Q1 FY25-26 Investment Review
and 2026 Investment Policy
Discussion
City Council
November 18, 2025
Investment Policy Principles
Prudent Investor
Standard
#3
Yield
#2
Liquidity
#1
Safety
Our city’s investment policy is designed to provide guidelines for the prudent investment of all city cash balances with an absolute investment priority of safety, liquidity, and yield in that order 2026 Investment Policy Review
Process Steps
✓ Ensured complete alignment with 2026 Code revisions
✓ Benchmarked policy against 7 California municipalities and 6 Treasurer peer reviews to capture best practices
✓ Solicited Investment Advisory Board feedback
✓ Increased transparency and readability of policy
✓ Submitting new policy to CMTA and APT for “scoring”
We have revised the 2026 Investment Policy to incorporate upcoming California General Code changes, refine permissible portfolio investments, and simplify language to increase readability 2026 Major Policy Changes
1) State Law: (a) Extend Commercial Paper maturity from 270 → 365 Days and (b) Eliminate Orange County Treasury Pooled Funds from acceptable investments
2) Investments: (a) Eliminate Reverse Repurchase Agreements and Bankers Acceptances and (b) Increase Joint Powers
Authority limit to 25% of portfolio from $75 million
3) Maturities: Shorten Certificates of Deposit from 5 → 3 years 4) Portfolio: Reduce allowable portfolio share in 4+ year maturities from 50% → 25%
2026 Compliance Requirements
Huntington Beach’s investment, issuer, and maturity requirements are either in line or more conservative than California Government Code requirements
Investment Issuer Maturities Investment Issuer Maturities U.S. Treasury Securities 100% None 5 Years 100% None 5 Years U.S. Government Agency Securities 100% None 5 Years 100% None 5 Years Commercial Paper 40% 10% 1 Year 40% 10% 1 Year
Certificates of Deposit 30% None 5 Years 30% 10% 3 Years Repurchase Agreements 100% None 1 Year 100% None 90 Days Money Market Mutual Funds 20% of Agency Funds 10% of Agency Funds N/A 15% of Agency Funds 10% of Agency Funds N/A Local Agency Investment Fund $75M per account N/A N/A $75M per account N/A N/A Municipal Debt 100% None 5 Years 100% 10% 5 Years
Medium-Term Notes 30% None 5 Years 30% 10% 5 Years
Joint Power Authority 100% None N/A 25% None N/A
Supranational Securities 30% None 5 Years 30% None 5 Years California Government Code Limits Policy Limits
Investment Type
Investment Performance – Safety
As safety of principal is our paramount priority, we have constructed a bond portfolio mix that fully complies with California General Code and ensures that Huntington Beach does not sustain losses $265 $299
$378 $391 $410
2021 2022 2023 2024 2025
City Investment Portfolio
($ Millions)
• Losses: Portfolio has experienced no losses and Treasurer held lower-yield bonds to ensure no losses • Compliance: Portfolio must pass maturity, category/issuer concentration, and bond ratings checks • Ratings: All holdings rated “A-” or higher with non-corporate bonds all AA+ or AAA (~80% are AAA/AA rated) • Diversification: Portfolio has no issuer > 10% except US Treasuries, Federal Home Loan Bank, and State Pool Category Maturity
Portfolio
Share
Issuer
Share Quality Overall
U.S. Treasury
Securities 5 Years Compliant
U.S. Government
Agency Securities 5 Years Compliant
Supranational
Securities 5 Years 30% 30%
"AA" (or
Higher) Compliant
Medium-Term
Notes 5 Years 30% 10%
"A" (or
Higher) Compliant
Money Market
Mutual Funds 60 Days 15% 10%
"AAA" (or
Higher) Compliant
State and Local
Investment Pools $75M $75M Compliant
Compliance Check
Sources of Fund Balance Increases (FY2018-FY2024)
Huntington Beach’s reserves increased by ~$160M from FY2018-FY2024, with that increase distributed across the General, Infrastructure, Pension, and Internal Services Funds $251
$59
$36
$33 $21 $15 $415
FY18 Reserves General Pension Infrastructure Internal Service Other FY24 Reserves FY2018-FY2024 Fund Balance Changes ($ Millions)
City Reserve Funds
• Workers Comp: $11M
• Equipment: $8M
• General Liability: $2M
• Economic
Uncertainty: $24M
• Restricted: $15M
• HB Recovery: $10M
• Pension/GL/115
Trust: $10M
Investment Performance – Liquidity
Accurate cash flow management and a portfolio with ample short-term cash cushion is critical given our large monthly cash flow movements and large capital projects
-$25
-$15
-$5
$5
$15
$25
$35
Jan-24 Apr-24 Jul-24 Oct-24 Jan-25 Apr-25
Net Cash Position ($ Millions)
+$51 Million
-$66 Million
+$36 Million
39%
22%
18%
21%
Portfolio Mix (%)
< 1 Year
1-2 Years
2-3 Years
3-5 Years
• Cash Flow: Varies across months primarily due to timing of property tax receipts and sales tax true-ups • Cash Cushion: Portfolio contains ~$60 million in fully liquid funds and ~65% that could be liquidated easily • Cash Flow Modeling: Treasury partnering with all city departments to build detailed 18-month cash flow models and 5-year capital improvement plan model to optimize maturity timing for longer-dated bonds
Investment Performance - Yield
0.76% 1.00% 1.26%
2.00%
1.41%
1.78%
3.59%
0%
1%
2%
3%
4%
5%
2013 2015 2017 2019 2021 2023 2025
Effective Return (%)
Financial returns for Huntington Beach’s portfolio has increased significantly since 2022 due to increasing interest rates and an inverted yield curve
2.5%
3.0%
3.5%
4.0%
4.5%
1 2 3 6 12 24 36 60
Returns Across Maturities (Months)
2022
2025
Observations
• Movement from 1% → 3% effective returns and reserve expansion since 2022 increased earnings by ~$10 million annually • Interest rates returning to historical norms after “free money” period of the Federal Reserve surrounding the pandemic • Current inverted yield curve is an anomaly – 2022 curve where longer-term investments have higher returns is the norm +1.6%
-0.5%
Investment Performance - Yield
As the yield curve returns to normalcy over the next few years, Huntington Beach has a window to capture some incremental upside from increasing average bond duration and expanding our corporate bond mix Opportunity to capture ~10-20bps without threatening Huntington Beach’s liquidity position by: (1) purchasing longer-term bonds with maturities that align with our cash flow troughs and (2) expanding portfolio share of high-grade corporate bonds by 3-5% 5%
11%
14% 15%
22%
2013 2016 2019 2022 2025
Portfolio Share in Corporate Bonds (%)
2.73 2.45 1.74
2.23 1.81
0.0 0.5
1.0 1.5
2.0 2.5
3.0 2013 2016 2019 2022 2025
Portfolio Years to Maturity
Q1 FY25-26 Investment Performance
• 6 purchases ($30 million) and 13
redemptions ($61 million)
• Portfolio meets maturity threshold with
< 25% having 4+ year duration
• City does not have Bankers
Acceptances, Repurchase
Agreements, or Certificates of Deposit
Compliance Check
3.59% 3.24%
Q1 FY25-26 FY24-25
Portfolio Return (%)
$12 $47
$133
$92
$71
$55
$410
Cash/CDs LGIP Agencies Corps Treasuries Supras Total
Sector Breakdown
Huntington Beach has ~$410M in investable reserves across short-term and long-term instruments, yielding a
3.59% return for this quarter versus 3.24% return for FY2024-2025 Category Maturity
Portfolio
Share
Issuer
Share Quality Overall
U.S. Treasury Securities 5 Years Compliant
U.S. Government Agency
Securities 5 Years Compliant
Supranational Securities 5 Years 30% 30% "AA" (or Higher) Compliant Medium-Term Notes 5 Years 30% 10% "A" (or Higher) Compliant Money Market Funds 60 Days 15% 10% "AAA" (or Higher) Compliant State/Local Investment Pools $75M $75M Compliant
Q1 FY25-26 Investment Performance Template - Summary
Future City Council presentations will focus on three quarterly investment summary documents – the first will be an overall portfolio return for the period
Aggregate
transactions
and dollars
during
quarter
Effective return and
investment cash
balance for quarter
Average time left for
maturity on
investments by type
Q1 FY25-26 Investment Performance Template - Portfolio
Future City Council presentations will focus on three quarterly investment summary documents – the second will be a portfolio breakdown by maturity, investment type, and issuer concentration Overall portfolio
investment distribution
by time to maturity and
investment type
Relatively issuer
concentration for city’s
bond portfolio
Q1 FY25-26 Investment Performance Template - Compliance Future City Council presentations will focus on three quarterly investment summary documents – the third will be a comprehensive compliance check relative to our City Investment Policy Overall bond
portfolio
compliance check
based on
investment/issuer
limits, maturities,
and credit ratings
Compliance
check for cash
and money
market holdings
(including
government
pools)
Internal and External Initiatives
Beyond investment strategy, we are focused on deploying automation in cash collection/disbursement efforts and deploying community programming to help residents achieve their American Dream Internal Initiatives
❑ Adopt technology to streamline collections
and increase administrative efficiencies
❑ Install self-service kiosks and QR codes to
facilitate electronic payments
❑ Deploy AI-based system to identify
unpermitted short-term rental operators
❑ Partner with bank to simplify processes via
electronic data feeds
❑ Complete collections process for dormant
citations issued during pandemic
❑ Comprehensive audits of hotel TOT payments
External Initiatives
❑ Provide overview of Treasurer Office services
and solicit community feedback
❑ Introduce workshops and 1-on-1 counseling
related to personal finances and investments
for seniors, working age adults, and youth
❑ Partner with Police Department to expand tax,
investment, and identity scam classes
❑ Expand local access to free tax preparation
❑ Develop short-term rental operator trainings