SR-204-001 (10)
FINANCE:TREASURY:REB:F:\FINANCE\TREASURY\SHARE\INVPOL02
Council Meeting: February 12, 2002 Santa Monica,
California
TO: Mayor and City Council
FROM: City Staff
SUBJECT: Revision to City Investment Policy and Continuation of Delegation of
Investment Authority to City Revenue Manager/Treasurer
INTRODUCTION
This report recommends City Council approve a revised City Investment Policy and
extend the delegation of investment authority to the City Revenue Manager/Treasurer
from March 1, 2002 to February 28, 2003.
BACKGROUND
State law requires that the City adopt an investment policy and that the City Council
approve any material changes in the policy annually at a public meeting. Section 711
of the Santa Monica City Charter delegates to the Revenue Manager/Treasurer
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 period, renewable annually.
The Council last approved the Investment Policy and continued delegation to the City
Revenue Manager/Treasurer on February 13, 2001. The Citys investment policy was
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previously awarded the Municipal Treasurers Association of the United States and
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Canada Certification of Excellence Award and continues to adhere to these standards.
DISCUSSION
In conjunction with the annual renewal of investment authority, City staff proposes
revisions to the policy attachments. Shaded portions of the attachments indicate
proposed additions; strikeouts indicate proposed deletions. Specifically, staff proposes
the following changes:
1. Attachment A to Investment Policy:
The listing of City of Santa Monica funds has been updated to reflect fund names
consistent with the Citys Comprehensive Annual Financial Report. Two new funds
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have been added and funds no longer used have been deleted. The Special
Projects Fund is used to account for the receipt and expenditure of monies collected
for specific uses. The Air Quality Management (AQMD) Fund is used to account for
the receipt and expenditure of Air Quality Management District funds.
2. Attachment B to Investment Policy:
The listing of City of Santa Monica financial assets specifically excluded from
coverage of the City Investment Policy has been updated to include the Santa
Monica Public Financing Authority Lease Revenue Bonds, Series 2002A. The
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investment guidelines and restrictions of these funds are set forth in the Trust
Agreement with the Trustee.
3. Attachment C to Investment Policy:
The investment limit for commercial paper and on Local Agency Investment Fund
(LAIF) investments and restrictions on investments in collateralized certificates of
deposits of state or federal credit unions have been revised to reflect current State
law.
BUDGET/FINANCIAL IMPACT
There are no budget or financial impacts resulting from this staff report.
RECOMMENDATION
Staff recommends that Council approve the attached Investment Policy, and continue
to delegate to the City Revenue Manager/Treasurer investment authority for the period
March 1, 2002 through February 28, 2003.
Prepared by: Mike Dennis, Director of Finance
Ralph Bursey, City Revenue Manager/Treasurer
Attachment: Revised City Investment Policy
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Revised 2/0102
INVESTMENT POLICY FOR THE CITY OF SANTA MONICA
PURPOSE
A.
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.
SCOPE
B.
This investment policy applies to all cash and financial investments of the various funds of the City
of Santa Monica as identified in the City'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.
Investment income will be allocated to the various funds based on their respective participation
and in accordance with generally accepted accounting principles. Interest is allocated on a
quarterly basis.
ADMINISTRATION
C.
1. 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 majority 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 policy will be reviewed annually by the Investment Committee and
submitted annually to the City Council.
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INVESTMENT OBJECTIVES
D.
The primary 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.
INVESTMENT AUTHORITY DELEGATION
E.
In accordance with the Santa Monica City Charter, Section 711, the City Council delegates to the
City Treasurer responsibility 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. Section 53607 of the State of California Government Code limits the authorization of
the legislative body to delegate investment authority to a one-year period, renewable annually.
PRUDENCE
F.
1. 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 aims, 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 price 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. 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.
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2. Investment officers shall avoid any transactions that might impair public confidence in the
Santa Monica City government.
4. 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.
5. 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.
RECORDS AND REPORTS
G.
1. 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. The Revenue Manager/Treasurer will report all investments, with certain exceptions, at
fair
market value rather than original purchase price, in the Monthly Cash & Investment
Report
as required by the Government Accounting Standards Board (GASB) Statement No. 31.
3. The Revenue Manager/Treasurer will provide copies of the Monthly Cash & Investment Report
to the California Debt and Investment Advisory Commission on a semi-annual basis the June
and December reports, as well as the City’s Investment Policy.
4. 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.
5. The City Treasurer is responsible for establishing and maintaining an internal control
structure designed to ensure that the assets of the City are protected from loss, theft or
misuse. The internal control structure shall be designed to provide reasonable assurance
that these objectives are met. The concept of reasonable assurance recognizes that (1) the
cost of a control should not exceed the benefits likely to be derived and (2) the valuation of
costs and benefits requires estimates and judgements by management.
DIVERSIFICATION
H.
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:
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InstrumentsAdditional City Guidelines
*
U.S. Federal Agencies33 1/3% of portfolio, maximum for each agency.
Banker's Acceptances (BA)10% max. per issuer, 40% max. overall.
Certificate of Deposit (CD)10% max. per issuer, 30% max.
Commercial Paper (CP)all (CP), 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 (TVA); and any other U.S. Federal agency or instrumentality.
b. Maturities
Maturities of individual investments shall be diversified to meet the following objectives.
i. 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.
i. The average weighted maturity of all pooled City investments shall
not exceed 18 months (547 days).
i. To minimize the risk of having to make unusually large investments at times
when interest 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 investable funds will be estimated based on
scheduled maturities plus anticipated revenues minus anticipated expenses.
i. 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.
i. To reduce the market and interest rate risks which would result from
the excess concentration of assets in a specific maturity, a specific issue or a
specific class of securities, no more than 5.0% of the City's investable 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 risk to the City's overall investment portfolio from the default by a
single institution in which City funds are on deposit or invested, the following policies
shall be observed:
i. City funds shall only be deposited in a financial institution whose performance has
been reliable and whose safety rating, as determined by the Investment
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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 investable 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 investable
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 primary dealer of the Federal Reserve
Bank of New York. The market value (bid price plus accrued interest) of the collateral
shall be valued at 102% or greater of the funds borrowed against those securities and
the value shall be adjusted no less than quarterly.
Eligible collateral shall include the following:
1. U.S. Treasury Obligations
2. U.S. Agency Securities
The counter party will deliver the underlying securities to the City by book entry or by
third party custodial agreement. The transfer of underlying securities to the counter
party bank's customer book-entry account may be used.
e. Certificates of Deposit (CD)
Collateralized Certificates of Deposit must be collateralized by 110% of the CD value
by other eligible securities. Eligible collateral shall include the following:
1. U.S. Treasury Obligations
2. U.S. Agency Securities
RELATIONSHIPS WITH FINANCIAL INSTITUTIONS
I.
1. 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 primary 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 and/or imprudent transactions involving City
funds. Should it come to the attention of the City Revenue Manager/Treasurer 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.
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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.
SOCIALLY RESPONSIBLE INVESTING
J.
RESTRICTIONS - The direct investment of City funds are restricted as follows:
1. Investments are to be made in entities which support clean and healthy
environment, including following safe and environmentally sound practices.
2. No investments are to be made in tobacco or tobacco-related products.
3. No investments are to be made to support the production of weapons, military systems,
or nuclear power.
4. Investments are to be made in entities which supports equality of rights regardless of
sex, race, age, disability or sexual orientation.
5. Investments are to be made in entities which promote community economic
development.
Prior to making investments, City Treasurer shall verify compliance with the guidelines either
through direct contact with company or with Investors Responsibility Research Center.
COMMUNITY REINVESTMENT ACT (CRA)
K.
The City will invest funds only in those financial institutions which have a CRA rating (as
determined by the appropriate regulatory body) of "Outstanding" or "Satisfactory".
CUSTODY AND SAFEKEEPING OF SECURITIES AND CITY FUNDS
L.
1. Wherever practical, all City investments shall have the City of Santa Monica as the
registered owner, and all interest and principal 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 securities shall be acquired by the safekeeping
institution on a "delivery-vs-payment" (DVP) basis. In other words, the security 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 copies of non-negotiable certificates of deposit and confirming copies of all other
investment transactions must be delivered to the City.
PERFORMANCE STANDARDS
M.
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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 risk and
cash flow needs. The City's portfolio management approach is active, necessitating periodic
restructuring of the portfolio to take advantage of current and anticipated interest rate movements.
In addition, the portfolio is primarily invested in U.S. Treasury and Federal Agency securities.
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 in the Federal Reserve
System's monthly report of interest rates.
IMPLEMENTATION
N.
The City Treasurer is responsible for conducting 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 listing of all City of Santa
Monica financial institution deposit and investment accounts, a current list of all financial
institutions with which the City currently is authorized to conduct investment transactions, a current
copy of State laws pertinent to City investments, a description of specific controls to ensure the
proper execution of the City Investment Policy, and copies, with instructions, of all investment
reports required by law or by City investment policy.
INDEMNIFICATION OF INVESTMENT OFFICIALS
O.
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 individual investment losses or for total portfolio losses.
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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 FUND NAME
NUMBER
01GENERAL FUND
04SPECIAL PROJECTS FUND
11BEACH RECREATION FUND
12HOUSING AUTHORITY FUND
13DISASTER RELIEF FUND
14TENANT OWNERSHIP RIGHTS CHARTER AMENDMENT TORCA FUND
15LOW/MODERATE INCOME HOUSING FUND
16REDEVELOPMENT-DOWNTOWN PROJECT FUND
17REDEVELOPMENT-EARTHQUAKE RECOVERY PROJECT FUND
18REDEVELOPMENT-OCEAN PARK PROJECT FUND
19COMMUNITY DEVELOPMENT BLOCK GRANT (CBDG) FUND
20MISCELLANEOUS GRANTS FUND
21ASSET SEIZURE FUND
22CITIZENS OPTION FOR PUBLIC SAFETY FUND
23DISASTER FUND
25WATER FUND
27SOLID WASTE MANAGEMENT FUND
29RENT CONTROL FUND
30PIER FUND
31WASTEWATER FUND
32CIVIC AUDITORIUM FUND
33AIRPORT FUND
34STORMWATER MANAGEMENT FUND
37CEMETERY FUND
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41TRANSPORTATION FUND
42TRAFFIC SAFETY FUND
43GAS TAX FUND
44AIR QUALITY MANAGEMENT DISTRICT (AQMD) FUND
51CABLE COMMUNICATIONS FUND
52SPECIAL AVIATION FUND
53PARKS AND RECREATIONAL FUND
54VEHICLE MANAGEMENT FUND
55COMPUTER EQUIPMENT REPLACEMENT FUND
56SELF INSURANCE-COMPREHENSIVE FUND
57SELF INSURANCE-BUS FUND
58SELF INSURANCE-AUTO FUND
59SELF INSURANCE-W/C WORKERS’ COMPENSATION FUND
77PARKING AUTHORITY FUND
80GENERAL TRUST FUND
81DEFERRED COMP FUND
82CEMETERY PERPETUAL CARE FUND
84FED REV SHARING FUND
85DEBT SERVICE FUND
89MAUSOLEUM ENDOWMENT PERPETUAL CARE FUND
99GENERAL SERVICE FUND
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ATTACHMENT B: City of Santa Monica Financial Assets Excluded from the Coverage of the
City Investment Policy
The following listed City 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.
Airport 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 Refunding Series A and Series B), certain
specific funds must be held by the fiscal agent, to (i) refund the City of Santa Monica Certificate of
Participation (Airport Facilities) (the "Prior Certificates"), (ii) fund a reserve fund for the Certificates,
and (iii) pay the costs incurred in connection with the execution and delivery of the Certificates.
Auditorium Box Office Trust - Established by City Council Resolution 4243 to hold in trust Santa
Monica Civic Auditorium box office operation receipts for each individual permittee. Funds held in
this trust are managed by the Auditorium through a checking account at Wells Fargo Bank and are
accounted for in Fund 32, the Auditorium Fund. These funds are not invested.
Cemetery Perpetual Care Fund Investments - The City Council authorized the investment consulting
firm of RNC Capital Management to manage these investments in accordance with parameters
approved by the Council. They are accounted for in Fund 82, the Cemetery Perpetual Care Fund.
City Employees Deferred Compensation - Established by City Council Resolution 6759 and
authorized under contract No. 5697, these funds are managed under contract by the Public
Employees Benefit Services Corporation (PEBSCO), 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 principal and interest and for reserve requirements. The amount of funds held by the fiscal agent
varies from year to year as the bonds mature. The funds are accounted for in the 85 Fund, the Debt
Service Fund.
Earthquake Recovery Redevelopment Project Area Tax Allocation Bonds - Under the terms of the
trust agreement between the Redevelopment Agency of the City of Santa Monica for Tax Allocation
Bonds, Series 1999, and BNY Western Trust Company, as trustee, certain specific funds must be
held by the fiscal agent, for the acquisition of certain real property, for other redevelopment
purposes, for principal and interest payments and for reserve requirements. The funds are
accounted for in Fund 85, the Debt Service Fund.
Library 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 Project G.O. Bonds (1990) - 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
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funds must be held by First Trust of California for the acquisition of certain real property, for
construction and improvement needs, for principal 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.
Main Library Improvements Project G.O. Refunding Bonds (1998) - 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 1998,
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 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.
Ocean Park Redevelopment Projects - 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, Series 1988B, (iii) 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 Authority 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.
Petty Cash - Section 1513 of the City Charter provides for the establishment of petty cash 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 financial
records. These funds are not invested.
Public Safety Facility Project - Under the terms of the trust agreements the Public Financing Authority
of the City of Santa Monica and BNY Western Trust Company, and, as trustee, for the Santa Monica
Public Financing Authority Lease Revenue Bonds, Series 1999 and Series 2002A, certain specific
funds must be held by the fiscal agent, for (i) the acquisition, construction and installation of certain
capital improvements constituting a public safety facility and related improvements, facilities and
equipment, (ii) for principal and interest payments and (iii) for reserve requirements. The funds are
accounted for in Fund 85, the Debt Service Fund.
Santa Monica Rehabilitation Loan Funds - These funds were established by City Council Resolution
to promote low cost housing by providing loans to rehabilitate homes. These funds are held in trust
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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 (Hyperion Project), 1993 Refunding Series, 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 clearing account established at Wells Fargo Bank for the operational
convenience of the courts and the Police Department in processing bail 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, Series 1992 (Downtown Redevelopment Project of 1978).
Ocean Park Redevelopment Projects Tax Allocation Bonds Escrow Accounts (Refunding Bonds,
Series 1988A and Refinancing 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 (i)
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 1988 Bonds on the Redemption Date.
Parking Authority 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, the Parking Authority Fund.
Third Street Mall Certificates of Participation 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 Enterprise Revenue Bonds Escrow Account - As a result of the issuance of the City of
Santa Monica Wastewater Enterprise Revenue Bonds (Hyperion Project), 1993 Refunding Series, an
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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
Enterprise Revenue Bonds, 1991 Series A through the date that the bonds are redeemed.
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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. See code sections for complete descriptions.
Authorized InvestmentLegal Other Constraints
Limit (%)
Local Agency BondsNo limitMaximum maturity 5 years.
U.S. Treasury ObligationsNo limitMaximum maturity 5 years.
State of California ObligationsNo limitMaximum maturity 5 years.
California Local Agency No limitMaximum maturity 5 years.
Obligations
U.S. AgenciesNo limitMaximum maturity 5 years.
Bankers Acceptance40%Eligible for purchase by the Federal Reserve System
and not to exceed 180 days to maturity. No more
than 30% may be in banker’s acceptances of any
one commercial bank.
Commercial Paper15%/30%"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 270 days to maturity. The maximum
limit on commercial paper is 25% of all investments.
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.
Negotiable Certificates of 30%Maximum maturity 5 years. State and Federally
Depositchartered banks and savings institutions, including
U.S. branches of foreign banks regulated by State
regulatory authorities ("Yankee CD").
Repurchase AgreementNo limitMaximum 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.); must be collateralized at 102% of market value
or greater; securities must be safekept by third party.
Reverse Repurchase 20%*Must be made with primary dealers of the Federal
AgreementsReserve Bank of New York and the securities used
for the agreement must have been held by the local
agency for at least 30 days. The maximum maturity
is 92 days.
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Securities Lending Agreements20%*Must be made with primary dealers of the Federal
Reserve Bank of New York; the securities used for
the agreement must have been held by the local
agency for at least 30 days. Securities used as
collateral must be investments allowable under Govt.
Code (i.e. U.S. Treasury obligations, Agencies, BA’s
CDs, etc.); both the securities and the collateral are
to be held by a third party. Maximum maturity 92
days.
Medium-Term Corporate Notes30%Maximum maturity 5 years; bonds must be rated in
top three rating categories by a nationally recognized
rating service.
Shares of beneficial interest 20%No more than 10% may be invested in any one
issued by diversified mutual fund. Funds are invested in securities and
management companies obligations authorized by sub-divisions (a) through
(mutual funds)(m) of Section 53601and 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.
Money Market Funds20%The money market funds must have an average
weighted maturity of 90 days or less and abide by
SEC 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
SEC and has at least 5 years’ experience managing
money market funds in excess of $500 million.
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Collateralized Certificate of No limitMaximum maturity 5 years. Banks: deposit not to
Depositexceed 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. Investments in certificates of
deposits of state or federal credit unions if any
member of the city’s governing or managing officers
(council, city manager, fiscal officers) serves on the
credit union board or key committee positions is
prohibited.
Mortgage Securities20%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.
Local Agency $ 30 40 millionMonies are invested in pooled state fund managed
Investment Fund by State Treasurer. Maximum, 15 transactions per
(LAIF)month.
County Pooled Investment No limit
Funds
*20% for reverse repurchase agreements and securities lending agreements combined.
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.
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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%).
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 "wireable" 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 finance-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 maturity 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.
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DEBENTURE: A bond secured only by the general credit of the issuer.
DISCOUNT: The difference between the cost price of a security 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.g., U.S. Treasury bills).
DIVERSIFICATION: Dividing 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 is 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, D.C., 12 Regional 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): A U.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.
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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 United 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 also highly liquid and are widely accepted. FNMA assumes and guarantees
that all security 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 covering 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 principal 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 daily 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
(SEC) 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."
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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.
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 BILLS: A non-interest bearing discount security issued by the U.S. Treasury to finance
the national debt. Most bills are issued to mature in three months, six months, or one year.
TREASURY BOND: Long-term U.S. Treasury securities having initial maturities of more than ten
years.
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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 15 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 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.
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