HomeMy WebLinkAboutResolutions - No. 2022-133RESOLUTION NO. 2022-133
A RESOLUTION OF THE LODI CITY COUNCIL
ADOPTING THE CITY OF LODI FINANCIAL PLAN AND BUDGET FOR THE
FISCAL YEAR BEGINNING JULY 1, 2022 AND ENDING JUNE 30,2023;
APPROVING THE 2022/23 APPROPRIATIONS SPENDING LIMIT;
APPROVING JOB SPECIFICATION AND SALARY RANGE FOR
ADMINISTRATIVE ANALYST (CONFIDENTIAL AND REPRESENTED); AND
APPROVING THE FISCAL YEAR 2022/23 INVESTMENT POLICY
WHEREAS, the City Manager submitted the 2022/23 Financial Plan and Budget to the
City Council on May 17, 2022; and
WHEREAS, the 2022/23 Financial Plan and Budget was prepared in accordance with the
City Council's goals, budget assumptions, and policies; and
WHEREAS, the City Council conducted public budget review meetings on
May 3, 10, and 17, 2022; and
WHEREAS, the City Council is required to adopt the Appropriations Spending Limit for
2022/23; and
WHEREAS, the Appropriations Spending Limit and the annual adjustment factors selected
to calculate the Limit are part of the Financial Plan and Budget; and
WHEREAS, the City's five-year capital improvement program is presented and included
in the Fiscal Plan and Budget document; and
WHEREAS, the City of Lodi Investment Policy is adopted each year.
NOW, THEREFORE BE IT RESOLVED by the City Council of the City of Lodi as follows:
1. That the 2022/23 Financial Plan and Budget, as proposed by the City Manager be
approved as follows:
General Fund
FY 2022/23 Budget
Police Department
29,997,060
Fire Department
17,730,630
Internal Services
6,546,100
Parks, Rec & Cultural Services
5,961,790
Non -Departmental
4,728,900
Public Works
3,751,040
Library
1,772,220
City Attorney
825,880
City Clerk
801,930
City Manager
791,680
Eco Devopment
500,240
Code Enforcement
484,700
Total General Fund
73,892,170
Other Funds
FY 2022/23 Budget
Electric Utility
92,284,650
Wastewater Utility
21,953,670
Water Utility
13,394,190
Transit
12,169,430
Employee Benefits
9,635,970
Parks, Recreation & Cultural Srvs
8,186,200
Streets
6,916,570
Self Insurance
5,424,900
Capital Outlay
5,077,500
Community Development
3,696,690
Library
2,623,170
Fleet Services
2,450,190
Community Grants
1,693,920
Debt Service
1,643,120
Vehicle & Equipment Replacemeni
1,452,770
Special Revenue & Grants
326,890
Trust & Agency
76,000
TDA
30,000
Total Other Funds
189,035,830
2. That the funds for the 2022/23 Financial Plan and budget are appropriated in the
document on file in the City Clerk's Office; and
3. That the Appropriations Spending Limit be increased by $10,290,310 from the 2021/22
level of $124,907,868 to the 2022/23 level of $135,198,178 in accordance with the
calculations on Attachment A; and
4. That staffing position additions and deletions are approved as shown in the table below
effective July 1, 2022; and
Job Title
Department
+/-
Management Analyst
Fire - Administration
+0.4
Management Analyst
Parks, Rec & Cultural Srvs - Administration
-0.4
Administrative Analyst
Parks, Rec & Cultural Srvs - Administration
+1
Administrative Analyst - C
Internal Services - Human Resources
+1
Budget Manager (Temp)
Internal Services - Budget
+1
Administrative Assistant
Police - Administration
+1
Police Sergeant (Traffic)
Police - Operations
+1
Property & Evidence Tech (Temp)
Police - Support Services
+1
Management Analyst
Public Works - Administration
+1
Administrative Assistant
Community Development - Administration
+1
Administrative Clerk
Community Development - Administration
-1
CDD Program Specialist
Community Development - Administration
+1
Building Inspector I
Community Development - Building
+1
Electric Foreman
Electric Utility - Construction
+1
Administrative Clerk
Electric Utility - Management Services
+1
Electrician
Public Works - Water Services
+1
,W/WW Maintenance Worker
Public Works - Water Services
+1
Total
1 +13
5. That the City Council approves the salary range as indicated below and approves the
job description as written Administrative Analyst on Attachment B; and
Position:
Step 0
Step 1
Step 2
Step 3
Step 4
Administrative Analyst - Conf.
$ 63,241.07
$ 66,403.13
$ 69,723.28
$ 73,209.45
$ 76,869.92
Administrative Analyst - (LCMMA)
$ 60,229.59
$ 63,241.07
$ 66,403.13
$ 69,723.28
$ 73,209.45
6. That the City Council approves the FY 2022/23 Investment Policy as provided in
Attachment C; and
7. That the City Council approves the City's five-year Capital Improvement Project
Program as follows:
City of Lodi 5 -Yr Capital Improvement Program
FY 22/231
FY 23/241
FY 24/251 FY 25/26 FY 26/27
19,588,000
28,650,5001
21,972,0001 14,674,5001 11,929,500
Dated: June 1, 2022
I hereby certify that Resolution No. 2022-133 was passed and adopted by the City Council
of the City of Lodi in a regular meeting held June 1, 2022, by the following vote:
AYES: COUNCIL MEMBERS — Hothi, Khan, Kuehne, and Mayor Chandler
NOES: COUNCIL MEMBERS — None
ABSENT: COUNCIL MEMBERS — Nakanishi
ABSTAIN: COUNCIL MEMBERS — None
aw�4bA��
OLIVIA NASHED
City Clerk
2022-133
ATTACHMENT A
2022-23 FINANCIAL PLAN AND BUDGET
APPROPRIATIONS SPENDING LIMIT
AMOUNT
Last Year's Limit
124,907,868
Adjustment Factors
1 Population %
1.0064
2 Inflation %
1.0755
Total Adjustment %
1.0824
Annual Adjustment
10,290,310
Adjustments
None
Total Adjustment
10,290,310
APPROPRIATIONS
CITY OF LODI
ADMINISTRATIVE ANALYST
ATTACHMENT B
July 2022
DEFINITION
Under general direction performs a variety of complex and technical duties in support of
a department, division or Citywide activities and functions; makes recommendations for
action and assists in policy, procedure, and budget development and implementation;
fulfills other administrative assignments in functional areas such as grant administration,
contract administration, public information, legislative monitoring, and regulatory
compliance.
SUPERVISION EXERCISED AND RECEIVED
This classification works under the general direction from higher level staff, and may
provide technical oversight to other staff.
EXAMPLES OF DUTIES
Plans and organizes administrative studies relating to the activities or operations of the
department, functional area to which assigned, or the operations of the City as a whole;
Assists in the development of goals, objectives, policies and procedures; investigates,
interprets, analyzes and prepares recommendations in relation to proposals for new
programs, grants and/or services; analyzes, interprets and explains City policies and
procedures; confers with members of the public to explain procedures and policies;
Gathers information from departments and outside agencies in the performance of
assigned studies;
Provides assistance in the preparation of the departmental budget and monitors the
expenditures during fiscal year;
Serves as department liaison with Human Resources, Payroll or Risk Management and
other departments as needed;
Reviews contracts, invoices, vouchers, and other City agreements and performs various
financial analysis and reconciliations;
Provides technical assistance to others on administrative and analytical matters; may
develop or utilize computer applications to assist with analytical studies or departmental
operations;
Prepares technical reports, correspondence, and other written materials;
Provides excellent customer service and demonstrates tact and diplomacy when
discussing sensitive and confidential matters;
CLASS SPECIFICATION CITY OF LODI
Administrative Analyst
When assigned to Human Resources:
Prepares recruitment materials including job announcements, writes and places
advertising, assembles mailing lists, and prepares and issues candidate notices; May
screen job applicants to determine eligibility; Schedules, administers, and scores
written, performance, or oral examinations; Compiles, organizes and evaluates data
related to testing and job data files; Locates individuals to serve on interview boards;
Participates in job fairs as needed;
Conducts routine position classification and salary studies; Calculates salary levels;
Prepares salary publications; Responds to salary surveys from outside agencies;
Performs complex calculations related to examination statistics, sick leave conversion,
COBRA payments and eligibility periods, benefits coverage and payments, retirement
calculations, and related;
Composes and types confidential correspondence pertaining to Human Resources;
Compiles data for use in a variety of special reports; Prepares and maintains a variety
of complex records and files including federal and state reporting, affirmative action,
position control, salary history, negotiated agreements, training logs, personnel files,
and related matters;
Administers requests for leaves of absence, including Pregnancy Disability Leave
(PDL), Family Medical Leave Act (FMLA), California Family Rights Act (CFRA), and
personal leaves of absence;
Performs other duties related to the operation of the department and the City including
additional duties that enable the department and City to meet the diverse needs of its
community.
MINIMUM QUALIFICATIONS
Knowledge of:
Fundamentals of the law, regulations and policies governing benefits, insurance,
COBRA, employment and labor laws, and City policies and procedures;
Basic principles and procedures of related area of assignment such as insurance,
benefits, retirement, recruitment and selection, and position classification;
Systems and methods for record keeping, report preparation, and file maintenance;
Applicant tracking and Human Resources Information Systems (HRIS); General office
methods including the operation of personal computers and standard office equipment.
Ability to:
Interpret, explain, and apply complex regulations, rules, and agreements;
CLASS SPECIFICATION CITY OF LODI
Administrative Analvst
Perform professional analytical work in support of an assigned department, division or
program;
Assist in the administration of various payroll programs, such as insurance, benefits,
retirement, and employees deductions and/or time;
Maintain confidentiality of Human Resources related materials and issues;
Multi -task and manage workload and priorities with frequent disruptions;
Prepare a variety of written reports, records, and correspondence using a personal
computer; Accurately enter and maintain data and generate reports in an applicant
tracking and HRIS system; Perform complex arithmetical and basic statistical
calculations accurately;
Communicate clearly and concisely, both orally and in writing;
Provide excellent customer service to internal and external customers; Establish and
maintain effective working relationships with those contacted in the course of the work.
EDUCATION AND EXPERIENCE
Any combination equivalent to education and experience that would likely provide the
required knowledge and ability would be qualifying. A typical combination is:
Education -
Bachelor's degree from an accredited college or university with coursework related to
human resources management, business administration, finance, or other related field.
Experience:
Five years of increasingly responsible clerical experience including one year performing
analytical work in a Human Resources (when assigned to a Human Resource position)
or Finance office (when assigned to a Departmental position).
LICENSES AND CERTIFICATES
Possession of a valid Driver's License (class C) issued from the California Department
of Motor Vehicles.
WORK/ENVIRONMENTAL CONDITIONS
Work is generally performed in an office setting with extensive public contact and
frequent interruptions.
Primary functions require sufficient physical ability to work in an office setting; to stand
or sit for prolonged periods of time; to occasionally stoop, bend, kneel, crouch, reach
and twist; to lift, carry, push and/or pull light to moderate amounts of weight; to operate
office equipment requiring repetitive hand movement and fine coordination including use
of a computer keyboard; attending meetings and take notes; talk or hear, in person and
CLASS SPECIFICATION
Administrative Analvst
CITY OF LODI
by telephone; and using personal computers, cell phones, and/or hand held electronic
devices.
*FLSA Status: EXEMPT
ATTACHMENT C
CITY OF LODI
INVESTMENT POLICY
Fiscal Year 2022/23
Resolution 2022 -
TABLE OF CONTENTS
1.1 PURPOSE......................................................................:._..,_:;....,::::::....:.....:......:.....,........::.:.................1
1.2 POLICY...................................................................................:........,
...............-........................................1
1.3 SCOPE...........................................................................
1
1.4 PRUDENT INVESTOR STANDARD .............................
:.:....:..:............. :..::.;,.::.:.:.::.................................1
1.5 PUBLIC TRUST...................................................................................
...........:....................................2
1.6 ETHICS AND CONFLICTS OF INTEREST ..............................
......................... --- ............. .................. 2
1.7 OBJECTIVES....................................................................................................:.........:.........:............-....3
1.8 LIMITING MARKET VALUE EROSION........................................:;......,...,.........................................:....4
1.9 STATEMENT OF INVESTMENT POLICY..............................................................................................4
1.10 DELEGATION OF AUTHORITY .......................................
:.............. ::.._................ ......................... ........4
1.11 MONITORING AND ADJUSTING THE PORTFOLIO ............................................. -::....... :.:..:....:.:::...4
1.12 INTERNAL CONTROL .....................................................
............ ,............................. :-....,.. 5
1.13 REPORTING.................................................................
..... .......5
1.14 AUTHORIZED INVESTMENTS .................................................
........................... .......:.......................... 6
1.15 BANKS AND QUALIFIED BROKER/DEALERS......................
............................ ......................... ......... 7
1.16 PURCHASE OF CDs FROM LOCAL INSTITUTIONS..-....._..............._.......................................-..........8
1.17 SAFEKEEPING AND COLLATERILIZATION..............
.............................................. ........................ 8
1.18 ADMINISTRATION...........................................................
............ ,....... :..,,........... .:::......:.....:..,...;:...:,....9
2.1 INTERNAL CONTROLS - GENERAL ............................
............................................ .............,...,.......11
2.2 INTERNAL CONTROL PROCEDURES..........................:.:........:....:.......................................,..............12
2.3 TREASURY FUNCTION RESPONSIBILITIES.........................,...::...::::::.............:..............,.::.;..........13
2.4 BROKER/DEALER QUESTIONNAIRE.................................................,...........:..,.............................14
2.5 BROKER DEALER CERTIFICATION .........................
....... ........................... -................ ................ 16
GLOSSARY........................................................................_..:....................-..........................17
CITY OF LODI
INVESTMENT POLICIES
1.1 PURPOSE
The purpose of this policy is to state the City's policies for the investment of surplus funds in
the City treasury in a prudent and systematic manner conforming to all state and local
statutes governing the investment of public funds. Safety of principal is given the highest
priority. In addition, this statement is intended to formalize investment -related activities to
provide the highest investment return with maximum security while meeting daily cash flow
demands. The ultimate goal is to protect the City's pooled investment cash while enhancing
the City's economic status.
1.2 POLICY
It is the policy of the City of Lodi to invest public funds in a manner which will provide a sound
investment return with maximum security while meeting the daily cash flow demands of the
entity and conforming to all state and local statues governing the investment of public funds.
The City of Lodi's investment policy has three objectives: (1) protect principal, (2) provide for
liquidity needs, and (3) obtain the most reasonable rate of return possible within the first two
objectives. The overarching theme of this policy is to utilize the "prudent investor" standard
(see discussion below). This affords a broad range of investment opportunities so long as
the investment is prudent and permissible under current state and local law.
1.3 SCOPE
The investment policy applies to all funds under the direct authority of the City Treasurer of
the City of Lodi, including but not limited to the General Fund, Special Revenue Funds,
Capital Project Funds, Enterprise Funds, Internal Service Funds and Trust and Agency
Funds. All funds are accounted for in the City's Comprehensive Annual Financial Report.
Investments of debt proceeds held by bond trustee are governed by the provisions of the
debt agreements. Proceeds of bonds will be invested in accordance with the ordinance,
resolution, indenture or other agreement governing the issuance of the bonds.
1.4 PRUDENT INVESTOR STANDARD
The prudent investor standard requires all those involved in the investment process to act as
if the assets in the portfolio are their own. By the prudent investor standard, the rules
outlined in this policy, and other applicable state and local laws and regulation, are binding
constraints to be considered in taking any action.
The City Council, Treasurer and all persons authorized to make investment decisions on
behalf of the City are trustees and therefor fiduciaries subject to the prudent investor
standard. The "prudent investor" standard, is in accordance with Government Code Section
53600.3 which states "...all governing bodies of local agencies or persons authorized to
1
CITY OF LODI
INVESTMENT POLICIES
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."
It is the City's full intent, at the time of purchase, to hold all investments until maturity to
ensure the return of all invested principal dollars. However, it is realized that market prices of
securities will vary depending on economic and interest rate conditions at any point in time.
It is further recognized, that in a well -diversified investment portfolio, occasional measured
losses are inevitable due to economic, bond market or individual security credit analysis.
These occasional losses must be considered within the context of the overall investment
program objectives and the resultant long tem rate of return.
The City Treasurer and other individuals assigned to manage the investment portfolio, acting
within the intent and scope of the investment policy and other written procedures and
exercising due diligence, shall be relieved of personal responsibility and liability for an
individual security's credit risk or market price changes, provided deviations from
expectations are reported in a timely manner, appropriate action is taken to control adverse
developments, and the relieved parties acted at all times in a fashion that met their fiduciary
obligation to the City of Lodi.
1.5 PUBLIC TRUST
All participants in the investment process shall act as fiduciaries and custodians of public
funds. Investment officials shall recognize the portfolio is subject to public review and
evaluation. The overall program shall be designed and managed with a degree of
professionalism that is worthy of the public trust.
1.6 ETHICS AND CONFLICTS OF INTEREST
As a minimum standard, the City Treasurer and all other personnel authorized to make
investment decisions are governed by The Political Reform Act of 1974 regarding disclosure
of material financial interests as well as Government Code Section 87103. The City
Treasurer and all other personnel authorized to make investment decisions shall refrain from
personal business activity that could conflict with proper execution of the investment program
or which could impair the ability to make impartial investment decisions. The Treasurer is
CITY OF LODI
INVESTMENT POLICIES
required to make known to the City Manager and City Council any conflicts of interest that
may arise immediately upon becoming aware of a potential conflict. The Treasurer and other
key finance personnel are required to annually file applicable financial disclosures as required
by the Fair Political Practices Commission (FPCC).
1.7 OBJECTIVES
Funds of the City will be invested with the following objectives in priority order:
Safety:
Safety of principal is the foremost objective of the investment program. Investments of the
City of Lodi shall be undertaken in a manner that seeks to ensure the preservation of capital
in the overall portfolio. To attain this objective, diversification is required in order that
potential losses on individual securities do not exceed the income generated from the
remainder of the portfolio. The City of Lodi will diversify its investments by security type and
institution. Financial institutions and broker/dealers will be prequalified and monitored as well
as investment instruments they propose.
The City shall seek to preserve principal by mitigating two types of risk:
Credit Risk — Defined as the risk of loss due to failure of the issuer of a security. Credit risk
shall be mitigated by investing in investment grade securities and by diversifying the
investment portfolio so that the failure of any one issuer does not unduly harm the City's
cash flow.
Market Risk — Defined as the market value fluctuations due to overall changes in the
general level of interest rates. Market risk shall be mitigated by limiting the weighted
average maturity of the City of Lodi s investment portfolio to three and one-half years, the
maximum maturity of any one security to five years, and structuring the portfolio based on
historic and current cash flow analysis, thereby eliminating the need to sell securities prior
to maturity.
Liquidity:
The investment portfolio will remain sufficiently liquid to enable the City to meet all operating
requirements which might be reasonably anticipated. This will be accomplished through
maturity diversification in accordance with California Government Code 53635 and the State
Local Agency Investment Fund with immediate withdrawal provision.
Yield:
CITY OF LODI
INVESTMENT POLICIES
The City's investment portfolio shall be designed with the objective of attaining a sound yield
(rate of return) through budgetary and economic cycles, commensurate with the City's
investment risk constraints and the cash flow characteristics of the portfolio. The City will
attempt to obtain the most reasonable yield possible when selecting an investment, provided
the criteria for safety and liquidity of the total portfolio are met.
1.8 LIMITING MARKET VALUE EROSION
It is the general policy of the City to limit the potential effects from erosion in market values by
adhering to the following guidelines:
All immediate and anticipated liquidity requirements shall be addressed prior to
purchasing investments.
Maturity dates for investments shall coincide with significant cash flow requirements,
where possible, to assist with cash requirements at maturity.
All securities shall be purchased with the intent to hold all investments to maturity.
However, economic or market conditions may change, making it in the City's best
interest to sell or trade a security prior to maturity.
1.9 STATEMENT OF INVESTMENT POLICY
The City of Lodi's Investment Policy shall be adopted by Resolution of the City Council. This
investment policy shall be reviewed at least annually to ensure its consistency with the
overall objectives of preservation of principal, liquidly and yield, and its relevance to current
law and financial and economic needs. Any amendments to the policy shall be forwarded to
the City Council for approval.
1.10 DELEGATION OF AUTHORITY
The Treasurer is designated by the authority of the legislative body as the investment officer
of the City as provided for in Government Code Section 53607 and is responsible for the
investment decisions and activities of the City. The Treasurer will develop and maintain
written administrative procedures for the operation of the investment program, consistent with
this investment policy. The Treasurer may delegate certain day to day functions as
necessary to execute this policy and manage the portfolio in the most efficient and effective
manner.
The Treasurer shall hereafter assume full responsibility for such transactions until such time
as the delegation of authority is revoked, and shall make a quarterly report of such
transactions to the legislative body.
1.11 MONITORING AND ADJUSTING THE PORTFOLIO
CITY OF LODI
INVESTMENT POLICIES
The Treasurer will routinely monitor the contents of the portfolio, the available markets and
the relative values of competing instruments, and will adjust the portfolio accordingly. It is the
City's full intent, at the time of purchase, to hold all investments until maturity to ensure the
return of all invested principal dollars.
1.12 INTERNAL CONTROL
The Treasurer will establish a system of written internal controls, which will be reviewed
annually by the City's independent audit firm. The controls will be designed to prevent loss of
public funds due to fraud, error, misrepresentation, unanticipated market changes or
imprudent actions.
1.13 REPORTING
The Treasurer will submit a quarterly investment report to the City Council, in accordance
with Government Code Section 53646, to disclose the following information:
• A listing of individual securities held at the end of the reporting period by authorized
investment category.
• Notation of Securities purchased within the reporting period.
• Percentage of the portfolio represented by each investment category.
• Institution.
• Average life and final maturity of all investments listed.
• Coupon, discount or earnings rate.
• Par value or cost of the security
• Current market value of securities with maturity in excess of 12 months and the source of
this valuation.
• Ability of the city to meet its expenditure requirements for the next six months or provide
an explanation of why sufficient funds will riot be available as required by Gov. Code
53646 (b)(3).
The quarterly investment report to the Lodi City Council, acting legislative authority, as
endorsed by Government Code Section 53646, will be in addition to the Treasurer's monthly
report and accounting of all receipts, disbursements and fund balances.
CITY OF LODI
INVESTMENT POLICIES
1.14 AUTHORIZED INVESTMENTS
The City will invest surplus funds not required to finance the immediate needs of the City as
provided in California Government Code Sections 16429.1, 53601, 53601.6, 53601.8, 53635,
53635.2, 53638 and 53684. In selecting authorized investments consideration must be given
to credit ratings, maturities, current makeup of the City's portfolio and collateralization of
applicable instruments. A list of eligible instruments is provided below.
Permitted Investments
Maturity
Maximum % of
Minimum
Portfolio
Quality
Requirements
U.S. Treasury Obligations (Bills, notes and
5 years
100%
None
bonds)
US Government Agency Securities and
5 years
100%
None
Instrumentalities
Bankers Acceptances
180 days
40%
None
Certificates of Deposit
5 years
100%
None
Negotiable Certificates of Deposit
5 years
30%
None
Commercial Paper
270 days
30%
Credit Rating
of P1/A1 or
Al +/F1 or F1+
by Moody's,
S&P or Fitch
California State Local Agency Investment
Indefinite
100%
None
Fund
Passbook Deposits
Indefinite
100%
None
Mutual Funds and Money Market Mutual
N/A
20%
Multiple
Funds
Requirements
per Gov't
Code
Medium Term Corporation Notes
5 years
30%
A-/A3/A- by
Moody's, S&P,
or Fitch
Joint Powers Authority Pool
Indefinite
30%
Multiple
(Funds held at
Requirements
NCPA shall not
per Gov't
count to this limit)
Code
Certificate of Deposit Account Registry
Indefinite
30%
None
Service (CDARS)
CITY OF LODI
INVESTMENT POLICIES
Supranational Obligations
Municipal Securities (50 States or
California Local Agencies)
5 years
5 years
30% AA-/Aa3/AA-
by Moody's,
S&P, or Fitch
100% None �I
Investments not listed in this section, including those otherwise authorized by California
Government Code are ineligible investments for the City of Lodi. Ineligible investments
include, but are not limited to, common stocks, long term (over five years in maturity) notes
and bonds, swaps, options, derivatives, repurchase and reverse repurchase agreements and
swap agreements.
Pooled funds invested for the City by entities such as California State Local Agency
Investment Fund, CaITRUST, NCPA, or other Joint Powers Authority Pools may invest in
swaps, options, derivatives or repurchase and reverse repurchase agreements as permitted
by California Government Code and the respective policy guidelines of the investing agency.
1.15 BANKS AND QUALIFIED BROKER/DEALERS
The Treasurer will consider the credit worthiness of institutions in selecting financial
institutions for the deposit or investment of City funds. These institutions will be monitored to
ensure their continued stability and credit worthiness.
The City shall conduct investment transactions only with qualified banks, savings and loans,
and broker/dealers. The Treasurer shall investigate dealers who wish to do business with
the City to determine that they are adequately capitaiized, have no pending legal action
against the firm or the individual broker and that they participate in markets appropriate to the
City's needs. Third parties in this category will be required to provide their most recent
Consolidated Report of Condition ("call report") prior to transacting business with the City and
at the request of the Treasurer during the course of conducting business.
The Treasurer will maintain a list of financial institutions authorized to provide investment
services. In addition, a list will be maintained of approved security brokers/dealers selected
for credit worthiness. The City shall send a copy of the current investment policy to all
broker/dealers approved to do business with the City. Written and signed confirmation, on
company letterhead, of receipt of this policy shall be considered evidence that the dealer
understands the City's investment policies and intends to sell the City only appropriate
investments authorized by this policy and all applicable state and federal laws and
regulations.
CITY OF LODI
INVESTMENT POLICIES
In addition, all financial institutions and broker/dealers who desire to become qualified
bidders for investment transactions must supply the Treasurer with the following:
• Audited financial statements
• Proof of Financial Industry Regulatory Authority registration.
• Trading Resolution
• Proof of State Registration
• Certification of having read the City of Lodi's investment policy and depository contracts.
An annual review of the financial condition and registration of qualified bidders will be
conducted by the Treasurer.
The City will not normally use more than three qualified dealer/brokers to obtain bids.
1.16 PURCHASE OF CDs FROM LOCAL INSTITUTIONS
To the extent reasonable and within the limits specified above, the Treasurer may purchase a
Certificate of Deposit, up to the amount fully insured by the Federal Deposit Insurance
Corporation (FDIC), from each bank and savings and loan institution located within the
corporate limits of the City to promote economic development and as a statement of support
for those institutions maintaining an office in Lodi. These investments are limited to those
institutions which offer Certificates of Deposit insured by the Federal Deposit Insurance Act
and have a Community Reinvestment Act Rating of satisfactory or above.
To aid in the diversification of the portfolio, additional Certificates of Deposit in amounts up to
fully insured FDIC limits, may be purchased from local institutions provided the investment
has the safety, liquidity and a rate of return comparable to that offered from LAIF at the time
the original investment is made.
Additional Certificates of Deposit may be purchased from a single institution so long as the
amounts are fully collateralized as described in Section 1.17.
1.17 SAFEKEEPING AND COLLATE RILIZATION
All investment securities purchased by the City will be held in third -party safekeeping by an
institution designated as primary agent. The custodian will hold these securities in a manner
that establishes the City's right of ownership. The primary agent will issue a safekeeping
receipt to the City listing the specific instruments, rate, maturity and other pertinent
information. Deposit type securities (i.e., certificates of deposit) will be collateralized.
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INVESTMENT POLICIES
Collateral for time deposits in savings and loans will be held by the Federal Home Loan Bank
or an approved Agent of Depository. If collateral is government securities, 110% of market
value to the face amount of the deposit is required. Promissory notes secured by first
mortgages and first trust deeds used as collateral require 150% of market value to the face
amount of the deposit. An irrevocable letter of credit issued by the Federal Home Loan Bank
of San Francisco requires 105% of market value to the face amount of the public deposit.
The collateral for time deposits in banks should be held in the City's name in the bank's Trust
Department, or alternately, in the Federal Reserve Bank. The City may waive collateral
requirements for deposits which are fully insured up to limits prescribed by the FDIC.
The amount of securities placed with an agent of depository will at all times be maintained in
accordance with California Government Code 53652.
1.18 ADMINISTRATION
The following administrative policies will be strictly observed:
Payment:
All transactions will be executed on a delivery versus payment basis which should be done
by the City's safekeeping agent.
Bid:
A competitive bid process in which no less than three competitive bids are obtained, when
practical, will be used to place all investment purchases. Typically when soliciting bids, the
Treasurer or Supervising Budget Analyst will specify through email with a blind copy to
qualified brokers the following: maturity date, credit quality, eligible investment category,
amount available to invest and security names the City will not consider due to
overconcentration. The open window for providing offers shall be a minimum of one hour
and the City's review period shall be no more than one hour in order to minimize the risk of
market price fluctuations between security offer and the City's decision to purchase.
Securities not matching the requirements for the portfolio will not be considered in that
solicitation. The Treasurer has the right to refuse all bids and reissue a solicitation. If less
than three qualifying responses are received, the Treasurer may choose to select from the
responses received or to reissue the solicitation.
Wire Transfers:
CITY OF LODI
INVESTMENT POLICIES
All wire transfers will be initiated by the Supervising Budget Analyst and approved by the
Treasurer. The City's utilizes electronic dual controls on all wire transfers requiring that
approvers cannot be initiators and vice versa.
Pre -formatted wire transfers will be used to restrict the transfer of funds with preauthorized
accounts only.
Confirmations:
Receipts for confirmation of a purchase of authorized securities should include the following
information: trade date; par value; maturity; rate; price; yield; settlement date; description of
securities purchased; net amount due; third -party custodial information. Confirmations of all
investment transactions are to be received by the Treasurer not later than the business day
immediately following the trade. Same day confirmations are preferred.
Pooled Cash:
The City will consolidate into one bank account and invest on a pooled concept basis.
Interest earnings will be allocated monthly based on current cash balances.
Bond Proceeds:
The City will comply with applicable federal tax law and regulations in connection with the
investment of bond proceeds.
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2.1 INTERNAL CONTROLS - GENERAL
Through this system of internal control, the City is adopting procedures and establishing
safeguards to prevent or limit the loss of funds invested or held for investment due to errors,
losses, misjudgments and improper acts. Internal control procedures are not intended to
address every possible situation but are intended to provide a reasonable and prudent level
of protection for the City's funds.
Objectives:
These procedures and policies are established to ensure:
• the orderly and efficient conduct of investment practices, including adherence to
investment policies
• the safeguarding of surplus cash
• the prevention or detection of errors and fraud
• the accuracy and completeness of investment records
• the timely preparation of reliable investment reports
General Control Policies:
The following policies are to be used to safeguard investments:
• Organization
A description of responsibilities and procedures for the investment of City funds, lines of
authority and reporting requirement will be maintained.
Personnel
Only qualified and assigned personnel will be authorized to approve investment
transactions; make and liquidate investments; maintain investment records; and
maintain custody of negotiable instruments. Personnel assigned responsibility for the
investment of City surplus funds will maintain their professional qualifications by
continued education and membership in professional associations.
• Segregation of functions
No one having general ledger functions will have responsibility for the investment of City
funds.
Safekeeping
All securities are to be held in the name of the City of Lodi. The City will contract with a
third party, usually a bank, to provide custodial services and securities safekeeping.
Although a cost is involved, the risk of losing physical securities outweighs the fees
involved. Preference should be given to custodial services which include reporting
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INVESTMENT POLICY
services as part of their service, including marking the portfolio to market value,
performance evaluation and internal reporting
• Reconciliation of records
Regular and timely reconciliation will be made of detailed securities records with the
general ledger control account.
• Performance evaluation
Performance statistics will be maintained and reported monthly as provided in the
Investment Policies.
2.2 INTERNAL CONTROL PROCEDURES
Assigned Responsibilities:
a. City Council responsibilities:
• Adoption of City's investment policies by Resolution
• Review and evaluation of investment performance.
b. Treasurer duties and responsibilities:
• Formulating, recommending and implementing the City's investment policies
• Approves all investment transactions prior to execution of any transaction
• Approves broker/dealer arrangements.
c. Supervising Budget Analyst duties and responsibilities:
• Recommends broker/dealer arrangements
• Recommends investments
• Executes investment transactions
• Maintains records of all investment transactions
• Prepares quarterly investment report for City Council review
• Prepare fiscal year end investment reports for City's independent audit firm review
• Review's financial condition of the City's depositories (banks) at least annually for
compliance with collateralization requirements under government code and financial
condition and reports results to City Treasurer.
d. Financial Services Manager duties and responsibilities:
• Maintains general ledger control account and duplicate records of investment
transactions
• Verifies investment records and reconciles detailed securities records with general
ledger control accounts.
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INVESTMENT POLICY
e. City's independent audit firm:
• Will review the City's investment policies and procedures and make appropriate
recommendations and findings as to compliance and steps to be taken to improve
internal controls.
2.3 TREASURY FUNCTION RESPONSIBILITIES
FUNCTION RESPONSIBILITIES
1. Recommendations:
• Recommends broker/dealer arrangements Supervising Budget Analyst
• Recommends investments Supervising Budget Analyst
2. Authorization of Investment Transactions
• Formal investment policy prepared by Treasurer
• Formal investment policy approved by City Council
• Investment transactions approved by Treasurer
• Broker/deal arrangements approved by
Treasurer
3.
Execution of Investment Transactions
Supervising Budget Analyst
4.
Recording of Investment Transactions
• Recording of transactions in Treasurer's records
Supervising Budget Analyst
• Recording of transactions in Accounting records
Financial Services Manager
5.
Safeguarding of assets and records
• Maintenance of Treasurer's records
Supervising Budget Analyst
• Reconciliation of Treasurer's records to
accounting records
Financial Services Manager
• Review of (a) financial institution's financial
condition, (b) safety, liquidity, and potential yields
Supervising Budget Analyst
of investment instruments, and (c) reputation and
financial condition of investment brokers
• Periodic reviews of collateral
Supervising Budget Analyst
• Review and evaluation of performance
City Council
6.
Preparation of reports
Supervising Budget Analyst
7.
Annual review of investment portfolio for
City's Audit Firm
conformance to City's investment policy
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2.4 BROKER/DEALER QUESTIONNAIRE
BROKER/DEALER QUESTIONNAIRE
CITY OF LODI TREASURER'S OFFICE
P. O. Box 3006
Lodi, California 95241
Name:
2. Branch Address.
3. Telephone No:
4. Primary Account Representative
Name:
Title,
Telephone No.
5. Is your firm a primary dealer in US Government Securities? Y/N
6. Identify the personnel who will be trading with or quoting securities to our agencies employees:
Name Title Telephone No.
7. National Headquarters Address:
Corporate Contract:
Telephone No.:
Compliance Officer (Name, Address,
Telephone)
8. What was your firm's total volume in US Government and Agency securities trading last calendar year?
9. Which securities are offered by your firm?
( ) US Treasury { ) Commercial Paper
( ) US Treasury Notes ( ) BAs Domestic
( ) US Treasury Bonds { ) BAs Foreign
( ) Agencies (specify) { ) Repurchase Agreements
( ) Negotiable CD's { ) Reverse Repurchase Agreements
10. List your personnel who have read the City of Lodi Treasurer's Investment Policy.
11. Please identify your public -sector clients in our geographical area who are most comparable to our
government with which you currently do business.
12. Have any of your clients ever sustained a loss on a securities transaction arising from
misunderstanding or misrepresentation of the risk characteristics of the instrument? If so, please explain.
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INVESTMENT POLICY
13. Have any of your public -sector clients ever reported to your firm, is officers or employees, orally or in
writing, that they sustained a loss exceeding 10% of the original purchase price in a single year on any
individual security purchased thorough your firm? Explain.
14. Has your firm ever been subject to a regulatory or state/federal agency investigation for alleged
improper, fraudulent, disreputable or unfair activities related to the sale of securities? Have any of your
employees ever been so investigated? Explain.
15. Has a public sector client ever claimed in writing that your firm or members of your firm were
responsible for investment losses?
16. Please include samples of research reports that your firm regularly provides to public -sector clients.
17. Please explain your normal delivery process. Who audits these fiduciary systems?
18. Please provide certified financial statements and other indicators regarding your firm's capitalization.
19. Describe the capital line and trading limits that support/limit the office that would conduct business
with our government.
20. What training would you provide to our employees and investment officers?
21. Has your firm consistently complied with the Federal Reserve Bank's capital adequacy guidelines?
As of this date, does your firm comply with the guidelines? Has your capital position every fallen short? By
what factor (1.5x, 2x, etc.). Does your firm presently exceed the capital adequacy guidelines, measure of risk?
Include certified documentation of your capital adequacy as measured by the Federal Reserve standards.
22. Do you participate in the Securities Investor Protection Corporation (SIPC) insurance program? If
not, why?
23. What portfolio information do you require from your clients?
24. What reports, confirmations and paper trail will we receive?
25. Enclose a complete schedule of fees and charges for various transactions
26. How many and what percentage of your transactions failed last month? Last year?
27. Describe the precautions taken by your firm to protect the interest of the public when dealing with
governmental agencies as investors.
28. Is your firm licensed by the State of California as a broker/dealer? Y/N
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2.5 BROKER/DEALER CERTIFICATION
CERTIFICATION ATTACHEDCERTIFICATION
I hereby certify that I have personally read the latest adopted resolution of investment policies and objectives of
the City of Lodi Treasurer and the California Government Codes pertaining to the investments of the City of
Lodi, and have implemented reasonable procedures and a system of controls designed to preclude imprudent
investment activities arising out to transaction conducted between our firm and the City of Lodi. All sales
personnel will be routinely informed of the City of Lodi's investment objectives, horizon, outlook, strategies and
risk constraints whenever we are so advised. We pledge to exercise due diligence in informing the City of Lodi
of all foreseeable risks associated with financial transactions conducted with our firm. I attest to the accuracy of
our responses to your questionnaire.
SIGNED
TITLE
COUNTERSIGNED DATE
(Person in charge of government securities operations)
DATE
NOTE: Completion of Questionnaire is only part of the City of Lodi's Certification process and DOES NOT
guarantee that the applicant will be approved to do business with the City of Lodi.
On this day of
20 before me the undersigned Notary Public
personally appeared
( ) personally known to me
( ) proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) subscribed to the
within instrument and acknowledged that executed it.
State of
County of
WITNESS my hand and official seal.
Notary's Signature
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GLOSSARY
AGENT: an agent is a firm or individual which executes orders for others or acts on behalf of
others (the principal). The agent is subject to the control of the principal and does not have
title to the principal's property. The agent may charge a fee or commission for this service.
AGENCIES: federal agency securities and/or Government-sponsored enterprises.
AGREEMENT: an agreement is an arrangement or understanding between individual traders
to honor market quotes within predetermined limits on dollar amount and size.
AMORTIZATION: straight-line reduction of debt by means of periodic payments sufficient to
meet current interest charges and to pay off the debt at maturity.
ARBITRAGE: a technique used to take advantage of price differences in separate markets.
This is accomplished by purchasing securities, negotiable instruments or currencies in one
market for immediate sale in another market at a better price.
ASKED: the price at which securities are offered.
AT THE MARKET: a trading term for the buying or selling of securities at the current market
price rather than at a predetermined price.
BANKERS ACCEPTANCE (BA): a bearer time draft for a specified amount payable on a
specified date. An individual or business seeking to finance domestic or international trade
draws it on a bank. Commodity products collateralize the BA. Sale of goods is usually the
source of the borrower's repayment to the bank. The bank finances the borrower's
transaction and then often sells the BA on a discount basis to an investor. At maturity, the
bank is repaid and the investor holding the BA receives par value from the bank.
BASIS PRICE: price expressed in yield -to -maturity or the annual rate of return on the
investment.
BEAR MARKET: a period of generally pessimistic attitudes and declining market prices.
(Compare: Bull market)
BELOW THE MARKET: a price below the current market price for a particular security.
BID AND ASKED OR BID AND OFFER: the price at which an owner offers to sell (asked or
offer) and the price at which a prospective buyer offers to buy (bid). It is often referred to as
a quotation or a quote. The difference between the two is called the spread.
BOND: an interest-bearing security issued by a corporation, government, governmental
agency or other body, which can be executed through a bank or trust company. A bond is a
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form of debt with an interest rate, maturity, and face value, and is usually secured by specific
assets. Most bonds have a maturity of greater than one year, and generally pay interest
semiannually.
BOND ANTICIPATION NOTE (BAN): short-term notes sold by states and municipalities to
obtain interim financing for projects which will eventually be financed by the sale of bonds.
BOND DISCOUNT: the difference between a bond's face value and a selling price, when the
selling price is lower than the face value.
BOND RATING the classification of a bond's investment quality. (See: Rating).
BOND RESOLUTION: a legal order or contract by a governmental unit to authorize a bond
issue. A bond resolution carefully details the rights of the bondholders and the obligation of
the issuer.
BOOK VALUE: the amount at which a security is carried on the books of the holder or issuer.
The book value is often the cost, plus or minus amortization, and may differ significantly from
the market value.
BROKER: a middleman who brings buyers and sellers together and handles their orders,
generally charging a commission for this service. In contrast to a principal or a dealer, the
broker does not own or take a position in securities.
BULL MARKET: a period of generally optimistic attitudes and increasing market prices.
(Compare: Bear Market).
BUYERS MARKET: a market where supply is greater than demand, giving buyers an
advantage in purchase price and terms.
CALL: an option to buy a specific asset at a certain price within a particular period.
CALLABLE: a feature which states a bond or preferred stock may be redeemed by the issuer
prior to maturity under terms designated prior to issuance.
CALL DATE: the date on which a bond may be redeemed before maturity at the option of the
issuer.
CALLED BONDS: bonds redeemed before maturity.
CALL PREMIUM: the excess paid for a bond or security over its face value.
CALL PRICE: the price paid for a security when it is called. The call price is equal to the face
value of the security, plus the call premium.
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CALL PROVISION: the call provision describes the details by which a bond may be
redeemed by the issuer, in whole or in part, prior to maturity. A Security with such a
provision will usually have a higher interest rate than comparable, but noncallable securities.
CAPITAL GAIN OR LOSS: the amount that is made or lost, depending upon the difference
between the sale price and the purchase price of any capital asset or security.
CAPITAL MARKET: the market in which buyers and sellers, including institutions, banks,
governments, corporations and individuals, trade debt and equity securities.
CASH SALE: a transaction calling for the delivery and payment of the securities on the same
day that the transaction takes place.
CERTIFICATE OF DEPOSIT (CD): debt instrument issued by a bank that usually pays
interest. Institutional CD's are issued in denominations of $100,000 or more. Maturities
range from a few weeks to several years. Competitive forces in the marketplace set interest
rates.
CERTIFICATE OF DEPOSIT ACCOUNT REGISTRY SERVICE (CDARS): deposits made
with a "selected" depository institution, in accordance with California Government Code
Section 53601.8, that uses a private entity to assist in the placement of certificates of deposit.
Such deposits shall at all times be insured by the Federal Deposit Insurance Corporation or
the National Credit Union Administration. The selected depository institution shall serve as
custodian for each certificate of deposit that is issued with placement service for the City of
Lodi's account.
COLLATERAL: securities or other property, which a borrower pledges for the repayment of a
loan. Also refers to securities pledged by a bank to secure deposits of public monies.
COLLATERAL NOTE: a promissory note, which specifically mentions the collateral, pledged
by the borrower for the repayment of an obligation.
COMMERCIAL PAPER: short-term obligations with maturities ranging from 2 to 270 days
issued by banks, corporations, and other borrowers to investors with temporarily idle cash.
Such instruments are unsecured and usually discounted, although some are interest-bearing.
COMMISSION: the brokers or agent's fee for purchasing or selling securities for a client.
COUPON: the annual rate of interest that a bond's issuer promises to pay the bondholder on
the bond's face value.
COVENANT: a pledge in the bond resolution or indenture of the issuing government to
perform in a way that may benefit the bondholders, or to refrain from doing something that
might be disadvantageous to them.
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COVER: the spread between the winning bid (or offer) and the next highest bid (or the next
lowest offer). It is useful as a basis for evaluation of the bids.
COVERAGE RATIO: the ratio of income available to pay a specific obligation versus the total
amount obligated. This is a measure of financial stability.
CREDIT ANALYSIS: a critical review and appraisal of the economic and financial condition of
a government agency or corporation. The credit analysis evaluates the issuing entity's ability
to meet its debt obligations, and the suitability of such obligations for underwriting or
investment.
CURRENT MATURITY: amount of time left to the maturity of an obligation
DEBENTURE: a bond secured by the general credit of the issuer rather than being backed
by a specific lien on property as in mortgage bonds.
DEBT COVERAGE: this term is normally used in connection with revenue and corporate
bonds. It indicates the margin of safety for payment of debt, reflecting the number of times
by which earnings for a certain period of time exceed debt payable during the same period.
DEBT LIMIT (OR CEILING): the maximum amount of debt that can legally be acquired under
the debt -incurring power of a state or municipality.
DEBT SERVICE: interest and principal obligation on an outstanding debt. This is usually for
a one-year period.
DEFAULT: failure to pay principal or interest promptly when due.
DELIVERY VERSUS PAYMENT: securities industry procedure, common with institutional
accounts, whereby delivery of securities sold is made to the buying customer's bank in
exchange for payment, usually in the form of cash. (Institutions are required by law to
require "assets of equal value" in exchange for delivery.) Also called Cash on Delivery.
DERIVATIVE: contracts written between a City and a counter party such as a bank,
insurance company or brokerage firms. Their value is derived from the value of some
underlying assets such as Treasury Bonds or a market index such as LIBOR. Derivatives
are used to create financial instruments to meet special market needs. Two contrasting
reasons for the use of derivatives are: 1) to limit risk or transfer it to those willing to bear it;
and, 2) to speculate about future interest rates and leverage in hope of increasing returns.
DISCOUNT: the difference between the cost price of a security and its maturity when quoted
at lower than face value. A security selling below original offering price shortly after a sale
also is considered to be at a discount.
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DIVERSIFICATION: dividing investment funds among a variety of securities offering
independent returns.
DUE DILIGENCE: exercising of due professional care in the performance of duties
FACE VALUE: the principal amount owed on a debt instrument. It is the amount on which
interest is computed and represents the amount that the issuer promises to pay at maturity.
FANNIE MAE: trade name for the Federal National Mortgage Association.
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC): federal agency established in
1933 that guarantees (within limits) funds on deposit in member banks and performs other
functions such as making loans to or buying assets from members banks to facilitate mergers
or prevent failures.
FEDERAL FUNDS RATE: the rate of interest at which Fed funds are traded. This rate is
currently pegged by the Federal Reserve through open -market operations.
FEDERAL HOME LOAN BANKS (FHLB): government sponsored wholesale banns (currently
12 regional banks) which lend funds and provide correspondent banking services to member
commercial banks, credit unions and insurance companies. The mission of the FHLBs is to
liquefy the housing related assets of its members who must purchase stock in their district
Bank.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA): FNMA like GNMA was
chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal
corporation working under the auspices of the Department of Housing and Urban
Development (HUD). It is the largest single provider of residential mortgage funds in the
United States. Fannie Mae, as the corporation is called, is a private stockholder -owned
corporation. The corporation's purchases include a variety of adjustable mortgages and
second loans, in addition to fixed-rate mortgages. FNMA's securities are also highly liquid
and are widely accepted. FNMA assumes and guarantees that all security holders will
receive timely payment of principal and interest.
FEDERAL OPEN MARKET COMMITTEE (FOMC): consists of seven members of the
Federal Reserve Board and five of the twelve Federal Reserve Bank Presidents. The
President of the New York Federal Reserve Bank is a permanent member, while the other
Presidents serve on a rotating basis. The Committee periodically meets to set Federal
Reserve guidelines regarding purchases and sales of Government Securities in the open
market as a means of influencing the volume of bank credit and money.
FEDERAL RESERVE SYSTEM: the central bank of the United States created by Congress
and consisting of a seven member Board of Governors in Washington, D.C., 12 regional
banks and about 5,700 commercial banks that are members of the system.
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FIDUCIARY: an individual or group, such as a bank or trust company, which acts for the
benefit of another party or to which certain property is given to hold in trust, according the
trust agreement.
FISCAL YEAR: an accounting or tax period comprising any twelve-month period. The City's
fiscal year starts July 1.
FREDDIE MAC: trade name for the Federal Home Loan Mortgage Corporation.
FULL FAITH AND CREDIT: the unconditional guarantee of the United States government
backing a debt for repayment.
GENERAL OBLIGATION BONDS (GO's): bonds secured by the pledge of the municipal
issuer's full faith and credit, usually including unlimited taxing power.
GINNIE MAE: trade name for the Government National Mortgage Association.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA or Ginnie Mae): securities
influencing the volume of bank credit guaranteed by GNMA and issued by mortgage bankers,
commercial banks, savings and loan associations, and other institutions. Security holder is
protected by full faith and credit of the U.S. Government. Ginnie Mae securities are backed
by the FHA, VA or FmHA mortgages. The term "pass-through" is often used to describe
Ginnie Maes.
HOLDER: the person or entity which is in possession of a negotiable instrument.
INDEBTEDNESS: the obligation assumed by a borrower, guarantor, endorser, etc. to repay
funds which have been or will be paid out on the borrower's behalf.
INDENTURE: a written agreement used in connection with a security issue. The document
sets the maturity date, interest rate, security and other terms for both the issue holder, issuer
and, when appropriate, the trustee.
INTEREST RATE: the interest payable each year on borrowed funds expressed as a
percentage of the principal.
INVESTMENT: use of capital to create more money, either through income-producing
vehicles or through more risk -oriented ventures designed to result in capital gains.
INVESTMENT PORTFOLIO: a collection of securities held by a bank, individual, institution,
or government agency for investment purposes.
IRREVOCABLE LETTER OF CREDIT: instrument or document issued by a bank
guaranteeing the payment of a customer's drafts up to a stated amount for a specified period.
It substitutes the bank's credit for the buyer's and eliminates the seller's risk. This
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arrangement cannot be changed or terminated by the one who created it without the
agreement of the beneficiary.
ISSUE PRICE: the price at which a new issue of securities is put on the market.
ISSUER: any corporation or governmental unit, which borrows money through the sale of
securities.
JOINT AND SEVERAL OBLIGATION: a guarantee to the holder in which the liability for a
bond or note issue may be enforced against all parties jointly or any one of them individually
so that one, several or all may be held responsible for its payment.
LAIF: trade name for California State Local Agency Investment Fund
LEGAL INVESTMENT: a list of securities in which certain institutions and fiduciaries may
invest as determined by regulatory agencies.
LEGAL OPINION: an opinion concerning the legality of a bond issue, usually written by a
recognized law firm specializing in the approval of public borrowings.
LIQUIDITY: a liquid asset is one that can be converted easily and rapidly into cash without a
substantial loss of value. In the money market, a security is said to be liquid if the spread
between bid and asked prices is narrow and reasonable size can be done at those quotes.
MARKETABILITY: the measure of ease with which a security can be sold in the secondary
market.
MARKET ORDER: an order to buy or sell securities at the prevailing bid or ask price on the
market.
MARKET VALUE: the price at which a security is trading and could presumably be
purchased or sold.
MARKET VS. QUOTE: quote designates the current bid and ask on a security, as opposed
to the price at which the last security order was sold.
MASTER REPURCHASE AGREEMENT: a written contract covering all future transactions
between the parties to repurchase—reverse repurchase agreements that establishes each
party's rights in the transactions. A master agreement will often specify, among other things,
the right of the buyer -lender to liquidate the underlying securities in the event of default by
the seller -borrower.
MATURITY: the date that the principal or stated value of debt instrument becomes due and
payable. It is also used as the length of time between the issue date and the due date.
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MONEY MARKET: the market in which short-term debt instruments (bills, commercial paper,
bankers' acceptances, etc.) are issued and traded.
MORTGAGE BOND: a bond secured by a mortgage on property. The value of the property
used as collateral usually exceeds that of the mortgage bond issued against it.
NEGOTIABLE: a term used to designate a security, the title to which is transferable by
delivery. Also used to refer to the ability to exchange securities for cash or near -cash
instruments.
NO PAR VALUE: a security issued with no face or par value.
NON-NEGOTIABLE: a security whose title or ownership is not transferable through a simple
delivery or endorsement. (See: Negotiable.)
OBLIGATION: a responsibility for paying back a debt.
OFFER: the price of a security at which a person is willing to sell.
OFFERING: placing securities for sale to buyers. The offering usually states the price and
terms.
OPEN MARKET OPERATIONS: purchases and sales of government and certain other
securities in the open market by the New York Federal Reserve Bank as directed by the
FOMC in order to influence the volume of money and credit in the economy. Purchases
inject reserves into the bank system and stimulate growth of money and credit; sales have
the opposite effect. Open market operations are the Federal Reserve's most important and
most flexible monetary policy tool.
PAR VALUE: the stated or face value of a security expressed as a specific dollar amount
marked on the face of the security; the amount of money due at maturity. Par value should
not be confused with market value.
PAYING AGENT: the agency, usually a commercial bank, which dispenses the principal and
interest payable on a maturing issue.
PORTFOLIO: the collection of securities held by an individual or institution.
PREMIUM: the amount by which the price paid for a security exceeds the par value. Also,
the amount that must be paid over the par value to call an issue before maturity.
PRIMARY DEALER: a group of government securities dealers who submit daily reports of
market activity and positions and monthly financial statements to the Federal Reserve Bank
of New York and are subject to its informal oversight. Primary dealers include Securities and
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Exchange Commission (SEC) -registered securities broker-dealers, banks, and a few
unregulated firms.
PRINCIPAL: the face or par value of an instrument. It does not include accrued interest.
PRUDENT INVESTOR RULE: an investment standard adopted by the State of California in
1995. It states that a trustee shall consider the entire investment portfolio when determining
the prudence of an individual investment; diversification is explicitly required within a
portfolio; suitability of an investment is a primary determinant; and delegation of investment
management is acceptable.
PRUDENT MAN RULE: an investment standard established in 1630. It states that a trustee
who is investing for another should behave in the same way as a prudent individual of
discretion and intelligence who is seeking a reasonable income and preservation of capital.
QUOTATION (QUOTE): the highest bid to buy or the lowest offer to sell a security in any
market at a particular time.
RATE OF RETURN: 1) the yield which attainable on a security based on its purchase price
or its current market price. 2) This may be the amortized yield to maturity on a bond the
current income returns.
RATING: the designation used by investors' services to rate the quality of a security's
creditworthiness. Moody's ratings range from the highest Aaa, down through Aa, A, Baa, Ba,
B, etc., while Standard and Poor's ratings range from the highest AAA, down through AA, A,
BBB, BB, B, etc.
REFINANCING: rolling over the principal on securities that have reached maturity or
replacing them with the sale of new issues. The object may be to save interest costs or to
extend the maturity of the loan.
REGISTERED BOND: a bond whose principal and/or interest is payable only to that person
or organization which is registered with the issuer. This form is not negotiable and it can be
transferred only when endorsed by the registered owner.
REPURCHASE AGREEMENT (REPO): agreement between a seller and a buyer, usually of
U.S. Government securities, whereby the seller agrees to repurchase the securities at an
agreed upon price and, usually, at a stated time. The attraction of repos is the flexibility of
maturities that makes them an ideal place to "park" funds on a very temporary basis. Dealers
also arrange reverse repurchase agreements, whereby they agree to buy the securities and
the investor agrees to repurchase them at a later date.
REVENUE ANTICIPATION NOTES (RAN): short-term notes sold in anticipation of receiving
future revenues. The notes are to be paid from the proceeds of those revenues.
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REVENUE BOND: a state or local bond secured by revenues derived from the operations of
specific public enterprises, such as utilities. Such bonds are not generally backed by the
taxation power of the issuer unless otherwise specified in the bond indenture.
SAFEKEEPING: a service banks offer to customers for a fee, where securities are held in the
bank's vaults for protection.
SECURED DEPOSIT: bank deposits of state or local government funds which, under the
laws of certain jurisdictions, must be secured by the pledge of acceptable securities.
SECONDARY MARKET: a market made for the purchase and sale of outstanding issues
following the initial distribution.
SECURED DEPOSIT: bank deposits of state or local government funds which, under the
laws of certain jurisdictions, must be secured by the pledge of acceptable securities.
SECURITIES: investment instruments such as bonds, stocks and other instruments of
indebtedness or equity.
SECURITIES & EXCHANGE COMMISSION: agency created by Congress to protect
investors in securities transactions by administering securities legislation.
SERIAL BOND: bonds of the same issue, which have different maturities, coming due over a
number of years rather than all at once. This allows the issuer to retire the issue in small
amounts over a long period of time.
SETTLEMENT DATE: date by which an executed order must be settled, either by buyer
paying for the securities with cash or by a seller delivering the securities and receiving the
proceeds of the sale for them.
SINKING FUND: a reserve fund set aside over a period of time for the purpose of liquidating
or retiring an obligation, such as a bond issue, at maturity.
SPECIAL ASSESSMENT BONDS: bonds that are paid back from taxes on the property that
is benefiting from the improvement being financed. The issuing governmental entity agrees
to make the assessments and earmark the tax proceeds to repay the debt on these bonds.
SPREAD: the difference between two figures or percentages. For example, it may be the
difference between the bid and asked prices of a quote, or between the amount paid when
bought and the amount received when sold.
SUPRANATIONAL OBLIGATIONS: 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.
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TAX ANTICIPATION NOTES (TAN): short-term notes issued by states or municipalities to
finance current operations in anticipation of future tax collections which would be used to
repay the debt.
TAX-EXEMPT BONDS: interest paid on municipal bonds issued by state and local
governments or agencies is usually exempt from federal taxes, and in some cases, the state
and/or local taxes. The interest rate paid on these bonds is generally lower than rates on
non-exempt securities.
TERMS: the conditions of the sale or purchase of a security
TREASURY BILL (T -BILL): a non-interest bearing discount security issued by the U.S.
Treasury to finance the national debt. Most bills are issued to mature in three months, six
months, or one year.
TREASURY BONDS AND NOTES: obligations of the U. S. government which bear interest.
Notes have maturities of one to seven years, while bonds have longer maturities.
TREASURY BONDS: long-term coupon bearing U.S. Treasury securities issued as direct
obligations of the U.S. Government and having initial maturities of more than 10 years.
TREASURY NOTES: medium-term coupon -bearing U.S. Treasury securities issued as direct
obligations of the U.S. Government and having initial maturities from two to 10 years.
TRUSTEE: a bank designated as the custodian of funds and the official representative for
bondholders.
UNDERWRITER: a dealer bank or other financial institution, which arranges for the sale and
distribution of a large batch of securities and assumes the responsibility for paying the net
purchase price.
UNIFORM NET CAPITAL RULE: Securities and Exchange Commission requirement that
member firms as well as nonmember broker-dealers in securities maintain a maximum ratio
of indebtedness to liquid capital of 15 to 1; also called net capital rule and net capital ratio.
Indebtedness covers all money owed to a firm, including margin loans and commitments to
purchase securities, one -reason new public issues are spread among members of
underwriting syndicates. Liquid capital includes cash and assets easily converted into cash.
YIELD: the annual rate of return on an investment, expressed as a percentage of the
investment.
YIELD CURVE: graph showing the term structure of interest rates by plotting the yields of all
bonds of the same quality with maturities ranging from the shortest to the longest available.
The resulting curve shows if short-term interest rates are higher or lower than long-term
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rates. For the most part, the yield curve is positive (short-term rates are lower), since
investors who are willing to tie up their money for a longer period of time usually are
compensated for the extra risk they are taking by receiving a higher yield.
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