Reso 2015-869 ATTACHMENT"1
RESOLUTION NO. 2015-869
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE COSTA MESA SANITARY
DISTRICT ADOPTING A STATEMENT OF INVESTMENT POLICY FOR FISCAL YEAR
2015-16, AND AUTHORIZING THE TREASURER TO INVEST AND REINVEST IDLE
MONIES OF THE COSTA MESA SANITARY DISTRICT IN ACCORDANCE WITH THE
STATEMENT OF INVESTMENT POLICY, AND FURTHER AUTHORIZING THE SAID
TREASURER TO DELEGATE TO A DEPUTY THE CARRYING OUT OF ANY SUCH
TASKS.
WHEREAS, Government Code Section 53601 et seq. sets forth the investments that
the District may lawfully make; and
WHEREAS, Government Code Section 53646(a)(2) sets forth that the District's
Treasurer may annually render to the Board of Directors a Statement of Investment Policy at a
public meeting for the Board to consider; and
WHEREAS, The Board has reviewed the Statement of Investment Policy; and
WHEREAS, Government Code Section 53607 allows the Board to delegate the
authority to make investments and to sell or exchange securities for a one year period to the
Treasurer, provided that monthly reports are thereafter made of the status of said transactions.
NOW,•THEREFORE, the Board of Directors does hereby resolve:
1. That the Statement of Investment Policy for fiscal year 2015-16 is approved.
2. That the Treasurer is authorized to make investments consistent with said Policy
and is required to provide a written report to the Board on a monthly basis and
verbal report to the Board on a quarterly basis on the status of those transactions.
The Treasurer is hereby given all of the authority provided by Government Code
Section 53607, including the power to invest and reinvest and the power to sell or
exchange securities, consistent with the District's policy.
3. That the Treasurer may delegate some part of these duties to a deputy provided that
the Treasurer remains responsible for such decisions and provides oversight.
PASSED and ADOPTED on this 251' day of June 2015.
CR-4-A) (
Secretary, Costa Mesa Sanitary District President, Costaesa Sanitary District
Board of Directors Board of/Directors
ATTACHMENT 1
STATE OF CALIFORNIA)
COUNTY OF ORANGE ) SS
CITY OF COSTA MESA )
I, Noelani Middenway, Clerk of the Costa Mesa Sanitary District, hereby certify that the
above and foregoing Resolution No. 2015-869 duly and regularly passed and adopted by said
Board of Directors at a regular meeting thereof held on the 25th_ day of June 2015 by the
following votes:
AYES: Scheafer, Perry, Ooten, Schafer, Ferryman
NOES: None
ABSENT: None
ABSTAIN: None
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the
Costa Mesa Sanitary District, this 25t_ day of June 2015.
Nr.moi.
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NO'lar o e- ay. _
Clerk of the-t,9sta 'J e• District
Attachment 2
COSTA MESA SANITARY DISTRICT
Statement of Investment Policy
Fiscal Year�2015-16 ---(Deleted:2014-15
PURPOSE
This statement is intended to formalize the various policies and procedures for the prudent
investment of temporarily idle cash for the Costa Mesa Sanitary District (District). It outlines the
investment-related activities, which comprise good cash management. In concert with these
activities,there are many facets of an appropriate secure short-term investment program,which will
• enhance the economic condition of the District while safeguarding its assets.
II. INVESTMENT SELECTION OBJECTIVE
The District strives to maintain the level of investment of all idle funds as near 100%as possible.
All temporarily pooled idle cash is invested under the "Prudent Investor Standard,"Government
Code§53600.3,which states,in part:
"...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..."
This affords the District a broad spectrum of investment opportunities as long as the investment is
deemed prudent and is allowable under current legislation of the State of California Government
'Code§53600 et seq. and the Costa Mesa Sanitary District Statement of Investment Policy. The __--{ Deleted:Section
District Treasurer,after meeting the legality, safety, liquidity and diversification criteria,will attempt
to obtain the highest yield possible. The criteria for selecting investments,in order of priority are:
1. Legality—The District's investments must conform to federal laws, state statutes, District
ordinances and internal policies and procedures. The District has established internal controls
to ensure that investment activities comply with all applicable statutes,ordinances and policies.
2. Safety—The safety and risk associated with an investment refers to the potential loss of
principal, interest or a combination of these amounts. The District only operates in those
investments that are considered very safe.
3. Liquidity —This refers to the ability to "cash in" at any moment in time with a minimal
chance of losing some portion of principal or interest. The District's investment portfolio will
remain sufficiently liquid to enable the District to meet all operating requirements as well as
unanticipated needs for funds.
4. Diversification —The District's investment portfolio will be sufficiently diversified to avoid
incurring unreasonable risks resulting from saturation of assets in specific security types,
maturities or individual financial institutions.
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Attachment 2
COSTA MESA SANITARY DISTRICT
Statement of Investment Policy
Fiscal Year,015-16 ---{Deleted:2014-15
5. Yield — Yield is the potential dollar earnings an investment can provide, and
sometimes is described as the rate of return.
The basic premise underlying the District's investment philosophy is to ensure that funds are
always safe and available when needed. The District does not buy stocks, speculate or deal in
futures or options. Any investment extending beyond a five-year period requires prior District
Board approval.
III. AUTHORIZED INVESTMENTS
The District limits its investments to the following vehicles:
• US Treasury Bills
• US Treasury Notes
• Federal Agency Issues-Examples include:
o Federal Intermediate Credit Bank Debentures(FICB)
o Federal Farm Credit Bank(FFCB)
o Federal Land Bank Bonds(FLB)
o Federal Home Loan Bank Notes and Bonds(FHLB) •
o Federal National Mortgage Association(FNMA)
o Federal Home Loan Mortgage Corporation(FHLMC)
• Banker's Acceptances
• Certificates of Deposit(CD)
• Negotiable Certificates of Deposit
• Commercial Paper
• Medium Term Corporate Notes
• Money Market Mutual Funds
• Passbook Savings Account
• Local Agency Investment Fund(LAIF)
• CaITRUST
IV. DELEGATION OF AUTHORITY
The District's Board of Directors (Board) hereby delegates its authority to invest surplus District
funds to the Treasurer. Delegation of the investment function by the Board is limited to a one-year
period. Failure to delegate deems the Board to be trustee and fiduciary, therefore subject to the
prudent investor standard.
V. INTERNAL CONTROLS
A system of internal control shall be established and documented in writing. The controls shall be
designed to prevent loss of public funds arising from irregularities, employee error,
misrepresentation of third parties,unanticipated changes in financial markets,or imprudent actions
by employees and officers of the District. Controls deemed most important include: control of
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Attachment 2
COSTA MESA SANITARY DISTRICT
. Statement of Investment Policy
Fiscal Year 2O15-16 ,--(Deleted:2014-15
collusion, separation of duties,custodial safekeeping,clear delegation of authority,confirmation of
transactions, minimizing the number of authorized investment officials, documentation of
transactions and strategies,and code of ethics standards.
VI. REPORTING
Government Code 53646(a)(2) previously mandated that investment policies be approved by the
legislative body. Additionally, Government Code 53646(b)(1)previously mandated that quarterly
investment reports be submitted to the legislative body. In June 2004, the California Assembly
adopted AB2853 which made these requirements optional. The District believes it prudent to
continue with these practices. The Treasurer shall submit a monthly investment report to the
Board. This report will communicate, at a minimum, the type of investment, institution, date of
maturity, amount of deposit, rate of interest, current market value of securities with maturities in
excess of 12 months,source of market valuations,statement of compliance and such other data as
required by the Board. Once each quarter, the Treasurer shall discuss the previous month's
investment report with the Board at a regular meeting.
VII. LEGAL CONSTRAINTS
Surplus funds must be deposited in state or national banks,state or federal savings associations or
federal credit unions within the State of California. These deposits cannot exceed the amount of
the institution's paid-up capital and surplus. The bank or savings and loan must secure public
funds deposits with eligible securities having a market value of 110% of the total amount of the
deposits or first trust deeds having a value of 150% of the total amount of the deposits. A third
class of collateral is a 105%letter of credit drawn on the Federal Home Loan Bank. The Treasurer
may waive security for that portion of a deposit, which is insured pursuant to Federal law.
Currently, the first $250,000 of a deposit is federally insured. Deposits over $250,000 are
collateralized as indicated above.
VIII. DERIVATIVES
The term derivative is a commonly used name that describes a variety of securities whose values
are"derived from"the value of another asset,a reference rate or an index. Investment in derivative
instruments is limited to securities that have periodic increases, or step-up interest rate
adjustments that provide an increased yield. Investment in callable securities is also allowed, but
must comply with other restrictions as specified in this Investment Policy. Derivative securities
known as inverse floaters, range notes,structured investment vehicles, mortgage-derived interest-
only strips and other such securities that produce higher yields when purchased but have the •
possibility of producing low or no return through the life of the security, are not allowable per
Government Code$53601.6(a).
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Attachment 2
COSTA MESA SANITARY DISTRICT
Statement of Investment Policy
Fiscal Year X015-16 ----(Deleted:2014-15
IX. BOND PROCEEDS
When investing bond proceeds, if any, the District will adhere to this Investment Policy (Policy)
when determining appropriate instruments for placing monies. If the bond's trust agreement is
more restrictive than this Policy,then the trust agreement supersedes this Policy. The District may
delegate it's responsibly to the fiscal agent to ensure compliance with the bond covenants when
managing bond proceeds on behalf of the District. Borrowing money solely for the purpose of
investing and earning arbitrage is specifically prohibited.
X. GRANDFATHER PROVISIONS
The District's investment strategy is to buy and hold investments until maturity. As legislation and
the District's Policy change,certain investments may become prohibited. Under§53601.6.( )of the___--( Deleted:Section
California Government Code, the District may hold prohibited investments until their maturity to
avoid incurring a loss. This allows the District to "grandfather"in securities purchased prior to the
effective date of new legislation.
When selling and subsequently repurchasing securities prior to maturity, losses are only
acceptable if the proposed swap/trade can clearly enhance yield (value) over the life of the new
security on a total return basis, or to prevent the further loss of principal. Sufficient written
documentation to facilitate the audit of the transaction must be maintained.
In the event that an issuer's rating is downgraded from when the security was-purchased, the
Treasurer's awareness is heightened and the security will be closely monitored to determine if
credit risk has been significantly increased. The Treasurer will evaluate the need to sell the
security prior to maturity.
XI. BANKS AND SECURITIES DEALERS
The District shall transact business only with banks,savings and loans, and"primary"or"regional"
registered investment securities broker/dealers with offices located, or doing business, in the State
of California. Any broker/dealer or financial institution wishing to provide services must complete
the District's questionnaire and be approved by the Treasurer. The number of broker/dealers
authorized to transact business with the District is one broker/dealer for every $5,000,000 of
portfolio size.
XII. SAFEKEEPING AND CUSTODY
Securities should be held in a third party custodian/safekeeping account. Said securities shall be
held in a manner that establishes the District's right of ownership pursuant to Government Code
Sections 53601 and 53608 et seq.
•
All securities owned by the District should be held by a third party except the collateral for time
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Attachment 2
COSTA MESA SANITARY DISTRICT
Statement of Investment Policy
Fiscal Year,2015-16 ,,{Deleted:2014-15
deposits in banks and savings and loans, which is held by the Federal Home Loan Bank or an
approved Agent of Depository. The collateral for time deposits in banks should be held in the
District's name by the bank's Trust Department, or alternately, by the Federal Reserve Bank
pursuant to Government Code Sections 53656 and 53657 et seq.
XIII. INDEMNIFICATION
Any authorized investment personnel acting with prudence and in accordance with the District's
Policy, will not be held personally liable for any investment losses. Through surety bonds, the
District is indemnified against any investment personnel acting with malfeasance, misfeasance or
nonfeasance.
XIV. CONFLICT OF INTEREST
Any firm proposing to provide any type of investment service to the District shall acknowledge their
familiarity with and agree to abide by any Federal and State laws or regulations pertaining to
contractual conflicts of interest or contributions by such firms,their employees,spouses'or agents.
Any persons, firms, dealers, brokers and advisors providing investment services or bond issue
assistance shall disclose to the Treasurer all fee sharing and commission arrangements with other
entities or persons prior to the District agreeing to buy an investment or issuing bonds.
XV.POLICY REVIEW
The Treasurer shall be responsible for reviewing and modifying this Policy annually for Board
approval to ensure its consistency with the overall objectives of safety, preservation of principal,
and liquidity,and its relevance to current law and current financial and economic conditions.
XVI. SUMMARY
The basic premise underlying the District's investment philosophy is conservative,and will continue
to be,to ensure that money is always safe and available when needed.
Attachments: Investment Guidelines and Strategy
Investment Procedures—Internal Control Guidelines
Cash Controls
Segregation of Treasury Functions
Glossary of Investments
5
Attachment 2
COSTA MESA SANITARY DISTRICT
Investment Guidelines and Strategy
Fiscal Year,015-16 -_-{Deleted:2014-15 )
I. GUIDELINES
Guidelines are established to direct and control activities in such a manner that previously
established goals are achieved.
1. Investment Transaction: Every investment transaction must be authorized and reviewed by the
Treasurer.
2. Pooled Cash: Whenever practical,cash is consolidated into one bank account and invested on
a pooled concept basis. Interest earnings are allocated quarterly to each fund based upon the
average monthly ending cash balance of the fund.
3. Competitive Bids: Purchases and sales of securities are made on the basis of competitive
offers and bids when practical.
4. Cash Forecasting: The cash flow for the District is projected with the receipt of revenues and
maturity of investments scheduled so that adequate cash will be available to meet
disbursement requirements.
5. Investment Limitations: Security purchases and holdings are maintained within statutory limits
imposed by the California Government Code. The District's current limits are:
District Policy Government Code
Permitted Investments/Deposits Percent Maturity Percent Maturity
US Treasury Bills and Notes Unlimited 5 years Unlimited 5 years
US Government Securities Unlimited 5 years Unlimited 5 years
Certificates of Deposit 25% 1 year Unlimited 5 years
Bankers'Acceptances(1) 25% 180 days 40% 180 days
Commercial Paper(2) 25% 270 days 25% 270 days
I Negotiable CD4 25% 5 years 30% 5 years _,- (Deleted: (2)
Medium Term Notes 20% 5 years 30% 5 years
LAIF 50% n/a 50 million n/a _,-{Deleted:40
Shares of Beneficial Interest(3),(4) 20% 5 years 20% 5 years
Supranational Securities 15% 5 years 30% 5 years
(1) Further limited to 30% in any single commercial bank per Government Code and 15% per District
Policy
(2) Further limited to 10%in any single issuer
(3) Includes CaITRUST,money market funds and money market mutual funds
(4) Further limited to 10%in any single mutual fund
6. Liquidity: The marketability of a security is considered at the time of purchase,as the security
may have to be sold at a later date to meet unanticipated cash demands.
7. Diversification: The portfolio should consist of various types of securities, issuers, and
maturities.
6
•
Attachment 2
COSTA MESA SANITARY DISTRICT •
Investment Guidelines and Strategy
Fiscal Year,g015-16 -,{Deleted:2014-15
8. Evaluate Certificates of Deposit:
a) Certificates of Deposit shall be evaluated in terms of FDIC coverage. The District does
not purchase Certificates of Deposit in excess of$250,000. ,-{ Deleted:100,000
b) Negotiable Certificates of Deposit shall be evaluated in terms of the credit worthiness
of the issuer.
II. STRATEGY
Strategy refers to the ability to manage financial resources in the most advantageous manner.
1. Economic Forecasts: Economic forecasts are obtained periodically from economists and
financial experts through bankers and brokers to assist with the formulation of an investment
strategy for the local agency.
2. Implementing Investment Strategy: Investment transactions are executed which conform to
anticipated interest rate trends and the current investment strategy plan.
3. Rapport: A close working relationship is maintained with large vendors of the District. The
objective is to pinpoint when large disbursements will clear the District's bank account. It is
essential for good cash control that such large expenditures be anticipated, estimated as to
dollar amount,and communicated to the Treasurer for liquidity planning purposes.
4. Preserve Portfolio Value: Standards are developed in order to maintain earnings near the
market and to preserve the value of the portfolio.
III. AUDIT
Annually, the District's external auditors review the District's portfolio and perform limited
procedures related to compliance. Additionally,they review that purchase price, market value and
maturity date for financial statement purposes. This review is included as part of the annual audit
of the District.
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Attachment 2
COSTA MESA SANITARY DISTRICT
Investment Procedures—Internal Control Guidelines
Fiscal Year X015-16 ,-{Deleted:2014-15
OBJECTIVES OF INTERNAL CONTROL
Internal control is the plan of organization and all the related systems established by
management's objective of ensuring,as far as practical:
• The orderly and efficient conduct of its business, including adherence to management
policies;
• The safeguarding of assets;
• The prevention or detection of errors and irregularities;
• The accuracy and completeness of the accounting records;and
• The timely preparation of reliable financial information.
II. LIMITATIONS OF INTERNAL CONTROL
No internal control system, however elaborate, can by itself guarantee the achievement of
management's objectives. Internal control can provide only reasonable assurance that the
objectives are met,because of its inherent limitations,including:
• Management's usual requirement that a control be cost-effective;
• The direction of most controls at recurring,rather than unusual,types of transactions;
• Human error due to misunderstanding,carelessness,fatigue or distraction of functions;and
• The potential for a person responsible for exercising control abusing that responsibility.
Frequently, a member of management is in a position to override controls which
management has set up.
III. ELEMENTS OF INTERNAL CONTROL
Elements of a system of internal control are the means by which an organization can satisfy the
objectives of internal control. These elements are:
1. Organization: Specific responsibility for the performance of duties should be assigned and
lines of authority and reporting clearly identified and understood.
2. Personnel: Personnel should have capabilities commensurate with their responsibilities.
Personnel selection and training policies,together with the quality and quantity of supervision,
are thus important.
3. Seorenation of Functions: Segregation of incompatible functions reduces the risk that a person
is in a position both to perpetrate and conceal errors or irregularities in the normal course of
duty. If different people handle two parts of a transaction, collusion is necessary to conceal
errors or irregularities. In particular,the functions that should be considered when evaluating
segregation of functions are authorization, execution, recording, custody of assets and
performing reconciliations.
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Attachment 2
COSTA MESA SANITARY DISTRICT
Investment Procedures— Internal Control Guidelines
Fiscal Year01 5-1 6 --{Deleted:2014-15
4. Authorization: An appropriate responsible individual should authorize all transactions. The
responsibilities and limits of authorization should be clearly delineated: The authorization for a
specific transaction or granting general authority for transactions should be to a position
commensurate with the significance of the transactions. Delegation of authority to authorize
transactions should be handled very carefully.
5. Controls Over an Accounting System: Controls over an accounting system include manual and
computerized procedures carried out independently to ascertain that transactions are
complete,valid,authorized and properly recorded.
•
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. Attachment 2
COSTA MESA SANITARY DISTRICT
Cash Controls
Fiscal Year2015-16 ---(Deleted:2014-15
PROCEDURES THAT MAY BE PERFORMED BY AUDITORS WITH RESPECT TO CASH •
RECEIPTS
1. District procedures and controls are reviewed. Some of the system strengths are:
a. Receipts are controlled upon receipt by proper registration devices;
b. Receipts are reconciled on a daily basis;
c. Amounts are deposited intact;
d. All bank accounts are authorized by the Board;
e. Cash counts are done by two or more individuals;
f. Bank reconciliations are reviewed; •
g. The posting of cash receipt entries in books is prompt;
h. Receipt forms are prenumbered,accounted for,and physically secured;
i. Proper approval required for write-off's of customer accounts;
j. Checks are restrictively endorsed upon receipt;
k. Adequate physical security over cash;
I. Individuals who handle cash do not post account records or process billing
statements;and
m. Adequate supervision of financial operations.
2. Significant revenues are confirmed directly with the payer and compared to District books to
make sure amounts are recorded properly, or reviewed on an analytical basis by year over
year comparisons.
3. Cash balances are substantiated by confirming account balances. Bank reconciliations are
reviewed for propriety and recalculated by the auditor. All significant reconciling items on
bank reconciliations are verified'as valid reconciling items by proving to subsequent bank
statements.
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Attachment 2
COSTA MESA SANITARY DISTRICT •
Segregation of Treasury Functions
Fiscal Year,015-16 --{Deleted:2014-15
The District's treasury function is segregated as follows.
Function Responsibility
Authorization of investment transactions:
A) Formal investment policy
Prepared by Treasurer
Reviewed by Board
Adopted by Board
B) Investment transactions approved by Treasurer
C) Monthly Investment Report:
Prepared by Treasurer
Reviewed by Board
Execution of investment transactions Treasurer
Recording of investments in Treasurer's records Treasurer
Recording of investments in accounting records Accountant __-{Deleted:Finance Manager
Accounting records approved by Finance Manager
Verification of investment and confirmation of Treasurer's records Finance Manager
Bank reconciliation:
Prepared by Accountant __-{Deleted:Associate
Approved by Finance Manager
Execute wire transfers Treasurer
Callback verification of wire transfer Bank
Annual review of investment portfolio External Auditors
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Attachment 2
COSTA MESA SANITARY DISTRICT
Glossary of Investments
Fiscal Year,2015-16 ,,_-{Deleted:2014-15
Bankers'Acceptances—Short-term credit arrangements to enable businesses to obtain funds to finance
commercial transactions. They are time drafts drawn on a bank by an exporter or importer to obtain funds
to pay for specific merchandise. By its acceptance,the bank becomes primarily liable for the payment of
the draft at its maturity. An acceptance is a high-grade negotiable instrument. Acceptances are
purchased in various denominations for 30, 60, or 90 days, but no longer than_180 days. The interest is
calculated on a 360-day discount basis similar to Treasury Bills. The District may not invest more than
25%of its surplus money in Bankers'Acceptances and no more than 15%of bankers'acceptances may
be placed with any one commercial bank.
Certificates of Deposit (CD) —Time deposits of a bank or savings and loan. They are purchased in
various denominations with maturities ranging from 30 to 360'days. Certificates of Deposit are insured up
to$250,000 per issuer by the FDIC. The interest is calculated on a 360-day, actual day month basis and •
is payable monthly. The District may invest up to 25%of its surplus money in insured CD's with maturities
of one year of less.
Commercial Paper—Short-term unsecured promissory notes issued by a corporation to raise working
capital. These negotiable instruments are purchased at a discount to par value or at par value with interest
bearing. Commercial Paper is issued by corporations such as General Motors, IBM, etc. Local agencies
are permitted by State law to invest in Commercial Paper of the highest ranking or of the highest letter and
numerical rating as provided by Moody's Investor's Service, Inc., or Standard and Poor's Corporation.
Purchases of eligible Commercial Paper may not exceed 270 days maturity, nor exceed 25% of the
District's surplus funds. The District may not purchase more than 10%of any single issuer.
Federal Agency Issues—Guaranteed directly or indirectly by the United States Government. All agency
obligations qualify as legal investments and are acceptable as security for public deposits. Agencies
usually provide higher yields than direct Treasury issues with all of the same advantages. An unlimited
amount of funds may be invested in Federal Agency issues with maximum maturities of less than five
years. The Board must expressly authorize any investment with a maturity greater than five years.
Examples include:
• Federal Intermediate Credit Bank Debentures (FICB) — Loans to lending institutions used to
finance the short-term and intermediate needs of farmers,such as seasonal production. They are
usually issued monthly in minimum denominations of$3,000 with a nine-month maturity. Interest is
payable at maturity and is calculated on a 360-day,30-day month basis.
• Federal Farm Credit Bank(FFCB)—Debt instruments used to finance the short and intermediate
term needs of farmers and the national agricultural industry. They are issued monthly with three
and six-month maturities. The FFCB issues larger issues (one to ten years) on a periodic basis.
These issues are highly liquid.
• Federal Land Bank Bonds (FLB) — Long-term mortgage credit provided to farmers by Federal
Land Banks. These bonds are issued at irregular times for various maturities ranging from a few
months to ten years. The minimum denomination is $1,000. They carry semi-annual coupons.
Interest is calculated on a 360-day,30-day month basis.
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Attachment 2
COSTA MESA SANITARY DISTRICT
Glossary of Investments
Fiscal Year X015-16 -,-{Deleted:2014-15
• Federal Home Loan Bank Notes and Bonds(FHLB)—Issued by the Federal Home Loan Bank
System to help finance the housing industry. The notes and bonds provide liquidity and home
mortgage credit to savings and loan associations, mutual savings banks, cooperative banks,
insurance companies and mortgage-lending institutions. They are issued irregularly for various
maturities. The minimum denomination is $5,000. The notes are issued with maturities of less
than one year and interest is paid at maturity. The bonds are issued with various maturities and
carry semi-annual coupons. Interest is calculated on a 360-day,30-day month basis.
• Federal National Mortgage Association(FNMA)—Used to assist the home mortgage market by
purchasing mortgages insured by the Federal Housing Administration and the Farmers Home
Administration,as well as those guaranteed by the Veterans Administration. They are issued four
times a year with maturities from a few months to eight years. The minimum amount is$10,000
and carry semi-annual coupons,with interest computed on a 360-day,30-day month basis.
• Federal Home Loan Mortgage Corporation (FHLMC1 — A government-sponsored corporation
established to develop the secondary market for conventional home mortgages. Mortgages are
purchased solely from the Federal Home Loan Bank System member lending institutions whose
deposits are insured by agencies of the United States Government. They are issued for various
maturities and in minimum denominations of $10,000. Interest is paid semi-annually and is
calculated on a 360-day,30-day month basis.
Investment Trust of California (CaITRUSTI—A joint powers authority established by local agencies in
the State of California for the purpose of pooling and investing local agency funds. A Board of Trustees
supervises and administers the investment program. The Board is comprised of experienced investment
officers and policy-makers of the public agency members. CaITRUST invests in fixed income securities
eligible for investment pursuant to California Government Code§53601 et seq. The District is not limited
as to the number of deposits and withdrawals in any given month for the short-term account within
CaITRUST. The district is limited to one transaction per month in the medium-term account within
CaITRUST. See also Shares of Beneficial Interest.
Local Agency Investment Fund(LAIF)—A special fund in the State Treasury which local agencies may
use to deposit funds for investment. There is no minimum investment period and the minimum transaction
is$5,000,in multiples of$1,000 above that,with a maximum balance of$50,000,000 for any agency. The -_--{Deleted:40,000,000
District is restricted to 15 transactions per month for each LAIF account. LAIF offers high liquidity because
deposits can be converted to cash in 24 hours with no interest lost. Interest is distributed to those
agencies participating on a per share basis determined by the amounts deposited and the length of time
they are deposited. Interest is paid quarterly. The State retains a portion for administrative costs, not to
exceed one-quarter of one percent of the earnings.
The pooling of the State's surplus cash with the participant's surplus cash creates a multi-billion dollar
money pool and allows diversified investments. The District invests in the Local Agency Investment Fund -_-- Deleted:In a high interest rate market,the
whose Investment Policy allows investments in securities not specifically authorized by the District's District does better than LAIF. However,in
Investment Policy,but allowable under the California Government Code.
ties
of low interest rates,LAIF's yields are
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Attachment 2
COSTA MESA SANITARY DISTRICT
Glossary of Investments
Fiscal Year01 5-1 6 -,{Deleted:2014-15
Medium Term Corporate Notes—Unsecured promissory notes issued by a corporation organized and
operating in the United States. These are negotiable instruments and are traded in the secondary market.
Medium Term Corporate Notes can be defined as extended maturity Commercial Paper. Local agencies
are restricted by the Government Code to investments in corporations rated in the top three note
categories by a nationally-recognized rating service,five year maximum maturity and may not exceed 30%
of surplus funds. The District's restrictions are a maximum term of five years to maturity and total
investments in Medium Term Corporate Notes may not exceed 20%of the District's surplus funds. The
District may not purchase more than 10%of any single issuer.
Negotiable Certificates of Deposit—Obligations of the financial institution, bank or savings and loan,
bought at par value with the promise to pay face value plus accrued interest at maturity. They are high-
grade negotiable instruments,paying a higher interest rate than regular certificates of deposit. The primary
market issuance is in multiples of$1,000,000, the secondary market usually trades in denominations of
$500,000,and smaller lots are occasionally available. Negotiable Certificates of Deposit are insured up to
$250,000 per issuer by the FDIC. Purchases of Negotiable Certificate of Deposit may not exceed 25%of
the District's surplus funds and five years to maturity. The District may not buy more than 10%of any
single issuer.
Passbook Savings Account Demand Deposit — Interest bearing active deposits placed at state or
national banks, state or federal savings and loan associations,state or federal credit unions and federally
insured industrial loan companies. Monies placed in a savings account earn short-term interest. Deposits
are FDIC insured up to$250,000,and may be in any amount.
Shares of Beneficial Interest—Also referred to as money market mutual funds. CaITRUST,which has
previously been defined, is classified as shares of beneficial interest. Shares of beneficial interest must
consist of highly-rated short-term debt instruments. The management companies shall either(1)attain
the highest ranking or the highest letters and numerical rating provided by not less than two of the three
largest nationally recognized rating services, or (2) have an investment advisor registered with the
Securities and Exchange Commission (SEC) with not less than five years experience investing in the
securities and obligations as authorized above and with assets under management in excess of five
hundred million dollars ($500,000,000) and (3) follow regulations specified by the SEC under the
Investment Company Act of 1940(15 U.S.C. Section 80a-1, et seq.). The purchase price of shares for
beneficial interest shall not exceed 20%of the District's portfolio.
Supranational Securities — United States dollar denominated senior unsecured unsubordinated
obligations issued or conditionally guaranteed by the International Bank for Reconstruction and.
Development, International Finance Corporation, or Inter-American Development Bank. Investments are
limited to five years or less and must be eligible for purchase or sale within the United States. Investments
shall be rated"AA"or better and shall not exceed 15%of the District's portfolio.
US Treasury Bills—Direct obligations of the United States Government issued weekly with maturity dates
up to one year. They are issued and traded on a discount basis with interest calculated on a 360-day
basis and actual invested days. They are issued in amounts of$10,000 and up, in multiples of$5,000.
They are a highly liquid security. An unlimited amount may be invested in US Treasury Bills.
14
•
Attachment 2
COSTA MESA SANITARY DISTRICT
Glossary of Investments
Fiscal Yearg015-16 --{Deleted:2014-15
US Treasury Notes—Direct obligations of the United States Government with original maturities of 1 to 10
years. They are generally available in minimum denominations of $5,000 for two and three-year
maturities, and $1,000 denominations for all other maturities. Notes are actively traded in a large
secondary market and are very liquid. An unlimited amount of funds may be invested in US Treasury
Notes with maximum terms of five years. The term may be extended if authorized by the Board.
•
0
15
74. a,
a y Costa Mesa Sanitary D
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RPUO�
. . .an Independent Special District
Memorandum
To: Board of Directors
From: Marc Davis, Treasurer
•
Date: June 25, 2015
Subject: Statement of Investment Policy for Fiscal Year 2015-16
Summary
Attached is the proposed Statement of Investment Policy for Fiscal Year 2015-16
(Policy). The Policy documents the Board's guidelines under which the District Treasurer
can invest the District's idle funds.
Staff Recommendation
Adopt Resolution No. 2015-869 approving the Policy and delegating the investment
function to the.District Treasurer for the 2015-16 fiscal year.
Analysis
California Government Code §53646(a)(2) allows the District Treasurer to submit an
annual investment policy to the Board for consideration. It is not a requirement to do so,
but staff believes it is prudent to continue this practice. The enclosed Policy documents
the Board's objectives surrounding the selection of investments, as well as those
investments in which the Board has authorized. It also provides limitations on specific
investments.
The responsibility for placing investments rests with the Board. California Government
Code §53607 allows the Board to delegate the investment function to the District
Treasurer for a period of one year. The attached Resolution approves the Policy and
delegates the investment function to the District Treasurer for the 2015-16 fiscal year.
The attached Policy is a red-lined version so that the Board can review the proposed
changes to the Policy. Once approved, the changes will be incorporated into the Policy,
--- >x
' Protecting our community's health and the environment by providing solid waste and sewer collection services.
www.crosdca.gov
Board of Directors
June 25, 2015
• Page 2 of 3
and it will be distributed to the brokers assisting the District with the investment of its idle
funds.
Strategic Plan Element & Goal
This item supports achieving Strategic Element No. 7.0, Finances, by ensuring the short
and long-term fiscal health of the District.
Legal Review
District Counsel has reviewed Resolution 2015-869 as to form.
Environmental Review
Subject activity is exempt from the requirements of the California Environmental Quality
Act (CEQA) (Public Resources Code Section 21000 et. seq.). Section 15300.4 of CEQA
allows an agency while establishing its own procedures "to list those specific activities
which fall within each of the exempt classes", and the District has adopted "CEQA
Guidelines and Implementing Procedures" that state on page 6, —Projects" does not
include....C. Continuing administrative or maintenance activities."
Financial Review
The Statement of Investment Policy guides the Treasurer in how to invest the District's idle
funds. The amount of investment earnings to be generated as a result of the investing
function is based upon the market conditions at the time of investment.
Public Notice Process
Copies of this report are on file and will be included with the entire agenda packet for the
June 25, 2015 Board of Directors regular meeting at District Headquarters (628 W. 19th
Street) and on the District's website at www.cmsdca.qov.
Alternative Actions
1. Do not adopt Resolution and retain investment function at the Board level
2. Refer the matter back to staff
Attachments
Attachment 1 — Resolution Number 2015-869
Attachment 2 —Statement of Investment Policy for Fiscal Year 2015-16 — Redline Version