Reso 1436 12/2013RESOLUTION NO. 1436
RESOLUTION OF THE BOARD OF DIRECTORS OF THE
VALLECITOS WATER DISTRICT APPROVING THE STATEMENT
OF INVESTMENT POLICY FOR CALENDAR YEAR 2014
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:
Section 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. The policy applies to all financial assets of
the District. These funds are presented in the District's annual financial statements.
Criteria for selecting investments and the absolute order of priority are safety, liquidity,
and return on investment. 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.
Section 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.
Section 3: Ethics and Conflicts of Interest
Officers and staff involved in the investment process shall refrain from personal
business activity that could conflict with proper execution of the investment program or
which could impair their ability to make impartial investment decisions. Staff and
investment officials shall disclose to the District's General Manager any material
financial interests in financial institutions that conduct business within their jurisdiction,
and they shall further disclose any large personal financial /investment positions that
could be related to the performance of the District.
Resolution No. 1436 Pape 2
Section 4: 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 District's 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 Section 7 of this Resolution,
2. Conducting delivery- versus - payment (DVP) basis on all security transactions
entered into by the District. Securities will be held by a third party custodian
designated by the Treasurer or Finance Manager and evidenced by safekeeping
receipts.
3. 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,
4. If pursuing a commercial paper obligation, investing only in investments rated in
the highest tier (Al, P -1 or F -1 or higher),
5. For deposits in Local Government Investment Pools, depositing funds only in
pools with a AAA rating, and
6. 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.
Section 5: 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 Section 6 of this Resolution, unless a
longer term is permissible within the California Government Code and specifically
approved by the Board prior to purchase.
Resolution No. 1436 Page 3
Section 6: 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.
Section 7: Permissible Investments
The table below lists permissible investments and limits on amounts and
maturities.
'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.
Section 8: Authorized Financial Dealers and Institutions
Staff will maintain a list of approved financial institutions authorized to provide
investment services to the District in the State of California. These may include
"primary" dealers or regional dealers that qualify under Securities & Exchange
Commission Rule 15C3 -1. An annual review of the financial condition and registrations
of qualified bidders will be conducted by the Treasurer or Finance Manager. A current
audited financial statement is required to be accessible for each financial institution and
broker /dealer in which the District invests.
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.
Section 8: Authorized Financial Dealers and Institutions
Staff will maintain a list of approved financial institutions authorized to provide
investment services to the District in the State of California. These may include
"primary" dealers or regional dealers that qualify under Securities & Exchange
Commission Rule 15C3 -1. An annual review of the financial condition and registrations
of qualified bidders will be conducted by the Treasurer or Finance Manager. A current
audited financial statement is required to be accessible for each financial institution and
broker /dealer in which the District invests.
Resolution No. 1436 Page 4
Section 9: Strategy
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.
Diversification - Staff will maintain diversified call provisions rather than anticipate
t .= market conditions. Staff will diversify timing of trading and maintain diversification by
type within the constraints of other provisions of this policy.
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.
Section 10: Reporting and Miscellaneous Provisions
The Treasurer, or Treasurer's designee, 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 District shall establish an annual process of independent review by an
external auditor as part of the annual audit. This review will provide internal control by
assuring compliance with policies and procedures.
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 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:
Resolution No. 1436 Page 5
The Annual Statement of Investment Policy for calendar year 2014 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 10th day of December, 2013, by the following
roll call vote:
AYES: EVANS, HERNANDEZ, POLTL, MARTIN
NOES:
ABSTAIN:
ABSENT:
Hal K4rtin, President
Vallecitos Water District
Board of Directors
ennis O. Lamb, Secretary
Vallecitos Water District
Board of Directors