City of Union City
Investment Policy
Dated: July 1, 2026 January 1, 2025
CITY OF UNION CITY
INVESTMENT POLICY
Effective Date: January 1, 2025July 1, 2026
Policy Statement
Under authority granted by the City Council, the Finance Director is responsible for investing the surplus funds of the City. The intent of this Investment Policy is to formalize the framework for the investment activities that shall be exercised to ensure the effective and judicious fiscal and investment management of the City’s funds. The City’s portfolio shall be designed and managed in a manner that will provide a market rate of return consistent with the public trust and the prioritized objectives of safety, liquidity and yield.
Governing Authority
The City’s investment program shall be managed in conformance with federal, state and other legal requirements, including California Government Code (Government Code) Sections 16429.1 through 16429.4, and 53600 through 53686 (“State Law”). This Investment Policy is endorsed and adopted by the City Council with an effective date as indicated above. This Investment Policy shall replace all previous versions.
Scope
This Investment Policy applies to all financial assets of the City as accounted for in the annual comprehensive financial statements. Policy statements outlined in this Policy focus on the Cityʹs pooled surplus funds but will also apply to all other funds under the Finance Director’s span of control unless specifically exempted by resolution.
Proceeds arising from the issuance of debt shall be invested in accordance with the provisions of their governing bond documents and in a manner consistent with the City’s general investment philosophy as outlined in this Investment Policy. Retirement, pension funds, deferred compensation funds, and funds invested in irrevocable trusts dedicated to future payment of retirement and post‐employment benefit obligations (“IRS Code Section 115 Trusts”) are also not governed by this Investment Policy, but rather by the policies, trust documents, and federal or State statutes explicitly applicable to such funds.
Objectives
The prioritized objectives of the City’s investment program are to: 1) preserve principal (Safety), 2) ensure sufficient liquidity to meet operational and capital needs (Liquidity), and 3) generate a market rate of return (Return), as described below.
City of Union City
Investment Policy
Dated: July 1, 2026 January 1, 2025
1) Safety – Safety or preservation of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio and to mitigate credit risk (the risk of loss due to the failure of the security issuer or backer) and market risk (the risk that the market value of securities in the portfolio will fall due to changes in general interest rates).
2) Liquidity – An adequate percentage of the portfolio should be maintained in liquid short‐term securities which can be converted to cash, if necessary, to meet disbursement requirements that might be reasonably anticipated. Since all possible cash demands cannot be anticipated, the portfolio will consist largely of securities with active secondary or resale markets. A portion of the portfolio may be placed in money market mutual funds or local government investment pools which offer same‐day liquidity for short‐ term funds.
3) Yield or Return on Investment – The Cityʹs investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the Cityʹ s investment risk constraints and liquidity needs.
Return on investment is of secondary importance compared to the safety and liquidity objectives described above. The core of the investments is limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed.
Securities shall not be sold prior to maturity, except under the following circumstances:
Liquidity needs require that the security be sold;
A security with declining credit may be sold at the first notice of downgrading to minimize the loss of principal;
A security swap that will improve the quality yield, or target duration in the portfolio.
Managing Portfolio and Investment Risks
Safety of principal is the foremost investment objective of the City. Each investment transaction shall seek to ensure that capital losses are avoided, whether from securities default, broker/dealer default, or erosion of market value. The overall program shall be designed and managed with a degree of professionalism that is worthy of the public trust. In a diversified portfolio, it must be recognized that occasional measured losses are inevitable and must be considered within the context of the overall portfolio’s investment return, provided that adequate diversification has been implemented. The City shall seek to preserve principal by mitigating credit risk and market risk as set forth below.
City of Union City
Investment Policy
Dated: July 1, 2026 January 1, 2025
Mitigating Credit Risk
Credit risk is the risk that a security or a portfolio will lose some or all of its value due to a real or perceived change in the ability of the issuer to repay its debt. The City shall seek to mitigate credit risk by adopting the following strategies:
Adhering to the diversification requirements set forth in the Authorized Securities and Transactions section of this policy which limit the amount of the total portfolio that may be invested in any single issuer.
Utilizing an active management strategy that allows for the sale of securities prior to their scheduled maturity dates for purposes of improving the portfolio’s credit quality, liquidity, or yield in response to changing market conditions or City circumstances. Reviewing downgraded securities. Should the credit rating of a security owned by the City be downgraded to a level below that required by this Investment Policy, the City will review the credit situation and determine if such securities should be sold or retained in the portfolio based upon its remaining term to maturity, the credit outlook for the issuer, and other relevant facts and circumstances. Monitoring any downgraded securities. If the decision is made to retain a downgraded security, it will be closely monitored by the City and reported on quarterly to the City Council.
Mitigating Market Risk
Market risk is the risk that the value of a security or portfolio will fluctuate due to changes in the general level of interest rates. The City understands that while longer‐term portfolios have the potential to generate higher investment returns over time, they also exhibit a greater volatility of return. In addition, the City furtherrecognizes certain types of securities, including variable rate securities, securities with principal paydowns prior to maturity, and securities with embedded call options, will affect the market risk characteristics of the portfolio differently. Accordingly, the City will mitigate market risk by adopting the following strategies:
The City shall maintain sufficient balances in short‐term investments to provide liquidity for expected and contingent expenditures.
Liquidity funds shall be maintained in short‐term investments such as LAIF, deposit accounts collateralized in accordance with State Law, and money market funds and instruments with minimal market risk.
Longer‐term securities shall be scheduled to mature in advance of known expenditure requirements whenever possible.
The City shall avoid the purchase of securities for the sole purpose of short‐term speculation.
City of Union City
Investment Policy
Dated: July 1, 2026 January 1, 2025
The maximum stated final maturity of any security in the portfolio shall be five years, except as otherwise stated in this Investment Policy.
At least 10% of the portfolio must be invested in securities that mature in less than 1 year. The maximum percentage of callable securities (excluding securities with “make whole” call provisions) held in the portfolio shall be 30%. The weighted average duration of the actively managed portion of the portfolio, i.e. non liquidity funds, shall be calculated and maintained at a rate based upon the City’s risk tolerances and investment objectives.
Standard of Care
The standard of prudence to be used by City investment officials shall be the “Prudent Investor Standard” and shall be applied in the context of managing the overall portfolio. As set forth in California Government Code Section 53600.3, the Prudent Investor Standard states:
“…all governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard.
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. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law.”
Consistent with the objectives set forth in this Investment Policy, in addition to safeguarding invested principal and ensuring sufficient liquidity for the City, a prudent investor should also seek to optimize return or yield subject to these constraints.
Ethics and Conflicts of Interest
Investment officials involved in the investment process shall refrain from personal business activities that could conflict with proper execution of the investment program or could impair or create the appearance of an impairment of their ability to make impartial investment decisions. Employees and investment officials shall disclose to the City Manager any business interests they have in financial institutions that conduct business with the City and they shall subordinate their personal investment transactions to those of the City. The Finance Director and his/her designee shallfile a Statement ofEconomic Interests eachyearpursuantto California Government Code Section 87203 and regulations of the Fair Political Practices Commission.
City of Union City
Investment Policy
Dated: July 1, 2026 January 1, 2025
Delegation of Authority
The management responsibility for the Cityʹ s investment program is delegated to the Finance Director. The Finance Director, or his/her designee, shall participate in or conduct investment transactions and manage the operation of the investment portfolio. No person may engage in an investment transaction unless so authorized under the terms of this Investment Policy.
The Finance Director shall develop written administrative procedures and internal controls, consistent with this Investment Policy, forthe operation of the Cityʹs investment program. Such procedures shall be designed to prevent losses of public funds arising from fraud, employee error, misrepresentation by third parties, or imprudent actions by employees of the City.
The City may engage the support services of one or more outside investment advisers in regard to its investment program, so long as it can be clearly demonstrated that these services produce a net financial advantage or necessary financial protection of the Cityʹ s financial resources.
Such external managers may be granted discretion to purchase and sell investment securities in accordance with this Investment Policy. Such managers must be registered under the Investment Advisers Act of 1940.
Authorized Securities and Transactions
All investments and deposits of the City shall be made in accordance with State Law. Any revisions or extensions of applicable code sections in State Law will be assumed to be part of the Investment Policy immediately upon being enacted.
Authorized investments may include:
Investment Type
Maximum
Maturity at
Time of
Purchase
Maximum
Specified % of
Portfolio at Time
of Purchase Minimum Quality Requirements
Municipal bonds and
Obligations
5 years 30% “A” credit rating or higher at time of
purchase
US Treasury obligations 5 years None None
Federal agency obligations 5 years(1) None None
State of California
bonds and
obligations
5 years None None
Bankers’ acceptances 180 days 40%(2) ”A1” credit rating or higher at time of purchase; if the issuer has issued
long‐term debt, it must be rated “A”
without regard to modifiers
City of Union City
Investment Policy
Dated: July 1, 2026 January 1, 2025
Investment Type
Maximum
Maturity at
Time of
Purchase
Maximum
Specified % of
Portfolio at Time
of Purchase Minimum Quality Requirements
Commercial paper 270 397
days
25% of the
agency’s money(3)
“A‐1” credit rating or higher at time of
purchase; if the issuer has issued long‐
term debt, it must be rated “A” without
regard to Modifiers
Negotiable certificates
of deposit
5 years 30% None
All other bank/time
deposits(4)
5 years None None
Repurchase agreements 1 year None(5) None
Reverse repurchase
agreements and
securities lending
agreements
92 days 20% None(6)
Medium‐term
corporate notes
5 years 30% A rating(7)
Mutual funds N/A 20%(8) Multiple(9)
Money market
mutual funds
N/A 20% Multiple(10)
Collateralized bank
deposits
5 years None None
Local government
investment pools
N/A None None
State of California
Local Agency
Investment Fund
(LAIF)
N/A None(11) None
Mortgage or Asset‐
Backed Securities
(ABS)(12)
5 years or less
measured on
a weighted
average life
(WAL) basis
20% “AA” credit rating or its equivalent or
better by a Nationally Recognized
Statistical Rating Organization
(“NRSRO”)
Supranational
Obligations(13)
5 years 30% “AA” credit rating or its equivalent or
better by a NRSRO
Joint Powers
Authority Pools(14)
N/A None Multiple(15)
(1) Maturity of Agency ABS/MBS securities shall be measured by Weighted‐Average‐Life (WAL), which is not to exceed 5 years.
(2) No more than 30% of portfolio or 10% of the surplus funds may be in Bankers’ acceptances of any one commercial bank.
(3) Commercial paper issuers must be U.S. corporations with total assets in excess of $500 million.
City of Union City
Investment Policy
Dated: July 1, 2026 January 1, 2025
Purchases may not represent more than 10% of the outstanding paper of the issuing corporation. (4) This category may also include federally insured time deposits, collateralized time deposits, and certificate of deposit placement services (CDARS).
(5) The collateralization levelrequired forrepurchase agreements will be 102% of market value of principal and accrued interest. The City must have a Master Repurchase Agreement signed with the bank or dealer.
(6) Reverse repurchase agreements must be made with primary dealers of the Federal Reserve Bank of New York and the securities used for the agreements must have been held by the issuer for at least 30 days.
(7) “A” or equivalent rating by at least one Nationally Recognized Statistical Rating Organization (NRSRO). Split‐ rated corporate bonds are permissible, meaning an investable bond can be rated “A” by one rating agency and “BBB” by another.
(8) No more than 10% of the City’s portfolio or surplus funds may be invested in any one mutual fund. (9) Must receive the highest ranking by two NRSROs or the fund must retain an investment adviser who is registered with the Securities and Exchange Commission (SEC) (or exempt from registration), has assets under management in excess of $500 million, and has at least 5 years of experience investing in instruments authorized by California Government Code Sections 53601 and 53635. (10) Must receive the highest ranking by two NRSROs or the fund must retain an investment adviser who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least 5 years of experience managing money market funds. (11) The maximum amount invested in this category may not exceed the limit set by LAIF for operating accounts. For 2026, that deposit limit is $75 million.
(12) Issuer must have an A rating or better for the issuer’s debt as provided by one NRSRO. Investments include mortgage pass‐through securities, collateralized mortgage obligations, mortgage‐backed or other pay‐through bonds, equipment lease‐backed certificates, consumer receivable pass‐through certificates, or consumer receivable‐backed bonds.
(13) 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, and eligible for purchase and sale within the United States.
(14) Shares of beneficial interest issued by a joint powers authority organized pursuant to California Government Code Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a) to (q) of California Government Code Section 53601, inclusive. Each share will represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority.
(15) To be eligible under this section, the joint powers authority issuing the shares will have retained an investment adviser that meets all of the following criteria: a) The adviser is registered or exempt from registration with the Securities and Exchange Commission; b) The adviser has not less than five years of experience investing in the securities and obligations authorized in subdivisions (a) to (q) California Government Code Section 53601, inclusive, and c) The adviser has assets under management in excess of $500 million.
It is the intent of the City that the foregoing list of authorized securities and transactions is strictly interpreted. However, any investment that subsequently fails to meet the requirements City of Union City
Investment Policy
Dated: July 1, 2026 January 1, 2025
listed in the table above may be held to maturity if, in the opinion of the Finance Director, it is in the Cityʹs bestinteresttodo so.Ifthe decision is made to retain such a security, it will be closely monitored by the Finance Director and reported to the City Council on a monthly basis. When the investment matures or is liquidated, the proceeds shall be reinvested only as provided by this Investment Policy.
Under Resolution No. 3262‐06, dated October 16, 2006, the City Council authorized the use of any portion of the Cityʹs pooled cash to fund the Employee Housing Assistance Program.
Home loans approved under this program shall be secured by a Deed of Trust and shall bear a variable rate of interest at the same rate as City funds deposited with the Local Agency Investment Fund (LAIF).
Prohibited Investments and Practices
Provided below are certain prohibited investments and investment practices intended to help safeguard invested balances:
Investments not specifically described as Authorized Securities and Transactions in this Policy are prohibited.
In accordance with California Government Code Section 53601.6, investments in inverse floaters, range notes, mortgage‐derived interest‐only strips, and any security that could result in zero interest accrual if held to maturity are prohibited. The purchase or sale of securities on margin is prohibited. The purchase of securities denominated in foreign currencies is prohibited. The purchase or sale of securities done solely to speculate on the direction of future interest rates is prohibited.
Any investment currently held that does not meet the guidelines of this policy shall be exempted from the requirements of this policy. At maturity or liquidation, any such monies shall be reinvested only as provided for in this Policy.
Portfolio Maturities and Liquidities
To the extent possible, investments shall be matched with anticipated cash flow requirements and known future liabilities. At least 10% of the portfolio must be invested in securities that mature in less than one year and the City will not invest in securities maturing more than five years from the date of purchase. The weighted average maturity of the investment portfolio shall not be more than three years. Both Agency and Non‐Agency Mortgage‐Backed Securities and Asset‐Backed Securities may be measured by their Weighted‐Average‐Life when determining allowable maturity limits. Reserve funds and other funds with longer‐term investment horizons may be invested in securities exceeding five years if the maturities are made to coincide as nearly as practical with the expected use of funds, and the City Council City of Union City
Investment Policy
Dated: July 1, 2026 January 1, 2025
has, by resolution, granted authority to make such an investment.
Portfolio Performance
The investment portfolio shall be designed to attain a market rate of return throughout budgetary and economic cycles, taking into account prevailing market conditions, risk constraints for eligible securities and cash flow requirements. The performance of the Cityʹ s investments shall be compared to the average yield on the Local Agency Investment Fund, assuming the State does not adversely affect LAIFʹs returns due to budget constraints.
Selection of Brokers/Dealers
The Finance Director shall maintain a list of broker/dealers approved for investment purposes and it shall be the policy of the City to purchase securities only from those authorized firms.
These may include “primary” dealers or regional dealers that qualify under the Securities and Exchange Commission (“SEC”) Rule 15c3‐1 (uniform net capital rule).
Institutions eligible to transact investment business with the City must be licensed by the State of California as a broker/dealer as defined in Section 25004 of the California Corporations Code and may include:
Primary Government Dealers as designated by the Federal Reserve Bank; Regional broker/dealers qualified under SEC Rule 15c3‐1; National or state‐chartered banks;
The Federal Reserve Bank; or
Direct issuers of securities eligible for purchase.
Each authorized broker/dealer shall be required to submit and periodically update a City‐ approved Broker/Dealer Information Request form that includes the firmʹs most recent financial statements. The Finance Director shall maintain a list of the broker/dealers that have been approved by the City, along with each firmʹs most recent broker/dealer Information Request form. Each broker/dealer shall receive a copy of the Investment Policy and a list of those authorized to execute investment transactions. Each firm must acknowledge receipt of such materials to qualify for the approved list of broker/dealers.
The City may purchase commercial paper from direct issuers even though they are not on the approved broker/dealer list as long as the investment meets the criteria set forth in the Authorized Securities and Transactions section of this Investment Policy.
Selection of Banks
The Finance Director shall maintain a list of banks approved to provide depository and other banking services for the City. To be eligible, a bank must be a member of the Federal Deposit City of Union City
Investment Policy
Dated: July 1, 2026 January 1, 2025
Insurance Corporation (FDIC), must qualify as a depository of public funds in the State of California, as defined in California Government Code Section 53630. 5, and shall secure deposits in excess of FDIC insurance coverage in accordance with California Government Code Section 53652.
Safekeeping and Custody
Third‐Party Safekeeping
To protect against fraud, embezzlement, or losses caused by the collapse of an individual securities dealer and to enhance access to securities and interest payments, all securities owned by the City shall be held in safekeeping by a third‐party bank trust department acting as agent for the City under the terms of a duly executed custody agreement. In connection with the City’s annual independent audit, securities held in custody are audited to verify investment holdings. All exceptions to this safekeeping policy must be approved by the Finance Director in written form and be included in the quarterly reporting to the City Council.
Delivery‐Versus‐Payment
All trades of marketable securities shall be cleared and settled on a standard delivery‐versus‐ payment (“DVP”) basis to ensure that securities are deposited in the City’s safekeeping account prior to the release of funds.
Internal Controls
The Finance Director is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft or misuse.
The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived and the valuation of costs and benefits requires estimates and judgments by management.
Accordingly, the Finance Director shall establish a process for an annual independent review by an external auditor to assure compliance with policies and procedures. The internal control shall address the following points:
Control of collusion;
Separation of transaction authority from accounting and recordkeeping; Custodial safekeeping;
Avoidance of physical delivery of securities;
Clear delegation of authority to subordinate staff members; Written confirmation of transactions for investment and wire transactions; and Development of a wire transfer agreement with the lead bank and third‐party custodian.
City of Union City
Investment Policy
Dated: July 1, 2026 January 1, 2025
Reporting
The Finance Director shall submit investment reports quarterly to the City Council which should include a list of the portfolio’s holdings by investment asset class, name of institution, purchase date, maturity date, call date, par value, amount of deposit or cost of security, amortized book value, current market value of securities, coupon and effective yield. In addition, the report will indicate the portfolio’s duration, total weighted average maturity and yield. The report will be signed and mandated in compliance with California Government Code Sections 53607 and 53646.
Weighted‐Average‐Life (WAL)
The weighted‐average‐life (WAL) of each structured security shall be monitored on an ongoing basis to ensure compliance with the individual 5‐year WAL limitation. WAL measures the average length of time for anticipated principal repayments and serves as a primary metric for evaluating interest rate risk, prepayment risk, and extension risk, calculated using proprietary models that incorporate security‐level assumptions and macroeconomic inputs. All WAL data shall be maintained forrecord‐keeping purposes. Securities with a WAL greaterthan four years shall be monitored monthly for reporting trends, and any security with a WAL greater than five years shall be flagged for immediate review to determine whether the security shall be held or liquidated based on prevailing risk and market conditions.
Investment Earnings
With the exception of monies held in certain restricted and special funds, the City commingles its investable assets to maximize interest earnings and to increase efficiencies with respect to investment pricing, safekeeping, and administration. Investment income will be allocated to the various funds based on their respective percentage of participation in the total fund and in accordance with generally accepted accounting principles and State Law.
Policy Review
The City of Union Cityʹs Investment Policy shall be adopted by City Council resolution. It shall be reviewed at least annually by the Finance Director to ensure its consistency with the Cityʹs overall investment objectives and its relevance to current law and economic trends. The Investment Policy, including any recommended amendments, shall be submitted to City Council annually for approval and adoption by resolution.