EXHIBIT A CITY OF UNION CITY INVESTMENT POLICY POLICY STATEMENT: Under authority granted by the City Council, the Administrative Services Director is responsible for investing the surplus funds of the City. This establishes the investment guidelines for the City of Union City. Investment transactions must comply with the State of California Government Code (Government Code), Sections 53601 through 53659 and this policy. STANDARD OF CARE: The City Council of the City of Union City delegates the authority to invest the City s operating funds within the guidelines of Section 53600 et seq of the Government Code (Government Code) to the Administrative Services Director. By approval of this policy, the Administrative Services Director and delegated employees have the authority and responsibility to investment or to reinvest the City s funds, or to sell or exchange securities purchased, as provided by Government Code Section 53607. Accordingly, all individuals associated with investment activities shall refrain from personal business activities that could conflict with the management of the investment program. When investing, reinvesting, purchasing, acquiring, exchanging, selling and managing public funds, authorized investment personnel shall act with care, skill, prudence, and diligence to meet the aims of the investment objectives. SCOPE: This applies to the City s pooled surplus funds under the Administrative Services Director s span of control. The provisions of this are applicable, but not limited to the funds listed below: General Fund Special Revenue Funds Capital Projects Funds Enterprise Funds Internal Service Funds Trust and Agency Funds Any new funds unless specifically exempted As specified in the Government Code, the proceeds of notes, bond issues or similar financings including, but not limited to reserve funds, project funds, debt service funds and capital trust funds derived from such financings, are not governed by this, but rather shall be invested pursuant to their respective bond or trust indentures or Government Code 53600 et seq, as applicable. Retirement and/or pension funds and deferred compensation funds are also not governed by this, but rather by the policies and federal or State statutes explicitly applicable to such funds.
Pg. 2 OBJECTIVES: The principal investment objectives of the City are: Safety: Safety or preservation of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio and to mitigate credit risk and interest rate risk. Credit Risk: The risk of loss due to the failure of the security issuer or backer. The City will minimize such risk by: Pre-qualifying the financial institutions, brokers/dealers, intermediaries, and advisers with which the City will do business; Diversifying the investment portfolio so that potential losses on individual securities will be minimized; Monitoring of investments to anticipate and respond accordingly to a significant reduction in credit worthiness of any of the security issuers. Interest Rate Risk: The risk that the market value of securities in the portfolio will fall due to changes in general interest rates. The City will minimize such risk by: Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity: Investing operating funds primarily on shorter-term securities, money market mutual funds, or similar investment pools; Invest funds with staggered maturities; Occasionally restructuring the portfolio to minimize the loss of market value and/or to maximize cash flow. Liquidity: An adequate percentage of the portfolio should be maintained in liquid short-term securities which can be converted to cash if necessary to meet disbursement requirements that might be reasonably anticipated. Since all possible cash demands cannot be anticipated, the portfolio will consist largely of securities with active secondary or resale markets. A portion of the portfolio may be placed in money market mutual funds or local government investment pools which offer same-day liquidity for short-term funds. Yield or Return on Investment: The City s investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the City s investment risk constraints and liquidity needs. Return on investment is of secondary importance compared to the safety and liquidity objectives described above. The core of the investments is limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. Securities shall not be sold prior to maturity with the following exceptions: Liquidity needs requires that the security be sold; A security with declining credit may be sold at the first notice of downgrading to minimize the loss of principal; A security swap that will improve the quality, yield, or target duration in the portfolio.
Pg. 3 PRUDENCE The standard of prudence to be used for managing the City s investments shall be Government Code Section 53600.3, the prudent investor standard which states: When investment, 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. The standard of prudence to be used by investment officials shall be applied in the context of managing an overall portfolio. The Administrative Services Director and authorized investment personnel acting in accordance with written procedures and the investment policy and exercising due diligence shall be relived of personal responsibility for an individual security s credit risk or market price changes, provided that the deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. DELEGATION OF AUTHORITY The management responsibility for the City s investment program is delegated to the Administrative Services Director. The Administrative Services Director has authorized the Supervising Accountant to participate in or conduct investment transactions and to manage the operation of the investment portfolio. No person may engage in an investment transaction unless so authorized under the terms of this. The Administrative Services Director shall develop written administrative procedures and internal controls, consistent with this, for the operation of the City s investment program. Such procedures shall be designed to prevent losses of public funds arising from fraud, employee error, misrepresentation by third parties, or imprudent actions by employees of the City. The City may engage the support services of outside investment advisors in regard to its investment program, so long as it can be clearly demonstrated that these services produce a net financial advantage or necessary financial protection of the City s financial resources. ETHICS AND CONFLICTS OF INTEREST Investment officials involved in the investment process shall refrain from personal business activities that could conflict with proper execution of the investment program or could impair or create the appearance of an impairment of their ability to make impartial investment decisions. Employees and investment officials shall disclose to the City Manager any business interests they have in financial institutions that conduct business with the City and they shall subordinate their personal investment transactions to those of the City. The Administrative Services Director and Supervising Accountant shall file a Statement of Economic Interests each year pursuant to Government Code Section 87203 and regulations of the Fair Political Practices Commission. AUTHORIZED SECURITIES AND TRANSACTIONS All investments and deposits of the City shall be made in accordance with Government Code Sections 16340, 16429.1, 53601, 53601.6, 53601.8,53635,53635.2,53638, and 53684. Any revisions or extensions of these code sections will be assumed to be part of the immediately upon being enacted.
Pg. 4 Authorized investments may include: Investment Type Maximum Maturity Maximum Specified % of Portfolio Minimum Quality Requirements Local Agency Bonds 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agencies 5 years None None State of California Obligations and Others 5 years None None CA Local Agency Obligations 5 years None None Bankers Acceptances 180 days 40 % (a) Federal Reserve eligible Commercial Paper-Select Agencies 270 days 25 % of the agency s money (b) Commercial Paper-Other Agencies 270 days 40% of the agency s money (b) A-1 if the issuer has issued long-term debt is must be rated A without regard to modifiers A-1 if the issuer has issued long-term debt is must be rated A without regard to modifiers Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None (c) None Reverse Repurchase Agreements & Securities Lending Agreements 92 days 20% of the market value of the agency s portfolio None (d) Medium-Term Notes 5 years 30% A rating Mutual Funds N/A 20% (e) Multiple (f) Money Market Mutual Funds N/A 20% Multiple (g) Collateralized Bank Deposits 5 years None None Mortgage & Consumer Receivable Pass-through Securities 5 years 20% AA rating (h) Bank/Time Deposits 5 years None None Local Government Investment Pools N/A None None Local Agency Investment Fund (LAIF) N/A None None
Pg. 5 (a) (b) (c) (d) (e) (f) (g) (h) No more than 10% of the surplus funds may be in Bankers Acceptances of any one commercial bank. Commercial paper issuers must be U.S. Corporations with total assets in excess of $500 million. Purchases may not represent more than 10% of the outstanding paper of the issuing corporation. The collateralization level required for repurchase agreements will be 102%of market value of principal and accrued interest. The City must have a Master Repurchase Agreement signed with the bank or dealer. Reverse repurchase agreements must be made with primary dealers of the Federal Reserve Bank of New York and the securities used for the agreements must have been held by the issuer for at least 30 days. No more than 10% of the City s surplus funds may be invested in any one mutual fund. Must receive the highest ranking by 2 of the nationally recognized rating agencies or the fund must retain an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least 5 years experience investing in instruments authorized by the State Government Code Sections 53601 and 53635. Must receive highest ranking by 2 of the nationally recognized rating agencies or the fund must retain an investment advisor who is registered with the SEC (or exempt from registration), and has not less than 5 years experience managing money market funds with assets under management in excess of $500 million. Issuer must have an A rating or better for the issuer s debt as provided by a nationally recognized rating agency. It is the intent of the City that the foregoing list of authorized securities and transactions is strictly interpreted..however any investment that subsequently fails to meet the requirements of this may be held to maturity if, in the opinion of the Administrative Services Director, it is in the City s best interest to do so. When the investment matures or is liquidated, the proceeds shall be reinvested only as provided by this. Under Resolution No. 3262-06 dated October 16, 2006, City Council authorized the use of any portion of the City s pooled cash to fund the Employee Housing Assistance Program. Home loans approved under this program shall be secured by a Deed of Trust and shall bear a variable rate of interest at the same rate as City funds deposited with the Local Agency Investment Fund (LAIF). PORTFOLIO MATURITIES AND LIQUIDITIES To the extent possible, investments shall be matched with anticipated cash flow requirements and known future liabilities. The City will not invest in securities maturing more than five years from the date of purchase. The weighted average maturity of the portfolio shall not be more than three years. Reserve funds and other funds with longer-term investment horizons may be invested in securities exceeding five years if the maturities are made to coincide as nearly as practical with the expected use of funds, and the City Council has, by resolution, granted authority to make such an investment. PORTFOLIO PERFORMANCE The investment portfolio shall be designed to attain a market rate of return throughout budgetary and economic cycles, taking into account prevailing market conditions, risk constraints for eligible securities and cash flow requirements. The performance of the City s investments shall be compared to the average yield on the Local Agency Investment Fund, assuming the State does not adversely affect LAIF s returns due to budget constraints.
Pg. 6 SELECTION OF BROKER/DEALERS The Administrative Services Director shall maintain a list of broker/dealers approved for investment purposes and it shall be the policy of the City to purchase securities only from those authorized firms. To be eligible, a firm must be licensed by the State of California as a broker/dealer as defined in Section 25004 of the California Corporations Code and shall: Be recognized as a Primary Dealer by the Federal Reserve Bank of New York or have a primary dealer within its holding company structure, or Report voluntarily to the Federal Reserve Bank of New York, or Qualify under Securities and Exchange Commission (SEC) Rule 15c3-1, Uniform Net Capital Rule Each authorized broker/dealer shall be required to submit and periodically update a City-approved Broker/Dealer Information Request form that includes the firm s most recent financial statements. The Administrative Services Director shall maintain a list of the broker/dealers that have been approved by the City, along with each firm s most recent broker/dealer Information Request form. Each broker/dealer shall receive a copy of the and a list of those authorized to execute investment transactions. Each firm must acknowledge receipt of such materials to qualify for the approved list of broker/dealers. The City may purchase commercial paper from direct issuers even though they are not on the approved broker/dealer list as long as the investment meets the criteria set forth in the Authorized Securities and Transactions section of this. SELECTION OF BANKS The Administrative Services Director shall maintain a list of banks approved to provide depository and other banking services for the City. To be eligible, a bank must be a member of the Federal Deposit Insurance Corporation (FDIC), must qualify as a depository of public funds in the State of California as defined in California Government Code Section 5363.5 and shall secure deposits in excess of FDIC insurance coverage in accordance with California Government Code Section 53652. SAFEKEEPING AND CUSTODY The Administrative Services Director shall select one or more financial institutions to provide safekeeping and custodial services for the City. A Safekeeping Agreement approved by the City shall be executed with each custodian bank prior to utilizing that bank s safekeeping services. The purchase and sale of securities and repurchase agreement transactions shall be settled on a delivery versus payment basis. All securities shall be perfected in the name of the City. Sufficient evidence to title shall be consistent with modern investment, banking and commercial practices. All purchased investment securities, except non-negotiable certificates of deposit, money market funds and LAIF will be delivered by either book entry or physical delivery and will be held in third-party safe-keeping by a Cityapproved custodian bank, its correspondent bank or its Depository Trust Company (DTC) participant account. All federal wireable book entry securities owned by the City shall be held in the Federal Reserve System in a customer account for the custodian bank which will name the City as a customer. All DTC eligible securities shall be held in the custodian s bank DTC participant account and the custodian bank shall provide evidence that the securities are held for the City as a customer. All non-book entry (physical delivery) securities shall be held by the custodian bank or its correspondent bank and the custodian bank shall provide evidence that the securities are held by the bank for the City as a customer. In order to verify investment holdings, an external auditor, on an annual basis, shall independently verify securities held in custody for the City.
Pg. 7 All exceptions to the safekeeping policy must be approved by the Administrative Services Director in written form and noted in the monthly investment report to City Council. INTERNAL CONTROLS The investment officer is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft or misuse. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived and the valuation of costs and benefits requires estimates and judgments by management. Accordingly, the investment officer shall establish a process for an annual independent review by an external auditor to assure compliance with policies and procedures. The internal control shall address the following points: Control of collusion; Separation of transaction authority from accounting and recordkeeping; Custodial safekeeping; Avoidance of physical delivery of securities; Clear delegation of authority to subordinate staff members; Written confirmation of transactions for investment and wire transactions; Development of wire transfer agreement with the lead bank and third-party custodian. REPORTING Monthly, the Administrative Services Director shall submit to the City Council a report of the investment earnings and performance results of the City s investment portfolio. The report shall be submitted to the City Council within thirty (30) days following the end of the month and shall include the following information: A listing of individual securities by type, issuer, date of maturity and par value; Balances at the beginning of the month at cost and at market; All security transactions occurring during the month; Realized gains or losses on sale of investments; Unrealized gains or losses during the period; Additions to and maturities from the Investment Account; The cost and market value of marketable securities at the end of the reporting month (or the most recent valuation as to assets not valued monthly) and the source of the valuation; A statement of compliance with investment policy or an explanation of non-compliance; and A statement of the ability to meet expenditure requirements for six months, as well as an explanation of why money will not be available if that is the case.
Pg. 8 INVESTMENT EARNINGS Investment earnings are allocated in accordance with the City s accounting policy regarding such earnings and Government Code Section 53647: Government Code Section 53647 (a) Interest on all money deposited belongs to, and shall be paid quarterly into the general fund of, the local agency represented by the officer making the deposit, unless otherwise directed by law. (b) Notwithstanding the provisions of subdivision (a), and except as otherwise directed by law, if the governing body of the local agency represented by the officer making the deposit so directs, such interest shall be paid to the fund which contains the principal on which the interest accrued. POLICY REVIEW The City of Union City s shall be adopted by Council resolution. It shall be reviewed at least annually by the investment officer to ensure its consistency with the City s overall investment objectives and its relevance to current law and economic trends. Recommended amendments shall be submitted to City Council for approval and adoption by resolution.
Pg. 9 Definition of Investment Types: Local City/Agency Bonds: Bonds issued by the City and the former Community Redevelopment Agency of the City. U.S. Treasury Securities: Bills, notes and bonds issued by the U.S. Treasury which are direct obligations of the federal government. U.S. Agencies and Instrumentalities: Notes and bonds of federal agencies, government-sponsored enterprises and international institutions. Not all are direct obligations of the U.S. Treasury but may involve federal sponsorship and/or guarantees, in some instances. State of California Obligations and Others: Bonds, registered state warrants or treasury notes issued by the State of California and any other of the 49 United States. California Local Agency Obligations: Bonds, notes, warrants or other evidence of indebtedness of any local agency within the State. Banker s Acceptances (BA): Bills of exchange or time drafts drawn on and accepted by a commercial bank, typically created from a letter of credit issued in a foreign trade transaction. Commercial Paper: A short-term, unsecured promissory note issued by financial and non-financial companies to raise short-term cash. Financial companies issue commercial paper to support their consumer and/or business lending; non-financial companies issue for operating funds. Negotiable Certificates of Deposit: Issued by commercial banks and thrifts and foreign banks. Repurchase Agreement: A contractual transaction between the investor and a bank/dealer to exchange cash for temporary ownership or control of securities/collateral with an agreement by the bank/dealer to repurchase the securities at a future date. These are primarily used as overnight investment vehicles. Reverse Repurchase Agreement: Used as a source of liquidity when there is a mismatch of cash flow requirement and scheduled maturities. A mechanism to avoid liquidating securities for immediate cash needs. Restricted to securities owned for a minimum of 30 days prior to settle of the repurchase agreement. Medium Term Notes: All corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating in the United States. Mutual Funds/Money Market Mutual Funds: Funds regulated by the Securities and Exchange Commission that operate under strict maturity and diversification guidelines. The funds have no federal guarantee but are viewed as very safe short-term cash investments. Mortgage & Consumer Receivables Pass-through Securities: Asset-backed securities whose value is derived from and collateralized (or backed ) by a specific pool of underlying assets. Bank/Time Deposit: Time deposits, which are non-negotiable, are generally issued by commercial banks, savings and loans and credit unions with federal deposit insurance available for amounts up to $100,000. Pursuant to Government Code 53637, the City is prohibited from investing in negotiable certificates of deposit of a state or federal credit union if a member of the legislative body or decision-making authority services on the board of directors. Local Government Investment Pools: Cities, counties or other local agencies that pool money in deposits or investments with other local agencies
Pg. 10 State Investment Pool (Local Agency Investment Fund): A pooled investment fund overseen by the State Treasurer, which operates similar to a money market fund, but is for the exclusive benefit of government entities within the State. Maximum investment authorized by the Local Agency Investment Fund (LAIF) is $40 million, which is subject to change. The LAIF is in trust in the custody of the State Treasurer. The City s right to withdraw funds on deposit with LAIF is not contingent upon the State s failure to adopt a State Budget by July 1 st of each new fiscal year.