Operating Costs - Estimated expenses that can be expected to occur.
PERS or CalPERS - The California Public Employees Retirement System, which is the agency providing pension benefits to all city employees.
Restricted Fund Balance - The part of a fund that is legally limited to a specific use.
Revenue - Sources of income that finance the operations of government.
Sales and Use Tax - As a result of the Bradley-Burns Local Sales and Use tax law, 1% of the Sales & Use Tax is to be distributed to the City.
Special Revenue Funds - A fund that collects revenues that are restricted by the City, State or federal government as the method by which they may be spent.
Transient Occupancy Tax (TOT) - These revenues are received on a monthly basis from the hotels in the City. The hotels are required to pay a 10% tax based on the amount of their room rental revenues.
Unrestricted Fund Balance - The part of a fund not restricted for a specific use and available for general use.
Vehicle License Fee (VLF) - Are collected by the State of California when vehicles are registered with the California Department of Motor Vehicles and distributed to various public agencies, including the City. 242 Draft
APPROPRIATION LIMIT CALCULATION
(GANN LIMIT)
Article XIIIB of the California State Constitution, more commonly referred to as the Gann Initiative or Gann Limit, was approved by California voters in November 1979 and placed limits on the amount of proceeds of taxes that state and local governmental agencies can receive and spend in one year.
The limit is different for each agency and the limit changes each year. Each year's limit is based on the amount of tax proceeds that were authorized to be spent in fiscal year 1978-79 in each agency, modified for changes in inflation and population in each subsequent year. For cities which incorporated after 1978-79, such as the City of Diamond Bar, the initial appropriations limit was set by the voters at the time of incorporation. The City of Diamond Bar's base year is 1989-90.
Each year the City Council must adopt, by resolution an appropriations limit for the following year. The factor that the City uses to compute the appropriation limit is based on the growth factor of the County population change over the prior year and the change in the California per capita income. By using this factor the City will have an appropriation limit of $68,333,798 for FY 2026-27.
City of Diamond Bar Budget
Fiscal Year 26/27
www.diamondbarca.gov
243 Draft
1989-90 Base Year 9,882,416
1990-91 Adjusted Base 10,785,669
1991-92 Adjusted Base 11,585,192
1992-93 Adjusted Base 11,762,247
1993-94 Adjusted Base 12,275,495
1994-95 Adjusted Base 13,169,824
1995-96 Adjusted Base 14,005,207
1996-97 Adjusted Base 14,729,615
1997-98 Adjusted Base 15,608,665
1998-99 Adjusted Base 16,482,389
1999-00 Adjusted Base 17,561,562
2000-01 Adjusted Base 18,772,045
2001-02 Adjusted Base 20,576,003
2002-03 Adjusted Base 22,364,058
2003-04 Adjusted Base 24,723,466
2004-05 Adjusted Base (revision) 25,886,770
2005-06 Adjusted Base (revision) 27,569,946
2006-07 Adjusted Base 28,885,277
2007-08 Adjusted Base 30,379,173
2008-09 Adjusted Base 31,954,909
2009-10 Adjusted Base 33,809,489
2010-11 Adjusted Base 33,408,743
2011-12 Adjusted Base 34,377,442
2012-13 Adjusted Base 35,809,031
2013-14 Adjusted Base 37,902,186
2014-15 Adjusted Base 38,109,968
2015-16 Adjusted Base 39,891,361
2016-17 Adjusted Base 42,563,150
2017-18 Adjusted Base 44,385,292
2018-19 Adjusted Base 46,248,905
2019-20 Adjusted Base 48,024,685
2020-21 Adjusted Base 49,761,208
2021-22 Adjusted Base 53,402,669
2022-23 Adjusted Base 57,026,785
2023-24 Adjusted Base 59,112,083
2024-25 Adjusted Base 61,282,567
2025-26 Adjusted Base 65,424,852
2026-27 Adjusted Base 68,333,798
CITY OF DIAMOND BAR
ANNUAL APPROPRIATIONS LIMIT
2026-27
244 Draft
FUND & DEPARTMENT RELATIONSHIP
City of Diamond Bar Budget
Fiscal Year 26/27
www.diamondbarca.gov
262
248
Recreation, Public Works
SEWER MITIGATION FUND
CITIZENS OPTION PUBLIC SAFETY
CAPITAL IMPROVEMENT FUND
City Manager's Office
HAZARD MITIGATION GRANT FUND
PARK & FACILITIES DEV FUND
254
Recreation, Public Works
City Manager's Office
260 QUIMBY FUND
TRAFFIC MITIGATION FUND
City Manager's Office
MEASURE A NEIGHBORHOOD PARKS ACT
Public Works
TRES HERMANOS CONSRVTN AUTHORITY FUND
INTEGRATED WASTE MGMT FUND
251 AIR QUALITY IMPROVEMENT FUND City Manager's Office, Information Systems
USED MOTORO OIL BLOCK GRANT
250
BEVERAGE CNTNR RECYCLING GRNT
255 Public Works
253
247
City Manager's Office
256
WASTE HAULER FUND
City Manager's Office
261
LOCAL ROADWAY SAFETY PLAN FUND
Public Works
City Manager's Office
252
Recreation, Public Works
270 PEG FEES FUND Community Relations Division, Information Systems 280 City Manager's Office
CIP FUND Public Works, Recreation
DEBT SERVICE FUND
401 DEBT SERVICE FUND Finance
501 SERLF INSURANCE FUND Human Resources Division
301
502 Public Works
INTERAL SERVICE FUNDS
503 EQUIP MAINT & REPLACEMENT FUND Information Systems
VEHICLE MAINTENANCE & EQUIP FD
504 BUILDING FACILITY & MAINT FUND
FIDUCIARY FUND
Public Works
601 OPEB TRUST Finance
COMMUNITY ORGANIZATION SUPPORT
102
201
207
209
City Manager's Office, Public Works
Public Works
103
107
OPEB RESERVE
CASP(SB1186) FEE FUND
MEASURE W LOCAL RETURN FUND
204
ROAD MAINT & REHAB (SB-1)
MEASURE M LOCAL RETURN FUND
MEASURE R LOCAL RETURN FUND
PROP A - TRANSIT TAX FUND
SB 821 TDA ARTICLE 3 FUND Public Works
PROP C - TRANSIT TAX FUND
COMMUNITY DEV BLOCK GRANT
GENERAL PLAN UPDATE
City Manager's Office
Community Development
GAS TAX FUND
104 Finance
203
101
Finance
HOMELESSNESS RESPONSE FUND
Public Works
City Manager's Office
Public Works
206
202
TECHNOLOGY RESERVE
105
Engineering Division
Public Works
LAW ENFORCEMENT RESERVE
205
Public Works, Community Development, Finance, Information Systems Public Works, Community Development, Finance, Information Systems 224 PERMANENT LOCAL HOUSING ALLOCATION Planning Division 225 Planning Division
226 Planning Division
238 LANDSCAPE MAINT DIST #38 FUND
239 LANDSCAPE MAINT DIST #39-2022 FUND Public Works
Public Works
241 LANDSCAPE MAINT DIST #41-2021 FUND Public Works
245 STREET BEAUTIFICATION FUND Public Works
246
All
NON-MAJOR FUND: SPECIAL/SPECIAL REVENUE FUNDS
Fund & Department Relationship
2026-27
Fiscal Year
CITY OF DIAMOND BAR
GENERAL FUND
100 GENERAL FUND
245 Draft
ANNUAL BUDGET Fiscal Year 2027
City of Diamond Bar
Fiscal Year 2027
21810 Copley Drive, Diamond Bar, CA 91765 909-839-7000 www.diamondbarca.gov Edison Rodriguez - Bee the Sunshine Raymond Wong - Heart of the Hillside Doris Yiang - Spring’s Here
July 1, 2026-June 30, 2027
2025 Through My Lens Photo Contest Winners
Draft
RESOLUTION NO. 2026-16
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DIAMOND
BAR, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, SETTING THE PROPOSITION 4 (GANN) APPROPRIATIONS LIMIT FOR FISCAL YEAR 2026-27 FOR THE CITY OF DIAMOND BAR IN ACCORDANCE
WITH THE PROVISIONS OF DIVISION 9 OF TITLE 1 OF THE
GOVERNMENT CODE.
WHEREAS, Article XIII B of the Constitution of the State of California (enacted with the passage of Proposition 4 in 1979 and modified with the passage of Proposition 111 in 1990), provides that the total annual appropriations limit of such entity for the prior year be adjusted for changes in the non-residential assessed valuation or the percentage change in the California Per Capita Income and population except as otherwise specifically provided for in said Article; and
WHEREAS, Section 7910 of the Government Code provides that each year the governing body of each local jurisdiction shall, by resolution, establish its appropriations limit for the following fiscal year pursuant to Article XIII B at a regularly scheduled meeting or a noticed special meeting. Prior to such meeting, documentation used in the determination of the appropriation limit shall be available to the public; and WHEREAS, Proposition 111 as approved by the voters of the State of California, revised the method for calculating the Gann Spending Limit, it also requires a recorded voice vote of the City Council regarding which of the annual adjustment factors have been selected each year; and
WHEREAS, Section 7902 (a) and 7902.6 of the Government Code sets forth the method for determining the appropriations limit for each local jurisdiction for the fiscal year; and
WHEREAS, the City Council of the City of Diamond Bar wishes to establish the appropriation limit for Fiscal Year 2026-27 for the City of Diamond Bar.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Diamond Bar, California, as follows:
Section 1. That it is hereby found and determined that the documentation used in the determination of the appropriations limit for the City of Diamond Bar for Fiscal Year 2026-27 was available to the public in City offices of said City at least fifteen days prior to this date.
Section 2. That the County of Los Angeles LAFCO, established the original appropriation limit for the newly incorporated City.
Resolution No. 2026-16
2 Section 3. That the factors selected is the growth factor of the County population change over the prior year and the change in the California per capita income as the annual adjustment growth factor for use in calculating the Fiscal Year 2026-27 Appropriations Limit.
Section 4. That the Appropriation Limit for the City of Diamond Bar as established in accordance with Section 7902(a) and Section 7902.6 of the California Government Code is $68,333,798 for Fiscal Year 2026-27.
Section 5. That the Mayor of the City of Diamond Bar shall sign and the City Clerk shall certify to the passage and adoption of this Resolution.
PASSED, APPROVED AND ADOPTED this 2nd day of June, 2026.
CITY OF DIAMOND BAR
__________________________
Steve Tye, Mayor
ATTEST:
I, Kristina Santana, City Clerk of the City of Diamond Bar do hereby certify that the foregoing Resolution was passed, approved and adopted at a regular meeting of the City Council of the City of Diamond Bar held on the 2nd day of June, 2026, by the following vote:
AYES: COUNCIL MEMBERS:
NOES: COUNCIL MEMBERS:
ABSENT: COUNCIL MEMBERS:
ABSTAINED: COUNCIL MEMBERS:
__________________________
Kristina Santana, City Clerk
RESOLUTION NO. 2026-17
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DIAMOND
BAR, AMENDING CITY OF DIAMOND BAR COMPENSATION PLAN
AND FRINGE BENEFITS FOR FY 2026-2027.
WHEREAS, the City Council of the City of Diamond Bar adopted and amended the City of Diamond Bar Compensation Plan (hereafter, the “Plan”) by adoption of Resolution No. 2025-18 for Fiscal Year 2025-26 and Resolution No. 2026-04 effective January 24, 2026; and
WHEREAS, the City Council of the City of Diamond Bar has approved and adopted the annual budget for Fiscal Year 2026-2027; and
WHEREAS, the City Council of the City of Diamond Bar desires to revise the Plan to include a 3.6% cost of living adjustment on June 27, 2026 for all benefitted classifications of employment including all executive positions (Department Heads, Assistant City Manager and City Manager) as reflected in the attached compensation plan as “EXHIBIT A”; and
WHEREAS, the City Council of the City of Diamond Bar desires to include an increase of $100 to the benefit allotment for all benefited classifications of employment including all executive positions (Department Heads, Assistant City Manager and City Manager) and City Council Members that may be used to purchase health coverage or placed into retirement plans; and
WHEREAS, the City Council of the City of Diamond Bar desires to authorize the Parks and Recreation Department to fill a full-time benefitted Recreation Specialist position at the three-quarter time budgetary level and the Public Works Department to fill a full-time benefitted Engineering Technician instead of a Public Works Inspector; and NOW, THEREFORE BE IT RESOLVED, the City Council of the City of Diamond Bar, does hereby adopt Resolution No. 2026-17 as follows:
Section 1. The Compensation and Benefits Plan adopted by Resolution 2025- 18 and Resolution 2026-04 are hereby replaced in their entirety with the Compensation & Benefits Plan attached hereto as Exhibit A, which shall be effective June 27, 2026.
Section 2. The Parks and Recreation Department is hereby approved to fill a full-time benefitted Recreation Specialist position at the three-quarter time budgetary level and the Public Works Department to fill a full-time benefitted Engineering Technician instead of a Public Works Inspector.
Resolution No. 2026-17
2 PASSED, APPROVED AND ADOPTED this 2nd day of June 2026.
CITY OF DIAMOND BAR
__________________________
Steve Tye, Mayor
ATTEST:
I, KRISTINA SANTANA, City Clerk of the City of Diamond Bar, do hereby certify that the foregoing Resolution was passed, approved and adopted at a regular meeting of the City Council of the City of Diamond Bar held on the 2nd day of June 2026, by the following vote:
AYES: COUNCIL MEMBERS:
NOES: COUNCIL MEMBERS:
ABSENT: COUNCIL MEMBERS:
ABSTAIN: COUNCIL MEMBERS:
__________________________
Kristina Santana, City Clerk
Attachment: “Exhibit A” Compensation and Benefits Plan effective June 27, 2026
COMPENSATION PLAN BY POSITION
FY 2026 - 2027
GRADE CLASSIFICATION A B C D E F G
H8 Asst. Pre-School Teacher $18.30 $19.22 $20.18 $22.25 $23.36 $23.36 $24.52 H10 Pre-School Teacher $20.16 $21.17 $22.23 $23.34 $24.51 $25.73 $27.02
CITY OF DIAMOND BAR
PART-TIME/HOURLY NON-EXEMPT/BENEFITED POSITIONS
Schedule B
Effective June 27, 2026
Approved by City Council on June 2, 2026
GRADE CLASSIFICATION A B C D E F G
6NE Maintenance Worker $24.43 $25.65 $26.93 $28.28 $29.69 $31.17 $32.73 $1,954.05 $2,051.75 $2,154.34 $2,262.06 $2,375.16 $2,493.92 $2,618.61 $4,233.78 $4,445.46 $4,667.74 $4,901.12 $5,146.18 $5,403.49 $5,673.66 $50,805.30 $53,345.57 $56,012.84 $58,813.49 $61,754.16 $64,841.87 $68,083.96 7NE Recreation Specialist $25.04 $26.29 $27.60 $28.98 $30.43 $31.95 $33.55 Senior Office Specialist $2,002.90 $2,103.05 $2,208.20 $2,318.61 $2,434.54 $2,556.26 $2,684.08 $4,339.62 $4,556.60 $4,784.43 $5,023.65 $5,274.83 $5,538.57 $5,815.50 $52,075.40 $54,679.17 $57,413.13 $60,283.79 $63,297.97 $66,462.87 $69,786.02 10NE Senior Maintenance Worker $26.96 $28.31 $29.72 $31.21 $32.77 $34.41 $36.13 $2,156.91 $2,264.75 $2,377.99 $2,496.89 $2,621.73 $2,752.82 $2,890.46 $4,673.29 $4,906.96 $5,152.31 $5,409.92 $5,680.42 $5,964.44 $6,262.66 $56,079.53 $58,883.51 $61,827.68 $64,919.07 $68,165.02 $71,573.27 $75,151.94 14NE Administrative Assistant $29.76 $31.25 $32.81 $34.45 $36.17 $37.98 $39.88 Permit Technician $2,380.82 $2,499.86 $2,624.85 $2,756.10 $2,893.90 $3,038.60 $3,190.53 $5,158.44 $5,416.37 $5,687.18 $5,971.54 $6,270.12 $6,583.63 $6,912.81 $61,901.33 $64,996.40 $68,246.22 $71,658.53 $75,241.45 $79,003.52 $82,953.70 17NE Accounting, HR, Network/Systems, $32.05 $33.65 $35.33 $37.10 $38.96 $40.90 $42.95 Planning, Engineering Technician $2,563.88 $2,692.08 $2,826.68 $2,968.01 $3,116.42 $3,272.24 $3,435.85 Recreation Coordinator $5,555.08 $5,832.83 $6,124.48 $6,430.70 $6,752.23 $7,089.85 $7,444.34 Senior Administrative Assistant $66,660.95 $69,994.00 $73,493.70 $77,168.39 $81,026.81 $85,078.15 $89,332.05 Public Works Inspector
18NE Neighborhood Improvement Officer $32.85 $34.49 $36.22 $38.03 $39.93 $41.93 $44.02 Media Specialist $2,627.98 $2,759.38 $2,897.35 $3,042.21 $3,194.33 $3,354.04 $3,521.74 $5,693.95 $5,978.65 $6,277.59 $6,591.46 $6,921.04 $7,267.09 $7,630.44 $68,327.46 $71,743.83 $75,331.02 $79,097.57 $83,052.45 $87,205.07 $91,565.33 19NE Facilities & Asset Maintenance Tech. $33.67 $35.35 $37.12 $38.98 $40.93 $42.97 $45.12 $2,693.68 $2,828.36 $2,969.78 $3,118.27 $3,274.18 $3,437.89 $3,609.79 $5,836.30 $6,128.12 $6,434.52 $6,756.25 $7,094.06 $7,448.77 $7,821.21 $70,035.64 $73,537.43 $77,214.30 $81,075.01 $85,128.76 $89,385.20 $93,854.46 21NE Administrative Coordinator $35.38 $37.14 $39.00 $40.95 $43.00 $45.15 $47.41 Executive Assistant $2,830.05 $2,971.55 $3,120.13 $3,276.13 $3,439.94 $3,611.94 $3,792.53 Accountant $6,131.77 $6,438.35 $6,760.27 $7,098.29 $7,453.20 $7,825.86 $8,217.15 Permit Services Coordinator $73,581.19 $77,260.25 $81,123.26 $85,179.42 $89,438.39 $93,910.31 $98,605.83 Senior Accounting Technician
Senior HR Technician
23NE Assistant Engineer $37.17 $39.02 $40.98 $43.02 $45.18 $47.43 $49.81 Assistant Planner $2,973.32 $3,121.98 $3,278.08 $3,441.99 $3,614.09 $3,794.79 $3,984.53 Sr. Neighborhood Improvement Officer $6,442.19 $6,764.30 $7,102.51 $7,457.64 $7,830.52 $8,222.05 $8,633.15 Sr. Public Works Inspector $77,306.27 $81,171.58 $85,230.16 $89,491.67 $93,966.25 $98,664.57 $103,597.79 Effective June 27, 2026
Approved by City Council on June 2, 2026
Schedule C
CITY OF DIAMOND BAR
COMPENSATION PLAN BY POSITION
FY 2026 - 2027
FULL-TIME NON-EXEMPT BENEFITED POSITIONS
GRADE CLASSIFICATION A B C D E F G
24E Management Analyst $38.09 $40.00 $42.00 $44.10 $46.30 $48.62 $51.05 $3,047.59 $3,199.97 $3,359.97 $3,527.97 $3,704.37 $3,889.58 $4,084.06 $6,603.12 $6,933.27 $7,279.93 $7,643.93 $8,026.13 $8,427.43 $8,848.81 $79,237.38 $83,199.25 $87,359.21 $91,727.17 $96,313.53 $101,129.21 $106,185.67 28E Recreation Supervisor $42.05 $44.15 $46.36 $48.68 $51.11 $53.67 $56.35 Senior Accountant $3,364.04 $3,532.24 $3,708.85 $3,894.29 $4,089.01 $4,293.46 $4,508.13 $7,288.75 $7,653.18 $8,035.84 $8,437.63 $8,859.52 $9,302.49 $9,767.62 $87,464.95 $91,838.19 $96,430.10 $101,251.61 $106,314.19 $111,629.90 $117,211.39 29E Information Systems Analyst $43.10 $45.26 $47.52 $49.90 $52.39 $55.01 $57.76 $3,448.14 $3,620.54 $3,801.57 $3,991.65 $4,191.23 $4,400.79 $4,620.83 $7,470.96 $7,844.51 $8,236.74 $8,648.57 $9,081.00 $9,535.05 $10,011.80 $89,651.55 $94,134.12 $98,840.83 $103,782.87 $108,972.01 $114,420.62 $120,141.65 30E Associate Planner $44.18 $46.39 $48.71 $51.14 $53.70 $56.39 $59.20 Senior Management Analyst $3,534.34 $3,711.06 $3,896.61 $4,091.44 $4,296.01 $4,510.81 $4,736.35 Community Relations Coordinator $7,657.74 $8,040.62 $8,442.65 $8,864.79 $9,308.03 $9,773.43 $10,262.10 $91,892.83 $96,487.47 $101,311.84 $106,377.43 $111,696.30 $117,281.12 $123,145.18 32E Facilities Maintenance Supervisor $46.42 $48.74 $51.17 $53.73 $56.42 $59.24 $62.20 Finance Supervisor $3,713.27 $3,898.93 $4,093.88 $4,298.57 $4,513.50 $4,739.17 $4,976.13 $8,045.41 $8,447.68 $8,870.06 $9,313.57 $9,779.24 $10,268.21 $10,781.62 $96,544.90 $101,372.14 $106,440.75 $111,762.79 $117,350.93 $123,218.48 $129,379.40 34E Associate Engineer $48.77 $51.20 $53.76 $56.45 $59.27 $62.24 $65.35 $3,901.25 $4,096.31 $4,301.13 $4,516.18 $4,741.99 $4,979.09 $5,228.05 $8,452.71 $8,875.34 $9,319.11 $9,785.07 $10,274.32 $10,788.04 $11,327.44 $101,432.50 $106,504.12 $111,829.33 $117,420.80 $123,291.84 $129,456.43 $135,929.25 36E Parks, Street Maintenance Supt. $51.23 $53.80 $56.49 $59.31 $62.28 $65.39 $68.66 Recreation Superintendent $4,098.75 $4,303.69 $4,518.87 $4,744.82 $4,982.06 $5,231.16 $5,492.72 Senior Planner $8,880.63 $9,324.66 $9,790.89 $10,280.44 $10,794.46 $11,334.18 $11,900.89 Principal Management Analyst $106,567.52 $111,895.90 $117,490.69 $123,365.23 $129,533.49 $136,010.16 $142,810.67 Sr. Community Relations Coord.
37E Network/Systems Administrator $52.52 $55.14 $57.90 $60.79 $63.83 $67.02 $70.38 $4,201.22 $4,411.28 $4,631.84 $4,863.44 $5,106.61 $5,361.94 $5,630.04 $9,102.64 $9,557.77 $10,035.66 $10,537.45 $11,064.32 $11,617.53 $12,198.41 $109,231.70 $114,693.29 $120,427.95 $126,449.35 $132,771.81 $139,410.41 $146,380.93 40E Senior Civil Engineer $56.55 $59.38 $62.35 $65.47 $68.74 $72.18 $75.79 $4,524.25 $4,750.47 $4,987.99 $5,237.39 $5,499.26 $5,774.22 $6,062.93 $9,802.55 $10,292.68 $10,807.31 $11,347.68 $11,915.06 $12,510.81 $13,136.36 $117,630.61 $123,512.14 $129,687.75 $136,172.14 $142,980.74 $150,129.78 $157,636.27 41E Assistant to the City Manager $57.97 $60.87 $63.91 $67.10 $70.46 $73.98 $77.68 $4,637.36 $4,869.23 $5,112.69 $5,368.32 $5,636.74 $5,918.58 $6,214.51 $10,047.61 $10,549.99 $11,077.49 $11,631.37 $12,212.94 $12,823.58 $13,464.76 $120,571.36 $126,599.93 $132,929.93 $139,576.43 $146,555.25 $153,883.01 $161,577.16 Schedule D
FY 2026 - 2027
COMPENSATION PLAN BY POSITION
CITY OF DIAMOND BAR
FULL-TIME EXEMPT BENEFITED POSITIONS
Effective June 27, 2026
Approved by City Council on June 2, 2026
GRADE CLASSIFICATION A B C D E F G
40E Community Relations Mgr. $56.55 $59.38 $62.35 $65.47 $68.74 $72.18 $75.79 Recreation Svcs. Manager $4,524.25 $4,750.47 $4,987.99 $5,237.39 $5,499.26 $5,774.22 $6,062.93 Planning Manager $9,802.55 $10,292.68 $10,807.31 $11,347.68 $11,915.06 $12,510.81 $13,136.36 $117,630.61 $123,512.14 $129,687.75 $136,172.14 $142,980.74 $150,129.78 $157,636.27 41E City Clerk $57.97 $60.87 $63.91 $67.10 $70.46 $73.98 $77.68 $4,637.36 $4,869.23 $5,112.69 $5,368.32 $5,636.74 $5,918.58 $6,214.51 $10,047.61 $10,549.99 $11,077.49 $11,631.37 $12,212.94 $12,823.58 $13,464.76 $120,571.36 $126,599.93 $132,929.93 $139,576.43 $146,555.25 $153,883.01 $161,577.16 44E Human Res. & Risk Manager $62.42 $65.55 $68.82 $72.26 $75.88 $79.67 $83.65 $4,993.93 $5,243.63 $5,505.81 $5,781.10 $6,070.15 $6,373.66 $6,692.34 $10,820.18 $11,361.19 $11,929.25 $12,525.71 $13,152.00 $13,809.60 $14,500.08 $129,842.17 $136,334.28 $143,150.99 $150,308.54 $157,823.97 $165,715.17 $174,000.92 46E Public Works Manager/ $65.55 $68.82 $72.26 $75.88 $79.67 $83.65 $87.84 Assistant City Engineer $5,243.63 $5,505.81 $5,781.10 $6,070.15 $6,373.66 $6,692.34 $7,026.96 $11,361.19 $11,929.25 $12,525.71 $13,152.00 $13,809.60 $14,500.08 $15,225.08 $136,334.27 $143,150.98 $150,308.53 $157,823.96 $165,715.16 $174,000.92 $182,700.96 Schedule E
CITY OF DIAMOND BAR
COMPENSATION PLAN BY POSITION
FY 2026 - 2027
FULL-TIME EXEMPT MANAGEMENT POSITIONS
Effective June 27, 2026
Approved by City Council on June 2, 2026
GRADE CLASSIFICATION A B C D E F G
52E Deputy City Manager $76.06 $79.86 $83.85 $88.05 $92.45 $97.07 $101.92 $6,084.62 $6,388.85 $6,708.29 $7,043.71 $7,395.89 $7,765.69 $8,153.97 $13,183.34 $13,842.51 $14,534.63 $15,261.37 $16,024.43 $16,825.66 $17,666.94 $158,200.10 $166,110.10 $174,415.61 $183,136.39 $192,293.21 $201,907.87 $212,003.26 55E Community Dev. Director $81.91 $86.00 $90.30 $94.82 $99.56 $104.53 $109.76 Finance Director $6,552.47 $6,880.09 $7,224.10 $7,585.30 $7,964.57 $8,362.80 $8,780.94 HR and Risk Mgmt. Director $14,197.02 $14,906.87 $15,652.21 $16,434.82 $17,256.56 $18,119.39 $19,025.36 Info. Systems Director $170,364.19 $178,882.40 $187,826.52 $197,217.85 $207,078.74 $217,432.68 $228,304.31 Parks and Rec Director
$88.20 $92.61 $97.24 $102.11 $107.21 $112.57 $118.20
58E City Engineer/PW Director $7,056.29 $7,409.11 $7,779.56 $8,168.54 $8,576.97 $9,005.81 $9,456.11 $15,288.63 $16,053.06 $16,855.72 $17,698.50 $18,583.43 $19,512.60 $20,488.23 $183,463.58 $192,636.76 $202,268.60 $212,382.03 $223,001.13 $234,151.18 $245,858.74 $90.41 $94.93 $99.68 $104.66 $109.89 $115.39 $121.16
59E Assistant City Manager $7,232.70 $7,594.33 $7,974.05 $8,372.75 $8,791.39 $9,230.96 $9,692.51 $15,670.85 $16,454.39 $17,277.11 $18,140.97 $19,048.02 $20,000.42 $21,000.44 $188,050.19 $197,452.70 $207,325.33 $217,691.60 $228,576.18 $240,004.99 $252,005.24 $139.33
N/A City Manager $11,146.39
$24,150.50
$289,806.03
Schedule F
CITY OF DIAMOND BAR
COMPENSATION PLAN BY POSITION
FY 2026 - 2027
FULL-TIME EXEMPT EXECUTIVE MANAGEMENT POSITIONS
Effective June 27, 2026
Approved by City Council on June 2, 2026
RESOLUTION NO. 2026-18
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DIAMOND
BAR, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA,
ADOPTING THE STATEMENT OF INVESTMENT.
WHEREAS, it is the City’s policy to annually adopt the City Investment Policy; and WHEREAS, the Investment Policy is intended to provide guidelines for the prudent investment of the City’s temporarily idle cash and to outline the policies for maximizing the efficiency of the City’s cash management system.
NOW, THEREFORE, the City Council of the City of Diamond Bar does hereby resolve as follows:
Section 1. That the City Council of the City of Diamond Bar adopts the attached Statement of Investment Policy (Exhibit A).
PASSED, APPROVED AND ADOPTED this 2nd day of June, 2026.
CITY OF DIAMOND BAR
________________________________
Steve Tye, Mayor
ATTEST:
I, Kristina Santana, City Clerk of the City of Diamond Bar, do hereby certify that the foregoing Resolution was passed, approved and adopted at a regular meeting of the City Council of the City of Diamond Bar held on the 2nd day of June, 2026, by the following vote:
AYES: COUNCIL MEMBERS:
NOES: COUNCIL MEMBERS:
ABSENT: COUNCIL MEMBERS:
ABSTAINED: COUNCIL MEMBERS:
__________________________
Kristina Santana, City Clerk
Attachment: “Exhibit A” – Investment Policy Effective July 1, 2026.
City Council Policy and Procedure
Number: 2026-XX Reviewed: Annually/As-Needed
Effective Date:
07/01/2025
Revised Date(s): N/A
Effective Date: 07/01/2025 Page 1 of 37
EXHIBIT “A”
Investment Policy
1. Policy
1.1 This Statement is intended to provide guidelines for the prudent investment of the City of Diamond Bar’s (“City”) temporarily idle cash and to outline the policies for maximizing the efficiency of the City's cash management system. The ultimate goal is to enhance the economic status of the City while protecting its pooled funds in accordance with the applicable local, state and federal laws.
It is the policy of the City Council to review, update and adopt the City's Investment Policy on an annual basis.
2. Scope
2.1 This investment policy applies to all financial assets of the City of Diamond Bar.
The Policy applies to the following funds and is accounted for in the City’s annual audited financial statements.
a. General Fund
b. Special Revenue Funds
c. Debt Service Funds
d. Capital Improvement Fund
e. Internal Service Funds
3. Standards of Prudence
3.1 The City Treasurer (or Finance Director) authorized to make investment decisions on behalf of the City of Diamond Bar investing public funds
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pursuant to this policy are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling and managing public funds, a trustee shall act with care, skill, prudence and diligence under the circumstances then prevailing, including but not limited to, the general economic conditions and the anticipated needs of the City, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the City. Within the limitations of this section and considering individual investments as part of an overall strategy, the City Treasurer or Finance Director is authorized to acquire investments as authorized by law.
4. Investment Objectives
4.1 The investment of funds of the City of Diamond Bar is directed to the goals of safety, liquidity and yield. The authority governing investments for municipal governments is set forth in the Government Code, Sections 53600, et. seq.
4.1.1. Safety. Safety of principal is the foremost objective of the investment program. Investments of the City of Diamond Bar shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, the City of Diamond Bar will diversify its investments by investing funds among a variety of securities with independent returns. The City will operate only in those investments that are considered very safe.
4.1.2. Liquidity. The investment portfolio will remain sufficiently liquid to meet all operating requirements which might be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature at the same time as cash is needed to meet anticipated demands. Additionally, since all possible cash demands cannot be anticipated, the portfolio will consist largely of securities with active secondary or resale markets or local government investment pools which offer same-day liquidity for short-term funds.
4.1.3. Yield. The investment portfolio shall be designed with the objective of achieving a competitive market rate of return or yield, while taking into account the investment risk constraints and
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liquidity needs. Return on investment is of secondary importance compared to safety and liquidity. The core investments shall be limited to low risk securities to be held to maturity with the following exceptions:
a. A security with declining credit may be sold early to minimize loss of principal.
b. A security swap would improve the quality, yield or target duration of the portfolio.
c. The liquidity needs of the portfolio require security to be sold.
5. Delegation of Authority
5.1 Authority to manage the City of Diamond Bar’s investment program is derived from Section 2.16.210 of the City of Diamond Bar’s Municipal Code which designates the City Manager to perform all duties associated with the legal function of the treasurer position.
Management responsibility is hereby delegated to the City Treasurer who shall be responsible for all transactions undertaken and for establishing a system of controls to regulate the activities of subordinate officials, and their procedures in the absence of the Treasurer.
6. Ethics and Conflicts of Interest
6.1 Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program or which could impair their ability to make impartial investment decisions. Employees and investment officials are required to file annual disclosure statements as required for “public officials who manage public investments” (as defined and required by the Political Reform Act and related regulations, being Government Code Sections 81000 and the Fair Political Practices Commission [FPPC]).
7. Authorized Financial Dealers and Institutions
7.1 The Treasurer (or Finance Director) will maintain a list of approved financial institutions authorized to provide investment services to the public agency in the State of California. A determination should be made to insure that all approved broker/dealer firms and individuals covering the City of Diamond Bar are reputable and trustworthy. In
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addition, the broker/dealer firms should have the ability to meet all of their financial obligations in dealing with the City of Diamond Bar. The firms and individuals covering the City of Diamond Bar should be knowledgeable and experienced in Public Agency investing and the investment products involved. No public deposit shall be made except in a qualified public depository as established by State law. All financial institutions and broker/dealers who desire to conduct investment transactions with the City of Diamond Bar must supply the City Treasurer or the Finance Director with the following: audited financial statements, proof of NASD certification, trading resolution, proof of State of California registration, completed broker/dealer questionnaire, certification of having read the City of Diamond Bar’s investment policy and depository contracts.
An annual review of the financial condition and registrations of qualified bidders will be conducted by the Treasurer or the Finance Director. A current audited financial statement is required to be on file for each financial institution and broker/dealer with which the City of Diamond Bar invests.
8. Authorized and Suitable Investments
8.1. The City’s investments are governed by the California Government Code (CGC). Specific types of investments are defined in CGC 53635.
Also, CGC 53635.2 permits the use of CGC 53601 investment instruments, therefore, both CGC 53601 et seq. and CGC 53635 et seq. are the governing sections pertaining to legal investments. Investments will only be made in authorized securities with a maturity date of five (5) years or less from the transaction settlement date.
For the purpose of these investments, the compliance with the investment percentage(s), in regards to the total investment portfolio, shall be calculated on the date the investment is acquired. If the percentage is legally compliant on the date of purchase, then compliance with the law shall have been met.
Investment California Legal Requirements
City of Diamond Bar Requirements
Government Obligations:
U.S. Treasury and Agency Obligations
(U.S. Treasury obligations are bills,
notes and bonds issued by and direct
Authorized by CGC 53601(b), (f)
1. No limit on amount in the portfolio
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obligations of the U.S. Government.
Agency obligations are notes and
bonds of Federal agencies and
government sponsored enterprises,
although not direct obligations of the
Treasury, they involve federal
sponsorship or guarantees)
Bankers Acceptances
(A draft or bill of exchange accepted
by a bank or trust company and
brokered to investors in a secondary
market. Its purpose is to facilitate
trade and provide liquidity to the
import-export markets).
Authorized by CGC 53601(g)
1. Not to exceed 180 days
2. Not to exceed 40% of portfolio
3. Not to exceed 30% of portfolio if
done with one bank.
Commercial Paper
(Short term, unsecured, promissory
notes issued by firms in the open
market. These notes are generally
backed by a bank credit facility,
guarantee/bond of indemnity or
some other support agreement.
Authorized by CGC 53601 (h), CGC
53601.2 & CGC 53635 (a)
1. Not to exceed 270 days
2. Not to exceed 25% of portfolio
3. No more than 10% of portfolio may
be invested in a single issuer
4. Must be rated P-1 by Moody’s
Investors Service or A-1 by Standard
and Poor’s
Medium Term Notes
(Corporate notes, deposit notes and
bank notes sold by an agent in the
open market on a continually offered
basis. These notes are debt
obligations generally unsecured,
although some issues come to market
on a collateralized or securitized basis.
Authorized by CGC 53601 (k), CGC
53601.2
1. Must have a minimum “A” rating
2. Not to exceed 30% of portfolio
3. Not to exceed 5% of portfolio with
single issuer
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Negotiable Certificates of Deposit
(Issued by commercial banks and
thrift institutions against funds
deposited for specified periods of
time and earn specified or variable
rates of interest. NCD’s differ from
other CD’s because of their increased
liquidity as they are actively traded
on the secondary market. These
deposits are uninsured and
uncollateralized promissory notes.
Authorized by CGC 53601 (i), GCC
53638
1. Not to exceed 30% portfolio
2. All purchases must be from
institutions rated by a nationally
recognized rating organization as
designated by the Security and
Exchange Commission.
Certificates of Deposit
(Unsecured, direct obligations of a
U.S. bank or savings & loan
association. Federal Deposit
Insurance Corporation (FDIC)
coverage is provided for government
deposits, but limited to the first
$250,000 on deposit on behalf of a
given entity at a single financial
institution. California law requires that
deposits of public funds shall be
collateralized if not insured).
Authorized by CGC 53635, 53635.2,
53635.8, 53636, 53637, 53638, 53641
1. Must not exceed 30% of portfolio
2. Deposits in excess of the $250,000
FDIC insured limit shall be collateralized
at a level of 110% of market value of
principal and accrued interest.
Repurchase Agreement
(These are agreements between an
investor (the pool) who agrees to
purchase securities and a seller
(broker/dealer) who commits to
repurchase these securities at a later
date at the same price, plus interest).
Authorized by CGC 53601 (j)
1. Market value of the security must
be 102% or greater, and adjusted
quarterly.
2. The minimal market value of 102%
can’t be established by more than
the next business day.
3. Requires a signed Master
Repurchase Agreement from the
participating bank or broker/dealer.
Local Agency Obligations
(Bonds, notes warrants or other
evidences of indebtedness of any
local agency or by a department,
board or authority of any local
agency within the 50 United States).
Authorized by CGC 53601(a)(c)(d)
1. Must comply with the financial
requirements pertaining to temporary
borrowing (TRANS, RANS, GANS) as
shown in CGC 53820 – 53858.
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2. Minimum credit requirement –
Issuers must be at or above the
following investment grade from one
of these rating firms:
Standard & Poors – Sp-1 or A; Fitch – F1 or A; Moody’s – MIG 1 or A Money Market Funds
Shares of beneficial interest issued by
management companies. Shares
represent ownership of diversified
portfolio securities, which are
redeemable at their net asset value).
Authorized by CGC 53601 (l)
1. The pooled investments that
comprise these funds must comply
with 53601 and 53630 inclusive.
Local Agency Investment Fund (LAIF)
Provides high liquidity allowing
deposits to be credited to the City’s
checking account within twenty-four
(24) hours. State Pool funds are
operated directly by the Office of the
State Treasurer, who commingles
state and local funds.
Authorized by CGC 16429.1 (b)
1. No more than $75 million (LAIF
account limit) permitted to be
invested.
Supranational
United States dollar denominated
senior unsecured unsubordinated
obligations issued or unconditionally
guaranteed by the International Bank
for Reconstruction and Development,
International Finance Corporation, or
Inter-American Development Bank.
Authorized by CGC 53601 (q)
1. Maximum maturity of five years or
less
2. Eligible for purchase and sale
within the United States
3. “AA” rated or better by an NRSRO
4. Not to exceed 30% of the portfolio
9. Prohibited and Restricted Categories of Investments
9.1 The following investments are either prohibited by law or authorized by law and prohibited by the City Treasurer.
Inverse Floaters Prohibited by CGC 53601.6
Range Notes Prohibited by CGC 53601.6
Mortgage Derived, Interest-only Strips Prohibited by CGC 53601.6 Zero (“Strip”) Coupons Prohibited by CGC 53601.6
Futures Market Allowable by CGC 53601.6
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Prohibited by City Treasurer
Options Market Allowable by CGC 53601.6
Prohibited by City Treasurer
Priority Obligations Allowable by CGC 53601 (n)
Prohibited by City Treasurer
10. Review of Investment Portfolio
10.1 The securities held by the City of Diamond Bar must be in compliance with Section 8.0 Authorized and Suitable Investments at the time of purchase. Because some securities may not comply with Section 8.0 subsequent to the date of purchase the City Treasurer shall at least quarterly review the portfolio to identify those securities that do not comply. The City Treasurer shall establish procedures to report to the City Council major and critical incidences of noncompliance identified through the review of the portfolio.
Should any investment listed in Section 8 exceed a percentage-ofportfolio limitation due to an incident such as fluctuation in portfolio size, the affected securities may be held to maturity to avoid losses. When no loss is indicated, the Treasurer shall consider rebalancing the portfolio after evaluating the expected length of time that it will be imbalanced.
Portfolio percentage limits are in place in order to ensure diversification of the City investment portfolio; a small temporary imbalance will not significantly impair that strategy.
11. Collateralization
11.1 Collateralization will be required on two types of investments:
certificates of deposit and repurchase agreements. In order to anticipate market changes and provide a level of security for all funds, the collateralization level will be 110% of market value of principal and accrued interest. The City Treasurer, at his/her discretion may waive the collateral requirement for deposits up to the maximum dollar amount which are covered by the Federal Deposit Insurance Corporation, currently $250,000.
12. Safekeeping and Custody
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12.1 All security transactions, including collateral for repurchase agreements, entered into by the City of Diamond Bar shall be conducted on a delivery versus payment (DVP) basis. Securities will be held by a third party custodian designated by the Treasurer and evidenced by safekeeping receipts.
13. Maximum Maturities
13.1 To the extent possible the City of Diamond Bar will attempt to match its investments with anticipated cash flow requirements. The prescribed method of the City of Diamond Bar shall be referred to as “layering” the investments. Monies not needed to cover immediate operating costs may be invested up to a five year maturity.
14. Internal Controls
14.1 The City Treasurer and the Finance Director shall establish procedures that separate the internal responsibility for management and accounting of the investment portfolio. An analysis by an independent, external auditor shall be conducted periodically to review internal controls, account activity and compliance with policies and procedures.
15. Reporting
15.1 As required by California Government Code Section 53607, a monthly report of investments will be provided to the City Council. The required elements of this report are as follows:
a. Type of investment
b. Issuer
c. Date of Maturity
d. Amount of deposit or cost of security
e. Current market value of securities with maturity in excess of twelve months
f. Statement relating the report to the Statement of Investment Policy
g. Rate of interest
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h. Statement that there are sufficient funds to meet the next six months' obligations
The basic premise underlying the City of Diamond Bar's investment philosophy is to insure that money is always available when needed.
16. Investment Policy Adoption
16.1 The City of Diamond Bar’s investment policy shall be adopted by resolution of the City Council. The policy shall be reviewed annually by the City Council and any modifications made thereto must be approved by the City Council.
Attachments:
Appendix A - Broker Dealer Questionnaire
Appendix B - Glossary of Cash and Investment Management Terms Appendix C - Local Agency Investment Fund Description
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APPENDIX A
CITY OF DIAMOND BAR
BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION
1. Name of Firm: _________________________________________________________
2. Address: ______________________________________________________________
3. Telephone: ( ) ( ) ______ ___ ______ __
4. Broker's Representative to the City (attach resume):
Name: _________________________________________
Title: ____________________________________________
Telephone: ( )
5. Manager/Partner-in-Charge (attach resume):
Name: _________________________________________
Title: ___________________________________________
Telephone: ( ) __
6. List all personnel who will be trading with or quoting securities to City employees (attach resume)
Name: ________________________________________________________________ Title: __________________________________________________________________ Telephone: ( ) ( ) _____ _ ___ _____ __
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7. Which of the above personnel have read the City's investment policy? ________________________________________________________________________ ________________________________________________________________________
8. Is your firm a primary dealer in United States Government Securities?
9. List the total volume of United States Government and Agency Securities for the last calendar year.
Firm-wide $ ______________________ No. of Transactions
Your local office $ ______________ No. of Transactions
10. Which instruments are offered regularly by your local office? ___ Treasury Bills ___ CMO’s
___ Treasury Notes/Bonds ___ Bank CD’s
___ BA’s (domestic) ___ S & L CD’s
___ BA’s (foreign) ___ Repos
___ Commercial Paper ___ Reverse Repos
___ Agencies (specify): ___ Other (specify):
11. References -- Please identify your most directly comparable public sector clients in our geographical area.
Entity ________________________________ ______________________________ Contact _____________________________ _______________________________ Telephone ( )______________________ ( )___________________________ Client Since __________________________ _______________________________ Yes ____ No___
_________
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12. Have any of your clients ever sustained a loss on a securities transaction arising from a misunderstanding or misrepresentation of the risk characteristics of the instrument? If so, explain.
13. Has your local office ever subject to a regulatory or state/federal agency investigation for alleged improper, fraudulent, disreputable or unfair activities related to the sale of securities? Have any of your employees been so investigated? If so explain:
14. Has a client ever claimed in writing that your firm was responsible for investment losses? If so, explain. __________________________________________
15. Explain your normal custody and delivery process. Who audits these fiduciary systems? Can you meet safekeeping requirements? ______________
16. How many and what percentage of your transactions failed Last month? __________________ Last year? _______________
17. Describe the capital line and trading limits of the office that would conduct business with the City of Diamond Bar.
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18. Does your firm participate in the S.I.P.C. insurance program if not, explain.
19. What portfolio information, if any, do you require from your clients?
20. What reports, transactions, confirmations and paper trail will the City receive?
21. Does your firm offer investment training to your clients? ___Yes ___No
22. Please enclose the following:
Latest audited financial statements.
Samples of reports, transactions, and confirmations the City will receive.
Samples of research reports and/or publications that your firm regularly provides to clients.
Complete schedule of fees and charges for various transactions.
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***CERTIFICATION***
I hereby certify that I have personally read the Statement of Investment Policy of the City of Diamond Bar, and have implemented reasonable procedures and a system of controls designed to preclude imprudent investment activities arising out of transactions conducted between our firm and the City of Diamond Bar.
All sales personnel will be routinely informed of the City's investment objectives, horizons, outlooks, strategies and risk constraints whenever we are so advised by the City. We pledge to exercise due diligence in informing the City of Diamond Bar of all foreseeable risks associated with financial transactions conducted with our firm. Under penalties of perjury, the responses to this questionnaire are true and accurate to the best of my knowledge.
Signed ________________________________ Date _______________________ Title ___________________________________
Countersignature* _____________________ Date _______________________ Title ___________________________________
* Company president or person in charge of government securities operations.
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Appendix B
Glossary of Cash and Investment Management Terms
Accrued Interest. Interest earned but which has not yet been paid or received.
Agency. See "Federal Agency Securities."
Ask Price. Price at which a broker/dealer offers to sell a security to an investor.
Also known as “offered price.”
Asset Backed Securities (ABS). A fixed-income security backed by notes or receivables against assets other than real estate. Generally issued by special purpose companies that “own” the assets and issue the ABS. Examples include securities backed by auto loans, credit card receivables, home equity loans, manufactured housing loans, farm equipment loans and aircraft leases.
Average Life. The average length of time that an issue of serial bonds and/or term bonds with a mandatory sinking fund feature is expected to be outstanding.
Bankers' Acceptance (BA's). A draft or bill of exchange drawn upon and accepted by a bank. Frequently used to finance shipping of international goods. Used as a short-term credit instrument, bankers' acceptances are traded at a discount from face value as a money market instrument in the secondary market on the basis of the credit quality of the guaranteeing bank.
Basis Point. One hundredth of one percent, or 0.01%. Thus 1% equals 100 basis points.
Bearer Security. A security whose ownership is determined by the holder of the physical security. Typically, there is no registration on the issuer’s books. Title to bearer securities is transferred by delivery of the physical security or certificate.
Also known as “physical securities.”
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Benchmark Bills: In November 1999, FNMA introduced its Benchmark Bills program, a short-term debt securities issuance program to supplement its existing discount note program. The program includes a schedule of larger, weekly issues in three- and six-month maturities and biweekly issues in one-year for Benchmark Bills. Each issue is brought to market via a Dutch (single price) auction. FNMA conducts a weekly auction for each Benchmark Bill maturity and accepts both competitive and non-competitive bids through a web based auction system. This program is in addition to the variety of other discount note maturities, with rates posted on a daily basis, which FNMA offers. FNMA's Benchmark Bills are unsecured general obligations that are issued in book- entry form through the Federal Reserve Banks. There are no periodic payments of interest on Benchmark Bills, which are sold at a discount from the principal amount and payable at par at maturity. Issues under the Benchmark program constitute the same credit standing as other FNMA discount notes; they simply add organization and liquidity to the short-term Agency discount note market.
Benchmark Notes/Bonds: Benchmark Notes and Bonds are a series of FNMA “bullet” maturities (non-callable) issued according to a pre-announced calendar. Under its Benchmark Notes/Bonds program, 2, 3, 5, 10 and 30- year maturities are issued each quarter. Each Benchmark Notes new issue has a minimum size of $4 billion, 30- year new issues having a minimum size of $1 billion, with re-openings based on investor demand to further enhance liquidity. The amount of non-callable issuance has allowed FNMA to build a yield curve in Benchmark Notes and Bonds in maturities ranging from 2 to 30 years. The liquidity emanating from these large size issues has facilitated favorable financing opportunities through the development of a liquid overnight and term repo market. Issues under the Benchmark program constitute the same credit standing as other FNMA issues; they simply add organization and liquidity to the intermediate- and long-term Agency market.
Benchmark. A market index used as a comparative basis for measuring the performance of an investment portfolio. A performance benchmark should represent a close correlation to investment guidelines, risk tolerance and duration of the actual portfolio's investments.
Bid Price. Price at which a broker/dealer offers to purchase a security from an investor.
Bond Market Association (BMA). The bond market trade association representing the largest securities markets in the world. In addition to publishing a Master Repurchase Agreement, widely accepted as the industry standard
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document for Repurchase Agreements, the BMA also recommends bond market closures and early closes due to holidays.
Bond. Financial obligation for which the issuer promises to pay the bondholder (the purchaser or owner of the bond) a specified stream of future cash flows, including periodic interest payments and a principal repayment.
Book Entry Securities. Securities that are recorded in a customer’s account electronically through one of the financial markets electronic delivery and custody systems, such as the Fed Securities wire, DTC and PTC (as opposed to bearer or physical securities). The trend is toward a certificate-free society in order to cut down on paperwork and to diminish investors’ concerns about the certificates themselves. The vast majority of securities are now book entry securities.
Book Value. The value at which a debt security is reflected on the holder's records at any point in time. Book value is also called “amortized cost” as it represents the original cost of an investment adjusted for amortization of premium or accretion of discount. Also called “carrying value.” Book value can vary over time as an investment approaches maturity and differs from “market value” in that it is not affected by changes in market interest rates.
Broker/Dealer. A person or firm transacting securities business with customers. A “broker” acts as an agent between buyers and sellers, and receives a commission for these services. A “dealer” buys and sells financial assets from its own portfolio. A dealer takes risk by owning inventory of securities, whereas a broker merely matches up buyers and sellers. See also "Primary Dealer." Bullet Notes/Bonds. Notes or bonds that have a single maturity date and are non-callable.
California Local Agency Bonds: Bonds that are issued by a California county, city, city and county, including a chartered city or county, school district, community college district, public district, county board of education, county superintendent of schools, or any public or municipal corporation.
Call Date. Date at which a call option may be or is exercised.
Call Option. The right, but not the obligation, of an issuer of a security to redeem a security at a specified value and at a specified date or dates prior to its stated maturity date. Most fixed-income calls are a par, but can be at any previously established price. Securities issued with a call provision typically carry a higher
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yield than similar securities issued without a call feature. There are three primary types of call options (1) European - one-time calls, (2) Bermudan - periodically on a predetermined schedule (quarterly, semi-annual, annual), and (3) American - continuously callable at any time on or after the call date. There is usually a notice period of at least 5 business days prior to a call date.
Callable Bonds/Notes. Securities, which contain an imbedded call option giving the issuer, the right to redeem the securities prior to maturity at a predetermined price and time.
Certificate of Deposit (CD). Bank obligation issued by a financial institution generally offering a fixed rate of return (coupon) for a specified period of time (maturity). Can be as long as 10 years to maturity, but most CDs purchased by public agencies are one year and under.
Collateral. Investment securities or other property that a borrower pledges to secure repayment of a loan, secure deposits of public monies, or provide security for a repurchase agreement.
Collateralization. Process by which a borrower pledges securities, property, or other deposits for securing the repayment of a loan and/or security.
Collateralized Mortgage Obligation (CMO). A security that pools together mortgages and separates them into short, medium, and long-term positions (called tranches). Tranches are set up to pay different rates of interest depending upon their maturity. Interest payments are usually paid monthly. In “plain vanilla” CMOs, principal is not paid on a tranche until all shorter tranches have been paid off. This system provides interest and principal in a more predictable manner. A single pool of mortgages can be carved up into numerous tranches each with its own payment and risk characteristics.
Commercial Paper. Short term unsecured promissory note issued by a company or financial institution. Issued at a discount and matures for par or face value.
Usually a maximum maturity of 270 days, and given a short-term debt rating by one or more NRSROs.
Convexity. A measure of a bond's price sensitivity to changing interest rates. A high convexity indicates greater sensitivity of a bond's price to interest rate changes.
Corporate Note. A debt instrument issued by a corporation with a maturity of greater than one year and less than ten years.
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Counterparty. The other party in a two party financial transaction. "Counterparty risk" refers to the risk that the other party, to a transaction, will fail in its related obligations. For example, the bank or broker/dealer in a repurchase agreement.
Coupon Rate. Annual rate of interest on a debt security, expressed as a percentage of the bond’s face value.
Current Yield. Annual rate of return on a bond based on its price. Calculated as (coupon rate / price), but does not accurately reflect a bond’s true yield level.
Custody. Safekeeping services offered by a bank, financial institution or trust company, referred to as the “custodian.” Service normally includes the holding and reporting of the customer's securities, the collection and disbursement of income, securities settlement and market values.
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). Settlement procedure in which securities are delivered versus payment of cash, but only after cash has been received. Most security transactions, including those through the Fed Securities Wire system and DTC, are done DVP as a protection for both the buyer and seller of securities.
Depository Trust Company (DTC). A firm through which members can use a computer to arrange for securities to be delivered to other members without physical delivery of certificates. A member of the Federal Reserve System and owned mostly by the New York Stock Exchange, the Depository Trust Company uses computerized debit and credit entries. Most corporate securities, commercial paper, CDs and BAs clear through DTC.
Derivatives. For hedging purposes, common derivatives are options, futures, swaps and swaptions. All Collateralized Mortgage Obligations (“CMOs”) are derivatives. (1) Financial instruments whose return profile is linked to, or derived from, the movement of one or more underlying index or security, and may include a leveraging factor, or (2) financial contracts based upon notional amounts whose value is derived from an underlying index or security (interest rates, foreign exchange rates, equities or commodities).
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Derivative Security. Financial instrument created from, or whose value depends upon, one or more underlying assets or indexes of asset values.
Designated Bond. FFCB’s regularly issued, liquid, non-callable securities that generally have a 2 or 3 year original maturity. New issues of Designated Bonds are $1 billion or larger. Re-openings of existing Designated Bond issues are generally a minimum of $100 million. Designated Bonds are offered through a syndicate of two to six dealers. Twice each month the Funding Corporation announces its intention to issue a new Designated Bond, reopen an existing issue, or to not issue or reopen a Designated Bond. Issues under the Designated Bond program constitute the same credit standing as other FFCB issues; they simply add organization and liquidity to the intermediate- and long-term Agency market.
Discount Notes. Unsecured general obligations issued by Federal Agencies at a discount. Discount notes mature at par and can range in maturity from overnight to one year. Very large primary (new issue) and secondary markets.
Discount Rate. Rate charged by the system of Federal Reserve Banks on overnight loans to member banks. Changes to this rate are administered by the Federal Reserve and closely mirror changes to the “fed funds rate.” Discount Securities. Non-interest bearing money market instruments that are issued at discount and redeemed at maturity for full face value. Examples include: U.S. Treasury Bills, Federal Agency Discount Notes, Bankers' Acceptances and Commercial Paper.
Discount. The amount by which a bond or other financial instrument sells below its face value. See also "Premium."
Diversification. Dividing investment funds among a variety of security types, maturities, industries and issuers offering potentially independent returns.
Dollar Price. A bond’s cost expressed as a percentage of its face value. For example, a bond quoted at a dollar price of 95 ½, would have a principal cost of $955 per $1,000 of face value.
Duff & Phelps. One of several NRSROs that provide credit ratings on corporate and bank debt issues.
Duration. The weighted average maturity of a security’s or portfolio’s cash flows, where the present values of the cash flows serve as the weights. The greater the
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duration of a security/portfolio, the greater its percentage price volatility with respect to changes in interest rates. Used as a measure of risk and a key tool for managing a portfolio versus a benchmark and for hedging risk. There are also different kinds of duration used for different purposes (e.g. MacAuley Duration, Modified Duration).
Fannie Mae. See "Federal National Mortgage Association." Fed Money Wire. A computerized communications system that connects the Federal Reserve System with its member banks, certain U. S. Treasury offices, and the Washington D.C. office of the Commodity Credit Corporation. The Fed Money Wire is the book entry system used to transfer cash balances between banks for themselves and for customer accounts.
Fed Securities Wire. A computerized communications system that facilitates book entry transfer of securities between banks, brokers and customer accounts, used primarily for settlement of U.S. Treasury and Federal Agency securities.
Fed. See "Federal Reserve System."
Federal Agency Security. A debt instrument issued by one of the Federal Agencies. Federal Agencies are considered second in credit quality and liquidity only to U.S. Treasuries.
Federal Agency. Government sponsored/owned entity created by the U.S.
Congress, generally for the purpose of acting as a financial intermediary by borrowing in the marketplace and directing proceeds to specific areas of the economy considered to otherwise have restricted access to credit markets. The largest Federal Agencies are GNMA, FNMA, FHLMC, FHLB, FFCB, SLMA, and TVA.
Federal Deposit Insurance Corporation (FDIC). Federal agency that insures deposits at commercial banks, currently to a limit of $250,000 per depositor per bank.
Federal Farm Credit Bank (FFCB). One of the large Federal Agencies. A government sponsored enterprise (GSE) system that is a network of cooperatively-owned lending institutions that provides credit services to farmers, agricultural cooperatives and rural utilities. The FFCBs act as financial intermediaries that borrow money in the capital markets and use the proceeds to make loans and provide other assistance to farmers and farm-affiliated businesses. Consists of the consolidated operations of the Banks for
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Cooperatives, Federal Intermediate Credit Banks, and Federal Land Banks.
Frequent issuer of discount notes, agency notes and callable agency securities.
FFCB debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and agricultural industry. Also issues notes under its “designated note” program.
Federal Funds (Fed Funds). Funds placed in Federal Reserve Banks by depository institutions in excess of current reserve requirements, and frequently loaned or borrowed on an overnight basis between depository institutions.
Federal Funds Rate (Fed Funds Rate). The interest rate charged by a depository institution lending Federal Funds to another depository institution. The Federal Reserve influences this rate by establishing a "target" Fed Funds rate associated with the Fed's management of monetary policy.
Federal Home Loan Bank System (FHLB). One of the large Federal Agencies. A government sponsored enterprise (GSE) system, consisting of wholesale banks (currently twelve district banks) owned by their member banks, which provides correspondent banking services and credit to various financial institutions, financed by the issuance of securities. The principal purpose of the FHLB is to add liquidity to the mortgage markets. Although FHLB does not directly fund mortgages, it provides a stable supply of credit to thrift institutions that make new mortgage loans. FHLB debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and housing market. Frequent issuer of discount notes, agency notes and callable agency securities. Also issues notes under its “global note” and “TAP” programs.
Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac"). One of the large Federal Agencies. A government sponsored public corporation (GSE) that provides stability and assistance to the secondary market for home mortgages by purchasing first mortgages and participation interests financed by the sale of debt and guaranteed mortgage backed securities. FHLMC debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and housing market. Frequent issuer of discount notes, agency notes, callable agency securities and MBS. Also issues notes under its “reference note” program.
Federal National Mortgage Association (FNMA or "Fannie Mae"). One of the large Federal Agencies. A government sponsored public corporation (GSE) that
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provides liquidity to the residential mortgage market by purchasing mortgage loans from lenders, financed by the issuance of debt securities and MBS (pools of mortgages packaged together as a security). FNMA debt is not an obligation of, nor is it guaranteed by the U.S. government, although it is considered to have minimal credit risk due to its importance to the U.S. financial system and housing market. Frequent issuer of discount notes, agency notes, callable agency securities and MBS. Also issues notes under its “benchmark note” program.
Federal Reserve Bank. One of the 12 distinct banks of the Federal Reserve System.
Federal Reserve System (the Fed). The independent central bank system of the United States that establishes and conducts the nation's monetary policy. This is accomplished in three major ways: (1) raising or lowering bank reserve requirements, (2) raising or lowering the target Fed Funds Rate and Discount Rate, and (3) in open market operations by buying and selling government securities. The Federal Reserve System is made up of twelve Federal Reserve District Banks, their branches, and many national and state banks throughout the nation. It is headed by the seven member Board of Governors known as the “Federal Reserve Board” and headed by its Chairman.
Financial Industry Regulatory Authority, Inc (FINRA). A private corporation that acts as a self-regulatory organization (SRO). FINRA is the successor to the National Association of Securities Dealers, Inc. (NASD). Though sometimes mistaken for a government agency, it is a non-governmental organization that performs financial regulation of member brokerage firms and exchange markets. The government also has a regulatory arm for investments, the Securities and Exchange Commission.
Fiscal Agent/Paying Agent. A bank or trust company that acts, under a trust agreement with a corporation or municipality, in the capacity of general treasurer. The agent performs such duties as making coupon payments, paying rents, redeeming bonds, and handling taxes relating to the issuance of bonds.
Fitch Investors Service, Inc. One of several NRSROs that provide credit ratings on corporate and municipal debt issues.
Floating Rate Security (FRN or “floater”). A bond with an interest rate that is adjusted according to changes in an interest rate or index. Differs from variable-rate debt in that the changes to the rate take place immediately when the index changes, rather than on a predetermined schedule. See also “Variable Rate Security.”
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Freddie Mac. See "Federal Home Loan Mortgage Corporation".
Ginnie Mae. See "Government National Mortgage Association".
Global Notes: Notes designed to qualify for immediate trading in both the domestic U.S. capital market and in foreign markets around the globe. Usually large issues that are sold to investors worldwide and therefore have excellent liquidity. Despite their global sales, global notes sold in the U.S. are typically denominated in U.S. dollars.
Government National Mortgage Association (GNMA or "Ginnie Mae"). One of the large Federal Agencies. Government-owned Federal Agency that acquires, packages, and resells mortgages and mortgage purchase commitments in the form of mortgage-backed securities. Largest issuer of mortgage pass-through securities. GNMA debt is guaranteed by the full faith and credit of the U.S. government (one of the few agencies that is actually full faith and credit of the U.S.).
Government Securities. An obligation of the U.S. government, backed by the full faith and credit of the government. These securities are regarded as the highest quality of investment securities available in the U.S. securities market. See "Treasury Bills, Notes, Bonds, and SLGS."
Government Sponsored Enterprise (GSE). Privately owned entity subject to federal regulation and supervision, created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy such as students, farmers, and homeowners. GSEs carry the implicit backing of the U.S.
Government, but they are not direct obligations of the U.S. Government. For this reason, these securities will offer a yield premium over U.S. Treasuries. Some consider GSEs to be stealth recipients of corporate welfare. Examples of GSEs include: FHLB, FHLMC, FNMA and SLMA.
Government Sponsored Enterprise Security. A security issued by a Government Sponsored Enterprise. Considered Federal Agency Securities.
Index. A compilation of statistical data that tracks changes in the economy or in financial markets.
Interest-Only (IO) STRIP. A security based solely on the interest payments from the bond. After the principal has been repaid, interest payments stop and the
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value of the security falls to nothing. Therefore, IOs are considered risky investments. Usually associated with mortgage-backed securities.
Internal Controls. An internal control structure ensures that the assets of the entity are protected from loss, theft, or misuse. The internal control structure is 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 judgments by management. Internal controls should address the following points:
1. Control of collusion - Collusion is a situation where two or more employees are working in conjunction to defraud their employer.
2. Separation of transaction authority from accounting and record keeping - By separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved.
3. Custodial safekeeping - Securities purchased from any bank or dealer including appropriate collateral (as defined by state law) shall be placed with an independent third party for custodial safekeeping.
4. Avoidance of physical delivery securities - Book-entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded against loss or destruction. The potential for fraud and loss increases with physically delivered securities.
5. Clear delegation of authority to subordinate staff members - Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions and their respective responsibilities.
6. Written confirmation of transactions for investments and wire transfers - Due to the potential for error and improprieties arising from telephone and electronic transactions, all transactions should be supported by written communications and approved by the appropriate person. Written communications may be via fax if on letterhead and if the safekeeping institution has a list of authorized signatures.
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7. Development of a wire transfer agreement with the lead bank and third-party custodian - The designated official should ensure that an agreement will be entered into and will address the following points:
controls, security provisions, and responsibilities of each party making and receiving wire transfers.
Inverse Floater. A floating rate security structured in such a way that it reacts inversely to the direction of interest rates. Considered risky as their value moves in the opposite direction of normal fixed-income investments and whose interest rate can fall to zero.
Investment Advisor. A company that provides professional advice managing portfolios, investment recommendations and/or research in exchange for a management fee.
Investment Adviser Act of 1940. Federal legislation that sets the standards by which investment companies, such as mutual funds, are regulated in the areas of advertising, promotion, performance reporting requirements, and securities valuations.
Investment Grade. Bonds considered suitable for preservation of invested capital; bonds rated a minimum of Baa3 by Moody’s, BBB- by Standard & Poor’s, or BBB- by Fitch. Although “BBB” rated bonds are considered investment grade, most public agencies cannot invest in securities rated below “A.” Liquidity. Relative ease of converting an asset into cash without significant loss of value. Also, a relative measure of cash and near-cash items in a portfolio of assets. Also, a term describing the marketability of a money market security correlating to the narrowness of the spread between the bid and ask prices.
Local Agency Investment Fund (LAIF): A voluntary investment fund open to state and local government entities and certain non-profit organizations in California in which organization pools their funds for investment. LAIF is managed by the State Treasurer’s Office.
Long-Term Core Investment Program. Funds that are not needed within a one year period.
Market Value. The fair market value of a security or commodity. The price at which a willing buyer and seller would pay for a security.
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Mark-to-market. Adjusting the value of an asset to its market value, reflecting in the process unrealized gains or losses.
Master Repurchase Agreement. A widely accepted standard agreement form published by the Bond Market Association (BMA) that is used to govern and document Repurchase Agreements and protect the interest of parties in a repo transaction.
Maturity Date. Date on which principal payment of a financial obligation is to be paid.
Medium Term Notes (MTN's). Used frequently to refer to corporate notes of medium maturity (5-years and under). Technically, any debt security issued by a corporate or depository institution with a maturity from 1 to 10 years and issued under an MTN shelf registration. Usually issued in smaller issues with varying coupons and maturities, and underwritten by a variety of broker/dealers (as opposed to large corporate deals issued and underwritten all at once in large size and with a fixed coupon and maturity).
Money Market. The market in which short-term debt instruments (bills, commercial paper, bankers’ acceptance, etc.) are issued and traded.
Money Market Mutual Fund (MMF). A type of mutual fund that invests solely in money market instruments, such as: U.S. Treasury bills, commercial paper, bankers' acceptances, and repurchase agreements. Money market mutual funds are registered with the SEC under the Investment Company Act of 1940 and are subject “rule 2a-7” which significantly limits average maturity and credit quality of holdings. MMF’s are managed to maintain a stable net asset value (NAV) of $1.00. Many MMFs carry ratings by a NRSRO.
Moody's Investors Service. One of several NRSROs that provide credit ratings on corporate and municipal debt issues.
Mortgage Backed Securities (MBS). Mortgage-backed securities represent an ownership interest in a pool of mortgage loans made by financial institutions, such as savings and loans, commercial banks, or mortgage companies, to finance the borrower's purchase of a home or other real estate. The majority of MBS are issued and/or guaranteed by GNMA, FNMA and FHLMC. There are a variety of MBS structures, some of which can be very risky and complicated. All MBS have reinvestment risk as actual principal and interest payments are dependent on the payment of the underlying mortgages which can be prepaid
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by mortgage holders to refinance and lower rates or simply because the underlying property was sold.
Mortgage Pass-Through Securities. A pool of residential mortgage loans with the monthly interest and principal distributed to investors on a pro-rata basis.
Largest issuer is GNMA.
Municipal Note/Bond. A debt instrument issued by a state or local government unit or public agency. The vast majority of municipals are exempt from state and federal income tax, although some non-qualified issues are taxable.
Mutual Fund. Portfolio of securities professionally managed by a registered investment company that issues shares to investors. Many different types of mutual funds exist (bond, equity, money fund); all except money market funds operate on a variable net asset value (NAV).
Negotiable Certificate of Deposit (Negotiable CD). Large denomination CDs ($100,000 and larger) that are issued in bearer form and can be traded in the secondary market.
Net Asset Value. The market value of one share of an investment company, such as a mutual fund. This figure is calculated by totaling a fund's assets which includes securities, cash, and any accrued earnings, subtracting this from the fund's liabilities and dividing this total by the number of shares outstanding. This is calculated once a day based on the closing price for each security in the fund's portfolio. (See below.)
[(Total assets) - (Liabilities)]/(Number of shares outstanding) NRSRO. A “Nationally Recognized Statistical Rating Organization.” A designated rating organization that the SEC has deemed a strong national presence in the U.S. NRSROs provide credit ratings on corporate and bank debt issues. Only ratings of a NRSRO may be used for the regulatory purposes of rating. Includes Moody’s, S&P, Fitch and Duff & Phelps.
Offered Price. See also "Ask Price."
Open Market Operations. Federal Reserve monetary policy tactic entailing the purchase or sale of government securities in the open market by the Federal Reserve System from and to primary dealers in order to influence the money supply, credit conditions, and interest rates.
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Par Value. Face value, stated value or maturity value of a security.
Physical Delivery. Delivery of readily available underlying assets at contract maturity.
Portfolio. Collection of securities and investments held by an investor.
Premium. The amount by which a bond or other financial instrument sells above its face value. See also "Discount."
Primary Dealer. Any of a group of designated government securities dealers designated by to the Federal Reserve Bank of New York. Primary dealers can buy and sell government securities directly with the Fed. Primary dealers also submit daily reports of market activity and security positions held to the Fed and are subject to its informal oversight. Primary dealers are considered the largest players in the U.S. Treasury securities market.
Prime Paper. Commercial paper of high quality. Highest rated paper is A-1+/A-1 by S&P and P-1 by Moody’s.
Principal. Face value of a financial instrument on which interest accrues. May be less than par value if some principal has been repaid or retired. For a transaction, principal is par value times price and includes any premium or discount.
Prudent Investor Standard. Standard that requires that when investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. More stringent than the “prudent person” standard as it implies a level of knowledge commensurate with the responsibility at hand.
Range Note. A type of structured note that accrues interest daily at a set coupon rate that is tied to an index. Most range notes have two coupon levels; a higher accrual rate for the period the index is within a designated range, the lower accrual rate for the period that the index falls outside the designated range. This lower rate may be zero and may result in zero earnings.
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Rate of Return. Amount of income received from an investment, expressed as a percentage of the amount invested.
Realized Gains (Losses). The difference between the sale price of an investment and its book value. Gains/losses are “realized” when the security is actually sold, as compared to “unrealized” gains/losses which are based on current market value. See “Unrealized Gains (Losses).”
Reference Bills: FHLMC’s short-term debt program created to supplement its existing discount note program by offering issues from one month through one year, auctioned on a weekly or on an alternating four-week basis (depending upon maturity) offered in sizeable volumes ($1 billion and up) on a cycle of regular, standardized issuance. Globally sponsored and distributed, Reference Bill issues are intended to encourage active trading and market-making and facilitate the development of a term repo market. The program was designed to offer predictable supply, pricing transparency and liquidity, thereby providing alternatives to U.S. Treasury bills. FHLMC’s Reference Bills are unsecured general corporate obligations. This program supplements the corporation’s existing discount note program. Issues under the Reference program constitute the same credit standing as other FHLMC discount notes; they simply add organization and liquidity to the short-term Agency discount note market.
Reference Notes: FHLMC’s intermediate-term debt program with issuances of 2, 3, 5, 10 and 30-year maturities. Initial issuances range from $2 - $6 billion with reopenings ranging $1 - $4 billion.
The notes are high-quality bullet structures securities that pay interest semiannually. Issues under the Reference program constitute the same credit standing as other FHLMC notes; they simply add organization and liquidity to the intermediate- and long-term Agency market.
Repurchase Agreement (Repo). A short-term investment vehicle where an investor agrees to buy securities from a counterparty and simultaneously agrees to resell the securities back to the counterparty at an agreed upon time and for an agreed upon price. The difference between the purchase price and the sale price represents interest earned on the agreement. In effect, it represents a collateralized loan to the investor, where the securities are the collateral. Can be DVP, where securities are delivered to the investor’s custodial bank, or “triparty” where the securities are delivered to a third party intermediary. Any type of security can be used as “collateral,” but only some types provide the investor with special bankruptcy protection under the law. Repos should be undertaken
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only when an appropriate BMA approved master repurchase agreement is in place.
Reverse Repurchase Agreement (Reverse Repo). A repo from the point of view of the original seller of securities. Used by dealers to finance their inventory of securities by essentially borrowing at short-term rates. Can also be used to leverage a portfolio and in this sense, can be considered risky if used improperly.
Safekeeping. Service offered for a fee, usually by financial institutions, for the holding of securities and other valuables. Safekeeping is a component of custody services.
Secondary Market. Markets for the purchase and sale of any previously issued financial instrument.
Securities Lending. An arrangement between and investor and a custody bank that allows the custody bank to “loan” the investors investment holdings, reinvest the proceeds in permitted investments, and shares any profits with the investor.
Should be governed by a securities lending agreement. Can increase the risk of a portfolio in that the investor takes on the default risk on the reinvestment at the discretion of the custodian.
Sinking Fund. A separate accumulation of cash or investments (including earnings on investments) in a fund in accordance with the terms of a trust agreement or indenture, funded by periodic deposits by the issuer (or other entity responsible for debt service), for the purpose of assuring timely availability of moneys for payment of debt service. Usually used in connection with term bonds.
Spread. The difference between the price of a security and similar maturity U.S.
Treasury investments, expressed in percentage terms or basis points. A spread can also be the absolute difference in yield between two securities. The securities can be in different markets or within the same securities market between different credits, sectors, or other relevant factors.
Standard & Poor's. One of several NRSROs that provide credit ratings on corporate and municipal debt issues.
STRIPS (Separate Trading of Registered Interest and Principal of Securities).
Acronym applied to U.S. Treasury securities that have had their coupons and principal repayments separated into individual zero-coupon Treasury securities.
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The same technique and "strips" description can be applied to non-Treasury securities (e.g. FNMA strips).
Structured Notes. Notes that have imbedded into their structure options such as step-up coupons or derivative- based returns.
Supranational Debt. The debt of an international or multi-lateral financial agency used to finance economic and infrastructure development, environmental protection, poverty reduction and renewable energy around the world. Supranational debt is typically rated AAA by most NRSRO’s as these entities are well-capitalized, have significant capital commitments from a diverse capital base, conservative lending and risk management practices and strong supervision.
Swap. Trading one asset for another.
TAP Notes: Federal Agency notes issued under the FHLB TAP program.
Launched in 6/99 as a refinement to the FHLB bullet bond auction process. In a break from the FHLB’s traditional practice of bringing numerous small issues to market with similar maturities, the TAP Issue Program uses the four most common maturities and reopens them up regularly through a competitive auction. These maturities (2, 3, 5 and 10 year) will remain open for the calendar quarter, after which they will be closed and a new series of TAP issues will be opened to replace them. This reduces the number of separate bullet bonds issued, but generates enhanced awareness and liquidity in the marketplace through increased issue size and secondary market volume.
Tennessee Valley Authority (TVA). One of the large Federal Agencies. A wholly owned corporation of the United States government that was established in 1933 to develop the resources of the Tennessee Valley region in order to strengthen the regional and national economy and the national defense. Power operations are separated from non-power operations. TVA securities represent obligations of TVA, payable solely from TVA's net power proceeds, and are neither obligations of nor guaranteed by the United States. TVA is currently authorized to issue debt up to $30 billion. Under this authorization, TVA may also obtain advances from the U.S. Treasury of up to
$150 million. Frequent issuer of discount notes, agency notes and callable agency securities.
Total Return. Investment performance measured over a period of time that includes coupon interest, interest on interest, and both realized and unrealized
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gains or losses. Total return includes, therefore, any market value appreciation/depreciation on investments held at period end.
Treasuries. Collective term used to describe debt instruments backed by the U.S. Government and issued through the U.S. Department of the Treasury.
Includes Treasury bills, Treasury notes, and Treasury bonds. Also a benchmark term used as a basis by which the yields of non-Treasury securities are compared (e.g., "trading at 50 basis points over Treasuries").
Treasury Bills (T-Bills). Short-term direct obligations of the United States Government issued with an original term of one year or less. Treasury bills are sold at a discount from face value and do not pay interest before maturity. The difference between the purchase price of the bill and the maturity value is the interest earned on the bill. Currently, the U.S. Treasury issues 4-week, 13-week and 26-week T-Bills
Treasury Bonds. Long-term interest-bearing debt securities backed by the U.S.
Government and issued with maturities of ten years and longer by the U.S.
Department of the Treasury. The Treasury stopped issuing Treasury Bonds in August 2001.
Treasury Notes. Intermediate interest-bearing debt securities backed by the U.S.
Government and issued with maturities ranging from one to ten years by the U.S.
Department of the Treasury. The Treasury currently issues 2-year, 5-year and 10-year Treasury Notes.
Trustee. A bank designated by an issuer of securities as the custodian of funds and official representative of bondholders. Trustees are appointed to insure compliance with the bond documents and to represent bondholders in enforcing their contract with the issuer.
Uniform Net Capital Rule. SEC regulation 15C3-1 that outlines the minimum net capital ratio (ratio of indebtedness to net liquid capital) of member firms and non-member broker/dealers.
Unrealized Gains (Losses). The difference between the market value of an investment and its book value. Gains/losses are “realized” when the security is actually sold, as compared to “unrealized” gains/losses which are based on current market value. See also “Realized Gains (Losses).”
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Variable-Rate Security. A bond that bears interest at a rate that varies over time based on a specified schedule of adjustment (e.g., daily, weekly, monthly, semiannually or annually). See also “Floating Rate Note.” Weighted Average Maturity (or just “Average Maturity”). The average maturity of all securities and investments of a portfolio, determined by multiplying the par or principal value of each security or investment by its maturity (days or years), summing the products, and dividing the sum by the total principal value of the portfolio. A simple measure of risk of a fixed-income portfolio.
Weighted Average Maturity to Call. The average maturity of all securities and investments of a portfolio, adjusted to substitute the first call date per security for maturity date for those securities with call provisions.
Yield Curve. A graphic depiction of yields on like securities in relation to remaining maturities spread over a time line. The traditional yield curve depicts yields on U.S. Treasuries, although yield curves exist for Federal Agencies and various credit quality corporates as well. Yield curves can be positively sloped (normal) where longer-term investments have higher yields, or “inverted” (uncommon) where longer-term investments have lower yields than shorter ones.
Yield to Call (YTC). Same as “Yield to Maturity,” except the return is measured to the first call date rather than the maturity date. Yield to call can be significantly higher or lower than a security’s yield to maturity.
Yield to Maturity (YTM). Calculated return on an investment, assuming all cash flows from the security are reinvested at the same original yield. Can be higher or lower than the coupon rate depending on market rates and whether the security was purchased at a premium or discount. There are different conventions for calculating YTM for various types of securities.
Yield. There are numerous methods of yield determination. In this glossary, see also "Current Yield,” "Yield Curve," "Yield to Call" and "Yield to Maturity."
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Appendix C
Local Agency Investment Fund
Program Description
The Local Agency Investment Fund (LAIF) is a voluntary program created by statute in 1977 as an investment alternative for California’s local governments and special districts and it continues today under Treasurer John Chiang’s administration. The enabling legislation for the LAIF is Section 16429.1 et seq. of the California Government Code.
This program offers local agencies the opportunity to participate in a major portfolio which invests hundreds of millions of dollars, using the investment expertise of the Treasurer’s Office investment staff at no additional cost to the taxpayer.
The LAIF is part of the Pooled Money Investment Account (PIMA). The PMIA began in 1955 and oversight is provided by the Pooled Money Investment Board (PMIB) and an in-house Investment Committee. The PMIB members are the State Treasurer, Director of Finance and State Controller.
The Local Investment Advisory Board (LIAB) provides oversight for LAIF. The Board consists of five members as designated by statute. The Chairman is the State Treasurer or his designated representative. Two members qualified by training and experience in the field of investment or finance, and the State Treasurer appoints two members who are treasurers, finance or fiscal officers or business managers employed by any county, city or local district or municipal corporation of this state. The term of each appointment is two years or at the pleasure of the Treasurer.
All securities are purchased under the authority of Government Code Section 16430 and 16480.4. The State Treasurer’s Office takes delivery of all securities purchased on a delivery versus payment basis using a third party custodian. All investments are purchased at market and a market valuation is conducted monthly.
Additionally, the PMIA has Policies, Goals, and Objectives for the portfolio to make certain that our goals of Safety, Liquidity and Yield are not jeopardized, and that prudent management prevails. These policies are formulated by investment staff and reviewed by both the PMIB and the LIAB on an annual basis.
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The State Treasurer’s Office is audited by the Bureau of State Audits on an annual basis and the resulting opinion is posted to the STO website following its publication. The Bureau of State Audits also has a continuing audit process throughout the year. All investments and LAIF claims are audited on a daily basis by the State Controller’s Office as well as an in-house audit process involving three separate divisions.
Under Federal Law, the State of California cannot declare bankruptcy, thereby allowing the Government Code Section 16429.3 to stand. This Section states that “moneys placed with the Treasurer for deposit in the LAIF by cities, counties, special districts, nonprofit corporations, or qualified quasi-governmental agencies shall not be subject to either of the following: (a) transfer or loan pursuant to Sections 16310, 16312, or 16313, or (b) impoundment or seizure by any state official or state agency.”
During the 2002 legislative session, California Government Code Section 16429.4 was added to the LAIF’s enabling legislation. The Section states that “right of a city, county, city and county, special district, nonprofit corporation, or qualified quasi-governmental agency to withdraw its deposited moneys from the LAIF, upon demand, may not be altered, impaired, or denied in any way, by any state official or state agency based upon the state’s failure to adopt a State Budget by July 1 of each new fiscal year.”
State Treasurer’s Office
Local Agency Investment Fund
P.O. Box 942809
Sacramento, CA 94209-0001
(916)653-3001
http://www.treasurer.ca.gov/pmia-laif