Reso 1390-02/2012RESOLUTION NO, 1390
RESOLUTION OF THE BOARD OF DIRECTORS OF THE
VALLECITOS WATER DISTRICT APPROVING THE STATEMENT
OF INVESTMENT POLICY FOR CALENDAR YEAR 2012
WHEREAS, the Board of Directors shall annually approve a Statement of
Investment Policy; and
WHEREAS, the annual Statement of Investment Policy of the Vallecitos Water
District is as follows:
§1 — General Provisions and Objectives
Vallecitos Water District (District) funds not required for immediate expenditure
will be invested in compliance with this policy and the provisions of California
Government Code Sections 53600 et seq. Criteria for selecting investments and the
absolute order of priority are safety, liquidity, and yield. Investments will be made in a
range of instruments and maturity dates to insure diversification and liquidity of assets in
an emergency or when a large cash outlay is necessary. In accordance with California
Government Code §53607, the authority to invest or reinvest the funds of the District is
delegated to the Treasurer of the District. The Treasurer may assign investment
responsibilities to the Finance Manager.
§2 — Prudent Investor Standard
All participants in the investment process shall recognize that the investment
portfolio is subject to the prudent investor standard as set forth in California Government
Code §53600.3 and to public review and evaluation and shall seek to act responsibly as
fiduciaries of the public trust. Investments shall be made with the exercise of that
degree of judgment and care under circumstances then prevailing which persons of
prudence, discretion and intelligence exercise in the management of their own affairs,
not for speculation but for investment, considering the preservation of capital, the cash
flow needs of the District as well as the income to be derived. In a diversified portfolio,
occasional measured losses may be inevitable and must be considered within the
context of the overall portfolio's return and the cash flow requirements of the District.
§3 — Credit Risk
Credit risk is the risk that an issuer or other counterparty to an investment will not
fulfill its obligation. Concentration of credit risk is the risk of loss attributed to the
magnitude of a Districts investment in a single issuer. All participants in the investment
process shall consider aversion to concentration of credit risk by:
1. Limiting investment purchases to those types and amounts permissible by
California Government Code §53601 and §6 of this Resolution,
2. Investing no more than 20% of the portfolio with one issuer of federal agency
obligations, with the exception of the US Treasury, and no more than 10% of the
portfolio with one commercial issuer,
Resolution No. 1390 Page 2
3. If pursuing a commercial paper obligation, investing only in investments rated in
the highest tier (Al, P-1, or F-1 or higher),
4. For deposits in Local Government Investment Pools, depositing funds only in
pools with a AAA rating, and
5. Limiting investments in corporate notes to those fully guaranteed by the Federal
Deposit Insurance Corporation.
Custodial credit risk is the risk that the District will not be able to recover deposits
or the value of an investment or collateral securities that are in the possession of an
outside party. All participants in the investment process shall consider aversion to
custodial credit risk by:
1. Investing no more than 25% of the portfolio with one financial institution, with the
exceptions of LAIF, the US Treasury, and funds advanced or in trustee accounts
for project construction, and
2. If pursuing a deposit, insuring that all deposits are fully collateralized as required
by California Government Code §53652 or insured by the Federal Deposit
Insurance Corporation or the National Credit Union Administration, and the
"Contract for Deposit of Monies" will indicate the type and amount of collateral.
§4 — Interest Rate Risk
Interest rate risk is the risk that changes in interest rates will adversely affect the
fair value of an investment. All participants in the investment process shall consider
aversion to interest rate risk by limiting the term remaining to maturity on purchased
investments to the maturity limits identified in §6 of this Resolution, unless a longer term
is permissible within the California Government Code and specifically approved by the
Board prior to purchase.
§5 — Foreign Currency Risk
Foreign currency risk is the risk that changes in exchange rates will adversely
affect the fair value of an investment or deposit. All participants in the investment
process shall be prohibited from investing in foreign currency -denominated securities,
unless permissible within the California Government Code and specifically approved by
the Board prior to purchase.
§6 — Permissible Investments
The table below lists permissible investments and limits on amounts and
maturities.
Resolution No. 1390
Page 3
Local agency as defined in California Government Code §53600 include counties,
cities, and special districts.
Investments permitted by California Government Code, but not by this policy, will
be made only with prior approval of the Board of Directors.
$7 — Strategy
1. Passive investing - Given the absence of staff dedicated to investment analysis,
the District will passively manage the portfolio, and avoid medium to long-term
corporate investment and realizing gains and losses, thereby diminishing the
need for credit monitoring. Staff tasked with investment decisions will avoid
speculation.
2. Diversification - Staff will maintain diversified call provisions rather than anticipate
market conditions. Staff will diversify timing of trading and maintain
diversification by type within the constraints of other provisions of this policy.
3. Minimum liquidity and debt considerations — A portion of the portfolio with
maturities of no more than three months shall be maintained in excess of the
Board -established operating reserve. A portion of the portfolio with maturities of
no more than one year shall be maintained in excess of the Board -established
operating reserve plus the replacement reserve floor. Staff will also consider that
too much liquidity is a risk, and invest to ladder maturities when possible. Staff
will consider debt structures and strategies along with investment strategies.
§8 — Reporting and Miscellaneous Provisions
Limits
Investment
% of Investment
Portfolio
Maturity
US Treasury bills and notes
75%
5 years
LAIF
60%
N/A
Federal agency obligations
60%
5 years
Local Government Investment Pools
40%
N/A
State and local agency bonds
20%
5 years
Commercial paper
20%
270 days
FDIC -backed medium-term notes
20%
4 years
Certificates of deposit
20%
4 years
Repurchase agreements
10%
1 year
Savings accounts
10%
N/A
Local agency as defined in California Government Code §53600 include counties,
cities, and special districts.
Investments permitted by California Government Code, but not by this policy, will
be made only with prior approval of the Board of Directors.
$7 — Strategy
1. Passive investing - Given the absence of staff dedicated to investment analysis,
the District will passively manage the portfolio, and avoid medium to long-term
corporate investment and realizing gains and losses, thereby diminishing the
need for credit monitoring. Staff tasked with investment decisions will avoid
speculation.
2. Diversification - Staff will maintain diversified call provisions rather than anticipate
market conditions. Staff will diversify timing of trading and maintain
diversification by type within the constraints of other provisions of this policy.
3. Minimum liquidity and debt considerations — A portion of the portfolio with
maturities of no more than three months shall be maintained in excess of the
Board -established operating reserve. A portion of the portfolio with maturities of
no more than one year shall be maintained in excess of the Board -established
operating reserve plus the replacement reserve floor. Staff will also consider that
too much liquidity is a risk, and invest to ladder maturities when possible. Staff
will consider debt structures and strategies along with investment strategies.
§8 — Reporting and Miscellaneous Provisions
Resolution No. 1390 Page 4
The Finance Manager may maintain one or more accounts with reputable
investment security dealers and brokers with which investment transactions are to be
conducted. Investments may be held in safekeeping at a designated financial institution
where the District has established a safekeeping account.
Pursuant to California Government Code §53646, a monthly report shall be
submitted to the Board of Directors within 30 days following the end of the month
covered by the report, and a quarterly report shall be submitted to the
Finance/Investment committee or the Board of Directors for review. The quarterly report
shall include the type of investment, issuer, settlement and maturity dates, rate of
interest, dollar amount invested, fund, current market value, and percentage of portfolio.
The report shall state compliance of the portfolio to the statement of the investment
policy, or the manner in which the portfolio is not in compliance. The report shall
include a statement regarding the ability of the District to meet its expenditure
requirements for the next six months.
The Treasurer, or the Treasurer's designee, shall establish a system of internal
controls to be examined and monitored by the District's independent auditor.
The Finance/Investment Committee of the Board of Directors or the Board of
Directors shall meet on a quarterly basis with Staff personnel to review District
investments and to appraise market conditions.
NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the
Vallecitos Water District as follows:
The Annual Statement of Investment Policy for calendar year 2012 is hereby
approved and the District Treasurer is directed to follow this Statement of Investment
Policy in investing funds of the District.
PASSED AND ADOPTED by the Board of Directors of the Vallecitos Water
District at a regular meeting held on this 1st day of February, 2012, by the following roll
call vote:
AYES:
NOES:
ABSTAIN:
ABSENT:
ATTEST:
FERGUSON, HERNANDEZ, POLTL, SHELL, GENTRY
Dennis 0. Lamb, Secretary
Vallecitos Water District
Board of Directors
lADarrell Gentry, President
Vallecitos Water District
Board of Directors