1 THE CITY OF RIPON INVESTMENT POLICY
1.0 SCOPE
This investment policy applies to all financial assets of the City of Ripon. These funds are accounted for in the annual audit of the City of Ripon and include the General Fund, Enterprise Funds, Capital Project Funds, and Special Revenue Funds etc.
Funds not included in the policy include Section 115 Funds and retirement funds, including deferred compensation funds, PERS funds, and the City’s Money Purchase Thrift Pension Plan.
2.0 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 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.
3.0 OBJECTIVES:
As specified in California Government Code Section 53600.5, when investing, reinvesting, purchasing, acquiring, exchanging, selling and managing public funds, the primary objectives, in priority order, of the investment activities shall be:
1. Safety: Safety of principal is the foremost objective of the investment program.
Investments of the City of Ripon shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio.
2. Liquidity: The investment portfolio will remain sufficiently liquid to enable the City of Ripon to meet all operating requirements, which might be reasonably anticipated.
3. Return on Investments: The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and the cash flow characteristics of the portfolio.
Exhibit A
2 4.0 DELEGATION OF AUTHORITY
Authority to manage the investment program is derived from California Government Code Section 53600, et seq. Management responsibility for the investment program is hereby delegated to the City Clerk, who shall establish written procedures for the operation of the investment program consistent with the investment policy. Procedures should include references to safekeeping PSA repurchase agreements, wire transfer agreements, collateral/depository agreements and banking services contracts, as appropriate. Such procedures 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 Clerk. The City Clerk shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. Under the provisions of California Government Code Section 53600.3, the City Clerk is a trustee and a fiduciary subject to the prudent investor standard.
5.0 ETHICS AND CONFLICTS OF INTEREST
Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution of the investment program, or which could impair their ability to make impartial investment decisions.
6.0 AUTHORIZED FINANCIAL INSTITUTIONS AND DEALERS
The City Clerk will maintain a list of financial institutions, selected on the basis of creditworthiness, financial strength, experience, and minimal capitalization, authorized to provide investment services. In addition, a list will also be maintained of approved security broker/dealers selected by creditworthiness 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.
For brokers/dealers of government securities and other investments, the City of Ripon 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 Clerk shall have received from said firm a signed Certification Form. This form shall attest that the individual responsible for the City of Ripon’s account with that firm has reviewed the City of Ripon’s Investment Policy and that the firm understands that policy and intends to present investment recommendations and transactions to the City of Ripon that are appropriate under the terms and conditions of the Investment Policy.
Exhibit A
3 7.0 AUTHORIZED AND SUITABLE INVESTMENTS
The City of Ripon is empowered by California Government Code Sections 53601 et seq. and 53635 et seq. to invest in the following:
A. Bonds issued by the City of Ripon.
B. United States Treasury Bills, Notes & Bonds
C. Registered state warrants or treasury notes or bonds issued by the State of California
D. Bonds, notes, warrants or other evidence of debt issued by a local agency within the State of California, including pooled investment accounts sponsored by the State of California, County Treasurers, other local agencies or Joint Powers Agencies.
E. Obligations issued by Agencies or Instrumentality of the United States Government.
F. Bankers Acceptances with a term not to exceed 180 days. Not more than 40% of surplus funds can be invested in Bankers Acceptances and no more than 30% of surplus funds can be invested in the bankers acceptances of any single commercial bank.
G. Prime Commercial Paper of U.S. Corporations with assets greater than $500 million with a term not to exceed 270 days and the highest ranking issued by Moody’s Investors Service or Standard & Poor’s Corp. Commercial paper cannot exceed 15% of total surplus funds, provided that if the average maturity of all Commercial paper does not exceed 31 days, up to 25% of surplus funds can be invested. Further, no more than 10% of surplus funds may be invested in the commercial paper and the medium-term notes of any single issuer.
H. Negotiable Certificates of Deposit issued by federally or state chartered banks or associations. Not more that 30% of surplus funds can be invested in certificates of deposit.
I. Repurchase/Reverse Repurchase Agreements of any securities authorized by the Section. Securities purchased under these agreements shall be no less than 102% of market value. (See special limits in California Government Code Section 53601(j))
J. Medium term notes (not to exceed 5 years) of U.S. corporations rated “A” or better by Moody’s or S&P. Not more than 30% of surplus funds can be invested in medium term notes. Further, no more than 10% of surplus funds may be invested in the commercial paper and the medium-term notes of any single issuer.
Exhibit A
4 K. Shares of beneficial interest issued by diversified management companies (Money Market Mutual Funds) investing in the securities and obligations authorized by this Section. Such Funds must carry the highest rating of at least two of the three largest national rating agencies. Not more than 15% of surplus funds can be invested in Money Market Mutual Funds.
L. Funds held under the terms of a Trust Indenture or other contract or agreement may be invested according to the Provisions of those indentures or agreements.
M. Collateralized bank deposits with a perfected security interest in accordance with the Uniform Commercial Code (UCC) or applicable federal security regulations.
N. Any mortgage, pass-through security, collateralized mortgage obligation, mortgaged backed or other pay-through bond, equipment lease-backed certificate, consumer receivable pass-through certificate or consumer receivable backed bond of a maximum remaining maturity of five years or less. Securities in this category must be rated AA or better by a national recognized rating service. Not more than 20% of surplus funds may be invested in this category of securities.
O. Any other investment security authorized under the provisions of California Government Code Section 5933, Section 53601 and Section 53635.
California Government Code Sections 53601 and 53635 contain a detailed summary of the limitations and special conditions that apply to each of the above-listed investment securities. California Government Code Sections 53601 and 53635 are included by references in this investment policy.
Under the provisions of California Government Code Section 53601.6 and Sections 53631.5, the City of Ripon shall not invest and funds covered by this Investment Policy in inverse floaters, range notes, interest-only strips derived from mortgage pools or any investment that may result in a zero interest accrual if held to maturity.
8.0 COLLATERALIZATION:
All certificates of deposits must be collateralized by U.S. Treasury Obligations.
Collateral must be held by a third party trustee and valued on a monthly basis. The percentage of collateralization on repurchase and reverse repurchase agreements will adhere to the amount required under California Government Code Sections 53601(j)(2) and 53635 et. seq.
9.0 SAFEKEEPING AND CUSTODY:
All security transactions entered into by the City of Ripon shall be conducted on deliveryversus-payment (DVP) basis. All securities purchased or acquired shall be delivered to the City of Ripon by book entry, physical delivery or by third party custodial agreement as required by California Government Code Sections 53601 and 53635.
Exhibit A
5 10.0 DIVERSIFICATION:
The City of Ripon will diversify its investments by security type and institution. It is the policy of the City of Ripon to diversify its investment portfolio. Assets shall be diversified to eliminate the risk of loss resulting from over concentration of assets in a specific maturity, a specific issuer or a specific class of securities. 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. (c) Disbursement and payroll dates shall be covered through maturities investments, marketable U.S. Treasury bills or other cash equivalent instruments such as money market mutual funds.
11.0 REPORTING
In accordance with California Government Code Section 53646(b)(1), the City Clerk shall submit to each member of the board of directors a quarterly investment report. The report shall include a complete description of the portfolio, the type of investments, the issuers, maturity dates, par values and the current market values of each component of the portfolio, including funds managed for the City of Ripon by third party contacted managers. The report will also include the source of the portfolio valuation. As specified in California government Code Section 53646(e), if all funds are placed in LAIF, FDICinsured 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 make in full compliance with the Investment Policy and, (2) the City of Ripon will meet expenditure obligations for the next six months as required by California Government Code 53646(b)(2) and (3) respectively. The City Clerk shall maintain a complete and timely record of all investment transactions.
12.0 INVESTMENT POLICY REVIEW AND MODIFICATION
The Policy shall be reviewed on an annual basis, and modifications must be approved by the board of directors.
Exhibit A
6 INVESTMENTS AUTHORIZED UNDER CALIFORNIA GOVERNMENT CODE SECTION 53601
CGC Investment Type Maximum Authorized Required
Section Maturity Limit (%) Rating
53601(a) Local Agency Bonds 5 Years None None
53601(b) U.S. Treasury Bills, Notes or 5 Years None None Bonds
53601(c)(d) State Registered Warrants, 5 Years None None Notes or Bonds
53601(e) Notes & Bonds of other Local 5 Years None None California Agencies
53601(f) U.S. Agencies 5 Years None None
53601(g) Bankers Acceptances1 180 Days 40% None
53601(h) Prime Commercial Paper2 270 Days 15% or 25% A1/P1 53601(i) Negotiable Certificates of 5 Years 30% None
Deposit
53601(j) Repurchase & Reverse Repurch. 1 yrs./92 None/20% None Agreements* days
53601(k) Medium Term Corporate Notes3
5 Years 30% A
53601(l) Money Market Mutual Funds 5 Years 15% 2-AAA
& Mutual Funds**
53601(n) Collateralized Bank Deposits 5 Years None None 53601(o) Mortgage Pass-Through 5 Years 20% AA
Securities
16429.1 Local Agency Investment N/A None None
Fund (LAIF)
27133 County Pooled Funds N/A None None
53601(p) Shares of a Joint Powers Authority N/A None None 53601(q) Supranational obligations 5 Years 30% AA
* See California Government Code Section 53601(j) for limits on use of reverse repurchase agreements. ** Mutual Funds maturity may be defined as the weighted average maturity; money market mutual funds must have an average maturity of 60 days or less, per SEC regulations. 1 No more than 30% of surplus funds may be invested by Bankers Acceptances of any on commercial bank.
2 30% if dollar weighted average maturity of all commercial paper does not exceed 31 days. Commercial paper issuers must be organized and operating w/i U.S. and have total assets in excess of $500 million, and have “A” or higher rating for issuer’s debt, other than commercial paper, by Moody’s or Standard and Poor’s.
No more than 10% of surplus funds may be invested in the commercial paper and the medium-term notes of any single issuer.
3 No more than 10% of surplus funds may be invested in the commercial paper and the medium-term notes of any single issuer.
Municipal Utility district investments are controlled by Municipal Utilities District Act (Div 6 commencing with Section 11501) of the Public Utilities Code)
Exhibit A