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ATTACHMENT NO. 2
CITY OF NORWALK
STATEMENT OF INVESTMENT POLICY
Fiscal Year 2026/2027
I. PURPOSE
This statement is intended to provide guidelines for the prudent investment of the City of Norwalk (the City) temporary idle cash and outline the procedures for maximizing the efficiency of the City' s cash management system. The ultimate goal is to enhance the economic status of the City while safeguarding its assets. This inv estment policy has been prepared so as to be in conformance with all pertinent ex isting laws of the State of California for General Law cities.
II. OBJECTIVE
The Cit y's cash management system is designed to ac curately monitor and forecast revenues and expenditures, thus enabling the City to invest funds to the fullest extent possible only after the criteria established for safety and liquidity have been met.
The City strives to maintain the level of investment of all idle funds as near 100% as possible, through daily and projected cash flow determinations. Idle cash management and investment transactions are the responsibility of the City Treasurer.
Criteria for selecting investments and the order of priority are:
1. Safety
Saf
ety and the minimizing of risk associated with investing refers to attempts to reduce the potential for loss of principal, interest or a combination of the two.
The first level of risk controls is found in state laws, which restricts the particular type of permissible investments for municipalities. The second level of risk control is the reduction of default risk by investing in instruments that appear to be the most creditworthy. The third level of risk control is the reduction of market risk by investing in instruments that have relatively short maturities, thereby eliminating the risk of loss from a forced sale. The City only invests in those instruments that are considered very safe.
2. Liquidity
Liqui
dity refers to the ability to easily sell at any time with a minimal risk of losing some portion of principal or interest. Liquidity is an important quality for an investment to have, for at any time the City may have unexpected or unusual
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circumstances that result in larger disbursements than expected, and some investments may need to be sold to meet the contingency.
3. Yield
Yield is the potential dollar earnings an investment can provide, and also is sometimes described as the rate of return. The City attempts to obtain the highest yield possible when selecting an investment, provided that the criteria stated herein for safety and liquidity are met.
4. Safekeeping
Securities purchased shall be held in a third party safekeeping account in the City's name and control.
The basic premise underlying the City 's investment philosophy is, and continues to be, to insure that surplus funds are always safe and available when needed.
III. DELEGATION OF INVESTMENT AUTHORITY
The City’s Legislative body by resolution has delegated to the City Treasurer the authority to invest idle funds subject to the limitations set forth in the Investment Policy.
The City Treasurer will establish an investment program consistent with this Investment Policy. The investment program shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the City Treasurer. The City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.
IV. PRUDENCE
Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs; not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived. The standard of prudence to be used by investment officials shall be the "prudent investor" standard (California Government Code Section 53600.3) and shall be applied in the context of managing an overall portfolio. Investment officers acting in accordance with written procedures and the Investment Policy and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments.
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V. AUTHORIZED FINANCIAL INSTITUTIONS AND DEALERS
The City Treasurer will select broker/dealers of government securities and other investments on the basis of creditworthiness, financial strength, experience and minimum capitalization and who are authorized to provide investment and financial advisory services in the State of California. No public deposit shall be made except in a qualified public depository as established by state laws. The City Treasurer shall select only broker/dealers who are licensed and in good standing with the California Department of Securities, the Securities and Exchange Commission, the National Association of Securities Dealers or other applicable self-regulatory organizations.
Before engaging in investment transactions with a broker/dealer, the City Treasurer shall have received from said firm a signed Certification Form. This form shall attest that the individual responsible for the City of Norwalk's account with that firm has reviewed the Cit y's Investment Policy and that the firm understands the policy and intends to present investment recommendations and transactions to the City that are appropriate under the terms and conditions of the Investment Policy.
VI. AUTHORIZED INVESTMENTS
City active and inactive deposits may be kept in checking accounts and savings accounts at financial institutions as identified in California State Government Code Section 53648 provided that they are adequately secured with proper collateral as prescribed by Government Code Sections 53656 and/or 53658. Funds may be automatically swept from the above accounts into investment instruments provided those investment instruments are allowable investments as listed in this section, and limited to the percentage of investment participation prescribed for each investment instrument.
Allowable investments for the portfolio of the City of Norwalk are limited by California State Government Code Sections 53601 et seq.; 53635. They are further restricted by the City. Percentages of Investment Participation and percentages of Maximum Participation apply at the time of purchase. Purchase transactions may not exceed $10,000,000, nor exceed five- year maturities. Exceptions can only be approved by City Council. The investment instruments and percentage of participation permitted by this policy are:
U.S. Treasury Obligations
Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest.
Maximum Maturity: 5 Years
Investment Participation: 100%
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U.S. Agency Obligations (Agency Securities)
The purchase of Federal Agency or United States government -sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies , i.e.: Government National Mortgage Association (GNMA or Ginnie Mae) , Export-Import Bank of the United States (ExImBank) , Tennessee Valley Authority (TVA) or U.S. government - sponsored enterprises , i.e.: Federal National Mortgage Association (FNMA or Fannie Mae), Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), Federal Agricultural Mortgage Corporation (Farmer Mac), Federal Home Loan Bank, Federal Farm Credit Bank.
Maximum Maturity: 5 Years
Investment Participation: 100%
State of California and California Local Agencies
Registered California warrants, treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled or operated by the state or by a department, board, agency, or authority of the state.
Bonds, notes, warrants or other evidences of indebtedness of any local agency within California including bonds payable solely out of the revenues from a revenue- producing property owned, controlled, or operated by the local agency, or by a department, board, agency, or authority of the local agency. Investments under this section must be rated “A” or better by a nationally recognized rating service.
Maximum Maturity: 5 Years
Investment Participation: 15%
Maximum Exposure: 5% per Issuer
Obligations of Other States
Registered treasury notes or bonds of any of the other 49 states, including bonds payable solely out of the revenues from a revenue- producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states.
Maximum Maturity: 5 Years
Investment Participation: 10%
Maximum Exposure: 5% per Issuer
Medium Term Notes
Medium term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed
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by the United States or any state and operating within the United States. Notes eligible for investment under this subsection must be rated “A” or better by a nationally recognized rating service. If the credit rating of a security falls below the “BBB” grade, it must be sold and removed from the City Portfolio unless the City Council approves the City Treasurer’s recommendation that the security should be retained. City Treasurer will monitor and report status of such security to City Council in its investment report.
Maximum Maturity: 5 Years
Investment Participation: 25%
Maximum Exposure: 5% per Issuer
Commercial Paper
Commercial Paper ranked A-1, P-1, F-1 by one of the major rating agencies and issued by a domestic corporation having assets in excess of $500,000,000 and having an “A” or better rating on its long term debentures as determined by a recognized national rating agency.
Maximum Maturity: 270 Days
Investment Participation: 25%
Maximum Exposure: 10% per single institution
Credit Requirement: A- 1, P-1, F-1 (Per Moody’s/ S & P/ Fitch)
Bankers’ Acceptances-Domestic/Foreign
Bills of exchange or time drafts drawn on and accepted by a commercial bank, typically created from a letter of credit issued in a foreign trade transaction. Eligibility is limited to U.S. banking corporations.
Maximum Maturity: 180 Days
Investment Participation: 30%
Maximum Exposure: 10% per bank
Credit Requirement: A- 1, P-1, F-1 (Per Moody’s / S&P/ Fitch)
Time Deposits (FDIC Insured or Collateralized Certificates of Deposits)
Time deposits, non- negotiable and collateralized in accordance with the California Government Code, may be purchased through banks or savings and loan associations.
No more than 10% of the investment portfolio may be invested in this investment instrument.
Maximum Maturity: 5 Years
Investment Participation: 10%
Maximum Exposure: 5% per Issuer
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Negotiable Certificates of Deposit
Negotiable certificates of deposit issued by a nationally or state -chartered bank, a savings association or a federal association, a state or federal credit union, or by a state-licensed branch of a foreign bank. Purchases of negotiable certificates of deposit may not exceed 30 percent of the agency’s money which may be invested pursuant to this section.
Maximum Maturity: 5 Years
Investment Participation: 30%
Maximum Exposure: 5% per Issuer
Credit Requirement: A- 1, P-1, F-1 (Per Moody’s / S&P/ Fitch)
Money Market Mutual Funds
California Government Code Section 53601 (k) permits public agencies to invest 20% of their portfolio in mutual funds or money market. The City chooses to use money market mutual funds as described in California Government Code Section 53601 (k) (2), to the exclusion of other types of mutual funds. Money market funds are limited to a maximum dollar-weighted average maturity of 90 days; each investment must have a remaining maturity of thirteen months or less at time of purchase; and the fund must strive to maintain a constant net asset value of $1.00. These restrictions are designed to protect assets from a loss in value that can result from substantial increases in interest rates.
The California Government Code Section 53601 (k) (2) permits public agencies to invest in “shares of beneficial interest issued by diversified management companies that are money market funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a- 1, et seq.) as long as the company shall have met either of the following criteria: (A) Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations or (B) Retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with no less than five years’ experience investing in the securities and obligations authorized by subdivisions (a) to (j), inclusive, or subdivisions (m) or (n) and with assets under management in excess of five hundred million dollars ($500,000,000).
Investment Participation: 20 %
LAIF (Local Agency Investment Fund), State of California Investment Pool
A pooled investment fund managed by the State Treasurer’s Office, which operates like a money market fund for the exclusive benefit of governmental entities within California.
There is no minimum investment period and the minimum transaction is $5,000, in multiples of $1,000 above that, with a maximum balance of $75,000,000 for any agency.
The City is restricted to a maximum of ten transactions per month. It offers high liquidity because deposits can be converted to cash in twenty -four hours and no interest is lost.
All interest is distributed to those agencies participating on a proportionate share basis
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determined by the amounts deposited and the length of time they are deposited.
Interest is paid quarterly. The State retains an amount for reasonable costs of making the investments, not to exceed one-quarter of one percent of the earnings.
Investment Participation: Maximum (Set by LAIF) (Currently, $ 75 million per account)
CalTRUST (Investment Trust of California)
A series of government investment pools offered through the CalTRUST Joint Powers Authority, as authorized by California Government Code Section 53601(p). CalTRUST offers three account options: a Money Market fund, a Short -Term fund, and a Medium - Term fund. The City can allocate its assets among the three funds to match its investment time horizons and cash flow needs, and reallocate among funds as circumstances change. There is no minimum investment period; no minimum or maximum transaction size; and no account minimum or maximum. The funds offer high liquidity (same -day in the Money Market fund; next -day in the Short -Term fund; and monthly in the Medium -Term fund). Interest earnings accrue daily and are paid monthly.
Investment Participation: 100%
Los Angeles County Treasury Pool
A pooled investment fund managed by the Los Angeles County Treasurer’s Office, which operates like a money market fund for the exclusive benefit of governmental entities within Los Angeles County.
Investment Participation: 10%
VII. INVESTMENT OF BOND PROCEEDS
When investing proceeds from the issuance of bonds, the City will follow the "permitted investments" identified in the bond indenture.
VIII. CITY CONSTRAINTS
The City Treasurer will evaluate local financial institutions and may invest idle cash funds with such institutions when the criteria for prudent investment are met. The City favors doing business with institutions that maintain at least a branch office in Norwalk.
The City operates its investment pool according to State and self -imposed constraints.
It does not buy stocks; it does not speculate; it does not deal in futures or options. The City does not invest in prohibited investments as identified in Sections 53601.6 and 53631.5 of the California Government Code, such as inverse floaters, range notes, or interest only strips that are derived from a pool of mortgages. Any investment extending beyond a five-year period requires prior City Council’s approval.
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T
he City will diversify use of investment instruments to avoid incurring unreasonable risks inherent in over investing in specific instruments, individual financial institutions or maturities. Diversification strategies shall be determined and revised periodically. In establishing specific diversification strategies, the following general policies and constraints shall apply:
a. Portfolio maturities shall be matched versus liabilities to avoid undue concentration in a specific maturity sector.
b. Maturities selected shall provide for stability of income and liquidity.
IX. S
AFEKEEPING AND COLLATERALIZATION
A
ll transactions, including collateral for repurchase agreements, entered into by the City shall be conducted on a delivery -versus-payment (DVP) basis. Securities will be held by the third party custodian designated by the City Treasurer in the City’s name and control.
C
ollateralization will be required on demand deposits, certificates of deposit and repurchase agreements. In order to anticipate market changes and provide a level of security for all funds, a minimum collateralization level is required.
S
urplus funds can only be deposited in state or national banks, state or federal savings associations, or state or federal credit unions within the State of California. The deposits cannot exceed the amount of the bank's or savings and loan's paid- up capital and surplus. The bank or savings and loan must secure public funds deposits with eligible securities having a market value of 110% of the total amount of the deposits.
State law also allows as an eligible security, first trust deeds having a value of 150% of the total amount of the deposits. Repurchase agreements shall be collateralized with securities authorized by the Government Code, which shall be no less than 102% of the market value of the securities that underlay the repurchase agreement.
T
he City Treasurer may waive security for that portion of a deposit, which is insured pursuant to Federal law. Currently, the first $100,000 of a deposit is federally insured.
Deposits in excess of $100,000 are required to be collateralized as previously indicated.
X. RE
PORTING
I
n accordance with CGC 53646(b)(1), the City Treasurer shall submit to each member of the City Council and the City Manager a monthly investment report. The reports at the end of each quarter shall be submitted to the City Council and City Manager within 30 days of the end of the quarter. Other monthly reports will be submitted to the City Council and City Manager within 45 days of month end. The report shall include a complete description of the portfolio, the type of investments, the issuers, maturity PAGE 9 of 9
dates, par values and the current market values of each component of the portfolio, including funds managed for the City of Norwalk by third party contracted managers.
The report will also include the source of the portfolio valuation. As specified in CGC 53646(e), if all funds are placed in LAIF, CalTRUST, FDIC-insured accounts and/or in a county investment pool, the foregoing report elements may be replaced by copies of the latest statements from such institutions. The report must also include a certification that (1) all investment actions executed since the last report have been made in full compliance with Investment Policy or manner in which the portfolio is not in compliance; and (2) the City of Norwalk will meet its expenditure obligations for the next six months, or provide an explanation as to why sufficient money shall or may not be available, which are required by CGC 53646(b)(2) and (3), respectively. The City Treasurer shall maintain a complete and timely record of all investment transactions.
XI. P
OLICY REVIEW
T
his Statement of Investment Policy shall be reviewed at least annually, and rendered to the City Council for approval at a public meeting, to ensure its consistency with the overall objectives of preservation of principal, liquidity and return, and its relevance to current law, financial and economic trends.
A
fter the Council adoption of the Policy, the City Treasurer shall send a copy of the current edition of the Policy to all financial institutions and broker/dealers, which are approved to execute investment transactions with the City. Confirmation of receipt of this policy shall be considered evidence that the financial institution and broker/dealer understands the City’s Policy and intends to sell the City only appropriate investments authorized by this Policy.