local agency the most recent statement or statements received by
the local agency from these institutions in lieu of the information required by paragraph (1) of subdivision (b)
regarding investments in these institutions.
(f) The treasurer or chief fiscal officer shall not be required to render a quarterly report, as required by
subdivision (b), to a legislative body or any oversight committee of a school district or county office of
education for securities, investments, or moneys held by the school district or county office of education in
individual accounts that are less than twenty-five thousand dollars ($25,000).
(g) In recognition of the state and local interests served by the actions made optional in subdivisions (a) and
(b), the Legislature encourages the local agency officials to continue taking the actions formerly mandated
by this section. However, nothing in this subdivision may be construed to impose any liability on a local
agency that does not continue to take the formerly mandated action.
(Amended by Stats. 2009, Ch. 332, Sec. 68.5. Effective January 1, 2010.)
FIGURE 1
ALLOWABLE INVESTMENT INSTRUMENTS PER STATE GOVERNMENT
CODE (AS OF JANUARY 1, 2017) A APPLICABLE TO ALL LOCAL AGENCIES
See "Table of Notes for Figure 1' on the next page for footnotes related to this figure.
Y
INVESTMENT TYPE C SPECIFIED QUALI
MATURITY
%OF PORTFOLIO' REQUIREMENTS,
Local Agency Bonds 5 years None None
U.S. Treasury Obligations
5 years
None
None
State Obligations — CA And Others
5 years
None
None
CA Local Agency Obligations
5 years
None
None
U.S Agency Obligations
5 years
None
None
Bankers' Acceptances
180 days
40%F
None
Highest letter and number
Commercial Paper— Pooled Funds
270 days
40% of the agency's money c
rating by an NRSRO H
Commercial Paper — Non -Pooled
Highest letter and number
Funds F
270 days
25% of the agency's money c
rating by an NRSRO H
Negotiable Certificates of Deposit
5 years
30% 1
None
Non-negotiable Certificates of Deposit
5 years
None
None
30% K
(inclusive of placement service
Placement Service Deposits
5 years
CDs)
None
30% K
Placement Service Certificates of
(combined with placement
Deposit
5 years
service deposits)
None
Repurchase Agreements
1 year
None
None
Reverse Repurchase Agreements and
20% of the base value of the
Securities Lending Agreements
92 days f
portfolio
None M
Medium -Term Notes N
5 years
30%
"A" Rating
Mutual Funds And Money Market
Mutual Funds
N/A
20% o
Multiple P' o
Collateralized Bank Deposits
5 years
None
None
Mortgage Pass–Through Securities
5 years
20%
"AA" Rating Category R
County Pooled Investment Funds
N/A
None
None
Joint Powers Authority Pool
N/A
None
Multiple s
Local Agency Investment Fund (LAIF)
N/A
None
None
Voluntary Investment Program Fund
N/A
None
None
Supranational Obligations u
5 years
30%
'AA" Rating
Page i LOCAL AGENCY INVESTMENT GUIDELINES
" Sources: Sections 16340, 16429.1, 53601,
53601.8, 53635, 53635.2, 53635.8, and
53638.
' Municipal Utilities Districts have the author
fly under the Public Utilities Code Section
12871 to invest in certain securities not ad-
dressed here.
Section 53601 provides that the maximum
tens of any investment authorized under
this section, unless otherwise stated, is five
years. However, the legislative body may
grant express authority to make investments
either specifically or as a part of an invest-
ment program approved by the legislative
body that exceeds this live yearmaturitylimit.
Such approval must be issued no less than
three months prior to the purchase of any se -
curtly exceeding the five-year maturity limit.
° Percentages apply to all portfolio invest-
ments regardless of source of funds.
For instance, cash from a reverse repur-
chase agreement would be subject to the
restrictions.
' No more than 30 percent of the agency's
money may be in bankers' acceptances of
any one commercial bank.
"Select Agencies" are defined as a "city, a
district, or otherlocal agency that doleslnot
pool money in deposits or investment with
other local agencies, other than local agen-
cies that have the same governing body."
° Localagencies, otherthan counties are city
and county, may purchase no more than 10
percent of the outstanding commercial pa-
per of any single issuer.
" Issuing corporation must be organized and
operating within the US., have assets in ex-
cess of $500 million, and debt other than
commercial pepor most be rated "A" or the
issuing corporation must be organized within
the U.S. as a spree! purpose corporation,
trust, or LLC, Pas program vede credit en-
hancements, and has commercial paper that
- Reverse repurchase agreements or securi-
ties lending agreements may exceed the
92 -day term it the agreement includes a
written codicil guaranteeing a minimum
earning or spread for the entire period ble
tween the sale of a security using a reverse
repurchase agreement or securities lending
agreement and the final maturity dates of
the same security.
" Reverse repurchase agreements must be
made with primary dealers of the Federal Has
serve Bank o1 New York or with a nationally
or state chartered bank that has a significant
relationship with the local agency. The local
agency must have held the securities used
for the agreements for at least 30 days.
" "Mediumterm notes" are defined in Section
53601 as "all corporate and depository in-
stitution debt securities with a maximum re-
maining maturity of five years or less, issued
by corporations organized and operating
within the United States or by depository in-
stitutions licensedbythe United States orany
state and operating within the United States"
° No more than 10 percent invested in any
one mutual fund.
" A mutual fund most receive the highest mnk-
ing by not less than two nationally mcog-
nized rating agencies orthe fund must retain
an investment advisor who is registered with
the SEC (or exempt from registration), has as-
sets under management in excess of $500
million, and has at least five years experience
Investing in instruments authorized by Secs-
tions
eo-tions 53601 and 53635.
A money market mutual fund must receive
the highest ranking by not less than two
nationally recognized statistical rating 0,
ganizations or retain an investment advisor
registered with the SEC or exempt from
registration and who has not less than five
years experience investing in money market
instruments with assets under management
in excess of $500 million.
is rated "A-1" or higher, or the equivalent, by n Issuer must be rated "A"or higher as provid-
a nationally recognized rating agency.
ed bye natlon.ally recognized rating agency.
"Other Agencies" are counties, a city and
county, or other local agency 'that pools
money in deposits or investments with other
local agencies, including local agencies
that have the same governing body." Local
agencies that pool exclusively with other lo-
cal agencies that have the same governing
body must adhere to the limits set for "Se-
lect Agencies," above.
' No more than 30 percent of the agency's
money may be in negotiable certificates of
deposit that are authorized under Section
536010).
" No more than 30 percent of the agency's
money maybe investedin deposits, including
certificates of deposit, through a placement
service (excludes negotiable certificates of
deposit authorized under Section 53601(f)).
s A joint powers authotlry pool must retain an
investment advisor who is registered with the
SEC (o( exempt from regoliatlon), has as-
sets under management in excess of $500
million, antl has at least hive years experience
investing In instruments semoraed by Sec-
tion 53601, subdivisions (a) to (o).
* Local entitles can deposl between $200
million and $10 billion into the Voluntary
Investment Program Fund, upon approval
by their governing bodies. Deposits in the
fund will be invested in the Pooled Money
Investment Account.
Cnly those obligations issued or
uncondition-ally guaranteed by the International sank for
Recenstmc6on and Development (IBRD),
International Finance Corporation (IFC), and
Inter -American Development Bank 0ADB).
Page ii LOCAL AGENCY INVESTMENT GUIDELINES
Also, while not expressly prohibited by State law, unregistered securities, such m
Rule 144A securities, may not be purchased by local agencies because local agen-
cies do not meet the Securities and Exchange Commission definition of Qualified
Institutional Buyers (QIB).
Page iii LOCAL AGENCY INVESTMENT GUIDELINES