CALIFORNIA GOVERNMENT CODE INVESTMENT SECTION
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. For
purposes of compliance with this section, an investment’s term or remaining
maturity shall be measured from the settlement date to final maturity. A
security purchased in accordance with this section shall not have a forward
settlement date exceeding 45 days from the time of investment. 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 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 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 in a
rating category of “A” or its equivalent 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, that
have less than one hundred million dollars ($100,000,000) of investment assets
under management, may invest no more than 25 percent of their moneys in eligible
commercial paper. Local agencies, other than counties or a city and county, that
have one hundred million dollars ($100,000,000) or more of investment assets
under management may invest no more than 40 percent of their moneys in eligible
commercial paper. A local agency, other than a county or a city and a county,
may invest no more than 10 percent of its total investment assets in the
commercial paper and the medium-term notes 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
federally licensed or 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 in a rating category of “A” or its equivalent or
better by an NRSRO. Purchases of medium-term notes shall not include other
instruments authorized by this section and shall not exceed 30 percent of the
agency’s moneys that may be invested pursuant to this section. A local agency,
other than a county or a city and a county, may invest no more than 10 percent
of its total investment assets in the commercial paper and the medium-term notes
of any single issuer.
(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 (q), 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 United States
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 United States 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 (q),
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 United States 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)
(1) 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.
(2) For securities eligible for investment under this
subdivision not issued or guaranteed by an agency or issuer identified in
subdivision (b) or (f), the following limitations apply:
(A)
The security shall be rated in a rating category of “AA” or its
equivalent or better by an NRSRO and have a maximum remaining maturity of five
years or less.
(B)
Purchase of securities authorized by this paragraph shall 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 (r), 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
United States 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 (q),
inclusive.
(3)
The adviser has assets under management in excess of five hundred
million dollars ($500,000,000).
(q)
United States dollar denominated senior unsecured unsubordinated
obligations issued or unconditionally guaranteed by the International Bank for
Reconstruction and Development, International Finance Corporation, or
Inter-American Development Bank, with a maximum remaining maturity of five years
or less, and eligible for purchase and sale within the United States.
Investments under this subdivision shall be rated in a rating category of “AA”
or its equivalent or better by an NRSRO and shall not exceed 30 percent of the
agency’s moneys that may be invested pursuant to this section.
(r)
Commercial paper, debt securities, or other obligations of a
public bank, as defined in Section 57600.
This section shall remain in effect only until January 1,
2026, and as of that date is repealed.
(Amended
(as amended by Stats. 2022, Ch. 427, Sec. 8) by Stats. 2023, Ch. 187, Sec. 5.
(SB 882) Effective January 1, 2024. Repealed as of January 1, 2026, by its own
provisions. See later operative version, as amended by Sec. 6 of Stats. 2023,
Ch. 187.)
For additional information:
https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=53601.&nodeTreePath=6.2.1.11.1&lawCode=GOV
http://codes.lp.findlaw.com/cacode/GOV/1/5/d2/1/4/1/s53601
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