2007 California Government Code Article 1. Investment Of Surplus

CA Codes (gov:53600-53609)

53600.  As used in this article, "local agency" means county, city,
city and county, including a chartered city or county, school
district, community college district, public district, county board
of education, county superintendent of schools, or any public or
municipal corporation.



53600.3.  Except as provided in subdivision (a) of Section 27000.3,
all governing bodies of local agencies or persons authorized to 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.



53600.5.  When investing, reinvesting, purchasing, acquiring,
exchanging, selling, or managing public funds, the primary objective
of a trustee shall be to safeguard the principal of the funds under
its control. The secondary objective shall be to meet the liquidity
needs of the depositor. The third objective shall be to achieve a
return on the funds under its control.



53600.6.  The Legislature hereby finds that the solvency and
creditworthiness of each individual local agency can impact the
solvency and creditworthiness of the state and other local agencies
within the state.  Therefore, to protect the solvency and
creditworthiness of the state and all of its political subdivisions,
the Legislature hereby declares that the deposit and investment of
public funds by local officials and local agencies is an issue of
statewide concern.


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 money in a sinking fund or
money in its treasury not required for the immediate needs of the
local agency may invest any portion of the money 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
United 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 United States, in addition to
California.
   (e) Bonds, notes, warrants, or other evidences of indebtedness of
any 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 may not exceed 180 days' maturity
or 40 percent of the agency's money that may be invested pursuant to
this section. However, no more than 30 percent of the agency's money
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 any money in its treasury in any 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 paragraph (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
(0,000,000).
   (C) Has debt other than commercial paper, if any, that is rated "A"
or higher by a nationally recognized statistical-rating organization
(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 surety bond.
   (C) Has commercial paper that is rated "A-1" or higher, or the
equivalent, by a nationally recognized statistical-rating
organization (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 money 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 state-licensed branch of a foreign
bank. Purchases of negotiable certificates of deposit may not exceed
30 percent of the agency's money which 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 money 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 any 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 any 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 any
investment authorized in this section, when the term of the agreement
does not exceed one year. The market value of securities that
underlay 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 on 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 by
way of 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 only be made upon prior approval of the
governing body of the local agency and shall only be made 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 purpose 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 a nationally recognized rating service. Purchases of
medium-term notes shall not include other instruments authorized by
this section and may not exceed 30 percent of the agency's money 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 (j), inclusive, or subdivisions
(m) or (n) 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 nationally recognized
statistical rating organizations.
   (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 (j), inclusive, or
subdivisions (m) or (n) and with assets under management in excess of
five hundred million dollars (0,000,000).
   (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 nationally recognized
statistical rating organizations.
   (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 (0,000,000).
   (5) The purchase price of shares of beneficial interest purchased
pursuant to this subdivision shall not include any commission that
the companies may charge and shall not exceed 20 percent of the
agency's money 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) Any 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 a nationally recognized
rating service and rated in a rating category of "AA" or its
equivalent or better by a nationally recognized rating service.
Purchase of securities authorized by this subdivision may not exceed
20 percent of the agency's surplus money 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 (n),
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 (n), inclusive.
   (3) The adviser has assets under management in excess of five
hundred million dollars (0,000,000).



53601.1.  The authority of a local agency to invest funds pursuant
to Section 53601 includes, in addition thereto, authority to invest
in financial futures or financial option contracts in any of the
investment categories enumerated in that section.




53601.2.  As used in this article, "corporation" includes a limited
liability company.



53601.5.  The purchase by a local agency of any investment
authorized pursuant to Section 53601 or 53601.1, not purchased
directly from the issuer, shall be purchased either from an
institution licensed by the state as a broker-dealer, as defined in
Section 25004 of the Corporations Code, or from a member of a
federally regulated securities exchange, from a national or
state-chartered bank, from a savings association or federal
association (as defined by Section 5102 of the Financial Code) or
from a brokerage firm designated as a primary government dealer by
the Federal Reserve bank.



53601.6.  (a) A local agency shall not invest any funds pursuant to
this article or pursuant to Article 2 (commencing with Section 53630)
in inverse floaters, range notes, or mortgage-derived, interest-only
strips.
   (b) A local agency shall not invest any funds pursuant to this
article or pursuant to Article 2 (commencing with Section 53630) in
any security that could result in zero interest accrual if held to
maturity.  However, a local agency may hold prohibited instruments
until their maturity dates.  The limitation in this subdivision shall
not apply to local agency investments in shares of beneficial
interest issued by diversified management companies registered under
the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.)
that are authorized for investment pursuant to subdivision (k) of
Section 53601.



53601.7.  Notwithstanding the investment parameters of Sections
53601 and 53635, a local agency that is a county or a city and county
may invest any portion of the funds that it deems wise or expedient,
using the following criteria:
   (a) No investment shall be made in any security, other than a
security underlying a repurchase agreement, reverse repurchase
agreement, or a securities lending agreement, that, at the time of
purchase, has a term remaining to maturity in excess of 397 days, and
that would cause the dollar-weighted average maturity of the funds
in the investment pool to exceed 90 days.
   (b) All corporate and depository institution investments shall
meet or exceed the following credit rating criteria at time of
purchase:
   (1) Short-term debt shall be rated at least "A-1" by Standard &
Poor's Corporation, "P-1" by Moody's Investors Service, Inc., or "F-1"
by Fitch Ratings. If the issuer of short-term debt has also issued
long-term debt, this long-term debt rating shall be rated at least
"A," without regard to +/- or 1, 2, 3 modifiers, by Standard & Poor's
Corporation, Moody's Investors Service, Inc., or Fitch Ratings.
   (2) Long-term debt shall be rated at least "A," without regard to
+/- or 1, 2, 3 modifiers, by Standard & Poor's Corporation, Moody's
Investors Service, Inc., or Fitch Ratings.
   (c) (1) No more than 5 percent of the total assets of the
investments held by a local agency may be invested in the securities
of any one issuer, except the obligations of the United States
government, United States government agencies, and United States
government-sponsored enterprises.
   (2) Up to 25 percent of the total assets of the investments held
by a local agency may be invested in the first tier securities of a
single issuer for a period of up to three business days after
acquisition. The securities of no more than one issuer may be
invested pursuant to this paragraph at a time.
   (3) No more than 10 percent of the total assets of the investments
held by a local agency may be invested in any one mutual fund.
   (d) Where this section specifies a percentage limitation for a
particular category of investment, that percentage is applicable only
at the date of purchase. A later increase or decrease in a
percentage resulting from a change in values or assets shall not
constitute a violation of that restriction. If subsequent to
purchase, securities are downgraded below the minimum acceptable
rating level, the securities shall be reviewed for possible sale
within a reasonable amount of time after the downgrade.
   (e) Within the limitations set forth in this section, a local
agency electing to invest its funds pursuant to this section may
invest in the following securities:
   (1) Direct obligations of the United States Treasury or any other
obligation guaranteed as to principal and interest by the United
States government.
   (2) Bonds, notes, debentures, or any other obligations of, or
securities issued by, any federal government agency, instrumentality,
or government-sponsored enterprise.
   (3) 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 other entity of the
state.
   (4) Bonds, notes, warrants, or other indebtedness of the local
agency, or any 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.
   (5) Bankers acceptance, otherwise known as bills of exchange or
time drafts drawn on and accepted by a commercial bank, primarily
used to finance international trade. Purchases of bankers acceptances
may not exceed 180 days to maturity.
   (6) Short-term unsecured promissory notes issued by corporations
for maturities of 270 days or less. Eligible commercial paper is
further limited to the following:
   (A) Issuing corporations that are organized and operating within
the United States, having total assets in excess of five hundred
million dollars (0,000,000).
   (B) Maturities for eligible commercial paper that may not exceed
270 days.
   (7) A certificate representing a deposit of funds at a commercial
bank for a specified period of time and for a specified return at
maturity. Eligible certificates of deposit shall be issued by a
nationally or state-chartered bank or a state or federal association,
as defined in Section 5102 of the Financial Code, or by a
state-licensed branch of a foreign bank. For purposes of this
subdivision, certificates of deposits shall 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 money may not invest 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 any 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, other credit committee or the
supervisory committee of the state or federal credit union issuing
the negotiable certificate of deposit.
   (8) Repurchase agreements, reverse repurchase agreements, or
securities lending agreements of any securities authorized by this
section, if the agreements meet the requirements of this paragraph
and the delivery requirements specified in Section 53601. Investments
in repurchase agreements may be made, on any investment authorized
by this section, when the term of the agreement does not exceed one
year. The market value of the securities that underlay 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. Because the market value of the underlying
securities is subject to daily market fluctuations, the investments
in repurchase agreements shall be in compliance with this section if
the value of the underlying securities is brought back to 102 percent
no later than the next business day. Reverse repurchase agreements
may be utilized only when all of the following criteria are met:
   (A) The security being sold on 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 the sale.
   (B) The total of all reverse repurchase agreements on investments
owned by the local agency not purchased or committed to purchase does
not exceed 20 percent of the market 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 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 by
way of a reverse repurchase agreement or securities lending
agreement, may 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 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.
   (E) Investments in reverse repurchase agreements or similar
investments in which the local agency sells securities prior to
purchase with a simultaneous agreement to repurchase the security,
shall only be made with prior approval of the governing body of the
local agency and shall only be made 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.
   "Securities," for purposes of this paragraph, means securities of
the same issuer, description, issue date, and maturity.
   (9) All debt securities issued by a corporation or depository
institution with a remaining maturity of not more than 397 days,
including securities specified as "medium-term notes," as well as
other debt instruments originally issued with maturities longer than
397 days, but which, at time of purchase, have a final maturity of
397 days or less.  Eligible medium-term notes shall be 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.
   (10) (A) Shares of beneficial interest issued by diversified
management companies that invest in the securities and obligations
described in this subdivision and that comply with the investment
restrictions of this section. However, notwithstanding these
restrictions, a counterparty to a reverse repurchase agreement shall
not be 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. The value of the
securities underlying a repurchase agreement may be 100 percent of
the sales price if the securities are marked to market daily.
   (B) Shares of beneficial interest issued by diversified management
companies that are money market funds registered with the Securities
and Exchange Commission under the federal Investment Company Act of
1940 (15 U.S.C. Sec.  80a-1 et seq.).
   (C) All shares of beneficial interest described in this paragraph
shall have met either of the following criteria:
   (i) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two nationally recognized
statistical rating organizations.
   (ii) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission and who has
not less than five years' experience investing in money market
instruments and with assets under management in excess of five
hundred million dollars (0,000,000).
   (11) Any mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other paythrough bond, equipment
lease-backed certificate, consumer receivable passthrough
certificate, or consumer receivable-backed bond.
   Securities eligible for investment under this paragraph shall be
issued by an issuer having an "A" or higher rating from the issuer's
debt as provided by a nationally recognized rating service and rated
in a rating category of "AA" or its equivalent or better by a
nationally recognized rating.
   (12) Contracts issued by insurance companies that provide the
policyholder with the right to receive a fixed or variable rate of
interest and the full return of principal at the maturity date.
   (13) Any investments that would qualify under SEC Rule 2a-7 of the
Investment Company Act of 1940 guidelines.  These investments shall
also meet the limitations detailed in this section.
   (f) For purposes of this section, all of the following definitions
shall apply:
   (1) "Repurchase agreement" means a purchase of securities 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.
   (2) "Significant banking relationship" means any of the following
activities of a bank:
   (A) Involvement in the creation, sale, purchase, or retirement of
a local agency's bonds, warrants, notes, or other evidence of
indebtedness.
   (B) Financing of a local agency's securities or funds as deposits.

   (C) Acceptance of a local agency's securities or funds as
deposits.
   (3) "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.
   (4) "Securities lending agreement" means an agreement with a local
agency that 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.
   (5) "First tier security" has the same meaning as that phrase is
defined by SEC Rule 2a-7 of the Investment Company Act of 1940 (15
U.S.C. Sec. 80a-1 et seq).
   (6) "Local agency" means a county or city and county.
   (g) 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, or other similar
borrowing methods.
   (h) 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.

  (i) This section shall remain in effect only until January 1, 2011,
and as of that date is repealed, unless a later enacted statute,
that is enacted before January 1, 2011, deletes or extends that date.




53601.8.  Notwithstanding Section 53601 or any other provision of
this code, a local agency, at its discretion, may invest a portion of
its surplus funds in certificates of deposit at a commercial bank,
savings bank, savings and loan association, or credit union that uses
a private sector entity that assists in the placement of
certificates of deposit, provided that the purchases of certificates
of deposit pursuant to this section, Section 53635.8, and subdivision
(h) of Section 53601 do not, in total, exceed 30 percent of the
agency's funds that may be invested for this purpose. The following
conditions shall apply:
   (a) The local agency shall choose a nationally or state chartered
commercial bank, savings bank, savings and loan association, or
credit union in this state to invest the funds, which shall be known
as the "selected" depository institution.
   (b) The selected depository institution may submit the funds to a
private sector entity that assists in the placement of certificates
of deposit with one or more commercial banks, savings banks, savings
and loan associations, or credit unions that are located in the
United States, for the local agency's account.
   (c) The full amount of the principal and the interest that may be
accrued during the maximum term of each certificate of deposit shall
at all times be insured by the Federal Deposit Insurance Corporation
or the National Credit Union Administration.
   (d) The selected depository institution shall serve as a custodian
for each certificate of deposit that is issued with the placement
service for the local agency's account.
   (e) At the same time the local agency's funds are deposited and
the certificates of deposit are issued, the selected depository
institution shall receive an amount of deposits from other commercial
banks, savings banks, savings and loan associations, or credit
unions that, in total, are equal to, or greater than, the full amount
of the principal that the local agency initially deposited through
the selected depository institution for investment.
   (f) A local agency may not invest surplus funds with a selected
depository institution for placement as certificates of deposit
pursuant to this section on or after January 1, 2012. A local agency'
s surplus funds, invested pursuant to this section before January 1,
2012, may remain invested in certificates of deposit issued through a
private sector entity for the full term of each certificate of
deposit.
   (g)  Notwithstanding subdivisions (a) to (f), inclusive, no credit
union may act as a selected depository institution under this
section or Section 53635.8 unless both of the following conditions
are satisfied:
   (1) The credit union offers federal depository insurance through
the National Credit Union Administration.
   (2) The credit union is in possession of written guidance or other
written communication from the National Credit Union Administration
authorizing participation of federally-insured credit unions in one
or more certificate of deposit placement services and affirming that
the moneys held by those credit unions while participating in a
deposit placement service will at all times be insured by the federal
government.
   (h) It is the intent of the Legislature that nothing in this
section shall restrict competition among private sector entities that
provide placement services pursuant to this section.



53602.  The legislative body shall invest only in notes, bonds,
bills, certificates of indebtedness, warrants, or registered warrants
which are legal investments for savings banks in the State,
provided, that the board of supervisors of a county may, by a
four-fifths vote thereof, invest in notes, warrants or other
evidences of indebtedness of public districts wholly or partly within
the county, whether or not such notes, warrants, or other evidences
of indebtedness are legal investments for savings banks.



53603.  The legislative body may make the investment by direct
purchase of any issue of eligible securities at their original sale
or after they have been issued.



53604.  The legislative body may sell, or exchange for other
eligible securities, and reinvest the proceeds of, the securities
purchased.


53605.  From time to time, the legislative body shall sell the
securities so that the proceeds may be applied to the purposes for
which the original purchase money was placed in the sinking fund or
the treasury of the local agency.


53606.  The bonds purchased, which were issued by the purchaser, may
be canceled either in satisfaction or sinking fund obligations or
otherwise.  When canceled, they are no longer outstanding, unless in
its discretion, the legislative body holds then uncanceled.  While
held uncanceled, the bonds may be resold.


53607.  The authority of the legislative body to invest or to
reinvest funds of a local agency, or to sell or exchange securities
so purchased, may be delegated for a one-year period by the
legislative body to the treasurer of the local agency, who shall
thereafter assume full responsibility for those transactions until
the delegation of authority is revoked or expires, and shall make a
monthly report of those transactions to the legislative body.
Subject to review, the legislative body may renew the delegation of
authority pursuant to this section each year.




53608.  The legislative body of a local agency may deposit for
safekeeping with a federal or state association (as defined by
Section 5102 of the Financial Code), a trust company or a state or
national bank located within this state or with the Federal Reserve
Bank of San Francisco or any branch thereof within this state, or
with any Federal Reserve bank or with any state or national bank
located in any city designated as a reserve city by the Board of
Governors of the Federal Reserve System, the bonds, notes, bills,
debentures, obligations, certificates of indebtedness, warrants, or
other evidences of indebtedness in which the money of the local
agency is invested pursuant to this article or pursuant to other
legislative authority.  The local agency shall take from such
financial institution a receipt for securities so deposited.  The
authority of the legislative body to deposit for safekeeping may be
delegated by the legislative body to the treasurer of the local
agency; the treasurer shall not be responsible for securities
delivered to and receipted for by a financial institution until they
are withdrawn from the financial institution by the treasurer.



53609.  Notwithstanding the provisions of this chapter or any other
provisions of this code, funds held by a local agency pursuant to a
written agreement between the agency and employees of the agency to
defer a portion of the compensation otherwise receivable by the
agency's employees and pursuant to a plan for such deferral as
adopted by the governing body of the agency, may be invested in the
types of investments set forth in Sections 53601 and 53602 of this
code, and may additionally be invested in corporate stocks, bonds,
and securities, mutual funds, savings and loan accounts, credit union
accounts, life insurance policies, annuities, mortgages, deeds of
trust, or other security interests in real or personal property.
Nothing herein shall be construed to permit any type of investment
prohibited by the Constitution.
   Deferred compensation funds are public pension or retirement funds
for the purposes of Section 17 of Article XVI of the Constitution.