HomeMy WebLinkAbout2026-05-12; City Council; Resolution 2026-085Exhibit 1
RESOLUTION NO. 2026-085
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD,
CALIFORNIA, APPROVING THE CITY’S INVESTMENT POLICY DATED MAY 12,
2026, AND RENEWING THE DELEGATION OF AUTHORITY TO THE CITY
TREASURER TO MANAGE INVESTMENTS FOR ONE YEAR ENDING MAY 12,
2027
WHEREAS, the City Council of the City of Carlsbad, California, adopted an Investment Policy on
Jan. 2, 1985, as permitted by California Government Code Section 53646; and
WHEREAS, California Government Code Section 53646(a)(2) states the City Treasurer may
annually render to the City Council a statement of investment policy; and
WHEREAS, the City Council must consider the investment policy and any changes to it at a public
meeting; and
WHEREAS, upon consideration, the City Council may from time to time revise the city’s
Investment Policy as deemed necessary to provide proper guidance to city staff and the City Treasurer;
and
WHEREAS, the City Treasurer has reviewed the existing Investment Policy dated May 13, 2025,
and has recommended modifications; and
WHEREAS, California Government Code Section 53607 allows the City Council to delegate to the
City Treasurer the authority to invest or reinvest funds or to sell or exchange purchased securities for a
one-year period; and
WHEREAS, the City Council may renew the delegation of authority each year; and
WHEREAS, the City Council last renewed the delegation of authority effective May 13, 2025, and
desires to renew the delegation of authority for another year.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as
follows:
1.The above recitations are true and correct.
2.The City Council has determined the proposed action is not a “project” as defined by
California Environmental Quality Act, or CEQA, Section 21065 and CEQA Guidelines Section
15378(b)(5) and does not require environmental review under CEQA Guidelines Sections
15060(c)(3) and 15061(b)(3) because approving the annual Investment Policy update and
renewing the delegation of authority to the City Treasurer to manage investments are
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organizational or administrative government activities that does not involve any
commitment to any specific project which may result in a potentially significant physical
impact on the environment. Any subsequent action or direction stemming from the
proposed action may require preparation of an environmental document in accordance
with CEQA or the CEQA Guidelines.
3.The Investment Policy dated May 12, 2026 (Attachment A) is adopted and supersedes the
policy dated May 13, 2025.
4.The Investment Policy dated May 12, 2026, conforms to California Government Code
Sections 53601 and 53635.
5.The authority delegated to the City Treasurer under California Government Code Section
53607 to invest or to reinvest funds or to sell or exchange purchased securities is renewed
for one year from the date of this resolution or until May 12, 2027.
PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City
of Carlsbad on the 12th day of May, 2026, by the following vote, to wit:
AYES: Blackburn, Bhat-Patel, Acosta, Burkholder, Shin.
NAYS: None.
ABSTAIN: None.
ABSENT: None.
_____________________________________
KEITH BLACKBURN, Mayor
______________________________________
SHERRY FREISINGER, City Clerk
(SEAL)
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Attachment A
City of Carlsbad
Investment Policy
May 12, 2026
Christian Peacox
City Treasurer
1635 Faraday Avenue
Carlsbad, CA 92008
(442)339-5119www.carlsbadca.gov/city-hall/city-treasurer
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Contents
1.0 Policy ...................................................................................................................................... 5
2.0 Scope ...................................................................................................................................... 5
2.1 Pooled Investments ........................................................................................................ 5
2.2 Investments Held Separately ......................................................................................... 6
3.0 Prudence ................................................................................................................................ 6
4.0 Objective ................................................................................................................................ 6
4.1 Safety .............................................................................................................................. 6
4.2 Liquidity .......................................................................................................................... 6
4.3 Return on Investment .................................................................................................... 7
5.0 Delegation of Authority ......................................................................................................... 7
6.0 Ethics and Conflicts of Interest .............................................................................................. 7
7.0 Authorized Financial Dealers and Institutions ....................................................................... 8
7.1 Financial Institutions ...................................................................................................... 8
7.2 Broker & Dealers ............................................................................................................ 8
7.3 Purchase, Sale, Payment, and Delivery .......................................................................... 9
8.0 Authorized and Suitable Investments .................................................................................... 9
8.1 Pooled Investments ........................................................................................................ 9
U.S. Treasury and U.S. Agency Obligations ............................................................. 9
Municipal Bonds ..................................................................................................... 9
Bankers’ Acceptances ........................................................................................... 10
Certificates of Deposit (Non-negotiable) .............................................................. 10
Negotiable Certificates of Deposit ........................................................................ 11
Placement Service Deposits and Certificates of Deposit ...................................... 11
Collateralized Bank Deposits ................................................................................ 11
Commercial Paper ................................................................................................. 12
Repurchase Agreements ....................................................................................... 12
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Medium-Term Notes ............................................................................................. 13
Mutual Funds and Money Market Mutual Funds ................................................. 13
Sweep Accounts .................................................................................................... 14
Local Agency Investment Fund (LAIF) ................................................................... 14
Joint Powers Authority Pool ................................................................................. 14
Supranational Securities ....................................................................................... 14
Agency Backed Mortgage Passthrough Securities ................................................ 14
Non-agency Backed Mortgage Passthrough Securities ........................................ 15
8.2 Investments Held Separately ....................................................................................... 15
8.3 Other Securities ............................................................................................................ 15
8.4 Housing Loans ............................................................................................................... 15
9.0 Unauthorized Investments .................................................................................................. 15
10.0 Review of Investment Portfolio ........................................................................................... 16
10.1 Exceptions .................................................................................................................... 16
11.0 Investment Pools & Mutual Funds ...................................................................................... 16
12.0 Collateralization, Perfection, Security and Contracts .......................................................... 17
13.0 Safekeeping and Custody ..................................................................................................... 17
14.0 Diversification ...................................................................................................................... 17
15.0 Maximum Maturities ........................................................................................................... 17
15.1 Maximum Maturities for Pooled Investments ............................................................. 17
Liquidity Requirement .......................................................................................... 17
Three Years Average ............................................................................................. 18
Five-Year Exception ............................................................................................... 18
Ten-Year Limit ....................................................................................................... 18
Callable Investments ............................................................................................. 18
15.2 Investments Held Separately ....................................................................................... 18
16.0 Performance Standard for Pooled Investments .................................................................. 18
17.0 Short-term Borrowing .......................................................................................................... 19
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17.1 Short-term Loan ........................................................................................................... 19
17.2 Line of Credit ................................................................................................................ 19
18.0 Investment Strategy ............................................................................................................. 19
18.1 Pooled Investments ...................................................................................................... 19
18.2 Investments Held Separately ....................................................................................... 19
19.0 Reporting.............................................................................................................................. 19
19.1 Pooled Investments ...................................................................................................... 20
19.2 Investments Held Separately ....................................................................................... 21
20.0 Investment Policy Adoption ................................................................................................. 21
21.0 Glossary ................................................................................................................................ 21
22.0 Summary of Authorized Investments .................................................................................. 26
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City of Carlsbad
Investment Policy
May 12, 2026
(Supersedes Investment Policy dated May 13, 2025)
The purpose of this document is to identify various policies and procedures that enhance
opportunities for a prudent and systematic investment policy and to organize and formalize
investment-related activities. Related activities which comprise good cash management include
accurate cash projections, the expeditious collection of revenue, the control of disbursements,
cost-effective banking relations, and arranging for a short-term borrowing program which
coordinates working capital requirements and investment opportunities.
1.0 Policy
It is the policy of the City of Carlsbad to invest public funds not required for immediate day-
to-day operations in safe, liquid, and medium-term investments. These investments shall
yield an acceptable return while conforming to all California statutes and the city's
Investment Policy.
2.0 Scope
It is intended that this policy cover the investment activities of all contingency reserves and
inactive cash under the direct authority of the city.
2.1 Pooled Investments
Investments for the city and its subsidiary entities will be made on a pooled basis
including, but not limited to, the City of Carlsbad, the Housing Authority of the City
of Carlsbad, the City of Carlsbad Public Improvement Corporation, the Carlsbad
Public Financing Authority, and the Carlsbad Municipal Water District. The city's
Annual Comprehensive Financial Report identifies the fund types involved as
follows:
• General Fund
• Special Revenue Funds
• Debt Service Funds
• Capital Project Funds
• Enterprise Funds
• Internal Service Funds
• Fiduciary Funds
• Miscellaneous Special Funds
• Any new funds created by the City Council, unless specifically exempt.
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2.2 Investments Held Separately
Investments of bond proceeds will be held separately when required by the bond
indentures or when necessary to meet arbitrage regulations. If allowed by the bond
indentures, or if the arbitrage regulations do not apply, investments of bond
proceeds will be held as part of the pooled investments.
3.0 Prudence
California Government Code Section 53600.3 identifies trustees as those persons
authorized to make investment decisions on behalf of a local agency. As a trustee, the
standard of prudence to be used shall be the "Prudent Investor” standard and shall be
applied in the context of managing the overall portfolio. The Prudent Investor standard
states that, 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. These circumstances include, but are 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.
It is the policy of this Council that investment officers acting in accordance with written
procedures and the Investment Policy and exercising due diligence shall be relieved of
personal responsibility for an individual security's credit risk changes or market price
changes, provided deviations from expectations are reported in a timely manner and
appropriate action is taken to control adverse developments.
4.0 Objective
California Government Code Section 53600.5 outlines the objectives of a trustee when
investing, reinvesting, purchasing, acquiring, exchanging, selling or managing public funds.
4.1 Safety
The primary objective is to safeguard the principal of funds. Investments of the city
shall be undertaken in a manner that seeks to ensure preservation of capital in the
overall portfolio. To attain this objective, the City Treasurer will diversify the city’s
investments by investing funds among a variety of securities with independent
returns.
4.2 Liquidity
The secondary objective is to meet the city’s liquidity needs. The city's investment
portfolio will remain sufficiently liquid to enable the city to meet all operating
requirements which might be reasonably anticipated.
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4.3 Return on Investment
The third objective is to achieve a return on the city’s funds. The City Treasurer shall
have the objective of attaining a comparative performance measurement or an
acceptable rate of return throughout budgetary and economic cycles. These
measures shall be commensurate with the city’s investment risk constraints
identified in the Investment Policy and the cash flow characteristics of the portfolio.
The City Treasurer should strive to maintain the level of investment of all
contingency reserves and inactive funds as close to 100% as possible. While the
objectives of safety and liquidity must first be met, it is recognized that portfolio
assets represent a potential source of significant revenues. It is to the benefit of
the city that these assets be managed to realize a yield on investments consistent
with California statutes and the city’s Investment Policy.
5.0 Delegation of Authority
Under California Government Code Section 53607 and by the annual adoption of this policy,
the City Council delegates the management of inactive cash and the investment of funds
identified in Section 2.0 Scope to the City Treasurer. No person may engage in an
investment transaction covered by the terms of this policy unless directed by the City
Treasurer.
In the execution of this delegated authority, the City Treasurer may establish accounts with
qualified financial institutions and brokers/dealers for the purpose of effecting investment
transactions in accordance with this policy. The criteria used to select qualified financial
institutions and brokers/dealers are identified in Section 7.0 Authorized Financial Dealers
and Institutions.
As authorized by California Government Code Section 41006, the City Treasurer has
appointed the Finance Director as Deputy City Treasurer who, in the absence of the City
Treasurer, will assume the City Treasurer's duties and responsibilities under this policy. The
City Treasurer shall retain full responsibility for all transactions undertaken under the terms
of this policy.
In the endeavor to have all inactive cash invested all the time, the treasury department
accountant will assist the City Treasurer in the gathering of information to create cash flow
estimates.
6.0 Ethics and Conflicts of Interest
All participants in the city's investment process shall seek to act responsibly as custodians
of public trust. Officers and employees involved in the investment process shall refrain from
personal business activity that could conflict with proper execution of the investment
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program, or which could impair their ability to make impartial investment
recommendations and decisions. Investment officials and employees shall make all
disclosures appropriate under the Fair Political Practices Act and may seek the advice of the
City Attorney and the Fair Political Practices Commission whenever there is a question of
personal financial or investment positions that could represent potential conflicts of
interest.
7.0 Authorized Financial Dealers and Institutions
Investments not purchased directly from the issuer shall only be purchased from an
institution licensed in California as a broker-dealer, a member of a federally regulated
securities exchange, a national or California-chartered bank, a savings association or federal
association, or a brokerage firm designated as a primary government dealer by the Federal
Reserve Bank. The City Treasurer may maintain a list of financial institutions and broker-
dealers who are approved to provide the city with investment services. This list should be
updated annually by the City Treasurer to ensure compliance with this Investment Policy.
All financial institutions and broker-dealers who desire to become qualified bidders for
investment transactions will be given a copy of the city's Investment Policy and provide
written confirmation indicating that the Investment Policy has been read, understood and
that their investment offers will comply with this policy and applicable state and federal
law. Qualified financial institutions and broker-dealers must supply the City Treasurer with
the documents below.
7.1 Financial Institutions
• Current audited financial statements
• Depository contracts, as appropriate
• A copy of the latest Federal Deposit Insurance Corporation call report, and
• Proof that commercial banks, savings associations, or federal associations are
California or federally chartered
Commercial banks, savings associations, and federal associations must maintain a
minimum net worth to asset ratio as provided by law (total regulatory net worth
divided by total assets) and must have positive net earnings for the last reporting
period.
7.2 Broker & Dealers
• Current audited financial statements
• Proof that brokerage firms are licensed in California as a broker-dealer or
members in good standing of a federally regulated securities exchange, or
designated as a primary government dealer by the Federal Reserve Bank
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7.3 Purchase, Sale, Payment, and Delivery
A competitive bid process, when deemed practical by the City Treasurer, will be
used to place all investment transactions. It is recommended that the City
Treasurer obtain two or more bids from broker-dealers before purchasing an
investment, and three or more quotes when selling an investment. When two or
more investment opportunities offer essentially the same maturity, liquidity, yield,
and quality, the City Treasurer may consider financial institutions based in the City
of Carlsbad, the state of California, and within the United States. Payment for
securities will be made on a delivery-versus-payment basis via the city's custodian.
Delivery of securities will be made to the city in accordance with the third-party
custodial agreement.
8.0 Authorized and Suitable Investments
Except for Certificates of Deposit, investments will be made only in readily marketable
securities actively traded in the secondary market.
8.1 Pooled Investments
The City Treasurer may invest city funds in the following instruments as specified
in California Government Code Section 53601 and as further limited in this policy.
Where this policy specifies a percentage limit for an investment category, the
percentage is applicable only at the purchase date.
U.S. Treasury and U.S. Agency Obligations
United States Treasury notes, bonds, bills, or certificates of indebtedness,
or those for which the faith and credit of the United States are pledged for
the payment of principal and interest.
• Federal agency or United States government-sponsored enterprise
obligations, participations, or other instruments, including those
issued by or fully guaranteed as to principal and interest by federal
agencies or United States government sponsored-enterprises.
Maximum remaining maturity of five years as of the date of
settlement.
• Percentage of portfolio, issuer, and ratings are not applicable.
Municipal Bonds
Registered state warrants or treasury notes or bonds of the state of
California, including bonds payable solely out of the revenues from a
revenue-producing property owned, controlled, or operated by the state
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of California or by a department, board, agency, or authority of the state
of California.
Registered treasury notes or bonds of another state, including bonds
payable solely out of the revenues from a revenue-producing property
owned, controlled, or operated by another state or by a department,
board, agency, or authority of another state.
Bonds, notes, warrants, or other evidence of indebtedness of a local
agency within California, including bonds payable solely out of the
revenues from a revenue-producing property owned, controlled, or
operated by the local agency, or by a department, board, agency, or
authority of the local agency.
Bonds issued by the city, including bonds payable solely out of the
revenues from a revenue-producing property owned, controlled, or
operated by the city or by a department, board, agency, or authority of the
city.
• Maximum remaining maturity of five years as of the date of
settlement.
• Shall not exceed 20% of the investment portfolio.
• No more than 5% of the portfolio may be invested in any single issuer.
• Shall be rated in a rating category of “AA” by one and “A” by another
of the three Nationally Recognized Statistical Rating Organization
(NRSRO) rating agencies, Moody's Investors Service, Inc., S&P Global
Ratings, and Fitch Ratings, Inc.
Bankers’ Acceptances
Bankers’ acceptances drawn on and accepted by a commercial bank.
• Maximum maturity of 180 days as of the date of settlement.
• Shall not exceed 40% of the investment portfolio.
• No more than 30% of the portfolio may be invested in any single issuer.
• Rating measures are not applicable.
Certificates of Deposit (Non-negotiable)
Investments in Certificates of Deposit and checking accounts shall be fully
insured up to the amount allowed per account by the Federal Deposit
Insurance Corporation or the National Credit Union Administration. The
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city may use a private sector entity that assists in the placement of
Certificates of Deposit.
• Maximum remaining maturity of five years as of the date of
settlement.
• Shall not exceed 30% of the investment portfolio.
• No more than 10% of the portfolio may be invested in any single issuer.
• Rating measures are not applicable.
Negotiable Certificates of Deposit
Negotiable Certificates of Deposit issued by a nationally or California-
chartered bank, a savings association or a federal association, a state or
federal credit union (if no one with investment authority is on the credit
union’s board of directors or certain committees), or a federally licensed
or state-licensed branch of a foreign bank.
• Maximum remaining maturity of five years as of the date of
settlement.
• Shall not exceed 30% of the investment portfolio or the maximum
deposit limits in California Government Code Section 53638.
• No more than 10% of the portfolio may be invested in any single issuer.
• Rating measures are not applicable.
Placement Service Deposits and Certificates of Deposit
• The maximum maturity does not exceed five (5) years.
• No more than 30% of the total portfolio may be invested in a
combination of qualifying placement service deposits.
o Under a provision sunsetting on January 1, 2031, no more than 50%
of the total portfolio may be invested in deposits through a
placement service, including Certificates of Deposit, if the Agency
is a city, district or local agency that does not pool money with
other local agencies.
• The full amount of each deposit along with accrued interest must at all
times be insured by the Federal Deposit Insurance Corporation (FDIC)
or the National Credit Union Administration (NCUA).
Collateralized Bank Deposits
Notes, bonds, or other obligations secured by a first priority security
interest in eligible securities listed in California Government Code Section
53651 with a market value of at least equal to the amounts required by
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Government Code Section 53652 for the purpose of security local agency
deposits.
• The securities must be placed by delivery or book entry into the custody
of a trust company or the trust department of a bank that is not
affiliated with the issuer of the secure obligation.
• The security interest must be perfected in accordance with the
requirements of the Uniform Commercial Code or federal regulations
applicable to the types of securities in which the security interest is
granted.
• Maximum remaining maturing of five years as of the date of settlement.
Commercial Paper
Eligible paper must be of “prime” quality of the highest ranking or of the
highest letter and number rating as provided for by an NRSRO.
Additionally, the issuer must be a general corporation organized and
operating within the United States, have total assets in excess of $500
million, and have debt other than commercial paper, if any, rated in a
rating category of “A” or its equivalent or higher by an NRSRO.
• Maximum remaining maturity of 397 days as of the date of settlement.
• Shall not exceed 10% of the investment portfolio.
• No more than 5% of the portfolio may be invested in any single issuer.
Repurchase Agreements
The market value of securities underlying a repurchase agreement must
be valued at 102% or greater of the funds borrowed against those
securities and the value must be adjusted no less than quarterly. If the
value of the repurchase agreement fluctuates below 102%, it must be
brought back up to 102% by the next business day.
• Securities underlying the repurchase agreement must be securities
authorized by California Government Code 53601 and this policy and
have the same issuer, description, issue date, and maturity.
• Maximum remaining maturity of one year as of the date of settlement.
• Shall not exceed 5% of the investment portfolio.
• No more than 5% of the portfolio may be invested in any single issuer.
• Rating measures are not applicable.
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Medium-Term Notes
Medium-term notes permitted are debt securities 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.
New investments made directly into corporations involved in the business
of exploration, extraction, or further processing of oil and gas are not
eligible for investment.
• Maximum remaining maturity of five years as of the date of settlement.
• Shall not exceed 30% of the investment portfolio.
• No more than 5% of the portfolio may be invested in any single issuer.
• Shall be rated in a rating category of “A” or its equivalent or better by
an NRSRO
Mutual Funds and Money Market Mutual Funds
Money Market Mutual Funds must follow regulations specified by the SE
under the Investment Company Act of 1940 (15 U.S.C. Section 80a-1, et
seq.) and meet either of the following criteria:
a) Must receive the highest ranking or the highest letter and
numerical rating by no less than two NRSROs, or
b) Must retain an investment advisor who is registered or exempt
from registration with the SEC and has at least five years'
experience investing in specified securities and managing assets in
excess of $500 million.
Mutual Funds must abide by the same investment restrictions and
regulations that apply to public agencies in California Government Code
Section 53601(a-k) &(m-o) and meet either of the following criteria:
a) Must receive the highest ranking or the highest letter and
numerical rating by no less than two NRSROs, or
b) Must retain an investment advisor who is registered or exempt
from registration with the SEC and has at least five years'
experience investing in specified securities and managing assets in
excess of $500 million.
• No more than 10% invested in any one mutual fund.
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• Investments in money market mutual funds and mutual funds may not
exceed 20% of the portfolio.
• The purchase price of shares shall not include any commission that the
fund manager may charge.
Sweep Accounts
Sweep accounts for the investment of overnight funds when the funds are
swept into investments allowed by this policy.
Local Agency Investment Fund (LAIF)
Local Agency Investment Fund (LAIF) will be made in accordance with the
laws and regulations governing the LAIF, including California Government
Code Sections 16429.1-16429.4.
Joint Powers Authority Pool
Investments in a joint powers authority pool that retains an investment
advisor who is: (1) registered or exemption from registration with the
United States Securities and Exchange Commission (SEC), (2) has assets
under management in excess of $500 million, and (3) has at least five years’
experience in investing in instruments authorized by California
Government Code Section 53601(a)-(q).
Supranational Securities
• United States dollar denominated senior unsecured, unsubordinated
obligations issued or unconditionally guaranteed by the International
Bank for Reconstruction and Development, International Finance
Corporation, or Inter-American Development Bank. Maximum
remaining maturity of five years as of the date of settlement.
• Eligible for purchase and sale in the United States
• Shall not exceed 10% of the investment portfolio.
• Shall be rated in a rating category of “AA” or its equivalent or better by
an NRSRO.
Agency Backed Mortgage Passthrough Securities
Mortgage passthrough securities issued or guaranteed by the United
States Government and its agencies.
• Maximum remaining maturity of five years as of the date of settlement.
• Percentage of portfolio, issuer, and ratings are not applicable.
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Non-agency Backed Mortgage Passthrough Securities
Non-agency backed mortgage passthrough securities, collateralized
mortgage obligations, mortgage-backed or other pay-through bonds,
equipment lease-backed certificates, consumer receivable passthrough
certificates, or consumer receivable-backed bonds.
• Maximum remaining maturity of five years as of the date of
settlement.
• Shall not exceed 5% of the investment portfolio.
• No more than 5% of the portfolio may be invested in any single issuer.
• Shall be rated in a rating category of “AA” or its equivalent or better by
an NRSRO.
8.2 Investments Held Separately
Investments of bond funds will be made in conformance with the trust indenture
for each issue. Such investments will be held separately when required.
8.3 Other Securities
Other types of securities authorized by California law, but which are not currently
allowed by the city’s Investment Policy, must first be approved by the City Council.
8.4 Housing Loans
Housing loans approved by the City Council to private developers and homeowners
as part of the city housing program shall comply with California statutes but need
not meet the investment objectives and the risk management requirements of this
Investment Policy. The City Council will manage these loans directly.
9.0 Unauthorized Investments
California Government Code Section 53601.6 disallows the following investments:
• Inverse floaters
• Range notes
• Interest-only strips that are derived from a pool of mortgages.
In addition, and more generally, investments are further restricted as follows:
• No investment will be made in any security that could result in zero- or negative-interest
accrual if held to maturity, except for securities issued by, or backed by, the United
States government in the event of, and for the duration of, a period of negative market
interest rates as permitted by California Government Code Section 53601.6(b)(2).
• No investment will be made that could cause the portfolio to be leveraged.
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• No purchases of investments on margin will be made.
10.0 Review of Investment Portfolio
Pursuant to Carlsbad Municipal Code Chapter 2.43, the Investment Review Board shall
conduct reviews of the city's investment portfolio, the strategy being utilized for the
investment of city funds, and the city's Investment Policy. This board will be composed of
the City Treasurer (acting as the chair), and four City Treasurer-appointed members
approved by the City Council. The board will convene periodically as necessary or desirable
but not less frequently than once each quarter. All members of the Investment Review
Board must comply with the disclosure requirements in the city’s Conflict of Interest Code.
10.1 Exceptions
Securities must be in compliance with Section 8.0 Authorized Investments at the
time of purchase. If an unauthorized investment is purchased or an authorized
investment experiences a subsequent change that causes its not to comply with
this Investment Policy (e.g., the rating of a medium-term note held in the portfolio
has been downgraded by an NRSRO, or the total value of the portfolio has declined
causing the percentage invested in medium-term notes to rise above 30%) the City
Treasurer will determine the course of action necessary to correct such exceptions
and move the portfolio into compliance with state and city requirements. The City
Treasurer’s determination may not expose the assets of the portfolio to undue risk
and may not impair the meeting of financial obligations as they fall due.
Additionally, any subsequent investments may not extend existing exceptions.
Exceptions, and the decisions to correct the exceptions, will be reviewed with the
Investment Review Board and reported on the monthly investment report
presented to City Council.
11.0 Investment Pools & Mutual Funds
An investigation and due diligence will be conducted before investing in any investment
pool or mutual fund. The City Treasurer shall review at a minimum:
• The investment policy and objectives.
• Interest calculations and distributions.
• Safeguard and settlement processes.
• A description of the program including legal investors and the minimums and maximum
transactions allowable.
• Schedule for receiving statements.
• How reserves and retained earnings are treated.
• The fee schedule.
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12.0 Collateralization, Perfection, Security and Contracts
When required by California statute or this Investment Policy, any investment capable of
being collateralized shall be collateralized by the required amounts imposed by law. To give
greater security to the city’s investments, when an investment is collateralized and not
perfected under existing law, an attempt to perfect the collateralization should be made.
California Government Code Section 53652 requires that the depository secure active or
inactive deposits with eligible securities having a fair market value of at least 10% more
than the total amount of all deposits, and 50% in excess of the deposit when secured with
mortgage pools. California Government Code Section 53649 specifies that the City
Treasurer is responsible for entering into deposit contracts with each depository.
13.0 Safekeeping and Custody
All security transactions, including collateral for repurchase agreements, entered into by
the city shall be conducted on a delivery-versus-payment basis. All securities owned by the
city will be held by a third-party custodian designated by the City Treasurer and evidenced
by a monthly statement from the custodian. All securities will be held in the nominee’s
name of the custodian unless the counterparty bank’s trust department is used for the
delivery of the security, in which case the security will be held in the city’s name. Collateral
for time deposits in banks will be held in the city's name in the bank's Trust Department or
in the Federal Reserve Bank.
14.0 Diversification
The portfolio will be diversified to avoid incurring unreasonable and avoidable risks
regarding specific security types or individual financial institutions. In addition to the
limitations on specific security types indicated in Section 8.0 Authorized Investments, and
with the exception authorized pools and investments, no more than 5% of the city's
portfolio will be placed with any single issuer.
15.0 Maximum Maturities
Maximum maturity supports the principle of liquidity by ensuring that adequate cash is
available to meet anticipated cash flow requirements of the city.
15.1 Maximum Maturities for Pooled Investments
A policy of laddered maturities will generally be followed for pooled investments.
The following maturity requirements will apply as of the month end of each
reporting period.
Liquidity Requirement
Investments maturing within the next six months, measured at par value,
plus estimated base operating revenues, shall be sufficient to meet the
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city’s next six months of expenditure requirements. Remaining
investments of the portfolio shall not have a maturity greater than five
years from the date of settlement except as provided in Section 15.1.3 Five
Year Exception.
Three Years Average
The average portfolio investment maturity shall be three years or less. A
dollar-weighted average will be used in computing the average maturity of
the portfolio.
Five-Year Exception
Before an investment, which is allowed by California statute, is made in
securities that mature more than five years from the date of purchase, the
City Treasurer and the Deputy City Manager of Administrative Services will
review the city's long-term cash needs. Both must concur before such an
investment is made. A resolution authorizing such investment must first
be approved by the City Council. Investments beyond five years will not be
greater than 10% of the portfolio and will be counted in the percentage of
the portfolio that may mature beyond one year.
Ten-Year Limit
No investments will be made that mature beyond 10 years from the date
of investment.
Callable Investments
Callable investments will be recorded at their maturity dates.
15.2 Investments Held Separately
Maturities for investments held separately will conform to the trust indenture for
each issue.
16.0 Performance Standard for Pooled Investments
Laddered maturities and a buy and hold strategy for pooled investments will cause the
investment portfolio to attain a market-average rate of return throughout budgetary and
economic cycles, commensurate with the investment risk constraints and the city’s cash
flow needs. The rate of return of the investment portfolio will be based on the maturity
value of the investments. A dollar-weighted average of yields to maturity will be used in
calculating the rate of return of the entire portfolio. The city’s performance benchmarks
may change from year to year but should strive to mirror the assets held in the city’s
portfolio.
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17.0 Short-term Borrowing
The city is permitted by law to borrow money to meet current short-term cash flow needs.
These needs may arise either because projected cash disbursements exceed projected cash
receipts, or because the city's cash accounts may be temporarily overdrawn due to the
efforts to invest 100% of inactive funds at all times. To provide for these contingencies the
City Treasurer is authorized to take the following actions:
17.1 Short-term Loan
When there is a shortfall between projected cash revenues and projected cash
disbursements, the City Treasurer may secure a loan in the amount that would
equal the cash deficit plus projected cash disbursements for one month. Any such
loan will be repaid within one year.
17.2 Line of Credit
The City Treasurer may maintain a line of credit with the city's bank in an amount
to cover sums temporarily overdrawn because of efforts to invest all inactive funds
at all times.
18.0 Investment Strategy
18.1 Pooled Investments
A buy and hold strategy will be followed; that is, investments once made will be
held until maturity. A buy and hold strategy will result in unrealized gains or losses
as market interest rates fall or rise from the coupon rate of the investment.
Unrealized gains or losses, however, will diminish as the maturity dates of the
investments are approached or as market interest rates move closer to the
coupon rate of the investment. A buy and hold strategy requires that the portfolio
be kept sufficiently liquid to preclude the undesired sale of investments prior to
maturity. Occasionally, the City Treasurer may find it advantageous to sell an
investment prior to maturity, but this should only be on an exception basis and
only when it is in the best interest of the city and conforms to the Prudent Investor
standard.
18.2 Investments Held Separately
Investments held separately for bond proceeds will follow the trust indenture for
each issue.
19.0 Reporting
California Government Code Section 53607 requires reports meeting the standards set
forth in these sections to be presented to City Council, as well as any additional information
desired. The City Treasurer is responsible for establishing and maintaining an internal
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control structure designed to ensure that the assets of the city are protected from loss,
theft, fraud or misuse. Therefore, it is the policy of the city that the investments and
transactions described in these sections, and as outlined in Section 19.1 below, be given to
the City Council, City Manager, Internal Auditor Deputy City Manager of Administrative
Services, and Finance Director.
19.1 Pooled Investments
The investment report will be submitted monthly by the City Treasurer within 60
days following the end of the month covered by the report. The monthly report
will be published to the City Treasurer webpage after reporting to City Council.
Each report will include the following elements:
• Itemized listing of portfolio investments by type, yield to maturity, and issuer
• Par value, dollar amount invested, amortized cost, and current market value as
of the date of the report will be given for the total of all securities, investments,
and moneys held by the city and its component units. The source of the market
values will be cited
• Credit ratings of medium-term notes
• Accrued income
• Weighted average yield of the portfolio
• Weighted average days to maturity of the portfolio from the date of the report
• Weighted average modified duration of the portfolio
• Dollar amount and percentage of portfolio maturing within one year
• Dollar amount and percentage of portfolio maturing between one and 5 years
• Percent that each type of investment represents in the portfolio
• Investment transactions for the reporting period excluding due dates
• Fund source of investments when available
• Statement that the investment portfolio has the ability to meet the city's
expenditure requirements for the next six (6) months
• Statement of compliance of the portfolio with the city’s Investment Policy.
When applicable, any material exceptions will be noted
An annual report for pooled investments will also be made to the City Council
following the close of the fiscal year. Among other items, the annual report will
include an analysis of the composition of the portfolio with regard to fund source,
a review of trends regarding the size of the fund, portfolio yields, cash income,
and a statement regarding anticipated fund activity in the next fiscal year.
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19.2 Investments Held Separately
A report of investments held separately will be made quarterly. Within 30 days
following the end of the quarter the report will be submitted as an exhibit in the
City Treasurer’s monthly report. The quarterly report will contain the information
required by California Government Code Section 53646 when available.
20.0 Investment Policy Adoption
California Government Code Section 53646(a)(2) allows the City Treasurer to render to the
City Council and the Investment Review Board a statement of Investment Policy and
recommends that one be presented each year. Therefore, the city’s Investment Policy and
any modifications to it shall be considered no less often than annually at a public meeting.
Adoption of the Investment Policy and any changes must be made by resolution of the City
Council.
21.0 Glossary
Amortized Cost
The cost of investments adjusted for amortized premiums and discounts. Amortized cost is
used to maintain comparability with market value.
Arbitrage Regulation
Laws to control the use of profit making by purchasing securities on one market for
immediate resale on another to profit from a price difference.
Bankers’ Acceptances
An investment vehicle created to facilitate international commercial trade transactions. The
bank accepts responsibility to repay a loan to the holder of the investment vehicle created
in a commercial transaction. The credit worthiness of Bankers’ Acceptances is enhanced
because they are secured by the issuing bank, the goods themselves, and the importer.
Bankers’ Acceptances are sold on a discounted basis.
Bond Indenture
A written agreement specifying the terms and conditions for issuing bonds, stating the form
of the bond being offered for sale, interest to be paid, the maturity date, call provisions and
protective covenants, if any, collateral pledged, the repayment schedule, and other terms.
It describes the legal obligations of a bond issuer and the powers of the bond trustee, who
has the responsibility for ensuring that interest payments are made to registered
bondholders.
Book Value
A term synonymous with amortized cost.
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Buy and Hold Strategy
Investments in which management has the positive intent and ability to hold each issue to
maturity.
Certificate of Deposit
A deposit account paying interest for a fixed term, with the understanding that funds
cannot be withdrawn before maturity without giving notice.
Collateralization
An asset used to secure a debt in part or in full by pledge of collateral. The collateral is used
as security to help ensure payment or performance of an obligation.
Commercial Paper
A short-term IOU, or unsecured money market obligation, issued by prime rated
commercial firms and financial companies, with maturities from 2 days up to 397 days. A
promissory note of the issuer used to finance current obligations and is a negotiable
instrument.
Delivery Versus Payment
A securities industry term indicating payment is due when the buyer has securities in hand
or a book entry receipt.
Interest-Only Strips
Mortgage-backed instrument where the investor receives only interest, no principal, from
a pool of mortgages. Issues are highly interest rate sensitive. Cash flows vary between
interest periods. As well, the maturity date may occur earlier than that stated if all loans
within the pool are prepaid. High prepayments on underlying mortgages can return less to
the holder that the dollar amount invested.
Inverse Floater
A bond or note that does not earn a fixed rate of interest. Rather, the interest rate that is
earned is tied to a specific interest-rate index identified in the bond/note structure. The
interest rate earned by the bond/note will move in the opposite direction of the index (e.g.,
if market interest rates as measured by the selected index rises, the interest rate earned by
the bond/note will decline). An inverse floater increases the market rate risk and modified
duration of the investment.
Joint Powers Authority Pool
A joint powers authority pool is a joint powers authority organized under California
Government Code Section 6509.7 to invest in securities and obligations permitted under
California Government Code Section 53601(a) through (r), inclusive. The joint powers
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authority must have an investment advisor that: (1) is registered or exempt from
registration with the United States Securities and Exchange Commission; (2) has not less
than five years of experience investing in the securities and obligations authorized in
California Government Code Section 53601(a) through (q), inclusive; and (3) has assets
under management in excess of five hundred million dollars ($500,000,000).
Laddered Portfolio
A bond investment portfolio with securities in each maturity range (e.g., monthly) over a
specified period (e.g., five years).
Leverage
Investing with borrowed money with the expectation that the interest earned on the
investment will exceed the interest paid on the borrowed money.
Local Agency Investment Fund (LAIF)
A voluntary investment program offering participating agencies the opportunity to
participate in a major portfolio which daily invests hundreds of millions of dollars, using the
investment expertise of the State Treasurer’s Office investment staff at no additional cost
to the taxpayer. Investment in LAIF, considered a short-term investment, is readily available
for cash withdrawal daily.
Market Risk
The risk that market interest rates will rise causing a loss of value in investments held. All
investments made by the city involve a degree of market risk. See also Unrealized Gains
(Losses).
Negotiable Certificates of Deposit
A large denomination ($100,000 or more) interest bearing time deposits, paying the holder
a fixed amount of interest at maturity. Issues can be sold to a new owner before maturity.
Municipal Bonds
Municipal bonds are debt securities issued by states, cities, counties and other
governmental entities to fund day-to-day obligations and to finance capital projects such
as building schools, highways or sewer systems.
Nominee Name
The registered owner of a stock or bond if different from the beneficial owner, who acts as
holder of record for securities and other assets. Typically, this arrangement is done to
facilitate the transfer of securities when it is inconvenient to obtain the signature of the real
owner, or the actual owner may not wish to be identified. Nominee ownership simplifies
the registration and transfer of securities.
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Nationally Recognized Statistical Rating Organization (NRSRO)
A Nationally Recognized Statistical Rating Organization (NRSRO) is a credit rating agency
that issues credit ratings that the United States Securities and Exchange Commission
permits other financial firms to use for certain regulatory purposes. Three of the primary
recognized rating agencies are Moody’s Investors Service, Inc., S&P Global Ratings, and
Fitch Ratings, Inc.
Pooled Investment
A grouping of resources for the common advantage of the participants.
Range Note
An investment whose coupon payment varies (e.g., either 7% or 3%) and is dependent on
whether the current benchmark (e.g., 30-year Treasury) falls within a pre-determined range
(e.g., between 6.75% and 7.25%).
Repurchase Agreement
A contract to purchase and subsequently sell securities at a specified date and price.
Supranational Securities
Supranational securities are United States dollar denominated senior unsecured,
unsubordinated obligations issued or unconditionally guaranteed by the International Bank
for Reconstruction and Development, International Finance Corporation, or Inter-American
Development Bank. These organizations were established by international treaties, are
headquartered in Washington D.C and incorporated into federal law by Congressional Acts.
California Government Code Section 53601(q) permits the securities of these three
organizations to be incorporated into local agency investment portfolios.
Sweep Account
A short-term income fund into which all uninvested cash balances from the non-interest-
bearing checking account are automatically transferred daily.
Third-Party Custodian
A corporate agent, usually a commercial bank, who, acting as trustee, holds securities under
a written agreement for a corporate client and buys and sells securities when instructed.
Custody services include securities safekeeping, and collection of dividends and interest.
The bank acts only as a transfer agent and makes no buy-sell recommendations.
Unrealized Gains (Losses)
An increase (decrease) in the value of investments representing the difference between the
amortized cost of the investments and their current market value. Increases (decreases) in
value are caused primarily by changes in market interest rates subsequent to purchasing
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the investments. Increases (decreases) in value indicate two things: 1. The portfolio has a
potential gain (loss) in principal if the securities are sold, and 2. The portfolio is over
performing (underperforming) the current market for similar investments. An increase in
value indicates the portfolio is earning relatively more interest than current market
conditions, and a decrease in value indicates that the portfolio is earning relatively less
interest than current market conditions.
Zero Accrual Periods
A period in which an investment accumulates no interest.
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22.0 Summary of Authorized Investments
Investment Type
Maximum
Maturity
Maximum
% Portfolio
Maximum
% Issuer
NRSRO
Minimum
Obligations of the US Government 5 years - - -
Certificates of Deposit (Non-Negotiable) 5 years 30% 10% -
Negotiable Certificates of Deposit 5 years 30% 10% -
Placement Service Deposits/Certificates of Deposit 5 years 50% 10% -
Collateralized Bank Deposits 5 years - - -
Medium-Term Notes 5 years 30% 5% A
Municipal Bonds 5 years 20% 5% AA/A
Supranational Securities 5 years 10% - AA
Agency Backed Mortgage Passthrough Securities 5 years - - -
Non-agency Backed Mortgage Passthrough Securities 5 years 5% 5% AA
Repurchase Agreements 1 year 5% 5% -
Commercial Paper 397 days 10% 5%
Bankers’ Acceptances 180 days 40% 30% -
Mutual Funds N/A 20% 10% AAA/AAA
Money Market Funds N/A 20% - AAA/AAA
JPA Pool N/A - - -
Sweep Accounts N/A - - -
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