SR-6-Q (11)
FINANCE CMD REB\INVPOL98
Council Meeting of February 24, 1998
(YQ
sI-a,atM
Santa Monica, California
TO Mayor and City Council
FROM City Staff
SUBJECT RecommendatIon to RevIse City Investment Policy and Contrnue
Delegation of Investment Authority to City Revenue ManagerfTreasurer
INTRODUCTION
ThIS report recommends that the CIty CouncIl approve the CIty's Investment PoliCY
(including various technical revIsIons), and contmue to delegate Investment authorrty to
the City Revenue ManagerfTreasurerfrom March 1, 1998 to February 28. 1999 The
report also responds to a CounCil directive concerning the City's Investment Pohcy
BACKGROUND
State law requIres that a Clty's Investment polley and any matenal changes In the polley
be approved by CounCil annually at a pubhc meeting Section 711 of the Santa Monica
City Charter delegates to the Revenue ManagerlTreasurer authOrity for Investing City
funds Section 53607 of the State of California Government Code limits the
authOrization of the legislative body to delegate Investment authOrity to a one-year
penod I renewable annually
The Council last approved the Investment Polley and continued delegation to the City
Revenue ManagerfTreasurer on February 11, 1997 The CIty's Investment poliCY has
1
(,-Q
2.f~ ''Ie
been awarded the MUnicipal Treasurers' ASSOciation of the United States and Canada
CertIfication of Excellence Award and continues to adhere to these standards
DISCUSSION
The followmg technical changes have been Incorporated Into the attached City's
Investment Policy
1 Records and Reports
Section G (2) of the Investment Polley has been added to Include a new reporting
reqUIrement The Government Accountmg Standards Board (GASB). a non-
profit body that sets accounting standards for government agencies, reqUires publrc
agencies to report as of July 1. 1998 all Investments. with certain exceptions. at
current fair market value rather than at onglnal purchase pnce The current fair
market value and the unrealized gain or loss of a secunty do not affect Its actual
purchase price, Yield, or maturity value. If held to maturity
The monthly Investment report submitted to the Council has reported current market
value of investments since July 1, 1997 It is City practice to hold Investments to
maturity
2 Attachment A to Investment POlfCY
The I1stlng of City of Santa Monica Funds has been updated to Include two funds
approved by the CIty Council durrng the past year the Asset Seizure Fund and
the Computer EqUIpment Replacement Fund
2
The shaded portions of the Investment Policy and Its attachments indicate where
additions have been made. and the lined through portions Identify deletions
OTHER RELEVANT ISSUES
1 The City's Investment Policy IS more conservative than reqUired by State law and
actual Investment practices are somewhat more restrictive than the poliCY requires
When the Investment PoliCY was last approved on February 11. 1997. CounCil asked
staff to evaluate and report as part of the next annual update whether the City's
Investment polICY should be changed to conform to actual Investment practIce As
market conditions change, the flexibility and opportunity to further diverSify the portfolio
to aVOId Investment risks provided for In the policy may be useful and no change ]s
recommended at this time
2 The City's Investment PolICY Includes a restrrctlon against Investing In companies
which conduct bUSiness In or with Burma or the military government of Burma Staff
also follows "Informal" SOCially responsible Investmg gUIdelines which are currently
being evaluated for IncluSion In the Investment Policy The gUidelines are as follows
1) Supports clean and healthy environment. Includmg the production of safe
and environmentally sound practices
2) AvoIds tobacco or tobacco-related products
3) Avoids weapons, military systems, or nuclear power
4) Supports equality of rrghts regardless of sex, race, age, disabIlity. or
sexual orrentatlon
5) Promotes community economic development
Staff will recommend Incorporatmg appropriate SOCially responsible investing gUidelines
to the Investment Policy at the next annual update
The City's Investments consist of City pooled Investments. and Cemetery and
Mausoleum Perpetual Care Investments The followmg discusses each of the groups
of Investments In terms of SOCially responsible Investment
A City Pooled Investments - These are funds which finance general City
operations They are managed by the City'S Revenue ManagerfTreasurer. In
accordance With the City's Investment Policy
This $270 million portfolio IS prlmarrly Invested In U S Treasury and Federal
Agency securrtles, With approximately 5%. or $13 million In the State's Local
Agency Investment Fund (LAIF) The City uses LAIF because It IS very safe
and provides high liqUidity and a good Investment return When needed.
funds can be Withdrawn Within 24 hours This high liqUidity ensures that cash
IS always readily aVailable to finance the Immediate needs of City operations
LAIF began In 1977 as an Investment alternative for Callfornla's local
governments and special districts and IS part of the State's Pooled Money
Investment Account (PMIA) which IS under the admlmstratlon of the State
4
Treasurer's Office LAIF has approximately 2,500 partJclpants With
Investments totaling almost 511.000.000,000 The State Treasurer's Office
makes Investments for the PMIA In accordance With an Investment policy
which accordmg to statute must give pnorlty to (1) safety/diversification. (2)
liqUidity and (3) Yield Social concerns are not factored Into Investment
deCISions Staff has not Identified Investment alternatives to LAI F which
provide the same degree of safety, liqUidity and Yield
B Cemetery and Mausoleum Perpetual Care Funds - These are funds which
are legally restricted for the perpetual care of the City's Cemetery and
Mausoleum Since they can be Invested In ways m which general City funds
cannot be Invested, such as stocks, they are managed by a professional
Investment firm. RNC Capital Management Company (RNC) RNC Invests
these funds consistent With the City's Investment PolIcy and "Informar
g U1delmes for socially responsible investing
BUDGET/FINANCIAL IMPACT
There are no budget or financial Impacts resultmg from thiS staff report
RECOMMENDATION
Staff recommends that Council approve the attached Investment Policy. and delegate
to the City Revenue ManagerlTreasurer mvestment authonty for March 1. 1998 through
February 28. 1999
5
Prepared by Mike Dennis, Director of Finance
Ralph Bursey, City Revenue ManagerfTreasurer
Attachment Revised City Investment Policy
6
Revised 2/98
INVESTMENT POLICY for the CITY OF SANTA MONICA
A PURPOSE
The purpose of establishing a formal Investment policy IS to set broad gUidelines within which
the City Treasurer IS to lawfully Invest City funds These gUidelines do not supersede applicable
State laws and City codes
B SCOPE
This Investment policy applies to all cash and financial Investments of the vanous funds of the
City of Santa Monica as Identified In the Clty's Comprehensive Annual Financial Report, with the
exception of those financial assets explicitly excluded from coverage by these policies for legal
or operational reasons All City Funds are listed In Attachment A and all cash and financial
Investments which are excluded from coverage by thiS Investment poliCY are IdentIfied In
Attachment B
C ADMINISTRATION
An Investment Committee shall be established consisting of the Director of Finance, City
Treasurer/Revenue Manager, and a representative from the City Manager's Office
2 The Investment Committee Will meet at least once each calendar quarter to review and
evaluate prevIous Investment activity and Yield, to review the current status of all funds
held by the CIty, to diScuss antIcIpated cash reqUIrements and Investment activIty for the
next quarter, and to recommend Investment strategy to the City Treasurer
3 All Investment poliCies and all changes to those poliCies must be approved by a maJonty
of the Investment Committee
4 Any two members of the Committee may call a special meeting, and three members shall
constitute a quorum
5 Minutes Will be published of all Investment Committee meetings
6 The Investment Committee will meet at least annually With the City'S outSide auditors to
review accounting controls and to design adequate audit procedures to Identify any non-
compliance With the City Investment policy
7 The City Investment poilcy Will be reviewed annually by the Investment Committee and
submitted annually to the City Council
D INVESTMENT OBJECTIVES
The pnmary objective of all City Investments shall be safety The secondary objective shall be
liqUidity The third objective shall be to achieve a return
- 1 -
,/
"Safety" means that the overall value of City funds shall not be diminished In the process
of securing and Investing those funds or over the duration of the Investments
2 LiqUidity means that funds shall be made available to meet all anticipated City obligations
and a prudent reserve shall be kept available to meet unanticipated cash requirements
AvailabIlity has two aspects, liqUidity and the scheduling of cash flows LiqUidity IS the
ability to change an Investment Into Its cash equivalent on short notice at Its prevailing
market value Scheduling of cash flows means that Investments are to mature or are to
be converted Into cash In tandem With the City'S anticipated cash reqUIrements
3 Achieve a return means to earn the optimum Interest Income from City funds
commensurate With the objectives of safety and availability of the prinCiple Invested At
no time shall funds be Invested In any security that could result In zero Interest accrual If
held to maturity
E INVESTMENT AUTHORITY DELEGATION
In accordance With the Santa Monica City Charter, Section 711, the City Treasurer IS responsIble
for conducting the City's Investment transactions The Treasurer may delegate thiS authOrity
to the ASSistant Treasurer or, In extraordinary Circumstances, to the Director of Finance
F PRUDENCE
Investments shall be made With Judgment, care, Skill, prudence, and diligence under
circumstances then prevailing, whIch persons of prudence acting In a like capacity and
familiarity With those matters would use In the conduct of funds of a like character and
With like alms, to safeguard the prinCipal and maintain the liqUidity needs of the City ThiS
standard of prudence shall be applied In the context of managing an overall portfoliO
Investment officers acting In accordance With written procedures and exercIsing due
dilIgence shall be relieved of personal responSibility for an IndiVidual security's credit risk
or market prrce changes. proVided that deViatIOns from expectations are reported In writing
to the Director of Finance In a timely fashion, and appropriate action IS taken to control
adverse developments
2 Investment officers shall aVOId any transactions that might Impair public confidence In the
Santa Monica City government
3 Where It IS otherWise consistent With the JudiCiary and statutory obligatIOns of the City
Revenue Manager/Treasurer, preference In selecting Investments shall be given to those
finanCial Institutions which have demonstrated Involvement In the development or
rehabilitatIOn of lOW-income affordable hOUSing
4 Investments In repurchase agreements shall be made only With finanCial institutions With
which the City has an executed master repurchase agreement The finanCial Institution
must be a primary dealer of the Federal Reserve Bank of New York
G RECORDS AND REPORTS
Records of all Investment transactIOns Will be kept, and monthly reports will be made to
the Investment Committee and the City Manager detailing and summarizing all transactions
and stating the present status of City Investments
- 2 -
2 The Revenue Manager/Treasurer Will report aU Investments, with certain exceptions, at faIT
market value rather than onglnal purchase pnce, In the Monthly Cash & Investment Report
as reqUired by the Government Accounting Standards Board (GASB) Statement No. 31.
z3 As of the end of the fiscal year, the City Revenue Manager/Treasurer Will make a report
to the Director of Finance detailing the present status of City Investments, as required by
the Government Accounting Standards Board (GASB) statement No 3
H DIVERSIFICATION
1 All City funds which are not required for Immediate cash expenditures or to maintain
required compensating cash balances shall be Invested In Interest bearing Investments or
accounts
2 To reduce overall portfolio risk while attempting to attain market rates of return consistent
With the primary objectives of safety and availability of funds, Investments shall be
diverSified across types of Investments, maturities of those Investments, and institutions
In which those Investments are made Generally, the portfolio IS to be Invested In U S
Treasury and Federal Agency seCUrities With a modest addition of BAs and CDs
a Investment Instruments
Investments shall be made only In those Instruments speCifically authOrIZed by
California State laws, and to no greater an extent than authOrIZed by those laws
Said laws are summarized In Attachment C Additional CIty gUidelines are as follows
Instruments
AdditIOnal City GUidelines
33 1/3% of portfolio, maximum for each agency
U S Federal Agencies'
Banker's Acceptances (BA)
Certificate of DepOSit (CD),
Commercial Paper (CP)
10% max per Issuer, 40% max overall
10% max per Issuer, 30% max
all (CPl, 15% max overall (CP)
NOTES
*
Fedl National Mortgage Assn (FNMA), Fedl Home Loan Mortgage Corp (FHLMC), Fedl
Home Loan Bank(FHLB), Student Loan Marketing Assn (SLMA), Tennessee Valley
AuthOrity (TV A), and any other U S Federal agency or Instrumentality
b Maturities
MatUrities of indiVidual Investments shall be diverSified to meet the follOWing
objectives
No Investment Will be purchased which matures more than three years from the
date of purchase unless speCifically recommended by a unanimous vote of the
Investment Committee No Investment will be purchased which matures more than
five years from the date of purchase Without the additional approval of the City
Manager and the prior approval of the City Council
- 3 -
II The average weighted maturity of all pooled City Investments shall not exceed
18 months (547 days)
III To minimize the risk of haVing to make unusually large Investments at times
when mterest rates are temporarily very low, Investments will be scheduled to mature
so that dUring any given month there Will be a comparable magnitude of funds to be
reinvested These Investible funds Will be estimated based on scheduled matUrities
plus anticipated revenues minus anticipated expenses
IV To the maximum extent practical, monthly operational
cash requirements Will be met by uSing anticipated revenues and maturing
Investments However, as an aspect of active portfolio management, It may be
finanCially benefiCial to the City to sell Investments from time to time
v To reduce the market and Interest rate risks which would result from the excess
concentration of assets In a specific matunty, a specific Issue or a specific class of
SeCUrities, no more than 5 0% of the City's Investible funds may be Invested In any
Single Issue matUring In a given month The only exceptions are U S Treasury
securities, to which an alternate lImit of 10% Will apply
c Institutions
To minimize the nsk to the City's overall Investment portfolro from the default by a
Single Institution In which City funds are on depOSit or Invested, the follOWing poliCies
shall be observed
City funds shall only be deposited In a finanCial Institution whose performance
has been reliable and whose safety rating, as determined by the Investment
Committee or a reputable Independent rating service selected by the Investment
Committee, IS In the upper 60% of ItS peer group These same standards apply to
institutions In which securities owned by the City are held In safekeeping ExceptIons
to these standards may be made on an IndiVidual baSIS If they are unanimously
recommended by the Investment Committee
II The City shall not depOSit, In the form of certificates of depOSit, time or demand
depOSits, or Similar Instruments, In a Single InstitutIOn more than 10% of the City's
investible funds
III No Single Institution shall have, In cumulative total, as depOSits and Investments
(other than safekept Investments) more than 50% of the City's investIble funds
d Repurchase Agreements
Investments In repurchase agreements are allowable and shall be made only With
finanCial Institutions With which the City has an executed master repurchase
agreement The finanCial Institution must be a pnmary dealer of the Federal Reserve
Bank of New York The market value (bid pnce plus accrued Interest] of the collateral
shall be valued at 102% or greater of the funds borrowed agamst those seCUrities and
the value shall be adjusted no less than quarterly The counterparty will deliver the
underlYing secuntles to the City by book entry, phYSical delivery, or by third party
custodial agreement The transfer of underlymg secuntles to the counter party bank's
customer book-entry account may be used for book-entry delivery
- 4 -
RELATIONSHIPS WITH FINANCIAL INSTITUTIONS
The City may only purchase statutorily authorized Investments, not purchased directly from
the Issuer, from either an instItution licensed by the state as a broker! dealer, from a
national or state chartered bank, from a federal or state savings institutIOn, from a
brokerage firm deSignated as a pnmary government dealer by the Federal Reserve Bank,
or from a member of a federally regulated securities exchange
2 All financial institutions With which the City conducts Investment actiVities must agree In
writing to undertake reasonable efforts to prevent Illegal andior Imprudent transactions
involVing City funds Should It come to the attention of the City Revenue
ManageriTreasurer that City funds have been Involved In Illegal and/or Imprudent
transactions, thiS Will be reported to the City CounCil along With options for dealing With
the Situation
3 Primary government seCUrities dealers which report to the New York Federal Reserve are
preferred for conducting transactions of all eligible securities other than non-negotiable
certifIcates of depOSit Other security dealers who WIsh to engage In transactions With the
City must meet the City's requirements for reliability and safety, and any purchases made
by the City from such secondary sources shall require third party safekeeping or delivery
of the securities to the City
4 To ensure Yields consistent With thiS poliCY and to prOVide for the objective Investment of
City funds, the City's Investment procedures shall be deSigned to Include transactions With
several firms that compete directly for public bUSiness, and to encourage competitive
bidding on transactions Such bids shall be on file With the City Treasurer's Office and
copies shall be prOVided to the Director of Finance monthly
J SOCIALLY RESPONSIBLE INVESTING
BURMA POLICY - In accordance With the City of Santa MOnica CounCil Resolution No 8966
CCS (11/28/95), the Investment of City funds are restricted as follows
1 No Investments are to be made In banker's acceptances which are connected With the
military government of Burma, Its agenCies, or pnvate Burma corporations
2 No Investments are to be made In commerCial paper or equities of United States
corporations which have direct Investments In Burma or With the military government of
Burma
3 FinanCial transactions shall only be done With banking! financial institutions that do not
make loans to the military government of Burma or ItS agencies
K COMMUNITY REINVESTMENT ACT (CRAl
The City will Invest funds only In those financial institutIOns which have a CRA rating (as
determined by the appropnate regulatory body) of "Outstanding" or "Satisfactory"
L CUSTODY AND SAFEKEEPING OF SECURITIES AND CITY FUNDS
- 5 -
Wherever practical, all City Investments shall have the City of Santa Monica as the
registered owner, and all Interest and pnnclpal payments and withdrawals shall indicate the
City of Santa Monica as the payee
All securities shall be safekept with the City Itself or with a qualified financial institution,
contracted by the City as a third party All secuntles shall be acquired by the safekeeping
institution on a "dellvery-vs-payment" (DVP) baSIS In other words, the secunty must be
delivered before funds are released The DVP baSIS for delivery applies also to the delIvery
and safekeeping of repurchase agreement collateral
2 Original caples of non-negotiable certificates of depOSit and confirming caples of all other
Investment transactions must be delivered to the CIty
M PERFORMANCE STANDARDS
The Investment portfolio Will be deSigned to obtain at least a market level rate of return, given
budgetary and economic cycles (3 or more years) cycles and given the City's Investment nsk
and cash flow needs The City's portfolio management approach IS active, necessitating penodlc
restructuring of the portfolio to take advantage of current and antiCipated Interest rate
movements In addition, the portfoliO IS pnmanly Invested m U S Treasury and Federal Agency
secuntles Given thiS strategy, the performance benchmarks shall be the rolling average of 6-
month and 12-month U S Treasury bills, traded on the secondary market as reported m the
Federal Reserve System's monthly report of mterest rates
N IMPLEMENTATION
The City Treasurer IS responSible for conductmg and reporting on all City Investments To
faCilitate thiS function, the Treasurer Will prepare and maintain an Investment Procedures Manual
to detail operating procedures to be practiced by the Treasury In investing City funds All such
procedures shall be In accordance With applicable State laws, City codes and the Investment
polICies set by the Investment Committee All procedures Will be subject to review and approval
by the Investment Committee The manual Will expliCitly Include a current Iistmg of all City of
Santa MOnica finanCial Institution depOSit and mvestment accounts, a current list of all finanCial
institutions With which the City currently IS authonzed to conduct Investment transactions, a
current copy of State laws pertinent to City Investments, a descnptlOn of speCifiC controls to
ensure the proper execution of the City Investment Policy, and caples, With Instructions, of all
Investment reports required by law or by City Investment policy
o INDEMNIFICATION OF INVESTMENT OFFICIALS
Any Investment officer exercIsing hiS or her authority With due diligence and prudence, and In
accordance With the City of Santa Monica Investment POliCY, Will not be held personally liable
for any mdlvldual Investment losses or for total portfolio losses
- 6 -
ATTACHMENT A City of Santa Monica Funds for Cash Pooling
The following listed City of Santa Monica funds shall have their cash balances pooled for
Investment purposes except for any fund or portion of one or more funds which IS speCifically
Identified for exclUSion In Attachment B of the City Investment Policy
FUND
NUMBER
01
11
12
13
14
15
16
17
18
19
20
21
22
25
27
29
30
31
32
33
34
37
41
42
43
51
52
53
54
55
56
57
58
59
77
80
81
82
84
85
89
99
FUND NAME
GENERAL FUND
BEACH RECREATION FUND
HOUSING AUTHORITY FUND
DISASTER RELIEF FUND
TORCA FUND
LOW/MODERATE INCOME HOUSING FUND
REDEVELOPMENT-DOWNTOWN FUND
REDEVELOPMENT-EARTHQUAKE RECOVERY
REDEVELOPMENT-OCEAN PARK FUND
COMM DEV BLOCK GRANT FUND
MISCELLANEOUS GRANTS FUND
ASSET SEIZURE FUND
CITIZENS OPTION FOR PUBLIC SAFETY FUND
WATER FUND
SOLID WASTE MANAGEMENT FUND
RENT CONTROL FUND
PIER FUND
WASTEWATER FUND
AUDITORIUM FUND
AI RPORT FUND
STORMWATER FUND
CEMETERY FUND
TRANSPORTATION FUND
TRAFFIC SAFETY FUND
GAS TAX FUND
CABLE COMMUNICATIONS FUND
SPECIAL AVIATION FUND
PARKS AND RECREATIONAL FUND
VEHICLE MANAGEMENT FUND
COMPUTER REPLACEMENT FUND
SELF INS-COMPRE FUND
SELF INS-BUS FUND
SELF INS-AUTO FUND
SELF INS-W/C FUND
PARKING AUTHORITY FUND
GENERAL TRUST FUND
DEFERRED COMP FUND
CEMETERY PERPETUAL CARE FUND
FED REV SHARING FUND
DEBT SERVICE FUND
MAUSOLEUM ENDOWMENT FUND
GENERAL SERVICE FUND
- 7 -
ATTACHMENT B
City of Santa Monica Fmanclal Assets Excluded from the Coverage of the
City Investment Policy
The follOWing listed Ctty of Santa MOnica finanCial assets are specifically excluded from coverage of
the City Investment PoliCY ThiS exclusion does not exempt the administrators of these exempted
assets from exercIsing due diligence and prudence In the management of the assets
Almort Certificates of ParticipatIOn - Under the terms of the trust agreement between the City of
Santa Monica and the fiscal agent (U S Trust Company of California) for the City of Santa Monica
CertifIcates of Participation (COP's) (1995 Airport Facilities Refundmg Senes A and Senes Bl, certain
specific funds must be held by the fiscal agent, to (i) refund the City of Santa Monica Certificate of
Participation (Airport FacIlities) (the "Pnor Certificates"), (Ill fund a reserve fund for the Certificates,
and (1I1l pay the costs Incurred In connection with the execution and delivery of the Certificates
Audltonum Box Office Trust - Established by City Council Resolution 4243 to hold In trust Santa
Monica CIVIC Audltoflum box office operation receipts for each mdlvldual permittee Fund held In thiS
trust are managed by the Audltonum through a checkmg account at Wells Fargo Bank and are
accounted for In Fund 32, the Audltonum Fund These funds are not Invested
Cemetery Perpetual Care Fund Investments - The City Council authonzed the Investment consulting
firm of RNC Capital Management to manage these mvestments In accordance with parameters
approved by the Council They are accounted for In Fund 82, the Cemetery Perpetual Care Fund
CltV Emoloyees Deferred Comoensatlon - Established by City Council Resolution 6759 and authonzed
under contract No 5697, these funds are managed under contract by the Public Employees Benefit
Services Corporation (PEBSCOL and are accounted for In Fund 81, the Deferred Compensation Fund
Downtown Redevelopment Lease Revenue Bonds - Under the terms of the trust agreement between
the Redevelopment Agency of the City of Santa Monica for Lease Revenue Bonds, 1992, and First
Trust of California (fiscal agent) certain speCifiC funds must be held by the fiscal agent, for payment
of pnnclpal and Interest and for reserve requirements The amount of funds held by the fiscal agent
vanes from year to year as the bonds mature The funds are accounted for In the 85 Fund, the Debt
Service Fund
Llbrarv Book Purchase Account - Established by City Council Resolution 5088 to facilitate book
purchases, these funds are managed by the Library through a checking account With Wells Fargo
Bank There IS a $100 00 limit per transaction Funds are accounted for In Fund 01, the General
Fund These funds are not Invested
Main Library Improvements Prolect G 0 Bonds - Under the terms of the trust agreement between the
City of Santa MOnica and the fiscal agent (First Trust of California) for the City of Santa MOnica
General Obligation Bonds (Main Library Improvements Project), Series 1990, certain speCIfiC funds
must be held by First Trust of California for the acquISition of certain real property, for construction
and Improvement needs, for pnnclpal and Interest payments, and for reserve reqUirements The funds
are accounted for In Fund 01, the General Fund and Fund 85, the Debt Service Fund
Mausoleum Perpetual Care Fund Investments - On July 8, 1986, the City Council amended the
MUniCipal Code, Section 7300 et al , to create the new Mausoleum Perpetual Care Fund RNC Capital
Management, the Investment counselor for the Cemetery Perpetual Care Fund, was also deSignated
to manage these funds In accordance With parameters approved by the Council These funds are
accounted for In Fund 89, the Mausoleum Perpetual Care Fund
- 8 -
Ocean Park RedeveloDment Prolects - Under the terms of the trust agreement between the
Redevelopment Agency of the City of Santa MOnica and the Fiscal Agent (First Trust of California)
for the Redevelopment Agency of the City of Santa Monica Ocean Park Redevelopment Projects Tax
Allocation Refunding Bonds, Series 1992, certain specific funds must be held by the fiscal agent, to
(I) refund the Agency's Ocean Park Redevelopment Projects Tax Allocation Refunding Bonds, Series
1988A, (II) refund the Agency's Ocean Park Redevelopment Project Tax Allocation RefinanCing Bonds,
Serres 1988B, (Ill) provIde funds to repay a portIOn of certain promissory notes of the Agency, {Iv}
fund a reserve account for the Refunding Bonds, and (v) pay the costs of Issuance Incurred with the
Issuance of the Refunding Bonds The funds are accounted for In Fund 85, the Debt SerVIce Fund
Parking Authorltv Lease Revenue Bonds - Under the terms of the trust agreement between the Parking
Authority and the fiscal agent (First Trust of California) for the Parking Authority of the City of Santa
Monica Lease Revenue Bonds, 1992, certain speCifiC funds must be held by the fiscal agent, for
construction and Improvement needs, for principal and Interest payments, and for reserve
requirements The funds are accounted for In Fund 85, the Debt Service Fund
Pettv Cash - Section 1 513 of the City Charter proVides for the establishment of petty cas h funds for
use by department heads to make cash expenditures of a minor nature Petty cash funds are
managed by each Individual department and are accounted for In each department's fmanclal records
These funds are not Invested
Santa Monica Rehabilitation Loan Funds - These funds were established by City Council ResolutIOn
to promote low cost housmg by prOViding loans to rehabIlitate homes These funds are held In trust
by the First Federal Savings Bank of California, and are administered by the Resource Management
Department and the Finance Department The funds are accounted for In Fund 19, the Community
Development Block Grant Fund
Wastewater Enterprise Revenue Bonds - Under the terms of the trust agreement between the City of
Santa Monica and the fiscal agent, (First Trust of California), for the City of Santa Monica Wastewater
Enterprise Revenue bonds (Hyperlon Project), 1993 Refunding Serres, certain speCIfiC funds must be
held by the fiscal agent for payment of principal and Interest and for reserve requirements The funds
are accounted for In the 31 Fund, the Wastewater Enterprise Fund
Workers' Compensation Account - ThiS checking account was established at First Interstate Bank
(now Wells Fargo Bank) In accordance With City CounCil Resolution 6692 to prOVide a means to
administer the City's contract With the workers' compensation Insurance adjusters It IS administered
by the Risk Management DIVISion of the City Manager's Office and Finance departments and account
for In Fund 59, the Self-Insurance Workers' Compensation Fund These funds are not Invested
The follOWing accounts for the City of Santa Monica appear on the books for accounting purposes,
but are not City assets and are excluded from coverage of the City Investment PoliCY
Bail Bond Account - ThiS IS a clearrng account established at Wells Fargo Bank for the operational
convenience of the courts and the Police Department In processing ball bond payments It IS
administered by the Police Department and the Finance Department
Downtown Redevelopment Lease Revenue Bonds Escrow Account - As a result of the Issuance of the
Downtown Redevelopment Lease Revenue Bonds, Series 1992 (Downtown Redevelopment Refunding
Project of 1992), an escrow fund was established With Union Bank for purposes of payment of
prinCipal of and, premium and Interest payments With respect to the 1978 Lease Revenue Bonds,
Serres 1992 (Downtown Redevelopment Project of 1978)
- 9 -
Ocean Park RedeveloDment Prolects Tax Allocation Bonds Escrow Accounts (Refundmg Bonds, Series
1988A and Reflnancmg Bonds. Series 1988B) - As a result of the Issuance of the Ocean Park
Redevelopment Projects Tax Allocation Refunding Bonds, Series 1992, escrow funds were established
With Bank of America (now WIth First Trust of California) for purposes of payment of II) the princIpal
of and accrued Interest on the 1988 Bonds coming due on and prior to the Redemption Data and, (II)
the Redemption Price for the 1 988 Bonds on the Redemption Date
Parking Authorltv Bonds Escrow Fund - As a result of the Issuance of the City of Santa MOnica
Certificates of Participation (Third Street Mall Project), 1986, the Parking AuthOrity Revenue Bonds
of 1966 were placed In "defeasance" With the fiscal agent, Bank of America The Investment
seCUrities held are suffiCient to proVide for the balance of the revenue bond's principal and Interest
payments The defeasance of these bonds was accounted for In Fund 77 r the Parking AuthOrity Fund
Third Street Mall Certificates of PartlclDatlon Escrow Account - As a result of the Issuance of the
Parking AuthOrity Lease Revenue Bonds, Series 1992 (City of Santa Monica Refunding Improvements
Project of 1992), an escrow fund was established With First Interstate Bank (now Wells Fargo Bank)
for purposes of payment of prinCipal and, premium and Interest payments With respect to 1986 Third
Street Mall Certificates of Participation coming due after the Issuance of the refunding bonds
Wastewater Enterorlse Revenue Bonds Escrow Account - As a result of the Issuance of the City of
Santa Monica Wastewater Enterprise Revenue Bonds (Hype non Project), 1993 Refunding Series, an
escrow fund was established With Bank of America (now With First Trust of California) for purposes
of payment of prinCipal of and, premIum and Interest payments With respect to the Wastewater
Enterpnse Revenue Bonds, 1 991 Series A through the date that the bonds are redeemed
- 10 -
ATTACHMENT C
Summary of State of California Statutes Applicable to Municipal Investments
The follOWing Investments are authOrized by California State Code, Title 5, DIvISion 2, Sections 53600
53601, 53631 5 and 53635
AuthOrized Investment
Legal
Limit (%\
Local Agency Bonds
U S Treasury Obligations
No limit
No limit
State of California
Obligations
California Local Agency
Obligations
U S Agencies
No limit
No limit
No limit
Bankers Acceptance
40%
CommerCial Paper
15%/30%
Negotiable Certificates of
DepOSit
30%
Repurchase Agreement
No limit
Reverse Repurchase
Agreements
20%
Other Constraints
MaXimum maturity 5 years
MaXimum maturity 5 years
MaXimum maturity 5 years
MaXimum maturity 5 years
MaXImum maturity 5 years
Eligible for purchase by the Federal Reserve
System and not to exceed 270 days to
matunty No more than 30% may be In
bankers acceptances of anyone commercial
bank
"Prime" quality, U S corporate assets over
$500,000,000, "A" debt rating, purchases
may not represent more than 10% of
outstanding paper and may not exceed 180
days to maturity The maximum limit on
commerCial paper IS 15%, except that an
additional 15% may be purchased as long as
the dollar-weighted average maturity of "all"
commerCial paper held does not exceed 31
days
MaXimum maturity 5 years State and
Federally chartered banks and savings
Institutions, including U S branches of
foreign banks regulated by State regulatory
authontles ("Yankee CD")
MaXImum maturity 1 year Securities used as
collateral for repo's must be Investments
allowable under Govt Code (I e , T-bills,
AgenCies, BAs, CDs, etc ), seCUrities must be
safe kept by third party
Must be made With pnmary dealers of the
Federal Reserve Bank of New York and the
securities used for the agreement must have
been held by the Issuer for at least 30 days
The maximum maturity IS 92 days
- 11 -
Authorized Investment
Medium-Term Corporate
Notes
Shares of beneficial Interest
Issued by diversified
management companies
(mutual funds)
Money Market Funds
Collateralized Certificate of
Deposit
Mortgage Securities
Local Agency
Investment Fund
(LAIF)
County Pooled Investment
Funds
Legal
Limit (%)
30%
20%
20%
No limit
20%
$ 20 million
No limit
Other Constraints
Maximum maturity 5 years, bonds must be
rated In top three rating categories by a
nationally recognized rating services
No more than 10% may be Invested In any
one mutual fund Funds are Invested In
securitIes and obligatIOns authorized by sub-
dIVISions (a) through (m) of Section 53601-
and 53635, (any of the authorized
Investments for local agencies) the
Investment company must be In highest
ranking prOVided by not less than two of the
three largest nationally recognized rating
services OR must have the Investment
adVisor registered with the SEC with no less
than 5 yrs experience and have assets under
mgmt In excess of $500 million
The money market funds must have an
average weighted maturity of 90 days or less
and abide by SEe regulations, Funds must
receive the highest ranking by 2 of the 3
largest nationally recognized rating agencies
OR retain an Investment adVisor who IS
registered, or exempt from registration, with
the SEe and has at least 5 years' expenence
managing money market funds In excess of
$500 million
MaXimum maturity 5 years Banks depOSit
not to exceed the total of paid-In capital
surplus S&Ls depOSit not to exceed the
greater of total net worth or $500,000
State and Federal credit unions depOSit shall
not exceed the greater of the total of
unpaired capital and surplus or $500,000
Must be collateralized to 110% of the CD
value by other eligible securities
MaXimum maturity 5 years; bonds must be
rated In top two rating categories by a
nationally recognized rating service Shall not
exceed 95% of the mortgage security's fair
market value
Momes are Invested In pooled state fund
managed by State Treasurer MaXimum, 10
transactions per month
- 12 -
Prohibited Investments Include seCUrities not listed above, as well as Inverse floaters, range notes,
Interest only stripS derived from a pool of mortgages (collateralIzed mortgage obligations), and any
security that could result In zero Interest accrual If held to maturity, as specified In section 53601 6
Bond Proceeds
Bond proceeds may be Invested In accordance with the State Code provIsions
- 13 -
GLOSSARY
AGENCIES Federal agency seCUrities
ASKED The price at which seCUrities are offered
BANKERS' ACCEPTANCE (BA) A draft or bill of exchange accepted by a bank or trust company
The accepting institution guarantees payment of the bill, as well as the Issuer
BASIS POINT A baSIS pOint equals one one-hundredth of 1 % ( 01 %l
BID The price offered for securities
BOOK ENTRY SECURITIES All U S Treasury and Federal AgenCies are maintained on computerized
records at the Federal Reserve now known as "Wlreable" securities
BROKER A broker brings buyers and sellers together for a commisSion paid by the initIator of the
transaction or by both Sides, he does not position In the money market, brokers are active In markets
In which banks buy and sell money and In Interdealer markets
COLLATERAL SeCUrities, eVidence of depOSit or other property which a borrower pledges to secure
repayment of a loan Also refers to securities pledged by a bank to secure depOSits of public monies
COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) The offIcial annual report for the CIty of
Santa MOnica It Includes five combined statements and baSIC financial statements for each Individual
fund and account group prepared In conformity with GAAP It also Includes supporting schedules
necessary to demonstrate compliance with flnance- related legal and contractual prOVISions, extensive
Introductory material, and a detailed Statistical Section
CERTIFICATE OF DEPOSIT (CD) A time depOSit with a specifiC maturity eVidenced by a certificate
Large-denomination CD's are tYPically negotiable
COMMERCIAL PAPER (CP) An unsecured promissory note with a fixed maturrty no longer than 270
days Public offerings are exempt from SEC registration The largest Issuers Include General Motors
Acceptance CorporatIOn (GMAC), General ElectriC Capital Corporation (GECC) and other major
corporations
COUPON (a) The annual rate of Interest that a bond's Issuer promises to pay the bondholder on the
bond's face value (b) A certificate attached to a bond eVidencing Interest due on a payment date
DEALER A dealer, as opposed to a broker, acts as a prinCipal In all transactions, bUYing and selling
for hiS own account
DELIVERY VERSUS PAYMENT (DVP) There are two methods of delivery of seCUrities delivery
versus payment and delivery versus receipt (also called free) Delivery versus payment IS delivery of
seCUrities With an exchange of money for the seCUrities Delivery versus receipt IS delivery of
securities With an exchange of a Signed receipt for the seCUrities
DEBENTURE A bond secured only by the general credit of the Issuer
- 14 -
DISCOUNT The difference between the cost price of a securrty and Its value at maturity when
quoted at lower than face value A security selling below original offering price shortly after sale also
IS considered to be at a discount
DISCOUNT SECURITIES Non-Interest bearing money market Instruments that are Issued at a
discount and redeemed at maturity for full face value (e 9 r U S Treasury bills)
DIVERSIFICATION Dlvldmg Investment funds among a variety of seCUrities and Issuers offering
Independent returns
FEDERAL CREDIT AGENCIES Agencies of the Federal government set up to supply credit to various
classes of institutions and individuals, e g , S&L's, small business firms, students, farmers, farm
cooperatives, and exporters
FEDERAL FUNDS Non-Interest bearing deposits held by member banks at the Federal Reserve Also
used to denote "Immediately available" funds In the clearing sense "Fed Funds" also used to refer
to these funds
FEDERAL FUNDS RATE The rate of Interest at which Fed funds are traded ThiS rate 1$ currently
pegged by the Federal Reserve through open-market operations
FEDERAL OPEN MARKET COMMITTEE (FOMC) Consists of seven members of the Federal Reserve
Board and five of the twelve Federal Reserve Bank PreSidents The PreSident of the New York Federal
Reserve Bank IS a permanent member while the other PreSidents serve on a rotating baSIS The
Committee periodically meets to set Federal Reserve gUidelines regarding purchases and sales of
Government Securities In the open market as a means of influenCing the volume of bank credit and
money
FEDERAL RESERVE SYSTEM The central bank of the United States created by Congress and
consisting of a seven-member Board of Governors In Washington, DC, 12 RegJOnal Banks and about
5,700 commercial banks that are members of the system
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) A federal agency that Insures finanCial
institutions' depOSits, currently up to $100,000 per depOSit
FEDERAL HOME LOAN BANKS (FHLB) The institution that formerly regulated and lent to savings and
loan aSSOCiations The Federal Home Loan Banks played a role analogous to that played by the
Federal Reserve Banks Vis-a-VIS member commerCial banks However, those responsibilities have been
assumed by the Office of Thrift SuperVISIOn and the FDIC
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) AU S Corporation and Instrumentality
of the U S government Through Its purchases of conventional mortgages, It proVides liqUidity to the
mortgage markets, much like FNMA FHLMC'S Securities are highly liqUid and Widely accepted
FHLMC assumes and guarantees that all security holders Will receive timely payment of principal and
Interest
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FNMA, like GNMA was chartered under
the Federal National Mortgage ASSOCiation Act In 1938 FNMA IS a federal corporation working under
the auspices of the Department of HOUSing & Urban Development, H U D It IS the largest Single
proVider of reSidential mortgage funds In the Unrted States Fannie Mae, as the corporation IS called,
IS a private stockholder- owned corporation The corporations purchases Include a variety of
adjustable mortgages and second loans In addition to fixed-rate mortgages FNMA's seCUrities are
- 15 -
also highly liquid and are widely accepted FNMA assumes and guarantees that all securrty holders
will receive timely payment of prinCipal and Interest
GOVERNMENTAL NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae) Securities
guaranteed by GNMA and Issued by mortgage bankers, commerCial banks, savings and loan
aSSOCiations and other Institutions Security holder IS protected by full faith and credit of the U S
Government Ginnie Mae securities are backed by FHA, VA or FMHM mortgages The term pass-
throughs IS often used to describe Ginnie Maes
LIQUIDITY A liqUid asset IS one that can be converted eaSily and rapidly Into cash without a
substantial loss of value In the money market, a security IS said to be liqUid If the spread between
bid and asked prices IS narrow and reasonable size can be done at those quotes
LOCAL AGENCY INVESTMENT FUND (LAIF) The aggregate of all funds from political subdiVISions
that are placed In the custody of the State Treasurer for Investment and reinvestment
MARKET VALUE The price at which a security IS trading and could presumably be purchased or sold
MASTER REPURCHASE AGREEMENT A written contract covenng all future transactions between
the parties to repurchase--reverse agreements that establishes each party's rights In the transactions
A master agreement Will often speCify, among other things, the right of the buyer-lender to lIqUidate
the underlYing seCUrities In the event of default by the seller-borrower
MATURITY The date upon which the pnnclpal or stated value of an Investment becomes due and
payable
MONEY MARKET The market In which short-term debt Instruments (bills, commerCial paper,
bankers' acceptances, etc ) are Issued and traded
OPEN MARKET OPERATIONS Purchases and sales of government and certain other seCUrities In the
open market by the New York Federal Reserve Bank, as directed by the FOMC, In order to Influence
the volume of money and credit In the economy Purchases Inject reserves Into the bank system and
stimulate growth of money and credit, sales have the opposite effect Open market operations are
the Federal Reserve's most Important and most fleXible monetary policy tool
PORTFOLIO Collection of seCUrities held by an Investor
PRIMARY DEALER A group of government securities dealers that submit dally reports of market
activity and pOSitIOns and monthly financial statements to the Federal Reserve Bank of New York and
are subject to Its Informal overSight Primary dealers Include Securities and Exchange Commission
(SEe) registered securities broker-dealers, banks, and a few unregulated firms
PRIME RATE The rate at which banks lend to their best or "prime" customers Also known as the
"reference rate 11
PRUDENT PERSON RULE An Investment standard In some states the law reqUires that a fidUCiary,
such as a trustee, may Invest money only In a list of securities selected by the state (the so-called
legal list) In other states, the trustee may Invest In a security If It IS one which would be brought by
a prudent person of discretion and intelligence who IS seeking a reasonable Income and preservation
of capital
RATE OF RETURN The Yield obtainable on a security based on Its purchase price or Its current
market price ThiS may be the amortized Yield to maturity on a bond or the current Income return
- 16 -
QUALIFIED PUBLIC DEPOSITORIES A financial institution which does not claim exemptIon from the
payment of any sales or compensating use or ad valorem taxes under the laws of this state, which
has segregated for the benefit of the commiSSion eligible collateral having a value of not less than Its
maximum liability and which has been approved by the PubliC Deposit ProtectIOn Commission to hold
publiC deposits
REPURCHASE AGREEMENT (RP OR REPO) A holder of seCUrities sells these seCUrities to an Investor
With an agreement to repurchase them at a fIxed price on a fixed date The security "buyer" In effect
lends the "seller" money for the period of the agreement, and the terms of the agreement are
structured to compensate him for thiS Dealers use RP extensively to finance their pOSitions
Exception When the Fed IS said to be dOing RP, It IS lending money, that IS, Increasing bank reserves
SAFEKEEPING A service to customers rendered by banks for a fee whereby securities and valuables
of all types and descriptions are held In the bank's vaults for protection
SECONDARY MARKET A market made for the purchase and sale of outstanding Issues follOWing the
Initial distribution
SEC RULE 15C3-1 See uniform net capital rule
STUDENT LOAN MARKETING ASSOCIATION (SLMA) A U S Corporation and Instrumentality of the
U S government Through Its borrowings, funds are targeted for loans to students In higher
education institutIOns SLMA's securities are highly liquid and are Widely accepted
SECURITIES & EXCHANGE COMMISSION Agency created by Congress to protect Investors In
seCUrities transactions by administering securities legIslatIOn
SETTLEMENT DATE The date on which a trade IS cleared by delivery of securities against funds
ThiS date may be the same as the trade date or later
TENNESSEE VALLEY AUTHORITY (TVA) A U S Corporation created In the 1930's, to electrify the
Tennessee Valley area, currently a major utility headquartered In Knoxville Tennessee TVA's
seCUrities are highly liqUid and are Widely accepted
TREASURY BI LLS
the national debt
A non-Interest bearing discount security Issued by the U S Treasury to finance
Most bills are Issued to mature In three months, SIX months, or one year
TREASURY BOND
years
Long-term U S Treasury seCUrities haVing initial maturities of more than ten
TREASURY NOTES Intermediate term coupon bearing U'S Treasury seCUrities haVing initial
maturities of from one to ten years
YIELD The rate of annual Income return on an Investment, expressed as a percentage (a) INCOME
YIELD IS obtained by diViding the current dollar Income by the current market price for the security
(b) NET YIELD or YIELD TO MATURITY IS the current Income Yield minus any premium above par or
plus any discount from par In purchase price With the adjustment spread over the period from the date
of purchase to the date of maturity of the bond
UNIFORM NET CAPITAL RULE Securities and Exchange CommiSSion requirement that member firms
as well as nonmember broker-dealers In seCUrities maintain a maximum ratio of Indebtedness to liqUid
capital of 1 5 to 1, also called net capital rule and net capital ratio Indebtedness covers all money
owed to a firm, Including margin loans and commitments to purchase SeCUrities, one reason new
- 17 -
public Issues are spread among members of underwriting syndicates Liquid capital Includes cash and
assets easily converted Into cash
TRADE DATE The date on which a transaction IS Initiated or entered Into by the buyer and seller
WHEN-ISSUED TRADES TYPically, there IS a lay between the time a new bond IS announced and
sold, and the time when It IS actually Issued During thiS Interval, the security trades "WI", "when,
as, and If Issued "
YIELD TO MATURITY The rate of return Yielded by a debt security held to maturity when both
Interest payments and the Investor's capital gain or loss on the security are taken Into account
G'FINANCE'.TREAS'.Sf-iARE'.INVEST2 POL
- 18 -