15 BARAKAT 19 TAJ LEDFORD 22 FINLAY RIDLEY-THOMAS 28 PIERONI

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1 Call, Notice, and Agenda SPECIAL MEETING PERSONNEL COMMITTEE COUNTY SANITATION DISTRICTS OF LOS ANGELES COUNTY To be held at the JOINT ADMINISTRATION OFFICE 1955 Workman Mill Road, Whittier, California WEDNESDAY August 23, 2017 At 12:00 P.M. District(s) Chairperson SBC, 5 1, 8 FUREY ANDREWS 2, 18 ARMENTA (Committee Chairperson) 3, 4, 9 14 BUSCAINO PARRIS 15 BARAKAT JOE TORNEK 19 TAJ LEDFORD MORRIS 22 FINLAY DAVIS RIDLEY-THOMAS 28 PIERONI 29 SCV WILSON SMYTH 1. Approve Minutes of Special Meeting Held June 7, Re: Personnel Related Matters Summary: The Chief Engineer and General Manager will update the Committee on matters concerning union-represented employee units currently participating in negotiations. The Committee may meet in closed session pursuant to Section of the Government Code, Conference with Labor Negotiators. Agency Designated Representatives: Grace R. Hyde, Chief Engineer and General Manager; Robert C. Ferrante, Assistant Chief Engineer and Assistant General Manager, and Jennifer Allen, Human Resources Manager. 3. Re: Deferred Compensation Plan Summary: The Districts provides a Deferred Compensation Program (457 Plan) for employees, which is managed by a third party administrator. In 2015, the Deferred Compensation Committee (Committee) solicited proposals from qualified firms to act as the Program Administrator. An agreement was subsequently awarded to Teachers Insurance and Annuity Association (TIAA). However, due to TIAA s repeated failures to provide all of the services promised under its proposal, the Committee now recommends that the Recordkeeping Services Agreement with TIAA, including all other agreements, be terminated. The Committee further recommends that an agreement be awarded to International City Management Association Retirement Corporation (ICMA-RC) to become the Program Administrator. ICMA-RC was one of the other finalists and has agreed to undertake the role of Program Administrator at a slightly lower cost than TIAA. 4. Discussion and Possible Action (a) Investment Policy (b) Debt Management Policy (c) Financial Reserve Policy Summary: Having sound investment, debt management, and financial reserve policies is crucial to maintaining the Districts financial stability. Policies are mandated to be adopted either by state law or at the request of the Directors. A summary letter and the proposed policies are attached. The Chief Engineer and General Manager will brief the Committee. This item is consistent with the Districts PERSONNEL COMMITTEE-S -1- August 23, 2017 DOCUMENT NUMBER:

2 SPECIAL MEETING PERSONNEL COMMITTEE 4. Cont. Guiding Principles of commitment to fiscal responsibility and prudent financial stewardship, and to protect financial assets through prudent investment programs. Adjourn NOTE: Members of the public may address the Board of Directors on any item shown on the agenda or matter under the Board s authority. A Request to Address Board of Directors form is available. In compliance with the Americans with Disabilities Act, if you require special assistance to participate in this meeting, please contact the Secretary to the Boards Office (562) , extension Notification 48 hours prior to the meeting will enable staff to make reasonable arrangements to ensure accessibility to this meeting. (28CFR et seq. ADA Title II). Agendas and supporting documents or other writings that will be distributed to Board members in connection with matters subject to discussion or consideration at this meeting that are not exempt from disclosure under the Public Records Act are available for inspection following the posting of this agenda at the office of the Secretary to the Boards of Directors located at the Districts Joint Administration Building, 1955 Workman Mill Road, Whittier, California, or at the time of the meeting at the address posted on this agenda. PERSONNEL COMMITTEE-S -2- August 23, 2017

3 COUNTY SANITATION DISTRICTS OF LOS ANGELES COUNTY 1955 Workman Mill Road, Whittier, CA Mail ing Addr ess: P.O. Box 4998, Whittier, CA Telephone: (562) , FAX: (562) GRACE ROBINSON HYDE Chief Engineer and General Manager August 18, 2017 Personnel Committee County Sanitation Districts of Los Angeles County Directors: Wastewater System Financial Policies The agenda for the August 23, 2017 meeting of the Personnel Committee contains an item regarding proposed financial policies. These Policies (Investment, Debt Management, and Financial Reserve) form the cornerstone of the Districts' financial practices, and are intended to provide guidance when preparing budgets, adopting rates, and developing long-term capital programs. The Districts have annually adopted Investment Policies, while the other two Policies, with a few exceptions, formalize the practices that have been in place for a number of years. Use of the Policies would create financial stability, allowing us to provide the vital services in a cost-effective manner, weather periods of economic downturn without having to impose significant rate increases, and construct capital projects in a timely fashion despite fluctuations in costs from year to year. All three Policies are being brought to the Personnel Committee for its review and consideration. If endorsed by the Personnel Committee, the Policies would be taken to each of the individual Boards of Directors for consideration and adoption. State law now requires that, in addition to the Investment Policy, Di stricts must also adopt a formal debt management policy. While not mandated by law, it is recommended that the Financial Reserve Policy also be adopted as a matter of best practices. This letter summarizes the proposed policies. In reviewing the Policies, please keep in mind that the Districts serve two major functions, wastewater management and solid waste management. Although operating under the same agency umbrella of management, the two functions are fi nancially independent, each having its own expenses and sources of revenues. Likewise, within the wastewater management system, each District is financially independent and has its own individual reserves and sources of revenue. However, there are times when it is financially advantageous to pool resources, creating larger reserves that may increase rates of return or provide flexibility when addressing emergency situations. The Policies, while primarily focused on the individual Districts and the associated Wastewater System, have been written to accommodate the pooled resources as well. A separate Solid Waste Financial Reserve Policy will be presented at a later date to address the specific needs of the Solid Waste Management System. I NVESTMENT POLICY The Investment Policy, which has been in place for many years, establishes the practices under which the Districts invest reserves until such time as they are needed to meet expenses. The Policy DOC Recycled Paper ~.J

4 Personnel Committee 2 August 18, 2017 focuses on three tenets: safety of principal, liquidity, and return on investment. In so doing, the Policy identifies what types of investments are allowable, how much can be invested in any given investment instrument, and what the maximum term can be. Please note that there are two Investment Policies, with most Districts using Policy A. Only Districts Nos. 17 and 27 and Newhall Ranch Sanitation District use Policy B. While the two Policies are very similar, Policy B is slightly more tailored to follow the County's investment policy. Liquid Funds Liquid funds for meeting day-to-day expenses are held in either the Los Angeles County Pooled Surplus Investment Fund (PSIF) or the Local Agency Investment Fund (LAIF). Both are pooled funds, with multiple agencies participating, which provide a relatively modest rate of return in exchange for maintaining the liquidity of the fund. Historically, the Districts have utilized the PSJF more than LAIF because it provides a marginally higher rate of return and allows withdrawals to be made daily as opposed to monthly. Specific Investments Funds that are not needed in the near-term are placed in specific investments, which usually pay a higher rate of return than either the PSIF or LAIF but have more restrictions on when they may be liquidated. Most of the Districts specific investments are in Government Sponsored Enterprises or GSEs (e.g., Fannie Mae and the Federal Home Loan Bank). Under the existing Policy, up to 100% of the Districts' funds may be invested in GSEs, although no more than 60% can be invested any single GSE. In addition to the GSEs, a small amount of the funds are invested in medium-term corporate notes (MTCN) that are rated at least AA. Under the current Policy, no more than 20% of the Districts funds may be invested in MTCNs in aggregate and no more than 5% can be invested in any single MTCN. All of the specific investments have a maximum term of 5 years. There are currently only three MTCNs (HSBC, Toyota, Wells Fargo) that (I) are rated AA (the Districts' standard) and (2) offer investments of sufficient size relative to the Districts' resources. Effectively, this means that the aggregate amount in MTCNs will never be above 15%, even though the Policy allows up to 20%. In order to help maximize the Districts' earnings, it is recommended that the percentage for any single MTCN be raised to I 0% while keeping the aggregate for all MTCNs at 20%. This will slightly increase the Districts' rate of return (approximately $600,000 per year based on current market rates) with no added risk. The revised limits would still be more restrictive than what is currently allowed under the California Government Code. Proposed Inter-Systems Loan between the Joint Outfall System (JOS) and the Solid Waste System As has been previously discussed with the Boards, the JOS is in the process of undertaking the Clearwater Project. This project involves the construction of a new tunnel to transport treated wastewater from the Joint Water Pollution Control Plant (JWPCP) in Carson to the existing ocean outfalls off the Palos Verdes peninsula. This project will allow the existing tunnels (built in 1937 and 1958) to be taken out of service and inspected for the first time since they were placed into service, offer operational redundancy in the event of an emergency, and provide sufficient capacity for the foreseeable future. The total estimated cost of the Clearwater Project is $700 million, of which 25% will be funded with monies currently held in the JOS Capital Improvement Fund. The remaining portion of the cost would be funded with some sott of long-term debt instrument. Historically, the most cost-effective means of financing the portion of the project not cash funded would have been the state's low-interest (SRF) loan program. DOC

5 Personnel Committee 3 August 18, 2017 Unfortunately, the SRF program has new constraints that may limit its usefulness, meaning that the JOS may have to issue some other form oflong-term debt. The Solid Waste System is required, under state mandate, to maintain closure/post-closure maintenance funds for the Puente Hills and Spadra Landfills for a minimum of 30 years. Because the current Policy limits investments to 5 years, the Districts are foregoing a significant amount of interest that could be earned if those funds were to be invested for longer periods (which have associated higher interest rates). A structured loan between the two Systems could allow the Solid Waste System to earn a higher rate of return while the JOS could secure its funding without having to go out on the open market and incur a higher cost of issuance. Such an arrangement would be very secure in that both Systems are managed by the same staff and have equal incentive to ensure that no default occurs. In return for this security, the Solid Waste System could offer a slight discount below current market rates. In addition, all of the funds would be kept locally, with interest payments staying in the region as opposed to being sent to other investors around the country. Accordingly, staff recommends that the Investment Policy be expanded to allow the Solid Waste System to loan a portion of its closure/post-closure funds to the JOS for construction of the Clearwater Project. Please note that making such a change only allows for the possibility; it does not commit either System to enter into such an arrangement. The District's financial advisor or another independent thirdparty would be used to help establish the terms and conditions of any proposed loan, ensuring that they will be fair to both sides, reflect current market rates, and be completely transparent. The loan agreement would then be brought to the Personnel Committee, and then to District No.2 (representing the Solid Waste System) and each of the JOS Districts participating in the loan for their consideration and approval. At some future date, after the Districts have gained experience, the Boards may want to consider broadening this program. DEBT MANAGEMENT POLICY The Debt Management Policy is newly required by Government Code Section 8855(i). The Policy would establish the guidelines under which the Districts will take on debt. The Policy focuses on the types of debt instruments that are allowable and provides metrics that can be used to assess the Districts' level of debt. Some of those same metrics can be used to help determine appropriate service charge rates and maximize the Districts' credit rating (which provides the lowest interest rates). Existing Debt Instruments Nearly all of the Districts' debt instruments have been either revenue bonds or State Revolving Fund (SRF) loans. Both of these instruments are fixed interest rate securities with pre-established maturities, similar to a fixed rate mortgage. Clean Renewable Energy Bonds (CREBs), which have only been used for the Calabasas Gas-to-Energy Project, are similar to normal revenue bonds except they give investors federal tax credits in lieu of interest and are subject to IRS authorization. It is proposed that the Debt Management Policy continue to incorporate these debt instruments. Proposed Debt Instruments As discussed above under the Investment Policy, staff is recommending consideration of a potential future loan between the Solid Waste System and the JOS regarding the use of the closure/postclosure funds for partial funding of the Clearwater Project. In addition to amending the Investment Policy, this type of loan should be included in the Debt Management Policy as an allowable debt instrument. As DOC

6 Personnel Committee 4 August 18, 2017 before, incorporating this into the Policy only provides for the possibility; it does not commit any party to taking on or issuing a loan. Personnel Committee consideration and Board approval would be required by District No. 2 (representing the Solid Waste System) and each of the JOS Districts borrowing monies from the closure/post-closure fund prior to moving fmward. Two other types of debt instruments exist that have limited uses, but have been included in the Debt Management Policy because they have the potential to offer benefits in unique circumstances. The first is commercial paper, which is a short-term, unsecured note that charges a fixed rate of interest for a term of up to 270 days. Depending on the type of financing ultimately used for the Clearwater Project, commercial paper may be desirable as a source of interim construction financing until it is appropriate to replace it with a long-term debt instrument. The second type of debt instrument to be considered for inclusion in the Policy is land secured financing utilizing a Community Facilities District. This type of financing is most commonly used in undeveloped areas for funding the construction of the initial infrastructure. Currently, this type of financing would only be practical and useful in the Newhall Ranch Sanitation District, but, for the sake of consistency, has been proposed to be included in the policies of all of the Districts. Debt Metrics Conservative metrics have been developed based on the guidelines promulgated by S&P Global Ratings. The metrics focus on the ability to make the annual debt payments (debt service coverage ratio), the percentage of the O&M budget coming from debt, and the percentage of assets that have outstanding liabilities (debt to capitalization ratio). These are the metrics the Districts have been informally following and which have allowed our overall credit rating to remain excellent (currently rated as AAA, the highest possible credit rating). A more detailed discussion of these metrics will be made at the Personnel Committee meeting. FINANCIAL RESERVE POLICY The Financial Reserve Policy would formalize the practices that are already embedded in the budget and rate setting practices for the Wastewater System. The Policy would establish guidelines for accumulating and expending reserve funds, and ensuring that funds are available in a timely manner so that the Districts can continue to provide the vital services the public requires without interruption. In addition to being timely, the reserves are used to smooth out rates as expenditures vary from year to year. Lastly, the Policy would reinforce that prudent reserves guard against adverse financial impacts from unforeseen circumstances such as natural disasters or other emergencies without jeopardizing service or requiring immediate, severe rate increases. As mentioned earlier, this proposed Financial Reserve Policy only applies to the Wastewater System. A separate Solid Waste Financial Reserve Policy will be presented at a future date to address the specific needs of the Solid Waste System. Categories of Reserves Reserves and cash resources are divided into three categories: unrestricted, designated, and restricted. Unrestricted funds constitute the general operating reserves that can be spent on Districts' operations according to Board-approved budgets. Designated funds have Board-imposed restrictions for specific purpose, such as repair and replacement of existing assets. Restricted funds have restrictions that are imposed externally, e.g., through law or administrative action, or by Districts' Ordinance. DOC

7 Personnel Committee 5 August 18, Key reserves described in the Policy include: Designated Reserves Cash Flow Requirement Fund: This fund is already included in the budget as a separate line item and provides funding for the first six months of a fiscal year until the first installment of property taxes and service charges is received in late December. Emergency Fund: This fund would set monies aside in the event of an emergency that could not be reasonably anticipated. It is proposed that this reserve be funded as a percentage of the net capital assets in each District, for a total of approximately $13.5 million. Under the proposed Policy, each District would have its own emergency fund. Staff is investigating the possibility of combing the individual funds in the future into a single pooled fund in order to maximize the resources available to any given District. Staff will report back to the Personnel Committee and then the individual Boards with a recommendation for future amendments to the Debt Management and Financial Reserve Policies. O&M Financial Stability Fund: Previously called the rate stabilization fund, as previously discussed with the Boards, this reserve's target balance is equal to six months of O&M and one year of debt service. Capital Projects Financial Stability Fund: This reserve sets money aside when actual annual capital expenses are less than the projected average annual long-term capital expenses and draws against the fund when actual annual capital expenses are higher, avoiding the need for fluctuating rates. Sinking Funds: Sinking funds allow the cost of periodic known capital replacement projects to be spread over a number of years, lessening the impact in any given year. Currently, the Districts only utilize one such fund, which was established to fund the replacement of the turbines m JWPCP's Total Energy Facility. Natural Disaster Fund: This fund is designed to pay for short-term costs in the event of an earthquake or other natural disaster in order to continue Districts' operations until state or federal relief funds are received. These costs can include immediate repairs to existing facilities and securing other office space if the Joint Administration Office becomes unusable. The natural Disaster Fund, targeted at $17 million, would be shared proportionally between the Wastewater and Solid Waste Systems. Restricted Reserves Other Post-Employment Benefits (OPEB): The Governmental Accounting Standards Board (GASB) requires that all agencies reflect this obligation as a liability on their books until such time as it is fully funded. In 2008, the Districts made the decision to begin funding this obligation over a 3 0-year period. Debt Service Reserve Fund: Historically, all bonds required that a separate fund be created to hold an amount equal to the maximum annual debt service, which would only be used in the event of a default. Because of the Districts' strong credit rating, this is not a requirement of any of DOC

8 Personnel Committee 6 August 18, the Districts' outstanding bonds. However, there is no guarantee that this requirement will not be imposed on future bond issuances. Capital Improvement Fund: As new users connect to the sewerage system, they pay a connection fee to fund the construction of capacity, which is included in expansion-related facilities, to accommodate the new flow. Connection fees are deposited into the fund when connection is made and then withdrawn when facilities are actually expanded. In this way, existing users do not subsidize growth. Bond Construction Fund: All of the bond proceeds are received at the time of issuance. Except for a small portion which is used for the cost of issuance, the proceeds are placed in the Bond Construction Fund and then withdrawn as construction costs are incurred. CONCLUSION/FUTURE A CTIONS A presentation on this matter will be given at the August 23, 2017 Personnel Committee meeting. In the meantime, please feel free to contact David Bruns, the head of the Districts' Financial Management Department, at (562) extension 2704 or dbruns@lacsd.org if you have any questions. If endorsed by the Personnel Committee, these Policies would be presented to the individual Boards of Directors at their September Board meetings, with consideration of formal adoption tentatively scheduled for October. Very truly yours, GRH:DBB:ew Grace Robinson Hyde DOC

9 INVESTMENT POLICY A County Sanitation District No._* of Los Angeles County August 2017 *Districts Nos. I, 2, 3, 4, 5, 8, 9, 14, 15, 16, 18, 19, 20, 21, 22, 23, 28, 29, and 34, Santa Clarita Valley Sanitation District, and South Bay Cities Sanitation District have all adopted investment policies with the same provisions. DOC

10 TABLE OF CONTENTS 1. Policy Statement Treasurer; Administration Trustee's Duties and Objectives Investment Instruments Allowed Investment Limits and Allocation Maximum Maturities Purchasing Entities Investment Safekeeping Reporting Requirements Internal Control Ethics and Conflicts of Interest Investment Policy Adoption... 5 DOC

11 Investment Policy County Sanitation District No._ of Los Angeles County 1. Policy Statement This Investment Policy of County Sanitation District No. _ of Los Angeles County (District) provides for the prudent investment of the District's funds and the effective management of investment activities. This Policy covers all investment activities directly controlled by the District. 2. Treasurer; Administration 2.1 The District's Chief Engineer and General Manager is hereby appointed Treasurer of the District, and is trustee of the District's funds. 2.2 The Treasurer, or his or her designee, is hereby authorized to implement this Policy, and to manage, deposit, and invest District funds in accordance with this Policy and all provisions of law. 2.3 The Treasurer shall report to the Board of Directors in accordance with the requirements of law and this Investment Policy. 3. Trustee's Duties and Objectives The District and the Treasurer are trustees of the public funds of the District and shall implement this Policy using the Prudent Investor Standard and the priority of investment objectives below. 3.1 Prudent Investor Standard The prudent investor standard is set forth in California Government Code Section , which provides: "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." DOC

12 3.2 Investment Objectives The Districts priority of investment objectives is set forth in Government Code Section , which provides: "When investing, reinvesting, purchasing, acqmnng, 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 control." The Treasurer shall pursue these objectives as follows: (a) Safety of Principal: In safeguarding the principal of District funds the District Treasurer shall evaluate or cause to have evaluated each potential investment, seeking both quality in issuer and in underlying security or collateral, and shall diversity the portfolio to reduce exposure to loss. (b) Liquidity: In order to meet the District's liquidity needs, investments must be made so that maturity dates are compatible with cash flow requirements and, when required, permit easy and rapid conversion into cash. (c) Return on Investments: Investments will be undertaken to produce a market rate of return after first considering safety of principal and liquidity. 4. Investment Instruments Allowed The District's funds may be invested in the following investment instruments: 4.1 Los Angeles County Pooled Surplus Investment Fund (PSIF) The PSIF is a pooled investment fund created under Government Code Section et seq. and is administered by the Los Angeles County Treasurer and Tax Collector. PSIF is a voluntary government investment pool that allows local agencies to participate in a major portfolio using the investment expertise of the Los Angeles County Treasurer's investment staff. Investments in PSIF typically consist of those funds required to cover the District's operating needs. 4.2 State of California Local Agency Investment Fund (LAIF) LAIF is a pooled investment fund created under Government Code Section et seq. and is administered by the California State Treasurer. LAIF is a voluntary government investment pool that allows local agencies to participate in a major portfolio using the investment expertise of the State Treasurer's Office investment staff. 4.3 United States Treasury Bills, Notes, Bonds, Certificates of Indebtedness Treasury bills, notes, bonds, and certificates of indebtedness are fixed-income investments issued by the U.S. Treasury Department for which the faith and credit of the United States are pledged for the payment of principal and interest. DOC

13 4.4 United States Government-Sponsored Enterprises (GSE) GSEs consist of privately held corporations with public purposes created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy. Members of these sectors include students, farmers and homeowners. GSEs carry the implicit backing of the U.S. Government, but they are not direct obligations of the U.S. Government. 4.5 Medium-Term Notes Medium-term notes are all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. To be eligible as a District investment, medium-term notes must be rated "AA" or its equivalent or better by S&P Global Ratings, Moody's Investor Services, Inc., or Fitch Ratings, Inc. 4.6 County Sanitation Districts of Los Angeles County (LACSD) Debt Instruments LACSD Debt Instruments, as provided for in Government Code Section 5360l(e) and more specifically described in the District's Debt Management Policy, consist of the District borrowing from its Capital Improvement Fund, and the Joint Outfall System borrowing the Solid Waste System's closure/post-closure funds for the construction of the Clearwater Tunnel Project. 5. Investment Limits and Allocation 5.1 The Treasurer shall continuously evaluate market conditions economic data, interest rate trends and forecasts, and the District's cash flow requirements. When appropriate, the Treasurer shall obtain quotations from brokers, dealers, banks, savings and loan institutions and the Los Angeles County Treasurer's Office. Investments in the PSIF and LAIF will be monitored continually. All of these factors must be considered, among other things, in detennining where, in what denomination and for what maturity investments are made. 5.2 There are no limits on the percentages of funds invested in any of the allowable investment instruments, except that: No more than 60% of the District's funds may be invested in any one GSE The total of the medium-term notes may not exceed 20% of the District's funds No more than 10% of the District's funds may be invested in the securities of any single corporate entity or depository institution. 5.3 The percentage limitations in Section 5.2 will apply at the time the investment is made. For purposes of calculating these percentages, District funds include all cash and investments of the District as reflected in the District's most recent books of account. 6. Maximum Maturities 6.1 The Treasurer shall match investments with anticipated cash flow requirements. Except for LACSD Debt Instruments, the Treasurer will not invest in securities with a remaining maturity DOC

14 of more than five years unless approved by the Board of Directors, either specifically or as a part of an investment program, at least three months prior to purchase. 6.2 Funds may be invested in LACSD Debt Instruments for the lesser of thirty years or until the funds are needed for the purpose for which they were collected or restricted, unless otherwise restricted by law. 7, Purchasing Entities 7.1 As required by Government Code Section , investments not purchased directly from the issuer or not purchased using pooled funds in PSIF or LAIF must be purchased from or through: An institution licensed by the State of California as broker/dealer, as defined in Section of the Corporations Code; A member of a federally regulated securities exchange; A national or state-chartered bank; A savings association or a federal association; or A brokerage firm designated as a primary government dealer by the Federal Reserve Bank. 8. Investment Safekeeping To ensure a high degree of internal safety, all certificates or other evidence of securities or other investments purchased by or for the District will be held for safekeeping as required by law. The Treasurer may require any securities to be held by an entity other than the selling party of the security. Any specific investments must be held for safekeeping by a third-party custodian designated by the Treasurer and must be segregated from and not commingled with the funds of other investors or the County. 9. Reporting Requirements In accordance with Government Code Section 53646, the Treasurer shall prepare and submit a quarterly report to the Board of Directors. The quarterly report must comply with applicable law and include the security type, issuer, investment yield, date of maturity, par value, amount invested, current market value and source of this valuation. Any investments in PSIF or LA IF will be included with a summary of that pool's most recent investment statement. 10. Internal Control In addition to the certified public accountant's yearly independent audit of the District, the Treasurer will cause the District's Internal Auditor to conduct quarterly audits of the investment portfolio to ensure compliance with this Investment Policy and related procedures. 11. Ethics and Conflicts oflnterest Officers and employees of the Districts involved in the investment process are prohibited from personal business activities that could conflict with proper execution of the Districts' investment DOC

15 program, or which could impair their ability to make impartial investment decisions. Employees and investment officials must disclose to the Treasurer any material financial interests in financial institutions, broker dealers and vendors that conduct business with the Districts' and must disclose any larger financial/investment positons which could relate in a conflicting manner to the performance of the Districts' investment portfolio by filing Form 700 annually. 12. Investment Policy Adoption This Policy will be reviewed on an annual basis and any modifications must be approved by the Board of Directors. Prior to that review, the matter will be referred to the Personnel Committee (comprised ofthe Chairpersons of the Board of Directors of the each active County Sanitation District of Los Angeles County) for its consideration. Adopted this -----~day of DOC

16 INVESTMENT POLICY B County Sanitation District No._* of Los Angeles County August2017 * Districts Nos. 17, 27, and Newhall Ranch Sanitation District have all adopted investment policies with the same provisions. DOC

17 TABLE OF CONTENTS I. Policy Statement... I 2. Treasurer; Administration... I 3. Trustee's Duties and 0 bj ecti ves I 4. Investment Instruments Allowed Investment Limits and Allocation Maximum Maturities Purchasing Entities Investment Safekeeping Reporting Requirements... 4 I 0. Internal Control... 4 II. Ethics and Conflicts oflnterest Investment Policy Adoption... 4 DOC

18 Investment Policy County Sanitation District No._ of Los Angeles County 1. Policy Statement This Investment Policy of County Sanitation District No. _ of Los Angeles County (District) provides for the prudent investment of the District's funds and the effective management of investment activities. This Policy covers all investment activities directly controlled by the District. 2. Treasurer; Administration 2.1 The District's Chief Engineer and General Manager is hereby appointed Treasurer of the District, and is trustee of the District's funds. 2.2 The Treasurer, or his or her designee, is hereby authorized to implement this Policy, and to manage, deposit, and invest District funds in accordance with this Policy and all provisions of law. 2.3 The Treasurer shall report to the Board of Directors in accordance with the requirements oflaw and this Investment Policy. 3. Trustee's Duties and Objectives The District and the Treasurer are trustees of the public funds of the District and shall implement this Policy using the prudent investor standard and the priority of investment objectives below. 3.I Prudent Investor Standard The prudent investor standard is set forth in California Government Code Section , which provides: "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, tbe 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." 3.2 Investment Objectives The Districts priority of investment objectives is set forth in Government Code Section , which provides: DOC

19 "When investing, reinvesting, purchasing, acqumng, 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 control." The Treasurer shall pursue these objectives as follows: (a) Safety of Principal: In safeguarding the principal of District funds the District Treasurer shall evaluate or cause to have evaluated each potential investment, seeking both quality in issuer and in underlying security or collateral, and shall diversify the portfolio to reduce exposure to loss. (b) Liquidity: In order to meet the District's liquidity needs, investments must be made so that maturity dates are compatible with cash flow requirements and, when required, permit easy and rapid conversion into cash. (c) Return on Investments: Investments will be undertaken to produce a market rate of return after first considering safety of principal and liquidity. 4. Investment Instruments Allowed The District's funds may be invested in the following investment instruments: 4.1 Los Angeles County Pooled Surplus Investment Fund (PSIF) The PSIF is a pooled investment fund created under Government Code Section et seq. and is administered by the Los Angeles County Treasurer and Tax Collector. PSIF is a voluntary government investment pool that allows local agencies to participate in a major portfolio using the investment expertise of the Los Angeles County Treasurer's investment staff. Investments in PSIF typically consist of those funds required to cover the District's operating needs. 4.2 State of California Local Agency Investment Fund (LA IF} LAIF is a pooled investment fund created under Government Code Section et seq. and is administered by the California State Treasurer. LAIF is a voluntary government investment pool that allows local agencies to participate in a major portfolio using the investment expertise of the State Treasurer's Office investment staff. 4.3 Medium-Term Notes Medium-term notes are all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. To be eligible as a District investment, medium-term notes must be rated "AA'' or its equivalent or better by S&P Global Ratings, Moody's Investor Services, Inc., or Fitch Ratings, Inc. DOC

20 4.4 County Sanitation Districts of Los Angeles County (LACS D) Debt Instruments LACSD Debt Instruments, as provided for in Government Code Section 5360l(e) and more specifically described in the District's Debt Management Policy, consist of the District borrowing from its Capital Improvement Fund, and the Joint Outfall System borrowing the Solid Waste System's closure/post-closure funds for the construction of the Clearwater Tunnel Project. 4.5 Investments Allowed in the Los Angeles County Treasurer and Tax Collector's Investment Policy Any other investments allowed in the Los Angeles County Treasurer and Tax Collector's Investment Policy and not already specified in this Policy are incorporated, by reference, into this Policy. 5. Investment Limits and Allocation 5.I The Treasurer shall continuously evaluate market conditions economic datil, interest rate trends and forecasts, and the District's cash flow requirements. When appropriate, the Treasurer shall obtain quotations from brokers, dealers, banks, savings and loan institutions and the Los Angeles County Treasurer's Office. Investments in the PSIF and LAIF will be monitored continually. All of these factors must be considered, among other things, in determining where, in what denomination and for what maturity investments are made. 5.2 There are no limits on the percentages of funds invested in any of the allowable investment instruments, except that: The total ofthe medium-term notes may not exceed 30% of the District's funds. 5.3 The percentage limitations in Section 5.2 will apply at the time the investment is made. For purposes of calculating these percentages, District funds include all cash and investments of the District as reflected in the District's most recent books of account. 6. Maximum Maturities 6.1 The Treasurer shall match investments with anticipated cash flow requirements. Except for LACSD Debt Instruments, the Treasurer will not invest in securities with a remaining maturity of more than five years unless approved by the Board of Directors, either specifically or as a part of an investment program, at least three months prior to purchase. 6.2 Funds may be invested in LACSD Debt Instruments for the lesser of thirty years or until the funds are needed for the purpose for which they were collected or restricted, unless otherwise restricted by law. 7. Purchasing Entities 7.1 Investments not purchased directly from the issuer or not purchased using pooled funds in PSIF or LAIF must be purchased through the Los Angeles County Treasurer. The Los Angeles County Treasurer, in accordance with Government Code Section , must purchase these investments from or through: DOC

21 7.1.1 An institution licensed by the State of California as broker/dealer, as defined in Section of the Corporations Code; A member of a federally regulated securities exchange; A national or state-chartered bank; A savings association or a federal association; or A brokerage firm designated as a primary government dealer by the Federal Reserve Bank. 8. Investment Safekeeping To ensure a high degree of internal safety, all certificates or other evidence of securities or other investments purchased by or for the District will be held for safekeeping by the Los Angeles County Treasurer in a manner that reflects the District's ownership. 9. Reporting Requirements In accordance with Government Code Section 53646, the Treasurer shall prepare and submit. a quarterly report to the Board of Directors. The quarterly report must comply with applicable law and include the security type, issuer, investment yield, date of maturity, par value, amount invested, current market value and source of this valuation. Any investments in PSIF or LAIF will be included with a summary of that pool's most recent investment statement. 10. Internal Control In addition to the certified public accountant's yearly independent audit of the District, the Treasurer will cause the District's Internal Auditor to conduct quarterly audits of the investment portfolio to ensure compliance with this Investment Policy and related procedures. 11. Ethics and Conflicts oflnterest Officers and employees of the Districts involved in the investment process are prohibited from personal business activities that could conflict with proper execution of the Districts' investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials must disclose to the Treasurer any material financial interests in financial institutions, broker dealers and vendors that conduct business with the Districts' and must disclose any larger financial/investment positons which could relate in a conflicting manner to the performance of the Districts' investment portfolio by filing Form 700 annually. 12. Investment Policy Adoption This Policy will be reviewed on an annual basis and any modifications must be approved by the Board of Directors. Prior to that review, the matter will be referred to the Personnel Committee (comprised of the Chairpersons of the Board of Directors of the each active County Sanitation District of Los Angeles County) for its consideration. Adopted this day of DOC

22 DEBT MANAGEMENT POLICY County Sanitation District No._ of Los Angeles County August 2017 DOC:

23 TABLE OF CONTENTS 1. Policy Statement......! 2. Treasurer; Administration...! 3. Purpose ofdebt Debt Management Types ofdebt Method of Sale Criteria for Issuing Debt Refinancing/Refunding Existing Debt Credit Enhancement CDIAC Reporting Municipal Advisor Debt Management Policy Adoption... 8 Doc

24 Debt Management Policy County Sanitation District No._ of Los Angeles County 1. Policy Statement 1.1 This Debt Management Policy has been developed to provide guidelines for the issuance of bonds and other forms of debt to finance capital improvements, equipment purchases, and property acquisition for County Sanitation District No. _of Los Angeles County (District), in compliance with California Government Code Section 8855(i). These guidelines will assist in determining appropriate uses for debt financing, structuring of debt, and meeting the District's financial objectives. While long-term financing is an effective way to spread these costs over time, the District must also consider maintaining and improving credit strength, providing certainty and cash flow flexibility in the annual budgeting process, and prioritizing future capital infrastructure needs. 1.2 The District will follow sound financial management practices, including 2. Treasurer; Administration Multi-year planning to facilitate timely and equitable changes to rates and charges; Maintaining prudent reserves; Ensuring access to the credit markets; Establishing and maintaining good credit ratings; Achieving the lowest aggregate financing costs consistent with an acceptable degree of risk and the recognition of ratepayer affordability. 2.1 The Board of Directors (Board) must approve debt issuance. 2.2 The District, through its Investment Policy, has appointed the District's Chief Engineer and General Manager as the Treasurer of the District. The Treasurer, or his or her designee, is hereby authorized to implement this Policy. 2.3 The Treasurer will use these guidelines to review and report to the Board any long-term debt implications, including costs of borrowing, historical interest rate trends, credit enhancement capacity, opportunities to refund existing debt obligations, and other financial considerations. DOC

25 3. Purpose of Debt 3.1 Debt for Long-Term Capital Improvements Debt financing will only be used to fund long-term capital improvements, including construction, equipment purchases, and property acquisition costs. By spreading the cost of a project over a number of years the financial impact in any given year can be lessened, reducing the impact on the corresponding user charges. Long-term debt also helps ensure that future users, who will benefit from the improvements, will pay a share of its costs. 3.2 Refunding/Refinancing If economically beneficial and cost-effective, new debt may be issued in order to refinance existing debt. This can include refunding existing bonds, prepaying loans or other debt instruments, and converting short-term debt such as commercial paper into long-term debt. 3.3 Emergencies Debt may be issued in the event of an unforeseen emergency that either impacts the District's ability to continue to operate or results in depletion of the District's reserves below the targets set by the Board in the District's Financial Reserve Policy. 3.4 No Debt for Operations & Maintenance Debt will not be used to fund ongoing operational expenses. 4. Debt Management 4.1 Internal Control Procedures on the Use of Debt Expenditures of the proceeds from each debt instrument must be expended in the manner detailed in the associated documents. Records must be maintained in accordance with any covenants related to the debt instrument and IRS regulations, including the following: Requisitions to the trustee, if one is utilized, from the project construction fund Trustee records relating to other funds and accounts Verifiable information showing payments to third parties An accounting of all proceeds spent on the approved capital project 4.2 Investment of Debt Proceeds Any proceeds to be held by the District (or a trustee on the District's behalf) between the time the debt is issued and the time the proceeds are expended on the approved capital project will be invested to maximize safety, liquidity, and return. The District's Investment Policy and the requirements of the debt instrument govern objectives and criteria for investment of proceeds. DOC

26 4.3 Credit Ratings The Treasurer will seek to maintain the highest possible credit ratings that can be achieved for debt instruments without compromising rate payer affordability. Ratings are one reflection of the general fiscal soundness of the District and the capabilities of its management. By maintaining the highest possible credit ratings, the District can issue debt at a lower cost. To enhance creditworthiness, the District is committed to prudent financial management, systematic capital planning, and long-term financial planning. 4.4 Disclosure Requirements and Investor Relations The District will comply with disclosure requirements in a timely and comprehensive manner including: Adhering to the "antifraud rules" as promulgated in the Securities Act of 1933, Section 17; Securities and Exchange Act of 1934, Section lo(b); and regulations adopted by the U.S. Security and Exchange Commission's (SEC) under those Acts, particularly Rule I Ob-5. Preparing bond disclosures as stipulated by the SEC's Rule 15c2-12. Providing information to the Municipal Securities Rulemaking Board's Electronic Municipal Market Access (EMMA) system. Maintaining compliance with all accounting and disclosure standards promulgated by state and national regulatory bodies, including the Government Accounting Standards Board (GASB) and the SEC. Reporting to the California Debt and Investment Advisory Commission (CDIAC). Complying with any other reporting required by the issuer of debt Disclosure training sessions will be conducted as needed. Training sessions must include education on the District's disclosure obligations under applicable federal and state securities laws and the disclosure responsibilities and potential liabilities of members ofthe District's staff and members of the Board. 4.5 Debt Covenants General financial reporting and other tax certification requirements embodied in debt covenants must be monitored to ensure that the District is in compliance. These may include: Annual appropriation of revenues to meet debt service payments. Timely transfer of debt service payments to the trustee or paying agent. Compliance with insurance requirements. Compliance with rate covenants where applicable. Compliance with all other covenants. DOC