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California Government Code Section 53601

Legal Research Home > California Laws > Government Code > California Government Code Section 53601

53601.  This section shall apply to a local agency that is a city, a
district, or other local agency that does not pool money in deposits
or investments with other local agencies, other than local agencies
that have the same governing body. However, Section 53635 shall apply
to all local agencies that pool money in deposits or investments
with other local agencies that have separate governing bodies. The
legislative body of a local agency having moneys in a sinking fund or
moneys in its treasury not required for the immediate needs of the
local agency may invest any portion of the moneys that it deems wise
or expedient in those investments set forth below. A local agency
purchasing or obtaining any securities prescribed in this section, in
a negotiable, bearer, registered, or nonregistered format, shall
require delivery of the securities to the local agency, including
those purchased for the agency by financial advisers, consultants, or
managers using the agency's funds, by book entry, physical delivery,
or by third-party custodial agreement. The transfer of securities to
the counterparty bank's customer book entry account may be used for
book entry delivery.
   For purposes of this section, "counterparty" means the other party
to the transaction. A counterparty bank's trust department or
separate safekeeping department may be used for the physical delivery
of the security if the security is held in the name of the local
agency. Where this section specifies a percentage limitation for a
particular category of investment, that percentage is applicable only
at the date of purchase. Where this section does not specify a
limitation on the term or remaining maturity at the time of the
investment, no investment shall be made in any security, other than a
security underlying a repurchase or reverse repurchase agreement or
securities lending agreement authorized by this section, that at the
time of the investment has a term remaining to maturity in excess of
five years, unless the legislative body has granted express authority
to make that investment either specifically or as a part of an
investment program approved by the legislative body no less than
three months prior to the investment:
   (a) Bonds issued by the local agency, including bonds payable
solely out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency or by a department,
board, agency, or authority of the local agency.
   (b) United States Treasury notes, bonds, bills, or certificates of
indebtedness, or those for which the faith and credit of the United
States are pledged for the payment of principal and interest.
   (c) Registered state warrants or treasury notes or bonds of this
state, including bonds payable solely out of the revenues from a
revenue-producing property owned, controlled, or operated by the
state or by a department, board, agency, or authority of the state.
   (d) Registered treasury notes or bonds of any of the other 49
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 "A"
or higher by an NRSRO.
   (2) The entity meets the following criteria:
   (A) Is organized within the United States as a special purpose
corporation, trust, or limited liability company.
   (B) Has programwide credit enhancements including, but not limited
to, overcollateralization, letters of credit, or a surety bond.
   (C) Has commercial paper that is rated "A-1" or higher, or the
equivalent, by an NRSRO.
   Eligible commercial paper shall have a maximum maturity of 270
days or less. Local agencies, other than counties or a city and
county, may invest no more than 25 percent of their moneys in
eligible commercial paper. Local agencies, other than counties or a
city and county, may purchase no more than 10 percent of the
outstanding commercial paper of any single issuer. Counties or a city
and county may invest in commercial paper pursuant to the
concentration limits in subdivision (a) of Section 53635.
   (i) Negotiable certificates of deposit issued by a nationally or
state-chartered bank, a savings association or a federal association
(as defined by Section 5102 of the Financial Code), a state or
federal credit union, or by a 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
"A" or better by an NRSRO. Purchases of medium-term notes shall not
include other instruments authorized by this section and may not
exceed 30 percent of the agency's moneys that may be invested
pursuant to this section.
   (l) (1) Shares of beneficial interest issued by diversified
management companies that invest in the securities and obligations as
authorized by subdivisions (a) to (k), inclusive, and subdivisions
(m) to (o), inclusive, and that comply with the investment
restrictions of this article and Article 2 (commencing with Section
53630). However, notwithstanding these restrictions, a counterparty
to a reverse repurchase agreement or securities lending agreement is
not required to be a primary dealer of the Federal Reserve Bank of
New York if the company's board of directors finds that the
counterparty presents a minimal risk of default, and the value of the
securities underlying a repurchase agreement or securities lending
agreement may be 100 percent of the sales price if the securities are
marked to market daily.
   (2) Shares of beneficial interest issued by diversified management
companies that are money market funds registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 (15
U.S.C. Sec. 80a-1 et seq.).
   (3) If investment is in shares issued pursuant to paragraph (1),
the company shall have met either of the following criteria:
   (A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two NRSROs.
   (B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations authorized by subdivisions (a) to (k), inclusive, and
subdivisions (m) to (o), inclusive, and with assets under management
in excess of five hundred million dollars ($500,000,000).
   (4) If investment is in shares issued pursuant to paragraph (2),
the company shall have met either of the following criteria:
   (A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two NRSROs.
   (B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience managing money market mutual funds
with assets under management in excess of five hundred million
dollars ($500,000,000).
   (5) The purchase price of shares of beneficial interest purchased
pursuant to this subdivision shall not include commission that the
companies may charge and shall not exceed 20 percent of the agency's
moneys that may be invested pursuant to this section. However, no
more than 10 percent of the agency's funds may be invested in shares
of beneficial interest of any one mutual fund pursuant to paragraph
(1).
   (m) Moneys held by a trustee or fiscal agent and pledged to the
payment or security of bonds or other indebtedness, or obligations
under a lease, installment sale, or other agreement of a local
agency, or certificates of participation in those bonds,
indebtedness, or lease installment sale, or other agreements, may be
invested in accordance with the statutory provisions governing the
issuance of those bonds, indebtedness, or lease installment sale, or
other agreement, or to the extent not inconsistent therewith or if
there are no specific statutory provisions, in accordance with the
ordinance, resolution, indenture, or agreement of the local agency
providing for the issuance.
   (n) Notes, bonds, or other obligations that are at all times
secured by a valid first priority security interest in securities of
the types listed by Section 53651 as eligible securities for the
purpose of securing local agency deposits having a market value at
least equal to that required by Section 53652 for the purpose of
securing local agency deposits. The securities serving as collateral
shall be placed by delivery or book entry into the custody of a trust
company or the trust department of a bank that is not affiliated
with the issuer of the secured obligation, and the security interest
shall be perfected in accordance with the requirements of the Uniform
Commercial Code or federal regulations applicable to the types of
securities in which the security interest is granted.
   (o) A mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other pay-through bond, equipment
lease-backed certificate, consumer receivable passthrough
certificate, or consumer receivable-backed bond of a maximum of five
years' maturity. Securities eligible for investment under this
subdivision shall be issued by an issuer having an "A" or higher
rating for the issuer's debt as provided by an NRSRO and rated in a
rating category of "AA" or its equivalent or better by an NRSRO.
Purchase of securities authorized by this subdivision may not exceed
20 percent of the agency's surplus moneys that may be invested
pursuant to this section.
   (p) Shares of beneficial interest issued by a joint powers
authority organized pursuant to Section 6509.7 that invests in the
securities and obligations authorized in subdivisions (a) to (o),
inclusive. Each share shall represent an equal proportional interest
in the underlying pool of securities owned by the joint powers
authority. To be eligible under this section, the joint powers
authority issuing the shares shall have retained an investment
adviser that meets all of the following criteria:
   (1) The adviser is registered or exempt from registration with the
Securities and Exchange Commission.
   (2) The adviser has not less than five years of experience
investing in the securities and obligations authorized in
subdivisions (a) to (o), inclusive.
   (3) The adviser has assets under management in excess of five
hundred million dollars ($500,000,000).

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Last modified: March 17, 2014