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HomeMy WebLinkAboutMINUTES - 06172008 - C.118 k TO: BOARD OF SUPERVISORS �?�-��� ��. Contra A/ FROM: William J. Pollacek, Treasurer-Tax Collector Costa x,�._ s•��_ _ .off DATE: June 17, 2008 �oU- County SUBJECT: TREASURER'S INVESTMENT POLICY as of May 20, 20 SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND-AND JUSTIFICATION Recommendation: ACCEPT the Treasurer's Investment Policy as of June 1,, 2008, with changes adopted on May 20, 2008 by the Treasury Oversight Committee. BACKGROUND/REASON (S) FOR RECOMMENDATION (S): Pursuant to Government Code Section 27133, at the May 20, 2008 Treasury Oversight Committee meeting, the Committee reviewed and recommended the acceptance of the attached updated policy which incorporates recent legal changes and mandates. Copies of the Treasurer's Investment Policy dated June 1 , 2008 are submitted to the Board of Supervisors for review and acceptance. WJP:mb Attachment CONTINUED ON ATTACHMENT: v YES SIGNATURE: RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATI F OARD COMMITTEE APPROVE OTHER r SIGNATURE(S): ey n ACTION OF BO R ON �ur��i { IU APPROVED AS RECOMMENDED OT�ER VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE AND CORRECT COPY OF AN ACTION TAKEN AND ENTERED ON MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE SHOWN. I UNANIMOUS(ABSENT ) AYES: NOES: ABSENT: ABSTAIN: Contact: pp rr r1 Cc: ATTESTED Treasurer-Tax Collectors Office JOHN CULLEN,CLERK OF THE BOARD OFSUPERVISORS AND COUNTY ADMINISTRATOR BY: �C(oma DEPUTY br� k F� y�T � 1 CONTRA COSTA COUNTY TREASURER-TAX COLLECTOR 625 COURT STREET, ROOM 102 MARTINEZ, CA 94553 Date: May 12, 2008 To: Treasury Oversight Committee From: Brice E. Bins, Assistant Treasure Re: Investment Policy for fiscal year 2008-2009 The following information summarizes the revisions and/or changes that effect the Investment Policy for the fiscal year 2007-2008. Section Page Comment 1. Further Restrictions Set by 10 Revise for consistency with Government Code Treasurer Section 53652. 2. Further Amendments to the 15 Revise to adjust for amount consistent with Conflict of Interest Codes Government Code Section 89503(f). �I + \ ' t CONTRA COSTA COUNTY TREASURER-TAX COLLECTOR 625 COURT STREET, ROOM 102 MARTINEZ, CA 94553 Date: May 12, 2008 To: Treasury Oversight Committee From: Brice E. Bins, Assistant Treasure Re: Investment Policy for fiscal year 2008-2009 The following information summarizes the revisions and/or changes that effect the Investment Policy for the fiscal year 2007-2008. Section Page Comment 1. Further Restrictions Set by 10 Revise for consistency with Government Code Treasurer Section 53652. 2. Further Amendments to the 15 Revise to adjust for amount consistent with Conflict of Interest Codes Government Code Section 89503 ft Attached are the revised sections in the content of the current investment policy. The changes or additions are underlined. Deletion of existing text is notated in the right margin and references the deleted text. Outside Border marks indicate any type of change. 1. CONTRA COSTA COUNTY INVESTMENT POLICY Deleted:2007 JUNE. ............-- 1 - CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 amount equal to the reasonable costs incurred in carrying out the provisions of this section, not to exceed a maximum of one-half of one percent of the earnings of this fund, shall be deducted from the earnings prior to distribution. The amount of this deduction shall be credited as reimbursements to the state agencies having incurred costs in carrying out the provisions of this section. (m) The Treasurer shall prepare for distribution a monthly report of investments made during the preceding month. FURTHER RESTRICTIONS/LIMITATIONS BY GOVERNMENT CODE AND COUNTY TREASURER Further Restrictions Set by Treasurer A. Reverse repurchase agreements will be used strictly for the purpose of supplementing income with a limit of 10 percent of the total portfolio without prior approval of the Treasurer. B. Swaps and Trades will each be approved on a per-trade basis by Treasurer or Assistant Treasurer. C. SBA loans require prior approval of the Treasurer in every transaction. D. Repurchase Agreements will generally be limited to Wells Fargo Bank, Bank of America or other institutions with whom,the County treasury has executed tri-party agreements. Collateral will be held by a third party to the transaction that may include the trust department of particular banks. Collateral will be only securities that comply with Government Code 53601. . E. Securities purchased through brokers will be held in safekeeping at The Bank of New York Trust Company, N.A. or as designated by the specific contract(s) for government securities and tri-party repurchase agreements. F. Bank C.D.s or non-negotiable C.D.s will be collateralized at 110 percent_ by (Deletea:105 government securities or 150 percent by current mortgages. There will be no waiver of the first$100,000 collateral except by special arrangement with the Treasurer. G. All investments purchased by the Treasurer's Office shall be of investment.grade. The minimum .credit rating of purchased investments shall be as defined by Government Code 53600 et. seq. H. All legal securities issued by a tobacco-related company are prohibited. A tobacco- related company is defined as an entity that makes smoking products from tobacco used in cigarettes, cigars or snuff or for smoking in pipes or a company that has total 10 r CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 FURTHER AMENDMENTS TO THE CONFLICT OF INTEREST CODES (Per a Contra Costa County Board of Supervisors' Order dated February 6, 1996) Amend all local Conflict of Interest Codes as follows: Pursuant to Government Code Sections 87302 and 87306 et. seq., this Board hereby amends every local Conflict of Interest Code previously approved by the Board of Supervisors to add the following: "All other provisions of this Code notwithstanding, the following provisions hereafter apply: 1. No designated employee shall accept any honorarium. Subdivisions (b), (c) and (e) of Government Code Section 89502 shall apply to the prohibitions in this Section. This Section shall not limit or prohibit payments, advances or reimbursements for travel and related lodging and subsistence authorized by Government Code Section 89506. 2. No designated employee shall accept any gifts with a total value of more than three hundrediP nem dollars ( 90) in a calendar year from any single source. -- Deleted:twenty __... Deleted:320 Subdivision (d) of Government Code Section 89504 shall apply to this Section." This amendment is necessary to assure that all local codes comply with recent amendments to Government Code Section 89502. 15 fr. CONTRA COSTA, COUNTY INVESTMENT POLICY NE 2 JU008 1 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 STANDARDS AND OBJECTIVES §53600.3.' Standard for Governing Bodies or Persons Authorized to Make Investment Decisions for Local Agencies 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, 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 to an overall strategy, investments may be acquired as authorized by law. §53600.5. Trustee's Objectives Regarding Funds When investing, reinvesting, purchasing, acquiring, exchanging, selling or managing public funds, the primary objective of a trustee shall be to safeguard the principal of the funds under its control. The secondary objective shall be to meet the liquidity needs of the depositor. The third objective shall be to achieve a return on the funds under its controls. Number refers to Government Code number and section. 2 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 INSTRUMENTS AUTHORIZED FOR INVESTMENT 653601. Instruments Authorized for Investment A. Bonds issued by the local agencies, 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. B. United States 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. C. Registered state warrants or 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. D. Bonds, notes, warrants or other evidences of indebtedness of any local agency within this state, 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. E. 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 or United States government-sponsored enterprises. F. Bankers acceptances otherwise known as bills of exchange or time draft drawn on and accepted by a commercial bank. Purchases of banker's acceptances may not exceed 180 days' maturity or 40 percent of the agency's money that may be invested pursuant to this section. However, no more than 30 percent of the agency's money may be invested in the banker's acceptances of any one commercial bank pursuant to this section. This subdivision does not preclude a municipal utility district from investing any money in its treasury in any manner authorized by the Municipal Utility District Act (Division 6, commencing with Section 11501, of the Public Utilities Code). G. Commercial paper of "prime" quality of the highest ranking or of the highest letter and number rating as provided for by a nationally recognized- statistical-rating organization (NRSRO). The entity that issues the commercial paper shall meet all of the following conditions in either paragraph (1) or paragraph (2): (1) The entity meets the following criteria: (A) Is organized and operating in the United States as a general corporation. (B) Has total assets in excess of five hundred million dollars ($500,000,000). 3 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 (C) Has debt other than commercial paper, if any, that is rated "A" or higher by a nationally recognized statistical-rating organization (NRSRO). (2) The entity, meets the following criteria: (A) Is organized within the ,United States as a special purpose corporation, trust, or limited liability company. (B) Has program wide credit enhancements including, but not limited to, over collateralization, letters of credit, or surety bond. (C) Has commercial paper that is rated "A-1" or higher, or the equivalent, by a nationally recognized statistical-rating organization (NRSRO). Eligible commercial paper shall have a maximum maturity of 270 days or less. Local agencies, other than counties or a city and county, may invest no more than 25 percent of their money in commercial. paper. Counties or a city and county may I invest in commercial paper pursuant to the concentration limits in subdivision (a) of Section 53635. Following are the concentration limits (Government Code Section 53635, subdivision (a)): 1. Not more than 40 percent of the local agency's money may be invested in eligible commercial paper. 2. Not more than 10 percent of the total assets of the investments held by a local agency may be invested in any one issuer's commercial paper. H. Negotiable certificates of deposit issued by a nationally- or state-chartered bank or a savings association or federal association (as defined by Section 5102 of the Financial Code), 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 that may be invested pursuant to this section. For purposes of!this section, negotiable certificates of deposits do not come within Article 2 (commencing with Section 53630), except that the amount so invested shall be subject t6the limitations of Section 53638. The legislative body of a local agency and the treasurer or other official of the local agency having legal custody of the money are prohibited from investing local agency funds, or funds in the custody of the local agency, in negotiable certificates of deposit issued by a state or federal credit union if a member of the legislative body of the local agency, or any person with investment decision making authority in the administrative office manager's office, budget office, auditor-controller's office, or treasurer's office of the local agency also ,serves on the board of directors, or any committee appointed by the board of directors, or the credit committee or the supervisory committee of the state or federal credit union issuing the negotiable certificates of deposit. I. Investments in repurchase agreements or reverse repurchase agreements of any securities authorized by this section, as long as the agreements are subject to this subdivision, including the delivery requirements specified in this section. 1. "Repurchase agreement" means a purchase of securities by the local agency pursuant to an agreement by which the counterparty seller will repurchase the 4 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 securities on or before a specified date and for a specified amount and the counterparty will deliver the underlying securities to the local agency by book entry, physical delivery, or by third-party custodial agreement. The transfer of underlying securities to the counterparty bank's customer book-entry account may be used for book-entry delivery. a. "Securities," for purpose of repurchase under this .subdivision, means securities of the same issuer, description, issue date and maturity. b. Investments in repurchase agreements may be made on any investment authorized in this section when the term of the agreement does not exceed one year. The market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. Since the market value of the underlying securities is subject to daily market fluctuations, the investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. 2. "Reverse repurchase agreement" means a sale of securities by the local agency pursuant to an agreement by which the local agency will repurchase the securities on or before a specified date and includes other comparable agreements. Reverse repurchase agreements may be utilized only when all of the following conditions are met: The security to be sold on reverse repurchase agreement has been owned and fully paid for by the local agency for a minimum of 30 days prior to sale; the total of all reverse repurchase agreements on investments.owned by the local agency does not exceed 20 percent of the base value of the portfolio; the agreement does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement and the final maturity date of the same security. Investments in reverse repurchase agreements shall only be made with primary dealers of the Federal Reserve Bank of New York, or with a nationally- or state-chartered bank that has or has had a significant banking relationship with a local agency..."Significant banking relationship" means any of the following activities of a bank: a. Involvement in the creation, sale, purchase, or retirement of a local agency's bonds, notes, or other evidence of indebtedness. 5 li CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 b. Financing of a local agency's activities. c. AccepI tance of a local agency's securities or funds as deposits. J. Medium-term notes of a maximum of five-years maturity issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment I' under this subdivision shall be rated in a rating category of "A" or its equivalent or'better by a nationally-recognized rating service. Purchases of medium-term notes may not exceed 30 percent of the agency's money that may be invested pursuant to this section. K. 1. Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subdivisions (a) to 0), inclusive, or subdivision (m) or (n) and that comply with the investment restrictions of this article and Article 2. i 2. 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.). 3. If investment is in shares issued pursuant to paragraph (2), the company shall have met 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. b. Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience managing money market mutual funds with assets under, management in excess of five. hundred million dollars ($500,000,000). 4. The purchase price of shares of beneficial interest purchased pursuant to this subdivision shall not include any commission that the companies may charge and shall not exceed 20 percent of the agency's money that may be invested pursuant to this section. However, no more than 10 percent of the agency's funds may be invested in shares of beneficial interest of any one mutual fund pursuant to paragraph (1). L. Moneys held by a trustee or fiscal agent and pledged to the payment of security of bonds or 'other indebtedness, or obligations under a lease, installment sale, or other agreement of a local agency, or certificates of participation in those bonds, 6 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 indebtedness, or lease installment sale, or other agreements, may be invested in accordance with the statutory provisions governing the° issuance of those bonds, indebtedness, or lease installment sale, or other agreement, or to the extent not inconsistent therewith or if there are not specific statutory provision, in accordance with the ordinance, resolution, indenture, or agreement of the local agency providing for the issuance. M. Notes, bonds, or other obligations that are.at all times secured by a valid first- priority security interest in securities of the types .listed by Section 53651 as eligible securities for the purpose of securing local agency deposits having a market value at least equal to that required by Section 53652 for the purpose of securing local agency deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank that is not affiliated with the issuer of the secured iobligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. N. Any mortgage pass-through security, collaterialized mortgage obligation, mortgage-backed or other pay-through bond, equipment lease-backed certificate, consumer receivable . pass-through certificate, or consumer receivable-backed bond of a maximum of five years' maturity. Securities eligible for investment under this subdivision shall be issued by an issuer having an "A" or higher rating for the issuer's debt as provided by a nationally recognized rating service and rated in a rating category of "AA" or its equivalent or better by a nationally recognized rating service. Purchase of securities authorized by this subdivision may not exceed 20 percent of the agency's surplus money that may be invested pursuant to this section. O. Shares of beneficial interest issued by a joint powers authority organized pursuant to Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a) to (n) , inclusive. Each share shall represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. To be eligible under this section, the joint powers authority issuing shares shall have retained an investment adviser that meets all of the following criteria: (1) The adviser is registered or exempt from registration with the Securities and Exchange Commission. (2) The adviser has "not less than five years of experience. investing in the securities and obligations authorized in subdivisions (a) to"(n) inclusive. (3) The adviser has assets under management in excess of five hundred million dollars ($500,000,000). 7 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 P. Local Agency Investments — LAIF - (All references in this section to the Treasurer and the Controller pertain to the State Treasurer and the State Controller). §16305.9. (a) All money, in the Local Agency Investment Fund shall be held in trust in the custody of the Treasurer. (b)I All money in the Local Agency Investment Fund is nonstate money. That money shall be held in a trust account or accounts. The Controller shall be responsible for maintaining,those accounts to record the Treasurer's accountability, and shall maintain a separate account for each trust deposit in the Local Agency Investment Fund. (c); That money shall be subject to audit by the Department of Finance and to cash count as provided for in Sections 13297,13298, and 13299. It may be withdrawn only..upon the,order of the depositing entity or its disbursing officers. ,The system that the Director of Finance has established for the handling,,,receiving, holding, and disbursing of state agency money shall also be used for the money in the Local Agency Investment Fund. (d)� All money in the Local Agency Investment Fund shall be deposited, invested and reinvested in the same manner and to the same extent as if it were state money in the State Treasury. §16429.1. Existence and Appropriation of Fund; Investment and. Distribution of Deposits (a) There is in trust in the custody of the Treasurer the Local Agency Investme t Fund, which fund is hereby created. The Controller shall maintain a separate account for each governmental unit having deposits in this fund. (b) Notwithstanding any other provisions of law, a local governmental official, with the consent of the governing body of that-agency, having money in its treasury not required for immediate needs, may remit the money to. the Treasurer] for deposit in the Local Agency Investment Fund for the purpose of investment. (c) Notwithstanding any other provisions of law, an officer of any nonprofit corporation whose membership is confined to public agencies or public officials, or an officer of a qualified quasi-governmental agency, with the consent of the governing body of that agency, having money in its treasury not required for immediate needs, may remit the money to the Treasurer for deposit in the Local Agency.lnvestment Fund for the purpose of investment. (d) Notwithstanding any other provision of law or of.this section, a local agency, with the approval of its governing body, may deposit in the Local Agency Investment Fund proceeds of the issuance of bonds, notes, certificates of participation, or other evidences of indebtedness of the agency pending 8 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 expenditure of the proceeds for the authorized purpose of their issuance. In connection with these deposits of proceeds, the Local Agency Investment Fund is authorized to receive and disburse moneys, and to provide information, directly with or to an authorized officer of a trustee or fiscal agency engaged by the local agency, the Local Agency Investment Fund is authorized to hold investments in the name and for the account of that trustee or fiscal agent, and the Controller shall maintain a separate account for each deposit of proceeds. (e) The local governmental unit, the nonprofit corporation, or the quasi- governmental agency has the exclusive determination of the length of time its money will be on deposit with the Treasurer. (f) The trustee or fiscal agent of the local governmental unit has the exclusive determination of the length of time proceeds from the issuance of bonds will be on deposit with the Treasurer. (g) The Local Investment Advisory Board shall determine those quasi- governmental agencies which qualify to participate in the Local Agency Investment Fund. (h) The Treasurer may refuse to accept deposits into the fund if, in the judgement of the Treasurer, the deposit would adversely affect the state's portfolio. (i) The Treasurer may invest the money of the fund in securities prescribed in Section 16430. The Treasurer may elect to have the money of the fund invested through the Surplus Money Investment Fund as provided in Article 4 (commencing with Section 16470) of Chapter 3 of Part 2 of Division 4 of Title 2. Q) Money in the fund shall be invested to achieve the objective of the fund, that is to realize the maximum return consistent with safe and prudent treasury management. (k) All instruments of title of all investments of the fund shall remain in the Treasurer's vault or be held in safekeeping under control of the Treasurer in any federal reserve bank, or any branch thereof, or the Federal Home Loan Bank of San Francisco, with any trust company, or the trust department of any state or national bank. (1) Immediately at the conclusion of each calendar quarter, all interest earned and other increment derived from investments shall be distributed by the Controller to the contributing governmental units or trustees or fiscal agents, nonprofit corporations, and quasi-governmental agencies in amounts directly proportionate to the respective amounts deposited in the Local Agency Investment fund and the length of time the amounts remained therein: An 9 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 amount equal to the reasonable costs incurred in carrying out the provisions of this section, not to exceed a'maximum of one-half of one percent of the earnings of this fund, shall be deducted from the earnings prior to distribution. The amount of this deduction shall be credited as reimbursements to the state agencies having incurred costs in carrying out the provisions of this section.. (m) The Treasurer shall prepare for distribution a monthly report of investments made during the preceding month. FURTHER RESTRICTIONS/LIMITATIONS BY GOVERNMENT CODE AND COUNTY TREASURER Further Restrictions Set by Treasurer A. Reverse repurchase agreements will be used strictly for the purpose of supplementing income with a limit of 10 percent of the total portfolio without prior approval of the Treasurer. B. Swaps and Trades will each be approved on a per-trade basis by Treasurer or Assistant Treasurer. C. SBA loans reiquire prior approval of the Treasurer in every transaction. D. Repurchase (Agreements will generally be limited to Wells .Fargo Bank, Bank of America or other institutions with whom the County treasury has executed tri-party agreements. Collateral will be held by a third party to the transaction that may include the trust department of particular banks. Collateral will be only securities that comply with Government Code 53601. E. Securities purchased through «brokers will be held in safekeeping at The Bank of New York Trust Company, N.A. or as designated by the specific contract(s) for government securities and tri-party repurchase agreements. F. Bank C.D.s I or non-negotiable C.D.s will be collateralized at 110 percent by government securities or 150 percent by current mortgages. There will be no waiver of the first $1'00,000 collateral except by special arrangement with the Treasurer. G. All investments purchased by ,the Treasurer's Office shall be of investment grade. The minimum credit rating. of purchased investments shall be as defined by GovernmentCode 53600 et. seq. . H. All legal securities issued by a tobacco-related company are prohibited. A tobacco- related company is defined as'an entity that makes smoking products from tobacco used in cigarettes, cigars or snuff or for smoking in pipes or a company that has total 10 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 revenues of 15 percent or more from the sale of such products. The tobacco-related issuers restricted from any investment are British American Tobacco, Gallaher Group PLC, Imasco Ltd., Lowes Companies, ALTRIA Group, Inc., RJ Reynolds Tobacco Holdings, Inc., Brooke Groupe LTD., UST, Inc. and Universal Corp. However, tobacco-related companies will not be limited to the foregoing list. Additional companies will be prohibited as long as said entities fall within the definition of tobacco-related companies. I. Financial futures or financial option contracts will each be approved on a per trade basis by the County Treasurer. J. No more than 10 percent of the .local agency's money may be invested in the outstanding commercial paper of any single issuer. K. No more than 10 percent of the outstanding commercial paper ofany single issuer may be purchased by the local agency. 453601.6. Prohibited Investments by Government Code A. A local agency shall not invest any funds..pursuant to this Article or pursuant to Article 2 (commencing with Section 53630) in inverse floaters, range notes or interest-only strips that are derived from a pool of mortgages. B. A local agency shall not invest any funds pursuant to this article or pursuant to Article 2 (commencing with Section 53630)in any security that could result in zero interest accrual if held to maturity. However, a local agency may hold prohibited instruments until their maturity dates. The limitation in this subdivision shall not apply to local agency investments in shares of beneficial interest issued by diversified management companies registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1,et seq.) that are authorized for investment pursuant to subdivision (k) of Section 53601. §53601. Instruments Authorized for Investments: Maturity Where this section does not specify a limitation on the term or remaining maturity at the time of the investment, no investment shall be made in any security, other than a security underlying a repurchase or reverse repurchase agreement authorized by this section, that at the time of the investment has a term remaining to maturity in excess of five years, unless the legislative body has.granted express authority to make that investment either specifically or as a part of an investment program approved by the legislative body no less than three months prior to the investment. 11 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 Quality of Investment Instruments, Issuers and Sources Regular financial review and analysis 'of issuers and sources of securities such as banks and brokerage firms shall be performed. These will be based on credit-rating services' evaluations, financial documents such as audits, Form 10-Q filings to the Securities and Exchange Commission and other reliable financial information. SAFEKEEPING AND CUSTODY 453601. Instruments Authorized for Investment A local agency purchasing or obtaining any securities prescribed in this section, in a negotiable, bearer, registered or non-registered format, shall require delivery of the securities to the local agency, including. those purchased for the agency by financial advisors, consultants or managers using the agency's funds, by-book entry, physical delivery or by third-party custodial agreement. The transfer of securities to the counterparty bank's customer book-entry account may be used for book-entry delivery. For purposes of this section, "counterparty" means the other party to the transaction. A counterparty bank's trust department or separate safekeeping department may be used for the physical delivery of the security if the security is held in the name of the local agency. Where this section specifies a percentage limitation for a particular category of investment, that percentage is applicable only at the date of purchase. Where this section does not specify a limitation on.the term of remaining maturity at the time of the investment, no investment shall' be made in any security other than a .security underlying a repurchase or reverse repurchase agreement authorized by this section. In compliance with this section, the securities of Contra Costa County and its agencies shall be in safekeeping at The Bank of New York Trust Company, N. A., a counterparty bank's trust department or as defined in the debt indenture and contract. 12 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 AUTHORIZED BROKERS AND DEALERS Securities for Contra, Costa County and its agencies shall be purchased from the following: • Primary dealers of the Federal Reserve Bank of New York and their subcontracts. • Banks and financial institutions that sell and buy instruments authorized for investments per Government Code 53600 et. seq. and their subcontracts. • Issuers of securities authorized by Government Code 53601 et. seq. Securities shall not be purchased from brokers, brokerages, dealers or securities firms who within any 48-month period following January 1, 1996, made a political contribution to the local treasurer, any member of the governing board of the local agency or any candidate for those offices in an amount exceeding the limitations contained in Rule G-37 of the Municipal Securities Rulemaking Board. LIMITS ON THE RECEIPT OF HONORARIA, GIFTS AND GRATUITIES Gift Prohibitions All state and local officials who are listed in Government Code Section 87200, and candidates for those elective offices (except judges), are prohibited from accepting a gift or gifts aggregating more than as stated in California Government Code §89502(a) and §89503(f) in a calendar year from a single source. Beginning on January 1, 1993, the State Fair Political Practices Commission shall adjust the gift limitations in this section on January 1gt of each odd-numbered year to reflect changes in the Consumer Price Index rounded to the nearest ten dollars ($10). §89503(f) Honorarium Prohibition All state and local officials who are listed in Government Code Section. 87200, and candidates for those elective offices (except judges), are prohibited from accepting any honorarium for any speech given, article published or attendance at any public or private conference, convention, meeting, social event, meal or like gathering. 13 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 Exceptions • The gift limit and honorarium prohibitions do not apply to a part-time member of the governing board of a public institution of higher education unless the member is also an elected official. For state board and commission members, the gift limit and honorarium prohibition are applicable only if the member would be required to report the receipt.of income or gifts from the source on his or her statement of economic interests. The $10 gift limit is applicable only to lobbyists and lobbying firms registered to lobby the board or commission member's agency. Disqualification Public officials are, under certain circumstances, required to disqualify themselves from making, participating in, or attempting to influence governmental decisions that will affect any of their financial interests, not just those that they are required to disclose on a statement of economic interests. Enforcement The Fair Political Practices Commission may impose ,penalties for statements of economic interests that are filed late. The fine is $10 per day, beginning .the day after the filing deadline, up to a maximum of $100. Late-filing penalties can be reduced or waived under certain circumstances. In addition, the Fair Political practices Commission may initiate investigations with respect to any suspected violation, of the Political Reform Act. Other law enforcement agencies (the Attorney General or District Attorney) may initiate investigations under certain circumstances. If violations are found, the Commission may initiate administrative enforcement proceedings that could result in the imposition of monetary penalties of up to $5,000 per violation. In lieu of administrative prosecution, a civil action may be brought for negligent or intentional violations by the appropriate civil prosecutor (the Commission, Attorney General or District Attorney) where `the measure of damages for most violations is the amount of value not properly reported. Persons who violate the conflict-of-interest disclosure provisions of the Political Reform Act can also be subject to discipline by their agency, including dismissal. Finally, a knowing or willful violation of any provision of the Political Reform Act is a misdemeanor. Persons convicted,of a misdemeanor may be disqualified for four years from the date of the conviction from serving as a lobbyist or running for elective office in addition to other penalties that may be imposed. The Act also provides for numerous civil penalties, including monetary penalties and damages, and injunctive relief from the courts. 14 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 FURTHER AMENDMENTS TO THE CONFLICT OF INTEREST CODES (Per a Contra Costa County Board of Supervisors' Order dated February 6, 1996) Amend all local Conflict of Interest Codes as follows: Pursuant to Government Code Sections 87302 and 87306 et. seq., this Board hereby amends every local Conflict of Interest Code previously approved by the Board of Supervisors to add the following: "All other provisions of this Code notwithstanding, the following provisions hereafter apply:. 1. No designated employee shall accept an honorarium. Subdivisions (b), (c) and (e) of Government Code Section 89502 shall apply to the prohibitions in this Section. This Section shall not limit or prohibit payments, advances or reimbursements for travel and related lodging and subsistence authorized by Government Code Section 89506. 2. No designated employee shall accept any gifts with a total value of more than three hundred ninety dollars ($390) in a calendar year from any single source. Subdivision (d) of Government Code Section 89504 shall apply to this Section." This amendment is necessary to assure that all local codes comply with recent amendments to Government Code Section 89502. 15 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 INVESTMENT REPORT The Treasurer may render a quarterly report "...to the Chief Executive Officer, the Internal Auditor and the legislative body of the local agency..." (Government Code 53646). The County shall submit copies of its second and fourth quarter reports to the California Debt and Investment Advisory Commission within 60 days after the close of the second and fourth quarters of each calendar year (Government Code 53646(g)). In addition the County Treasurer, will provide "...the County Treasury Oversight Committee with an investment report as required by the Board of Supervisors..." (Government Code 27133 (e)). The County shall submit copies of its investment policy each calendar year to the California Debt and Investment Advisory Commission. All subsequent policy amendment(s) have to be submitted within 60 days. PLEDGE REPORT Any securities that are pledged or loaned for any purpose shall be reported in the Quarterly Investment Report. The transaction detail will be provided, including purpose, beginning and termination dates and. all parties to the contract. The security descriptions as to type, name, maturity date, coupon rate, CUSIP and other material information will be.included. REVERSE REPURCHASE AGREEMENTS All reverse repurchase agreements entered into, whether active or inactive by the end of each quarter, shall be reported in the Treasurer's Quarterly Investment Report. LOCAL AGENCY INVESTMENTS To be eligible to receive local agency money, a bank, savings association, federal association, or federally-insured industrial loan company shall have received an overall rating of not less than. "satisfactory" in its most recent evaluation by the appropriate federal financial supervisorial agency of its record of meeting the credit needs of California's communities, including; low- and moderate-income neighborhoods, pursuant to Section 2906 of Title 12 of the United States Code. (Government Code 53635) 16 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 METHODOLOGY OF CALCULATING AND APPORTIONING TREASURY COSTS Regular and Routine Investments • $20 per investment transaction; i.e., $20 at placement and $20 at maturity. • .00333 of interest income; i.e., $3.33 per $1,000 of interest income. Charged quarterly by journal entry. Special Reports and Research Actual staff time and materials. Special Bank Transactions Actual bank fee schedule. 653684. Alternative Procedure for Investment of Excess Funds B. The County Treasurer shall, at least quarterly, apportion any interest or other increment derived from the investment of funds pursuant to this section in an amount proportionate to the average daily balance of the amounts deposited by the local agency and to the total average daily balance of deposits in the investment pool. In apportioning and distributing that interest or increment, the county treasurer may use the cash method, the accrual method, or any other method in accordance with generally accepted accounting principles. Prior to distributing that interest or increment, the County Treasurer may deduct the actual costs incurred by the county in administering this section in proportion to the average daily balance of the amounts deposited by the local agency and to the total average daily balance of deposits in the investment pool. C. The County Treasurer shall disclose to each local agency that invests funds pursuant to this section the method of accounting used, whether cash, accrual, or other, and shall notify each local agency of any proposed changes in the accounting method at least 30 days prior to the date on which the proposed changes take effect. * In Contra Costa County, the Auditor-Controller performs these functions for fiscal control purposes. 17 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 NON-MANDATED DEPOSITS AND WITHDRAWALS IN THE TREASURY Following are the terms and conditions for deposit of funds for investment purposes by entities that are not legally required to deposit their funds in the County Treasury. • Resolution by the County Board of Supervisors authorizing the acceptance of outside participants by the County Treasury. • Resolution by the legislative or governing body of the local agency,authorizing the investment of funds pursuant to Government Code 53684. • Treasury investments will be directed transactions. Withdrawal '-of funds in the Treasury shall coincide with investment maturities or authorized sale of securities by the legislative or governing body of the local agency. Except for funds in the California State.Local Agency Investment Fund, a five-business- days notification may be required when authorized sale of securities is involved. However, the section on evaluation of request for withdrawal of funds for use outside the County treasury pool by both mandated and non_mandated, treasury pool participants shall also apply. WITHDRAWAL OF FUNDS BY MANDATED TREASURY PARTICIPANTS The withdrawal of mandated deposits in the Treasury'will coincide with investment maturities .and/or authorized sale of securities by authorized personnel of the local agency. Except for funds in the California State Local Agency Fund, a five-business- days notification may be required when authorized sale of securities is involved. However, the section on evaluation of request for withdrawal of funds for use outside the County treasury pool by both mandated and non-mandated treasury pool participants shall also apply. 18 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 Evaluation of Request For Withdrawal of Funds For Use Outside the County Treasury Pool by Both Mandated and Non-Mandated Treasury Pool Participants Pursuant to Section 27136(a): "Notwithstanding any other provisions of law, any local agency, public agency, public entity or public official that has funds on deposit in the County treasury pool and that seeks to withdraw funds for the purpose of investing or depositing those funds outside the County treasury pool shall first submit the request for withdrawal to the County Treasurer before withdrawing funds from the County treasury pool." The County Treasurer shall evaluate each proposed withdrawal and may request up to 30 days in order to assess the effect of the proposed withdrawal on the stability and predictability of the investments in the County treasury and that the interests of the other depositors will not be adversely affected. 19 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 APPROVED BROKERS AND ISSUERS ABN AMRO, Incorporated American Express Credit Corporation . Lehman Brothers, Incorporated Associates Corporation of North America Mechanics Bank Associates First'Capital Mellon Bank Bank of America Merrill Lynch Bank of the West Merrill Lynch Government Securities, Bankers Trust Company Incorporated Barclays Capital, Incorporated Morgan Stanley Dean Witter & Company Bear Stearns & Company, Incorporated NationsBanc Corporation California Arbitrage Management Program Norwest Banks Chase Securities, Incorporated Norwest Investment Services Chevron Corporation Prudential Securities,.Incorporated Chevron Funding Public Financial Management, Citibank Incorporated Citigroup Funding Inc. Rauscher Pierce Refsnes, Incorporated Civic Bank of Commerce Salomon Smith Barney, Incorporated Credit Suisse First Boston Sumitomo Bank of California Deere & Company Toyota Motors Credit Corporation Donaldson, Lufkin & Jenrette Securities UBS Financial Services Corporation Union Bank Exxon Mobil Corporation and Subsidiaries US Bancorp First Commercial Bank Wachovia Portfolio Services General Electric iCapital Corporation Washington Mutual General Electric'Capital Services Wells Fargo Bank General Electric Company Westamerica Bank Gilford Securities, Incorporated Goldman, Sachs & Company Government Per John Deere Capital Corporation i Note: The CountyjTreasury will not be limited to the above list. Others will be included as long as all conditions for authorized brokers and dealers set forth in this policy are met. Additionally, deletions and additions are based on the maintenance of required credit quality as rated by Standard and Poor's, Moody's and other recognized rating services and reliable financial sources. 20 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 APPROVED PRIMARY GOVERNMENT SECURITIES DEALERS REPORTING TO THE MARKET REPORTS DIVISION OF THE FEDERAL RESERVE BANK OF NEW YORK BNP Paribas Securities Corp. Banc of America Securities LLC Barclays Capital Inc. Bear, Stearns & Co., Inc. Citigroup Global Markets, Inc. Cantor Fitzgerald & Co. Countrywide Securities Corporation Credit Suisse Securities (USA) LLC Daiwa Securities America Inc. Deutsche Bank Securities Inc. Dresdner Kleinwort Wasserstein Securities LLC Goldman, Sachs & Co. Greenwich Capital Markets, Inc. HSBC Securities (USA) Inc. J.P. Morgan Securities, Inc. Lehman Brothers Inc. Merrill Lynch Government Securities Inc. Mizuho Securities USA Inc. Morgan Stanley & Co. Incorporated Nomura Securities International, Inc. UBS Securities LLC. 21 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 GLOSSARY Agencies A colloquial term for securities issued by the federal agencies. Bankers Acceptances A time bill of exchange drawn on and accepted by a commercial bank to finance the exchange of goods. When a bank "accepts" such a bill, the time draft becomes, in effect, a predated, certified check payable to the bearer at some future specified date. Little risk is involved for the investor because the commercial bank assumes primary liability once the draft is accepted. Basis Point One basis point is equal to 1/100 of one percent. For example, if interest rates increase from 8.25% to 8.50%, the difference is referred to as a 25-basis-point increase. Blue Sky Laws Common term for state securities law, which vary from state to state. Generally refers' to provision related to prohibitions against fraud, dealer and broker regulations and securities registration. Book Value Refers to value of a held security as carried in the records of an investor. May differ from current market value of the security.. Certificates of Deposit (C/Ds) Certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified rate of return. They are issued'iin two forms, negotiable and non-negotiable. Negotiable Certificates of Deposit May be sold by one holder to another prior to maturity. This is possible because the issuing bank agrees to pay the amount of the deposit plus interest earned to the bearer of the certificate at maturity. • Non-Negotiable Certificates of Deposit These certificates are collateralized and are not money market instruments since they cannot be traded in the secondary market. They are issued on a fixed-maturity basis and often pay higher interest rates than are permissible on other savings or time-deposit accounts. Commercial Paper Short-term, unsecured promissory notes issued in either registered or bearer form and usually backed by a line of credit with a bank. Maturities do not exceed 270 days and generally average 30-45 days. Coupon Rate The annual rate of interest payable on a security expressed as a percentage of the principal amount. CUSIP Numbers CUSIP is an acronym for Committee on Uniform Security Identification Procedures. CUSIP numbers are identification numbers assigned each maturity of a security issue and usually printed on the face of each individual security in 22 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 the issue. The CUSIP numbers are intended to facilitate identification and clearance of securities. Inverse Floaters An adjustable interest rate note keyed to various indices such as LIBOR, commercial paper, federal funds, treasuries and derivative structures. The defined interest rate formula is the opposite or inverse of these indices. Interest rates and pay dates may reset daily, weekly, monthly, quarterly, semi-annually or annually. Liquidity Usually refers to the ability to convert assets (such as investments) into cash. Mark to Market Valuing the inventory of held securities at its current market value. Market Value Price at which a security can be traded in the current market. Maturity The date upon which the principal of a security becomes due and payable to the holder. Medium-Term Notes (MTNs) Corporate debt obligations continuously offered in a broad range of maturities. MTNs were created to bridge the gap between commercial paper and corporate bonds. The key characteristic of MTNs is that they are issued on a continuous basis. Money Market Instruments Private and government obligations of one year or less. Offer The price of a security at which a person is willing to sell. Par Value The stated 'or face value of a security expressed as a specific dollar amount marked on the face of the security; the amount of money due at maturity. Par value should not be confused with market value. Premium The amount by which the price paid for a security exceeds par value, generally representing the difference between the nominal interest rate and the actual or effective return to the investor: Range Notes A security whose rate of return is pegged to an index. The note-defines the interest rate minimum or floor and the interest rate maximum or cap. An example of an index may be federal funds. The adjustable rate of interest is determined within the defined range of the funds. Repurchase Agreement or RP or REPO An agreement consisting of two simultaneous transactions whereby the investor purchases securities from a bank or dealer and the bank or dealer agrees to repurchase the securities at the same price on a certain future date. The interest rate on a RP is that which the dealer pays the investor for the use of his funds. Reverse repurchase agreements are the mirror image 23 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 of the RPs when the bank or dealerp urchases securities from the investor under an agreement to sell them back to the investor. Settlement Date The date-used in price and interest computations, usually the date of delivery. SLUGS An acronym for State and Local Government Series. SLUGS are special United States Government securities sold by the Secretary of the Treasury to states, municipalities and other local government bodies through individual . subscription agreements. The interest rates and maturities of SLUGS are arranged to comply with arbitrage restrictions imposed under Section 103 of the Internal Revenue Code. SLUGS are most commonly used, for deposit in escrow in connection with the,issuance of refunding bonds. STRIPS US, Treasury acronym for "separate trading of registered interest and principal of securities. Certain registered Treasury securities can be divided into separate interest and principal components, which may then be traded as separate entities. SWAP Generally refers to an exchange of securities, with essentially the same par value, but may vary in coupon rate, type of instrument, name of issuer and number of days to maturity'. The purpose of the SWAP may be to enhance yield, to shorten the maturity or any benefit deemed by the contracting parties. Treasury Securities Debt obligations of the United States Government sold by the Treasury Department in the form of bills, notes and bonds: • Bills Short-term obligations that mature in one year or less and are sold at a discount in lieu of paying periodic interest. Notes Interest-bearing obligations that mature between one year and 10 years. • Bonds Interest-bearing long-term obligations that generally mature in 10 years or more. Zero-Coupon Security A security that makes no periodic interest payments but instead is sold at a deep discount from its face value. j 24 CONTRA COSTA COUNTY INVESTMENT POLICY JUNE 2007 APPENDIX RESOLUTION# 2003/420 Contra Costa County Administration Building Martinez,California RESOLUTION OF CONTRA COSTA COUNTY (ACCOUNT#99-07-000) AGENCY 625 Court Street,Room 102 AGENCY ADDRESS Martinez,CA 94553 PHONE NUMBER 925-646-4115 AUTHORIZING INVESTMENT OF MONIES IN THE LOCAL AGENCY INVESTMENT FUND WHEREAS,Pursuant to Chapter 730 of the statutes of 1976 Section 16429.1 was added to the California Government Code to create a Local Agency Investment Fund in the State Treasury for the deposit of money of a local agency for purposes of investment by the State Treasurer;and WHEREAS,the Board of Supervisors does hereby find that the deposit and withdrawal of money in the Local Agency Investment Fund in accordance with the provisions of Section 16429.1 of the Government Code for the purpose of investment as stated therein as in the best interests of the CONTRA COSTA COUNTY. NOW THEREFORE,BE IT RESOLVED,that the Board of Supervisors does hereby authorize the deposit and withdrawal of CONTRA COSTA COUNTY monies in the Local Agency Investment Fund in the State Treasury in accordance with the provisions of Section 16429.1 of the Government Code for the purpose of investment as stated therein,and verification by the State Treasurer's Office of all banking information provided in that regard. BE IT FURTHER RESOLVED,that the following CONTRA COSTA COUNTY officers or their successors in office shall be authorized to order the deposit or withdrawal of monies in the Local Agency Investment Fund: William J.Pollacek Russell V.Watts Clarissa V.Javier (NAME) (NAME) (NAME) Chief Deputy Treasurer-Tax Collector Treasurer-Tax Collector Assistant Treasurer (TITLE) (TITLE) (TITLE) (SI ) (SIGNATURE) (SIGNATURE) PASSED AND ADOPTED,by the Board of Supervisors of the County of Contra Costa,State of California on JANE 24, 2030 VOTE OF SUP RvlSORS ATTESED: R�IE U OUS J[ 24, 2003 (ABSENT Y/1 AYES: NOES: ABSENT: ABSTAIN: DISTRICT III SEAT VACANT t BY: 25