53600. As used in this article, "local agency" means county, city,
city and county, including a chartered city or county, school
district, community college district, public district, county board
of education, county superintendent of schools, or any public or
municipal corporation.
53600.3. Except as provided in subdivision (a) of Section 27000.3,
all governing bodies of local agencies or persons authorized to make
investment decisions on behalf of those local agencies investing
public funds pursuant to this chapter are trustees and therefore
fiduciaries subject to the prudent investor standard. When investing,
reinvesting, purchasing, acquiring, exchanging, selling, or managing
public funds, a trustee shall act with care, skill, prudence, and
diligence under the circumstances then prevailing, including, but not
limited to, the general economic conditions and the anticipated
needs of the agency, that a prudent person acting in a like capacity
and familiarity with those matters would use in the conduct of funds
of a like character and with like aims, to safeguard the principal
and maintain the liquidity needs of the agency. Within the
limitations of this section and considering individual investments as
part of an overall strategy, investments may be acquired as
authorized by law.
53600.5. When investing, reinvesting, purchasing, acquiring,
exchanging, selling, or managing public funds, the primary objective
of a trustee shall be to safeguard the principal of the funds under
its control. The secondary objective shall be to meet the liquidity
needs of the depositor. The third objective shall be to achieve a
return on the funds under its control.
53600.6. The Legislature hereby finds that the solvency and
creditworthiness of each individual local agency can impact the
solvency and creditworthiness of the state and other local agencies
within the state. Therefore, to protect the solvency and
creditworthiness of the state and all of its political subdivisions,
the Legislature hereby declares that the deposit and investment of
public funds by local officials and local agencies is an issue of
statewide concern.
53601. This section shall apply to a local agency that is a city, a
district, or other local agency that does not pool money in deposits
or investments with other local agencies, other than local agencies
that have the same governing body. However, Section 53635 shall apply
to all local agencies that pool money in deposits or investments
with other local agencies that have separate governing bodies. The
legislative body of a local agency having moneys in a sinking fund or
moneys in its treasury not required for the immediate needs of the
local agency may invest any portion of the moneys that it deems wise
or expedient in those investments set forth below. A local agency
purchasing or obtaining any securities prescribed in this section, in
a negotiable, bearer, registered, or nonregistered format, shall
require delivery of the securities to the local agency, including
those purchased for the agency by financial advisers, consultants, or
managers using the agency's funds, by book entry, physical delivery,
or by third-party custodial agreement. The transfer of securities to
the counterparty bank's customer book entry account may be used for
book entry delivery.
For purposes of this section, "counterparty" means the other party
to the transaction. A counterparty bank's trust department or
separate safekeeping department may be used for the physical delivery
of the security if the security is held in the name of the local
agency. Where this section specifies a percentage limitation for a
particular category of investment, that percentage is applicable only
at the date of purchase. Where this section does not specify a
limitation on the term or remaining maturity at the time of the
investment, no investment shall be made in any security, other than a
security underlying a repurchase or reverse repurchase agreement or
securities lending agreement authorized by this section, that at the
time of the investment has a term remaining to maturity in excess of
five years, unless the legislative body has granted express authority
to make that investment either specifically or as a part of an
investment program approved by the legislative body no less than
three months prior to the investment:
(a) Bonds issued by the local agency, including bonds payable
solely out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency or by a department,
board, agency, or authority of the local agency.
(b) United States Treasury notes, bonds, bills, or certificates of
indebtedness, or those for which the faith and credit of the United
States are pledged for the payment of principal and interest.
(c) Registered state warrants or treasury notes or bonds of this
state, including bonds payable solely out of the revenues from a
revenue-producing property owned, controlled, or operated by the
state or by a department, board, agency, or authority of the state.
(d) Registered treasury notes or bonds of any of the other 49
United States in addition to California, including bonds payable
solely out of the revenues from a revenue-producing property owned,
controlled, or operated by a state or by a department, board, agency,
or authority of any of the other 49 United States, in addition to
California.
(e) Bonds, notes, warrants, or other evidences of indebtedness of
a local agency within this state, including bonds payable solely out
of the revenues from a revenue-producing property owned, controlled,
or operated by the local agency, or by a department, board, agency,
or authority of the local agency.
(f) 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.
(g) Bankers' acceptances otherwise known as bills of exchange or
time drafts that are drawn on and accepted by a commercial bank.
Purchases of bankers' acceptances shall not exceed 180 days' maturity
or 40 percent of the agency's moneys that may be invested pursuant
to this section. However, no more than 30 percent of the agency's
moneys may be invested in the bankers' acceptances of any one
commercial bank pursuant to this section.
This subdivision does not preclude a municipal utility district
from investing moneys in its treasury in a manner authorized by the
Municipal Utility District Act (Division 6 (commencing with Section
11501) of the Public Utilities Code).
(h) Commercial paper of "prime" quality of the highest ranking or
of the highest letter and number rating as provided for by a
nationally recognized statistical rating organization (NRSRO). The
entity that issues the commercial paper shall meet all of the
following conditions in either paragraph (1) or (2):
(1) The entity meets the following criteria:
(A) Is organized and operating in the United States as a general
corporation.
(B) Has total assets in excess of five hundred million dollars
($500,000,000).
(C) Has debt other than commercial paper, if any, that is rated "A"
or higher by an NRSRO.
(2) The entity meets the following criteria:
(A) Is organized within the United States as a special purpose
corporation, trust, or limited liability company.
(B) Has programwide credit enhancements including, but not limited
to, overcollateralization, letters of credit, or a surety bond.
(C) Has commercial paper that is rated "A-1" or higher, or the
equivalent, by an NRSRO.
Eligible commercial paper shall have a maximum maturity of 270
days or less. Local agencies, other than counties or a city and
county, may invest no more than 25 percent of their moneys in
eligible commercial paper. Local agencies, other than counties or a
city and county, may purchase no more than 10 percent of the
outstanding commercial paper of any single issuer. Counties or a city
and county may invest in commercial paper pursuant to the
concentration limits in subdivision (a) of Section 53635.
(i) Negotiable certificates of deposit issued by a nationally or
state-chartered bank, a savings association or a federal association
(as defined by Section 5102 of the Financial Code), a state or
federal credit union, or by a state-licensed branch of a foreign
bank. Purchases of negotiable certificates of deposit shall not
exceed 30 percent of the agency's moneys that may be invested
pursuant to this section. For purposes of this section, negotiable
certificates of deposit do not come within Article 2 (commencing with
Section 53630), except that the amount so invested shall be subject
to the limitations of Section 53638. The legislative body of a local
agency and the treasurer or other official of the local agency having
legal custody of the moneys are prohibited from investing local
agency funds, or funds in the custody of the local agency, in
negotiable certificates of deposit issued by a state or federal
credit union if a member of the legislative body of the local agency,
or a person with investment decisionmaking authority in the
administrative office manager's office, budget office,
auditor-controller's office, or treasurer's office of the local
agency also serves on the board of directors, or any committee
appointed by the board of directors, or the credit committee or the
supervisory committee of the state or federal credit union issuing
the negotiable certificates of deposit.
(j) (1) Investments in repurchase agreements or reverse repurchase
agreements or securities lending agreements of securities authorized
by this section, as long as the agreements are subject to this
subdivision, including the delivery requirements specified in this
section.
(2) Investments in repurchase agreements may be made, on an
investment authorized in this section, when the term of the agreement
does not exceed one year. The market value of securities that
underlie a repurchase agreement shall be valued at 102 percent or
greater of the funds borrowed against those securities and the value
shall be adjusted no less than quarterly. Since the market value of
the underlying securities is subject to daily market fluctuations,
the investments in repurchase agreements shall be in compliance if
the value of the underlying securities is brought back up to 102
percent no later than the next business day.
(3) Reverse repurchase agreements or securities lending agreements
may be utilized only when all of the following conditions are met:
(A) The security to be sold using a reverse repurchase agreement
or securities lending agreement has been owned and fully paid for by
the local agency for a minimum of 30 days prior to sale.
(B) The total of all reverse repurchase agreements and securities
lending agreements on investments owned by the local agency does not
exceed 20 percent of the base value of the portfolio.
(C) The agreement does not exceed a term of 92 days, unless the
agreement includes a written codicil guaranteeing a minimum earning
or spread for the entire period between the sale of a security using
a reverse repurchase agreement or securities lending agreement and
the final maturity date of the same security.
(D) Funds obtained or funds within the pool of an equivalent
amount to that obtained from selling a security to a counterparty
using a reverse repurchase agreement or securities lending agreement
shall not be used to purchase another security with a maturity longer
than 92 days from the initial settlement date of the reverse
repurchase agreement or securities lending agreement, unless the
reverse repurchase agreement or securities lending agreement includes
a written codicil guaranteeing a minimum earning or spread for the
entire period between the sale of a security using a reverse
repurchase agreement or securities lending agreement and the final
maturity date of the same security.
(4) (A) Investments in reverse repurchase agreements, securities
lending agreements, or similar investments in which the local agency
sells securities prior to purchase with a simultaneous agreement to
repurchase the security may be made only upon prior approval of the
governing body of the local agency and shall be made only with
primary dealers of the Federal Reserve Bank of New York or with a
nationally or state-chartered bank that has or has had a significant
banking relationship with a local agency.
(B) For purposes of this chapter, "significant banking
relationship" means any of the following activities of a bank:
(i) Involvement in the creation, sale, purchase, or retirement of
a local agency's bonds, warrants, notes, or other evidence of
indebtedness.
(ii) Financing of a local agency's activities.
(iii) Acceptance of a local agency's securities or funds as
deposits.
(5) (A) "Repurchase agreement" means a purchase of securities by
the local agency pursuant to an agreement by which the counterparty
seller will repurchase the securities on or before a specified date
and for a specified amount and the counterparty will deliver the
underlying securities to the local agency by book entry, physical
delivery, or by third-party custodial agreement. The transfer of
underlying securities to the counterparty bank's customer book-entry
account may be used for book-entry delivery.
(B) "Securities," for purposes of repurchase under this
subdivision, means securities of the same issuer, description, issue
date, and maturity.
(C) "Reverse repurchase agreement" means a sale of securities by
the local agency pursuant to an agreement by which the local agency
will repurchase the securities on or before a specified date and
includes other comparable agreements.
(D) "Securities lending agreement" means an agreement under which
a local agency agrees to transfer securities to a borrower who, in
turn, agrees to provide collateral to the local agency. During the
term of the agreement, both the securities and the collateral are
held by a third party. At the conclusion of the agreement, the
securities are transferred back to the local agency in return for the
collateral.
(E) For purposes of this section, the base value of the local
agency's pool portfolio shall be that dollar amount obtained by
totaling all cash balances placed in the pool by all pool
participants, excluding any amounts obtained through selling
securities by way of reverse repurchase agreements, securities
lending agreements, or other similar borrowing methods.
(F) For purposes of this section, the spread is the difference
between the cost of funds obtained using the reverse repurchase
agreement and the earnings obtained on the reinvestment of the funds.
(k) Medium-term notes, defined as all corporate and depository
institution debt securities with a maximum remaining maturity of five
years or less, issued by corporations organized and operating within
the United States or by depository institutions licensed by the
United States or any state and operating within the United States.
Notes eligible for investment under this subdivision shall be rated
"A" or better by an NRSRO. Purchases of medium-term notes shall not
include other instruments authorized by this section and may not
exceed 30 percent of the agency's moneys that may be invested
pursuant to this section.
(l) (1) Shares of beneficial interest issued by diversified
management companies that invest in the securities and obligations as
authorized by subdivisions (a) to (k), inclusive, and subdivisions
(m) to (o), inclusive, and that comply with the investment
restrictions of this article and Article 2 (commencing with Section
53630). However, notwithstanding these restrictions, a counterparty
to a reverse repurchase agreement or securities lending agreement is
not required to be a primary dealer of the Federal Reserve Bank of
New York if the company's board of directors finds that the
counterparty presents a minimal risk of default, and the value of the
securities underlying a repurchase agreement or securities lending
agreement may be 100 percent of the sales price if the securities are
marked to market daily.
(2) Shares of beneficial interest issued by diversified management
companies that are money market funds registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 (15
U.S.C. Sec. 80a-1 et seq.).
(3) If investment is in shares issued pursuant to paragraph (1),
the company shall have met either of the following criteria:
(A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two NRSROs.
(B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations authorized by subdivisions (a) to (k), inclusive, and
subdivisions (m) to (o), inclusive, and with assets under management
in excess of five hundred million dollars ($500,000,000).
(4) If investment is in shares issued pursuant to paragraph (2),
the company shall have met either of the following criteria:
(A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two NRSROs.
(B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience managing money market mutual funds
with assets under management in excess of five hundred million
dollars ($500,000,000).
(5) The purchase price of shares of beneficial interest purchased
pursuant to this subdivision shall not include commission that the
companies may charge and shall not exceed 20 percent of the agency's
moneys that may be invested pursuant to this section. However, no
more than 10 percent of the agency's funds may be invested in shares
of beneficial interest of any one mutual fund pursuant to paragraph
(1).
(m) Moneys held by a trustee or fiscal agent and pledged to the
payment or security of bonds or other indebtedness, or obligations
under a lease, installment sale, or other agreement of a local
agency, or certificates of participation in those bonds,
indebtedness, or lease installment sale, or other agreements, may be
invested in accordance with the statutory provisions governing the
issuance of those bonds, indebtedness, or lease installment sale, or
other agreement, or to the extent not inconsistent therewith or if
there are no specific statutory provisions, in accordance with the
ordinance, resolution, indenture, or agreement of the local agency
providing for the issuance.
(n) Notes, bonds, or other obligations that are at all times
secured by a valid first priority security interest in securities of
the types listed by Section 53651 as eligible securities for the
purpose of securing local agency deposits having a market value at
least equal to that required by Section 53652 for the purpose of
securing local agency deposits. The securities serving as collateral
shall be placed by delivery or book entry into the custody of a trust
company or the trust department of a bank that is not affiliated
with the issuer of the secured obligation, and the security interest
shall be perfected in accordance with the requirements of the Uniform
Commercial Code or federal regulations applicable to the types of
securities in which the security interest is granted.
(o) A mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other pay-through bond, equipment
lease-backed certificate, consumer receivable passthrough
certificate, or consumer receivable-backed bond of a maximum of five
years' maturity. Securities eligible for investment under this
subdivision shall be issued by an issuer having an "A" or higher
rating for the issuer's debt as provided by an NRSRO and rated in a
rating category of "AA" or its equivalent or better by an NRSRO.
Purchase of securities authorized by this subdivision may not exceed
20 percent of the agency's surplus moneys that may be invested
pursuant to this section.
(p) Shares of beneficial interest issued by a joint powers
authority organized pursuant to Section 6509.7 that invests in the
securities and obligations authorized in subdivisions (a) to (o),
inclusive. Each share shall represent an equal proportional interest
in the underlying pool of securities owned by the joint powers
authority. To be eligible under this section, the joint powers
authority issuing the shares shall have retained an investment
adviser that meets all of the following criteria:
(1) The adviser is registered or exempt from registration with the
Securities and Exchange Commission.
(2) The adviser has not less than five years of experience
investing in the securities and obligations authorized in
subdivisions (a) to (o), inclusive.
(3) The adviser has assets under management in excess of five
hundred million dollars ($500,000,000).
53601.1. The authority of a local agency to invest funds pursuant
to Section 53601 includes, in addition thereto, authority to invest
in financial futures or financial option contracts in any of the
investment categories enumerated in that section.
53601.2. As used in this article, "corporation" includes a limited
liability company.
53601.5. The purchase by a local agency of any investment
authorized pursuant to Section 53601 or 53601.1, not purchased
directly from the issuer, shall be purchased either from an
institution licensed by the state as a broker-dealer, as defined in
Section 25004 of the Corporations Code, or from a member of a
federally regulated securities exchange, from a national or
state-chartered bank, from a savings association or federal
association (as defined by Section 5102 of the Financial Code) or
from a brokerage firm designated as a primary government dealer by
the Federal Reserve bank.
53601.6. (a) A local agency shall not invest any funds pursuant to
this article or pursuant to Article 2 (commencing with Section 53630)
in inverse floaters, range notes, or mortgage-derived, interest-only
strips.
(b) A local agency shall not invest any funds pursuant to this
article or pursuant to Article 2 (commencing with Section 53630) in
any security that could result in zero interest accrual if held to
maturity. However, a local agency may hold prohibited instruments
until their maturity dates. The limitation in this subdivision shall
not apply to local agency investments in shares of beneficial
interest issued by diversified management companies registered under
the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.)
that are authorized for investment pursuant to subdivision (l) of
Section 53601.
53601.8. Notwithstanding Section 53601 or any other provision of
this code, a local agency that has the authority under law to invest
funds, at its discretion, may invest a portion of its surplus funds
in certificates of deposit at a commercial bank, savings bank,
savings and loan association, or credit union that uses a private
sector entity that assists in the placement of certificates of
deposit, provided that the purchases of certificates of deposit
pursuant to this section, Section 53635.8, and subdivision (i) of
Section 53601 do not, in total, exceed 30 percent of the agency's
funds that may be invested for this purpose. The following conditions
shall apply:
(a) The local agency shall choose a nationally or state chartered
commercial bank, savings bank, savings and loan association, or
credit union in this state to invest the funds, which shall be known
as the "selected" depository institution.
(b) The selected depository institution may submit the funds to a
private sector entity that assists in the placement of certificates
of deposit with one or more commercial banks, savings banks, savings
and loan associations, or credit unions that are located in the
United States, for the local agency's account.
(c) The full amount of the principal and the interest that may be
accrued during the maximum term of each certificate of deposit shall
at all times be insured by the Federal Deposit Insurance Corporation
or the National Credit Union Administration.
(d) The selected depository institution shall serve as a custodian
for each certificate of deposit that is issued with the placement
service for the local agency's account.
(e) At the same time the local agency's funds are deposited and
the certificates of deposit are issued, the selected depository
institution shall receive an amount of deposits from other commercial
banks, savings banks, savings and loan associations, or credit
unions that, in total, are equal to, or greater than, the full amount
of the principal that the local agency initially deposited through
the selected depository institution for investment.
(f) Notwithstanding subdivisions (a) to (e), inclusive, no credit
union may act as a selected depository institution under this
section or Section 53635.8 unless both of the following conditions
are satisfied:
(1) The credit union offers federal depository insurance through
the National Credit Union Administration.
(2) The credit union is in possession of written guidance or other
written communication from the National Credit Union Administration
authorizing participation of federally insured credit unions in one
or more certificate of deposit placement services and affirming that
the moneys held by those credit unions while participating in a
deposit placement service will at all times be insured by the federal
government.
(g) It is the intent of the Legislature that nothing in this
section shall restrict competition among private sector entities that
provide placement services pursuant to this section.
53602. The legislative body shall invest only in notes, bonds,
bills, certificates of indebtedness, warrants, or registered warrants
which are legal investments for savings banks in the State,
provided, that the board of supervisors of a county may, by a
four-fifths vote thereof, invest in notes, warrants or other
evidences of indebtedness of public districts wholly or partly within
the county, whether or not such notes, warrants, or other evidences
of indebtedness are legal investments for savings banks.
53603. The legislative body may make the investment by direct
purchase of any issue of eligible securities at their original sale
or after they have been issued.
53604. The legislative body may sell, or exchange for other
eligible securities, and reinvest the proceeds of, the securities
purchased.
53605. From time to time, the legislative body shall sell the
securities so that the proceeds may be applied to the purposes for
which the original purchase money was placed in the sinking fund or
the treasury of the local agency.
53606. The bonds purchased, which were issued by the purchaser, may
be canceled either in satisfaction or sinking fund obligations or
otherwise. When canceled, they are no longer outstanding, unless in
its discretion, the legislative body holds then uncanceled. While
held uncanceled, the bonds may be resold.
53607. The authority of the legislative body to invest or to
reinvest funds of a local agency, or to sell or exchange securities
so purchased, may be delegated for a one-year period by the
legislative body to the treasurer of the local agency, who shall
thereafter assume full responsibility for those transactions until
the delegation of authority is revoked or expires, and shall make a
monthly report of those transactions to the legislative body. Subject
to review, the legislative body may renew the delegation of
authority pursuant to this section each year.
53608. The legislative body of a local agency may deposit for
safekeeping with a federal or state association (as defined by
Section 5102 of the Financial Code), a trust company or a state or
national bank located within this state or with the Federal Reserve
Bank of San Francisco or any branch thereof within this state, or
with any Federal Reserve bank or with any state or national bank
located in any city designated as a reserve city by the Board of
Governors of the Federal Reserve System, the bonds, notes, bills,
debentures, obligations, certificates of indebtedness, warrants, or
other evidences of indebtedness in which the money of the local
agency is invested pursuant to this article or pursuant to other
legislative authority. The local agency shall take from such
financial institution a receipt for securities so deposited. The
authority of the legislative body to deposit for safekeeping may be
delegated by the legislative body to the treasurer of the local
agency; the treasurer shall not be responsible for securities
delivered to and receipted for by a financial institution until they
are withdrawn from the financial institution by the treasurer.
53609. Notwithstanding the provisions of this chapter or any other
provisions of this code, funds held by a local agency pursuant to a
written agreement between the agency and employees of the agency to
defer a portion of the compensation otherwise receivable by the
agency's employees and pursuant to a plan for such deferral as
adopted by the governing body of the agency, may be invested in the
types of investments set forth in Sections 53601 and 53602 of this
code, and may additionally be invested in corporate stocks, bonds,
and securities, mutual funds, savings and loan accounts, credit union
accounts, life insurance policies, annuities, mortgages, deeds of
trust, or other security interests in real or personal property.
Nothing herein shall be construed to permit any type of investment
prohibited by the Constitution.
Deferred compensation funds are public pension or retirement funds
for the purposes of Section 17 of Article XVI of the Constitution.
53610. (a) For purposes of this section, "Proposition 1A receivable"
means the right to payment of moneys due or to become due to a local
agency, pursuant to clause (iii) of subparagraph (B) of paragraph
(1) of subdivision (a) of Section 25.5 of Article XIII of the
California Constitution and Section 100.06 of the Revenue and
Taxation Code.
(b) Notwithstanding any other law, a local agency may purchase,
with its revenue, Proposition 1A receivables sold pursuant to Section
53999.
(c) A purchaser of Proposition 1A receivables pursuant to this
section shall not offer them for sale pursuant to Section 6588.
53600. As used in this article, "local agency" means county, city,
city and county, including a chartered city or county, school
district, community college district, public district, county board
of education, county superintendent of schools, or any public or
municipal corporation.
53600.3. Except as provided in subdivision (a) of Section 27000.3,
all governing bodies of local agencies or persons authorized to make
investment decisions on behalf of those local agencies investing
public funds pursuant to this chapter are trustees and therefore
fiduciaries subject to the prudent investor standard. When investing,
reinvesting, purchasing, acquiring, exchanging, selling, or managing
public funds, a trustee shall act with care, skill, prudence, and
diligence under the circumstances then prevailing, including, but not
limited to, the general economic conditions and the anticipated
needs of the agency, that a prudent person acting in a like capacity
and familiarity with those matters would use in the conduct of funds
of a like character and with like aims, to safeguard the principal
and maintain the liquidity needs of the agency. Within the
limitations of this section and considering individual investments as
part of an overall strategy, investments may be acquired as
authorized by law.
53600.5. When investing, reinvesting, purchasing, acquiring,
exchanging, selling, or managing public funds, the primary objective
of a trustee shall be to safeguard the principal of the funds under
its control. The secondary objective shall be to meet the liquidity
needs of the depositor. The third objective shall be to achieve a
return on the funds under its control.
53600.6. The Legislature hereby finds that the solvency and
creditworthiness of each individual local agency can impact the
solvency and creditworthiness of the state and other local agencies
within the state. Therefore, to protect the solvency and
creditworthiness of the state and all of its political subdivisions,
the Legislature hereby declares that the deposit and investment of
public funds by local officials and local agencies is an issue of
statewide concern.
53601. This section shall apply to a local agency that is a city, a
district, or other local agency that does not pool money in deposits
or investments with other local agencies, other than local agencies
that have the same governing body. However, Section 53635 shall apply
to all local agencies that pool money in deposits or investments
with other local agencies that have separate governing bodies. The
legislative body of a local agency having moneys in a sinking fund or
moneys in its treasury not required for the immediate needs of the
local agency may invest any portion of the moneys that it deems wise
or expedient in those investments set forth below. A local agency
purchasing or obtaining any securities prescribed in this section, in
a negotiable, bearer, registered, or nonregistered format, shall
require delivery of the securities to the local agency, including
those purchased for the agency by financial advisers, consultants, or
managers using the agency's funds, by book entry, physical delivery,
or by third-party custodial agreement. The transfer of securities to
the counterparty bank's customer book entry account may be used for
book entry delivery.
For purposes of this section, "counterparty" means the other party
to the transaction. A counterparty bank's trust department or
separate safekeeping department may be used for the physical delivery
of the security if the security is held in the name of the local
agency. Where this section specifies a percentage limitation for a
particular category of investment, that percentage is applicable only
at the date of purchase. Where this section does not specify a
limitation on the term or remaining maturity at the time of the
investment, no investment shall be made in any security, other than a
security underlying a repurchase or reverse repurchase agreement or
securities lending agreement authorized by this section, that at the
time of the investment has a term remaining to maturity in excess of
five years, unless the legislative body has granted express authority
to make that investment either specifically or as a part of an
investment program approved by the legislative body no less than
three months prior to the investment:
(a) Bonds issued by the local agency, including bonds payable
solely out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency or by a department,
board, agency, or authority of the local agency.
(b) United States Treasury notes, bonds, bills, or certificates of
indebtedness, or those for which the faith and credit of the United
States are pledged for the payment of principal and interest.
(c) Registered state warrants or treasury notes or bonds of this
state, including bonds payable solely out of the revenues from a
revenue-producing property owned, controlled, or operated by the
state or by a department, board, agency, or authority of the state.
(d) Registered treasury notes or bonds of any of the other 49
United States in addition to California, including bonds payable
solely out of the revenues from a revenue-producing property owned,
controlled, or operated by a state or by a department, board, agency,
or authority of any of the other 49 United States, in addition to
California.
(e) Bonds, notes, warrants, or other evidences of indebtedness of
a local agency within this state, including bonds payable solely out
of the revenues from a revenue-producing property owned, controlled,
or operated by the local agency, or by a department, board, agency,
or authority of the local agency.
(f) 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.
(g) Bankers' acceptances otherwise known as bills of exchange or
time drafts that are drawn on and accepted by a commercial bank.
Purchases of bankers' acceptances shall not exceed 180 days' maturity
or 40 percent of the agency's moneys that may be invested pursuant
to this section. However, no more than 30 percent of the agency's
moneys may be invested in the bankers' acceptances of any one
commercial bank pursuant to this section.
This subdivision does not preclude a municipal utility district
from investing moneys in its treasury in a manner authorized by the
Municipal Utility District Act (Division 6 (commencing with Section
11501) of the Public Utilities Code).
(h) Commercial paper of "prime" quality of the highest ranking or
of the highest letter and number rating as provided for by a
nationally recognized statistical rating organization (NRSRO). The
entity that issues the commercial paper shall meet all of the
following conditions in either paragraph (1) or (2):
(1) The entity meets the following criteria:
(A) Is organized and operating in the United States as a general
corporation.
(B) Has total assets in excess of five hundred million dollars
($500,000,000).
(C) Has debt other than commercial paper, if any, that is rated "A"
or higher by an NRSRO.
(2) The entity meets the following criteria:
(A) Is organized within the United States as a special purpose
corporation, trust, or limited liability company.
(B) Has programwide credit enhancements including, but not limited
to, overcollateralization, letters of credit, or a surety bond.
(C) Has commercial paper that is rated "A-1" or higher, or the
equivalent, by an NRSRO.
Eligible commercial paper shall have a maximum maturity of 270
days or less. Local agencies, other than counties or a city and
county, may invest no more than 25 percent of their moneys in
eligible commercial paper. Local agencies, other than counties or a
city and county, may purchase no more than 10 percent of the
outstanding commercial paper of any single issuer. Counties or a city
and county may invest in commercial paper pursuant to the
concentration limits in subdivision (a) of Section 53635.
(i) Negotiable certificates of deposit issued by a nationally or
state-chartered bank, a savings association or a federal association
(as defined by Section 5102 of the Financial Code), a state or
federal credit union, or by a state-licensed branch of a foreign
bank. Purchases of negotiable certificates of deposit shall not
exceed 30 percent of the agency's moneys that may be invested
pursuant to this section. For purposes of this section, negotiable
certificates of deposit do not come within Article 2 (commencing with
Section 53630), except that the amount so invested shall be subject
to the limitations of Section 53638. The legislative body of a local
agency and the treasurer or other official of the local agency having
legal custody of the moneys are prohibited from investing local
agency funds, or funds in the custody of the local agency, in
negotiable certificates of deposit issued by a state or federal
credit union if a member of the legislative body of the local agency,
or a person with investment decisionmaking authority in the
administrative office manager's office, budget office,
auditor-controller's office, or treasurer's office of the local
agency also serves on the board of directors, or any committee
appointed by the board of directors, or the credit committee or the
supervisory committee of the state or federal credit union issuing
the negotiable certificates of deposit.
(j) (1) Investments in repurchase agreements or reverse repurchase
agreements or securities lending agreements of securities authorized
by this section, as long as the agreements are subject to this
subdivision, including the delivery requirements specified in this
section.
(2) Investments in repurchase agreements may be made, on an
investment authorized in this section, when the term of the agreement
does not exceed one year. The market value of securities that
underlie a repurchase agreement shall be valued at 102 percent or
greater of the funds borrowed against those securities and the value
shall be adjusted no less than quarterly. Since the market value of
the underlying securities is subject to daily market fluctuations,
the investments in repurchase agreements shall be in compliance if
the value of the underlying securities is brought back up to 102
percent no later than the next business day.
(3) Reverse repurchase agreements or securities lending agreements
may be utilized only when all of the following conditions are met:
(A) The security to be sold using a reverse repurchase agreement
or securities lending agreement has been owned and fully paid for by
the local agency for a minimum of 30 days prior to sale.
(B) The total of all reverse repurchase agreements and securities
lending agreements on investments owned by the local agency does not
exceed 20 percent of the base value of the portfolio.
(C) The agreement does not exceed a term of 92 days, unless the
agreement includes a written codicil guaranteeing a minimum earning
or spread for the entire period between the sale of a security using
a reverse repurchase agreement or securities lending agreement and
the final maturity date of the same security.
(D) Funds obtained or funds within the pool of an equivalent
amount to that obtained from selling a security to a counterparty
using a reverse repurchase agreement or securities lending agreement
shall not be used to purchase another security with a maturity longer
than 92 days from the initial settlement date of the reverse
repurchase agreement or securities lending agreement, unless the
reverse repurchase agreement or securities lending agreement includes
a written codicil guaranteeing a minimum earning or spread for the
entire period between the sale of a security using a reverse
repurchase agreement or securities lending agreement and the final
maturity date of the same security.
(4) (A) Investments in reverse repurchase agreements, securities
lending agreements, or similar investments in which the local agency
sells securities prior to purchase with a simultaneous agreement to
repurchase the security may be made only upon prior approval of the
governing body of the local agency and shall be made only with
primary dealers of the Federal Reserve Bank of New York or with a
nationally or state-chartered bank that has or has had a significant
banking relationship with a local agency.
(B) For purposes of this chapter, "significant banking
relationship" means any of the following activities of a bank:
(i) Involvement in the creation, sale, purchase, or retirement of
a local agency's bonds, warrants, notes, or other evidence of
indebtedness.
(ii) Financing of a local agency's activities.
(iii) Acceptance of a local agency's securities or funds as
deposits.
(5) (A) "Repurchase agreement" means a purchase of securities by
the local agency pursuant to an agreement by which the counterparty
seller will repurchase the securities on or before a specified date
and for a specified amount and the counterparty will deliver the
underlying securities to the local agency by book entry, physical
delivery, or by third-party custodial agreement. The transfer of
underlying securities to the counterparty bank's customer book-entry
account may be used for book-entry delivery.
(B) "Securities," for purposes of repurchase under this
subdivision, means securities of the same issuer, description, issue
date, and maturity.
(C) "Reverse repurchase agreement" means a sale of securities by
the local agency pursuant to an agreement by which the local agency
will repurchase the securities on or before a specified date and
includes other comparable agreements.
(D) "Securities lending agreement" means an agreement under which
a local agency agrees to transfer securities to a borrower who, in
turn, agrees to provide collateral to the local agency. During the
term of the agreement, both the securities and the collateral are
held by a third party. At the conclusion of the agreement, the
securities are transferred back to the local agency in return for the
collateral.
(E) For purposes of this section, the base value of the local
agency's pool portfolio shall be that dollar amount obtained by
totaling all cash balances placed in the pool by all pool
participants, excluding any amounts obtained through selling
securities by way of reverse repurchase agreements, securities
lending agreements, or other similar borrowing methods.
(F) For purposes of this section, the spread is the difference
between the cost of funds obtained using the reverse repurchase
agreement and the earnings obtained on the reinvestment of the funds.
(k) Medium-term notes, defined as all corporate and depository
institution debt securities with a maximum remaining maturity of five
years or less, issued by corporations organized and operating within
the United States or by depository institutions licensed by the
United States or any state and operating within the United States.
Notes eligible for investment under this subdivision shall be rated
"A" or better by an NRSRO. Purchases of medium-term notes shall not
include other instruments authorized by this section and may not
exceed 30 percent of the agency's moneys that may be invested
pursuant to this section.
(l) (1) Shares of beneficial interest issued by diversified
management companies that invest in the securities and obligations as
authorized by subdivisions (a) to (k), inclusive, and subdivisions
(m) to (o), inclusive, and that comply with the investment
restrictions of this article and Article 2 (commencing with Section
53630). However, notwithstanding these restrictions, a counterparty
to a reverse repurchase agreement or securities lending agreement is
not required to be a primary dealer of the Federal Reserve Bank of
New York if the company's board of directors finds that the
counterparty presents a minimal risk of default, and the value of the
securities underlying a repurchase agreement or securities lending
agreement may be 100 percent of the sales price if the securities are
marked to market daily.
(2) Shares of beneficial interest issued by diversified management
companies that are money market funds registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 (15
U.S.C. Sec. 80a-1 et seq.).
(3) If investment is in shares issued pursuant to paragraph (1),
the company shall have met either of the following criteria:
(A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two NRSROs.
(B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations authorized by subdivisions (a) to (k), inclusive, and
subdivisions (m) to (o), inclusive, and with assets under management
in excess of five hundred million dollars ($500,000,000).
(4) If investment is in shares issued pursuant to paragraph (2),
the company shall have met either of the following criteria:
(A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two NRSROs.
(B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience managing money market mutual funds
with assets under management in excess of five hundred million
dollars ($500,000,000).
(5) The purchase price of shares of beneficial interest purchased
pursuant to this subdivision shall not include commission that the
companies may charge and shall not exceed 20 percent of the agency's
moneys that may be invested pursuant to this section. However, no
more than 10 percent of the agency's funds may be invested in shares
of beneficial interest of any one mutual fund pursuant to paragraph
(1).
(m) Moneys held by a trustee or fiscal agent and pledged to the
payment or security of bonds or other indebtedness, or obligations
under a lease, installment sale, or other agreement of a local
agency, or certificates of participation in those bonds,
indebtedness, or lease installment sale, or other agreements, may be
invested in accordance with the statutory provisions governing the
issuance of those bonds, indebtedness, or lease installment sale, or
other agreement, or to the extent not inconsistent therewith or if
there are no specific statutory provisions, in accordance with the
ordinance, resolution, indenture, or agreement of the local agency
providing for the issuance.
(n) Notes, bonds, or other obligations that are at all times
secured by a valid first priority security interest in securities of
the types listed by Section 53651 as eligible securities for the
purpose of securing local agency deposits having a market value at
least equal to that required by Section 53652 for the purpose of
securing local agency deposits. The securities serving as collateral
shall be placed by delivery or book entry into the custody of a trust
company or the trust department of a bank that is not affiliated
with the issuer of the secured obligation, and the security interest
shall be perfected in accordance with the requirements of the Uniform
Commercial Code or federal regulations applicable to the types of
securities in which the security interest is granted.
(o) A mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other pay-through bond, equipment
lease-backed certificate, consumer receivable passthrough
certificate, or consumer receivable-backed bond of a maximum of five
years' maturity. Securities eligible for investment under this
subdivision shall be issued by an issuer having an "A" or higher
rating for the issuer's debt as provided by an NRSRO and rated in a
rating category of "AA" or its equivalent or better by an NRSRO.
Purchase of securities authorized by this subdivision may not exceed
20 percent of the agency's surplus moneys that may be invested
pursuant to this section.
(p) Shares of beneficial interest issued by a joint powers
authority organized pursuant to Section 6509.7 that invests in the
securities and obligations authorized in subdivisions (a) to (o),
inclusive. Each share shall represent an equal proportional interest
in the underlying pool of securities owned by the joint powers
authority. To be eligible under this section, the joint powers
authority issuing the shares shall have retained an investment
adviser that meets all of the following criteria:
(1) The adviser is registered or exempt from registration with the
Securities and Exchange Commission.
(2) The adviser has not less than five years of experience
investing in the securities and obligations authorized in
subdivisions (a) to (o), inclusive.
(3) The adviser has assets under management in excess of five
hundred million dollars ($500,000,000).
53601.1. The authority of a local agency to invest funds pursuant
to Section 53601 includes, in addition thereto, authority to invest
in financial futures or financial option contracts in any of the
investment categories enumerated in that section.
53601.2. As used in this article, "corporation" includes a limited
liability company.
53601.5. The purchase by a local agency of any investment
authorized pursuant to Section 53601 or 53601.1, not purchased
directly from the issuer, shall be purchased either from an
institution licensed by the state as a broker-dealer, as defined in
Section 25004 of the Corporations Code, or from a member of a
federally regulated securities exchange, from a national or
state-chartered bank, from a savings association or federal
association (as defined by Section 5102 of the Financial Code) or
from a brokerage firm designated as a primary government dealer by
the Federal Reserve bank.
53601.6. (a) A local agency shall not invest any funds pursuant to
this article or pursuant to Article 2 (commencing with Section 53630)
in inverse floaters, range notes, or mortgage-derived, interest-only
strips.
(b) A local agency shall not invest any funds pursuant to this
article or pursuant to Article 2 (commencing with Section 53630) in
any security that could result in zero interest accrual if held to
maturity. However, a local agency may hold prohibited instruments
until their maturity dates. The limitation in this subdivision shall
not apply to local agency investments in shares of beneficial
interest issued by diversified management companies registered under
the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.)
that are authorized for investment pursuant to subdivision (l) of
Section 53601.
53601.8. Notwithstanding Section 53601 or any other provision of
this code, a local agency that has the authority under law to invest
funds, at its discretion, may invest a portion of its surplus funds
in certificates of deposit at a commercial bank, savings bank,
savings and loan association, or credit union that uses a private
sector entity that assists in the placement of certificates of
deposit, provided that the purchases of certificates of deposit
pursuant to this section, Section 53635.8, and subdivision (i) of
Section 53601 do not, in total, exceed 30 percent of the agency's
funds that may be invested for this purpose. The following conditions
shall apply:
(a) The local agency shall choose a nationally or state chartered
commercial bank, savings bank, savings and loan association, or
credit union in this state to invest the funds, which shall be known
as the "selected" depository institution.
(b) The selected depository institution may submit the funds to a
private sector entity that assists in the placement of certificates
of deposit with one or more commercial banks, savings banks, savings
and loan associations, or credit unions that are located in the
United States, for the local agency's account.
(c) The full amount of the principal and the interest that may be
accrued during the maximum term of each certificate of deposit shall
at all times be insured by the Federal Deposit Insurance Corporation
or the National Credit Union Administration.
(d) The selected depository institution shall serve as a custodian
for each certificate of deposit that is issued with the placement
service for the local agency's account.
(e) At the same time the local agency's funds are deposited and
the certificates of deposit are issued, the selected depository
institution shall receive an amount of deposits from other commercial
banks, savings banks, savings and loan associations, or credit
unions that, in total, are equal to, or greater than, the full amount
of the principal that the local agency initially deposited through
the selected depository institution for investment.
(f) Notwithstanding subdivisions (a) to (e), inclusive, no credit
union may act as a selected depository institution under this
section or Section 53635.8 unless both of the following conditions
are satisfied:
(1) The credit union offers federal depository insurance through
the National Credit Union Administration.
(2) The credit union is in possession of written guidance or other
written communication from the National Credit Union Administration
authorizing participation of federally insured credit unions in one
or more certificate of deposit placement services and affirming that
the moneys held by those credit unions while participating in a
deposit placement service will at all times be insured by the federal
government.
(g) It is the intent of the Legislature that nothing in this
section shall restrict competition among private sector entities that
provide placement services pursuant to this section.
53602. The legislative body shall invest only in notes, bonds,
bills, certificates of indebtedness, warrants, or registered warrants
which are legal investments for savings banks in the State,
provided, that the board of supervisors of a county may, by a
four-fifths vote thereof, invest in notes, warrants or other
evidences of indebtedness of public districts wholly or partly within
the county, whether or not such notes, warrants, or other evidences
of indebtedness are legal investments for savings banks.
53603. The legislative body may make the investment by direct
purchase of any issue of eligible securities at their original sale
or after they have been issued.
53604. The legislative body may sell, or exchange for other
eligible securities, and reinvest the proceeds of, the securities
purchased.
53605. From time to time, the legislative body shall sell the
securities so that the proceeds may be applied to the purposes for
which the original purchase money was placed in the sinking fund or
the treasury of the local agency.
53606. The bonds purchased, which were issued by the purchaser, may
be canceled either in satisfaction or sinking fund obligations or
otherwise. When canceled, they are no longer outstanding, unless in
its discretion, the legislative body holds then uncanceled. While
held uncanceled, the bonds may be resold.
53607. The authority of the legislative body to invest or to
reinvest funds of a local agency, or to sell or exchange securities
so purchased, may be delegated for a one-year period by the
legislative body to the treasurer of the local agency, who shall
thereafter assume full responsibility for those transactions until
the delegation of authority is revoked or expires, and shall make a
monthly report of those transactions to the legislative body. Subject
to review, the legislative body may renew the delegation of
authority pursuant to this section each year.
53608. The legislative body of a local agency may deposit for
safekeeping with a federal or state association (as defined by
Section 5102 of the Financial Code), a trust company or a state or
national bank located within this state or with the Federal Reserve
Bank of San Francisco or any branch thereof within this state, or
with any Federal Reserve bank or with any state or national bank
located in any city designated as a reserve city by the Board of
Governors of the Federal Reserve System, the bonds, notes, bills,
debentures, obligations, certificates of indebtedness, warrants, or
other evidences of indebtedness in which the money of the local
agency is invested pursuant to this article or pursuant to other
legislative authority. The local agency shall take from such
financial institution a receipt for securities so deposited. The
authority of the legislative body to deposit for safekeeping may be
delegated by the legislative body to the treasurer of the local
agency; the treasurer shall not be responsible for securities
delivered to and receipted for by a financial institution until they
are withdrawn from the financial institution by the treasurer.
53609. Notwithstanding the provisions of this chapter or any other
provisions of this code, funds held by a local agency pursuant to a
written agreement between the agency and employees of the agency to
defer a portion of the compensation otherwise receivable by the
agency's employees and pursuant to a plan for such deferral as
adopted by the governing body of the agency, may be invested in the
types of investments set forth in Sections 53601 and 53602 of this
code, and may additionally be invested in corporate stocks, bonds,
and securities, mutual funds, savings and loan accounts, credit union
accounts, life insurance policies, annuities, mortgages, deeds of
trust, or other security interests in real or personal property.
Nothing herein shall be construed to permit any type of investment
prohibited by the Constitution.
Deferred compensation funds are public pension or retirement funds
for the purposes of Section 17 of Article XVI of the Constitution.
53610. (a) For purposes of this section, "Proposition 1A receivable"
means the right to payment of moneys due or to become due to a local
agency, pursuant to clause (iii) of subparagraph (B) of paragraph
(1) of subdivision (a) of Section 25.5 of Article XIII of the
California Constitution and Section 100.06 of the Revenue and
Taxation Code.
(b) Notwithstanding any other law, a local agency may purchase,
with its revenue, Proposition 1A receivables sold pursuant to Section
53999.
(c) A purchaser of Proposition 1A receivables pursuant to this
section shall not offer them for sale pursuant to Section 6588.
53600. As used in this article, "local agency" means county, city,
city and county, including a chartered city or county, school
district, community college district, public district, county board
of education, county superintendent of schools, or any public or
municipal corporation.
53600.3. Except as provided in subdivision (a) of Section 27000.3,
all governing bodies of local agencies or persons authorized to make
investment decisions on behalf of those local agencies investing
public funds pursuant to this chapter are trustees and therefore
fiduciaries subject to the prudent investor standard. When investing,
reinvesting, purchasing, acquiring, exchanging, selling, or managing
public funds, a trustee shall act with care, skill, prudence, and
diligence under the circumstances then prevailing, including, but not
limited to, the general economic conditions and the anticipated
needs of the agency, that a prudent person acting in a like capacity
and familiarity with those matters would use in the conduct of funds
of a like character and with like aims, to safeguard the principal
and maintain the liquidity needs of the agency. Within the
limitations of this section and considering individual investments as
part of an overall strategy, investments may be acquired as
authorized by law.
53600.5. When investing, reinvesting, purchasing, acquiring,
exchanging, selling, or managing public funds, the primary objective
of a trustee shall be to safeguard the principal of the funds under
its control. The secondary objective shall be to meet the liquidity
needs of the depositor. The third objective shall be to achieve a
return on the funds under its control.
53600.6. The Legislature hereby finds that the solvency and
creditworthiness of each individual local agency can impact the
solvency and creditworthiness of the state and other local agencies
within the state. Therefore, to protect the solvency and
creditworthiness of the state and all of its political subdivisions,
the Legislature hereby declares that the deposit and investment of
public funds by local officials and local agencies is an issue of
statewide concern.
53601. This section shall apply to a local agency that is a city, a
district, or other local agency that does not pool money in deposits
or investments with other local agencies, other than local agencies
that have the same governing body. However, Section 53635 shall apply
to all local agencies that pool money in deposits or investments
with other local agencies that have separate governing bodies. The
legislative body of a local agency having moneys in a sinking fund or
moneys in its treasury not required for the immediate needs of the
local agency may invest any portion of the moneys that it deems wise
or expedient in those investments set forth below. A local agency
purchasing or obtaining any securities prescribed in this section, in
a negotiable, bearer, registered, or nonregistered format, shall
require delivery of the securities to the local agency, including
those purchased for the agency by financial advisers, consultants, or
managers using the agency's funds, by book entry, physical delivery,
or by third-party custodial agreement. The transfer of securities to
the counterparty bank's customer book entry account may be used for
book entry delivery.
For purposes of this section, "counterparty" means the other party
to the transaction. A counterparty bank's trust department or
separate safekeeping department may be used for the physical delivery
of the security if the security is held in the name of the local
agency. Where this section specifies a percentage limitation for a
particular category of investment, that percentage is applicable only
at the date of purchase. Where this section does not specify a
limitation on the term or remaining maturity at the time of the
investment, no investment shall be made in any security, other than a
security underlying a repurchase or reverse repurchase agreement or
securities lending agreement authorized by this section, that at the
time of the investment has a term remaining to maturity in excess of
five years, unless the legislative body has granted express authority
to make that investment either specifically or as a part of an
investment program approved by the legislative body no less than
three months prior to the investment:
(a) Bonds issued by the local agency, including bonds payable
solely out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency or by a department,
board, agency, or authority of the local agency.
(b) United States Treasury notes, bonds, bills, or certificates of
indebtedness, or those for which the faith and credit of the United
States are pledged for the payment of principal and interest.
(c) Registered state warrants or treasury notes or bonds of this
state, including bonds payable solely out of the revenues from a
revenue-producing property owned, controlled, or operated by the
state or by a department, board, agency, or authority of the state.
(d) Registered treasury notes or bonds of any of the other 49
United States in addition to California, including bonds payable
solely out of the revenues from a revenue-producing property owned,
controlled, or operated by a state or by a department, board, agency,
or authority of any of the other 49 United States, in addition to
California.
(e) Bonds, notes, warrants, or other evidences of indebtedness of
a local agency within this state, including bonds payable solely out
of the revenues from a revenue-producing property owned, controlled,
or operated by the local agency, or by a department, board, agency,
or authority of the local agency.
(f) 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.
(g) Bankers' acceptances otherwise known as bills of exchange or
time drafts that are drawn on and accepted by a commercial bank.
Purchases of bankers' acceptances shall not exceed 180 days' maturity
or 40 percent of the agency's moneys that may be invested pursuant
to this section. However, no more than 30 percent of the agency's
moneys may be invested in the bankers' acceptances of any one
commercial bank pursuant to this section.
This subdivision does not preclude a municipal utility district
from investing moneys in its treasury in a manner authorized by the
Municipal Utility District Act (Division 6 (commencing with Section
11501) of the Public Utilities Code).
(h) Commercial paper of "prime" quality of the highest ranking or
of the highest letter and number rating as provided for by a
nationally recognized statistical rating organization (NRSRO). The
entity that issues the commercial paper shall meet all of the
following conditions in either paragraph (1) or (2):
(1) The entity meets the following criteria:
(A) Is organized and operating in the United States as a general
corporation.
(B) Has total assets in excess of five hundred million dollars
($500,000,000).
(C) Has debt other than commercial paper, if any, that is rated "A"
or higher by an NRSRO.
(2) The entity meets the following criteria:
(A) Is organized within the United States as a special purpose
corporation, trust, or limited liability company.
(B) Has programwide credit enhancements including, but not limited
to, overcollateralization, letters of credit, or a surety bond.
(C) Has commercial paper that is rated "A-1" or higher, or the
equivalent, by an NRSRO.
Eligible commercial paper shall have a maximum maturity of 270
days or less. Local agencies, other than counties or a city and
county, may invest no more than 25 percent of their moneys in
eligible commercial paper. Local agencies, other than counties or a
city and county, may purchase no more than 10 percent of the
outstanding commercial paper of any single issuer. Counties or a city
and county may invest in commercial paper pursuant to the
concentration limits in subdivision (a) of Section 53635.
(i) Negotiable certificates of deposit issued by a nationally or
state-chartered bank, a savings association or a federal association
(as defined by Section 5102 of the Financial Code), a state or
federal credit union, or by a state-licensed branch of a foreign
bank. Purchases of negotiable certificates of deposit shall not
exceed 30 percent of the agency's moneys that may be invested
pursuant to this section. For purposes of this section, negotiable
certificates of deposit do not come within Article 2 (commencing with
Section 53630), except that the amount so invested shall be subject
to the limitations of Section 53638. The legislative body of a local
agency and the treasurer or other official of the local agency having
legal custody of the moneys are prohibited from investing local
agency funds, or funds in the custody of the local agency, in
negotiable certificates of deposit issued by a state or federal
credit union if a member of the legislative body of the local agency,
or a person with investment decisionmaking authority in the
administrative office manager's office, budget office,
auditor-controller's office, or treasurer's office of the local
agency also serves on the board of directors, or any committee
appointed by the board of directors, or the credit committee or the
supervisory committee of the state or federal credit union issuing
the negotiable certificates of deposit.
(j) (1) Investments in repurchase agreements or reverse repurchase
agreements or securities lending agreements of securities authorized
by this section, as long as the agreements are subject to this
subdivision, including the delivery requirements specified in this
section.
(2) Investments in repurchase agreements may be made, on an
investment authorized in this section, when the term of the agreement
does not exceed one year. The market value of securities that
underlie a repurchase agreement shall be valued at 102 percent or
greater of the funds borrowed against those securities and the value
shall be adjusted no less than quarterly. Since the market value of
the underlying securities is subject to daily market fluctuations,
the investments in repurchase agreements shall be in compliance if
the value of the underlying securities is brought back up to 102
percent no later than the next business day.
(3) Reverse repurchase agreements or securities lending agreements
may be utilized only when all of the following conditions are met:
(A) The security to be sold using a reverse repurchase agreement
or securities lending agreement has been owned and fully paid for by
the local agency for a minimum of 30 days prior to sale.
(B) The total of all reverse repurchase agreements and securities
lending agreements on investments owned by the local agency does not
exceed 20 percent of the base value of the portfolio.
(C) The agreement does not exceed a term of 92 days, unless the
agreement includes a written codicil guaranteeing a minimum earning
or spread for the entire period between the sale of a security using
a reverse repurchase agreement or securities lending agreement and
the final maturity date of the same security.
(D) Funds obtained or funds within the pool of an equivalent
amount to that obtained from selling a security to a counterparty
using a reverse repurchase agreement or securities lending agreement
shall not be used to purchase another security with a maturity longer
than 92 days from the initial settlement date of the reverse
repurchase agreement or securities lending agreement, unless the
reverse repurchase agreement or securities lending agreement includes
a written codicil guaranteeing a minimum earning or spread for the
entire period between the sale of a security using a reverse
repurchase agreement or securities lending agreement and the final
maturity date of the same security.
(4) (A) Investments in reverse repurchase agreements, securities
lending agreements, or similar investments in which the local agency
sells securities prior to purchase with a simultaneous agreement to
repurchase the security may be made only upon prior approval of the
governing body of the local agency and shall be made only with
primary dealers of the Federal Reserve Bank of New York or with a
nationally or state-chartered bank that has or has had a significant
banking relationship with a local agency.
(B) For purposes of this chapter, "significant banking
relationship" means any of the following activities of a bank:
(i) Involvement in the creation, sale, purchase, or retirement of
a local agency's bonds, warrants, notes, or other evidence of
indebtedness.
(ii) Financing of a local agency's activities.
(iii) Acceptance of a local agency's securities or funds as
deposits.
(5) (A) "Repurchase agreement" means a purchase of securities by
the local agency pursuant to an agreement by which the counterparty
seller will repurchase the securities on or before a specified date
and for a specified amount and the counterparty will deliver the
underlying securities to the local agency by book entry, physical
delivery, or by third-party custodial agreement. The transfer of
underlying securities to the counterparty bank's customer book-entry
account may be used for book-entry delivery.
(B) "Securities," for purposes of repurchase under this
subdivision, means securities of the same issuer, description, issue
date, and maturity.
(C) "Reverse repurchase agreement" means a sale of securities by
the local agency pursuant to an agreement by which the local agency
will repurchase the securities on or before a specified date and
includes other comparable agreements.
(D) "Securities lending agreement" means an agreement under which
a local agency agrees to transfer securities to a borrower who, in
turn, agrees to provide collateral to the local agency. During the
term of the agreement, both the securities and the collateral are
held by a third party. At the conclusion of the agreement, the
securities are transferred back to the local agency in return for the
collateral.
(E) For purposes of this section, the base value of the local
agency's pool portfolio shall be that dollar amount obtained by
totaling all cash balances placed in the pool by all pool
participants, excluding any amounts obtained through selling
securities by way of reverse repurchase agreements, securities
lending agreements, or other similar borrowing methods.
(F) For purposes of this section, the spread is the difference
between the cost of funds obtained using the reverse repurchase
agreement and the earnings obtained on the reinvestment of the funds.
(k) Medium-term notes, defined as all corporate and depository
institution debt securities with a maximum remaining maturity of five
years or less, issued by corporations organized and operating within
the United States or by depository institutions licensed by the
United States or any state and operating within the United States.
Notes eligible for investment under this subdivision shall be rated
"A" or better by an NRSRO. Purchases of medium-term notes shall not
include other instruments authorized by this section and may not
exceed 30 percent of the agency's moneys that may be invested
pursuant to this section.
(l) (1) Shares of beneficial interest issued by diversified
management companies that invest in the securities and obligations as
authorized by subdivisions (a) to (k), inclusive, and subdivisions
(m) to (o), inclusive, and that comply with the investment
restrictions of this article and Article 2 (commencing with Section
53630). However, notwithstanding these restrictions, a counterparty
to a reverse repurchase agreement or securities lending agreement is
not required to be a primary dealer of the Federal Reserve Bank of
New York if the company's board of directors finds that the
counterparty presents a minimal risk of default, and the value of the
securities underlying a repurchase agreement or securities lending
agreement may be 100 percent of the sales price if the securities are
marked to market daily.
(2) Shares of beneficial interest issued by diversified management
companies that are money market funds registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 (15
U.S.C. Sec. 80a-1 et seq.).
(3) If investment is in shares issued pursuant to paragraph (1),
the company shall have met either of the following criteria:
(A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two NRSROs.
(B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations authorized by subdivisions (a) to (k), inclusive, and
subdivisions (m) to (o), inclusive, and with assets under management
in excess of five hundred million dollars ($500,000,000).
(4) If investment is in shares issued pursuant to paragraph (2),
the company shall have met either of the following criteria:
(A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two NRSROs.
(B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience managing money market mutual funds
with assets under management in excess of five hundred million
dollars ($500,000,000).
(5) The purchase price of shares of beneficial interest purchased
pursuant to this subdivision shall not include commission that the
companies may charge and shall not exceed 20 percent of the agency's
moneys that may be invested pursuant to this section. However, no
more than 10 percent of the agency's funds may be invested in shares
of beneficial interest of any one mutual fund pursuant to paragraph
(1).
(m) Moneys held by a trustee or fiscal agent and pledged to the
payment or security of bonds or other indebtedness, or obligations
under a lease, installment sale, or other agreement of a local
agency, or certificates of participation in those bonds,
indebtedness, or lease installment sale, or other agreements, may be
invested in accordance with the statutory provisions governing the
issuance of those bonds, indebtedness, or lease installment sale, or
other agreement, or to the extent not inconsistent therewith or if
there are no specific statutory provisions, in accordance with the
ordinance, resolution, indenture, or agreement of the local agency
providing for the issuance.
(n) Notes, bonds, or other obligations that are at all times
secured by a valid first priority security interest in securities of
the types listed by Section 53651 as eligible securities for the
purpose of securing local agency deposits having a market value at
least equal to that required by Section 53652 for the purpose of
securing local agency deposits. The securities serving as collateral
shall be placed by delivery or book entry into the custody of a trust
company or the trust department of a bank that is not affiliated
with the issuer of the secured obligation, and the security interest
shall be perfected in accordance with the requirements of the Uniform
Commercial Code or federal regulations applicable to the types of
securities in which the security interest is granted.
(o) A mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other pay-through bond, equipment
lease-backed certificate, consumer receivable passthrough
certificate, or consumer receivable-backed bond of a maximum of five
years' maturity. Securities eligible for investment under this
subdivision shall be issued by an issuer having an "A" or higher
rating for the issuer's debt as provided by an NRSRO and rated in a
rating category of "AA" or its equivalent or better by an NRSRO.
Purchase of securities authorized by this subdivision may not exceed
20 percent of the agency's surplus moneys that may be invested
pursuant to this section.
(p) Shares of beneficial interest issued by a joint powers
authority organized pursuant to Section 6509.7 that invests in the
securities and obligations authorized in subdivisions (a) to (o),
inclusive. Each share shall represent an equal proportional interest
in the underlying pool of securities owned by the joint powers
authority. To be eligible under this section, the joint powers
authority issuing the shares shall have retained an investment
adviser that meets all of the following criteria:
(1) The adviser is registered or exempt from registration with the
Securities and Exchange Commission.
(2) The adviser has not less than five years of experience
investing in the securities and obligations authorized in
subdivisions (a) to (o), inclusive.
(3) The adviser has assets under management in excess of five
hundred million dollars ($500,000,000).
53601.1. The authority of a local agency to invest funds pursuant
to Section 53601 includes, in addition thereto, authority to invest
in financial futures or financial option contracts in any of the
investment categories enumerated in that section.
53601.2. As used in this article, "corporation" includes a limited
liability company.
53601.5. The purchase by a local agency of any investment
authorized pursuant to Section 53601 or 53601.1, not purchased
directly from the issuer, shall be purchased either from an
institution licensed by the state as a broker-dealer, as defined in
Section 25004 of the Corporations Code, or from a member of a
federally regulated securities exchange, from a national or
state-chartered bank, from a savings association or federal
association (as defined by Section 5102 of the Financial Code) or
from a brokerage firm designated as a primary government dealer by
the Federal Reserve bank.
53601.6. (a) A local agency shall not invest any funds pursuant to
this article or pursuant to Article 2 (commencing with Section 53630)
in inverse floaters, range notes, or mortgage-derived, interest-only
strips.
(b) A local agency shall not invest any funds pursuant to this
article or pursuant to Article 2 (commencing with Section 53630) in
any security that could result in zero interest accrual if held to
maturity. However, a local agency may hold prohibited instruments
until their maturity dates. The limitation in this subdivision shall
not apply to local agency investments in shares of beneficial
interest issued by diversified management companies registered under
the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.)
that are authorized for investment pursuant to subdivision (l) of
Section 53601.
53601.8. Notwithstanding Section 53601 or any other provision of
this code, a local agency that has the authority under law to invest
funds, at its discretion, may invest a portion of its surplus funds
in certificates of deposit at a commercial bank, savings bank,
savings and loan association, or credit union that uses a private
sector entity that assists in the placement of certificates of
deposit, provided that the purchases of certificates of deposit
pursuant to this section, Section 53635.8, and subdivision (i) of
Section 53601 do not, in total, exceed 30 percent of the agency's
funds that may be invested for this purpose. The following conditions
shall apply:
(a) The local agency shall choose a nationally or state chartered
commercial bank, savings bank, savings and loan association, or
credit union in this state to invest the funds, which shall be known
as the "selected" depository institution.
(b) The selected depository institution may submit the funds to a
private sector entity that assists in the placement of certificates
of deposit with one or more commercial banks, savings banks, savings
and loan associations, or credit unions that are located in the
United States, for the local agency's account.
(c) The full amount of the principal and the interest that may be
accrued during the maximum term of each certificate of deposit shall
at all times be insured by the Federal Deposit Insurance Corporation
or the National Credit Union Administration.
(d) The selected depository institution shall serve as a custodian
for each certificate of deposit that is issued with the placement
service for the local agency's account.
(e) At the same time the local agency's funds are deposited and
the certificates of deposit are issued, the selected depository
institution shall receive an amount of deposits from other commercial
banks, savings banks, savings and loan associations, or credit
unions that, in total, are equal to, or greater than, the full amount
of the principal that the local agency initially deposited through
the selected depository institution for investment.
(f) Notwithstanding subdivisions (a) to (e), inclusive, no credit
union may act as a selected depository institution under this
section or Section 53635.8 unless both of the following conditions
are satisfied:
(1) The credit union offers federal depository insurance through
the National Credit Union Administration.
(2) The credit union is in possession of written guidance or other
written communication from the National Credit Union Administration
authorizing participation of federally insured credit unions in one
or more certificate of deposit placement services and affirming that
the moneys held by those credit unions while participating in a
deposit placement service will at all times be insured by the federal
government.
(g) It is the intent of the Legislature that nothing in this
section shall restrict competition among private sector entities that
provide placement services pursuant to this section.
53602. The legislative body shall invest only in notes, bonds,
bills, certificates of indebtedness, warrants, or registered warrants
which are legal investments for savings banks in the State,
provided, that the board of supervisors of a county may, by a
four-fifths vote thereof, invest in notes, warrants or other
evidences of indebtedness of public districts wholly or partly within
the county, whether or not such notes, warrants, or other evidences
of indebtedness are legal investments for savings banks.
53603. The legislative body may make the investment by direct
purchase of any issue of eligible securities at their original sale
or after they have been issued.
53604. The legislative body may sell, or exchange for other
eligible securities, and reinvest the proceeds of, the securities
purchased.
53605. From time to time, the legislative body shall sell the
securities so that the proceeds may be applied to the purposes for
which the original purchase money was placed in the sinking fund or
the treasury of the local agency.
53606. The bonds purchased, which were issued by the purchaser, may
be canceled either in satisfaction or sinking fund obligations or
otherwise. When canceled, they are no longer outstanding, unless in
its discretion, the legislative body holds then uncanceled. While
held uncanceled, the bonds may be resold.
53607. The authority of the legislative body to invest or to
reinvest funds of a local agency, or to sell or exchange securities
so purchased, may be delegated for a one-year period by the
legislative body to the treasurer of the local agency, who shall
thereafter assume full responsibility for those transactions until
the delegation of authority is revoked or expires, and shall make a
monthly report of those transactions to the legislative body. Subject
to review, the legislative body may renew the delegation of
authority pursuant to this section each year.
53608. The legislative body of a local agency may deposit for
safekeeping with a federal or state association (as defined by
Section 5102 of the Financial Code), a trust company or a state or
national bank located within this state or with the Federal Reserve
Bank of San Francisco or any branch thereof within this state, or
with any Federal Reserve bank or with any state or national bank
located in any city designated as a reserve city by the Board of
Governors of the Federal Reserve System, the bonds, notes, bills,
debentures, obligations, certificates of indebtedness, warrants, or
other evidences of indebtedness in which the money of the local
agency is invested pursuant to this article or pursuant to other
legislative authority. The local agency shall take from such
financial institution a receipt for securities so deposited. The
authority of the legislative body to deposit for safekeeping may be
delegated by the legislative body to the treasurer of the local
agency; the treasurer shall not be responsible for securities
delivered to and receipted for by a financial institution until they
are withdrawn from the financial institution by the treasurer.
53609. Notwithstanding the provisions of this chapter or any other
provisions of this code, funds held by a local agency pursuant to a
written agreement between the agency and employees of the agency to
defer a portion of the compensation otherwise receivable by the
agency's employees and pursuant to a plan for such deferral as
adopted by the governing body of the agency, may be invested in the
types of investments set forth in Sections 53601 and 53602 of this
code, and may additionally be invested in corporate stocks, bonds,
and securities, mutual funds, savings and loan accounts, credit union
accounts, life insurance policies, annuities, mortgages, deeds of
trust, or other security interests in real or personal property.
Nothing herein shall be construed to permit any type of investment
prohibited by the Constitution.
Deferred compensation funds are public pension or retirement funds
for the purposes of Section 17 of Article XVI of the Constitution.
53610. (a) For purposes of this section, "Proposition 1A receivable"
means the right to payment of moneys due or to become due to a local
agency, pursuant to clause (iii) of subparagraph (B) of paragraph
(1) of subdivision (a) of Section 25.5 of Article XIII of the
California Constitution and Section 100.06 of the Revenue and
Taxation Code.
(b) Notwithstanding any other law, a local agency may purchase,
with its revenue, Proposition 1A receivables sold pursuant to Section
53999.
(c) A purchaser of Proposition 1A receivables pursuant to this
section shall not offer them for sale pursuant to Section 6588.
