Comprehensive Annual Financial Report - City of Santa Monica

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CITY OF SANTA MONICA, CALIFORNIA Notes to Basic Financial Statements, Continued For the fiscal year ended June 30, 2008 Authorized *Maximum *Maximum Investment types by investment *Maximum percentage Investment authorized by state law policy maturity of portfolio in one issuer Corporate medium-term notes Yes 5 years 30% None Mutual funds Yes N/A 20% 10% Money market mutual funds Yes N/A 20% 10% Mortgage pass-through securities Yes 5 years 20% None Time deposits Yes 5 years None None Collateralized certificates of deposit Yes 5 years None None County pooled investment funds Yes N/A None None Local Agency Investment Fund (LAIF) Yes N/A None None JPA pools (other investment pools) Yes N/A None None * Based on state law requirements or investment policy requirements, whichever is more restrictive. Investments Authorized by Debt Agreements Investments of debt proceeds held by bond trustees are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City’s investment policy. The table below identifies the investment types that are generally authorized for investments held by bond trustees. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk. Maximum Maximum Authorized Maximum percentage Investment investment type maturity allowed in one issuer U.S. Treasury obligations None None None Federal Housing Administration debentures None None None U.S. agency securities None None None Time deposits None None None Unsecured certificates of deposit 180 days None None Banker's acceptances 180 days None None State obligations None None None Repurchase agreements 1 year None None Pre-refunded municipal obligations None None None Commercial paper 270 days None None Money market mutual funds None None None Investment contracts 30 years None None 49
CITY OF SANTA MONICA, CALIFORNIA Notes to Basic Financial Statements, Continued For the fiscal year ended June 30, 2008 Investments Authorized by Actions of the City Council Cemetery and Mausoleum Perpetual Care funds are received from cemetery users for the perpetual care of cemetery grounds and of the mausoleum. The funds are legally restricted to the extent that only earnings, and not principal, can be used for restricted perpetual care purposes. These funds represent the accumulation of unspent monies from non-government sources and are not considered by the City to constitute “surplus funds” of a local government. Accordingly, these funds are not considered by the City to be subject to the provisions of the California Government Code Section 53601 or the City’s investment policy. These funds have been invested per instructions of the City Council. The table below identifies the investment types generally authorized for these investments. Current City Council instructions limit amount invested in equities (common stock) to 60% of the total portfolio with the balance to be invested in fixed income securities. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk. Maximum Maximum Authorized Maximum percentage Investment investment type maturity allowed in one issuer U.S. Treasury obligations None None None U.S. agency securities None None None Common stock None 60% None Corporate bonds None None None Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The fair value of callable securities is also sensitive to market changes in that if interest rates decrease between the time of purchase and the call date, the likelihood that a bond will be called and reinvested at a lower interest rate increases. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the City’s investments (including investments held by bond trustee and Charnock funds held jointly with another party in an escrow account) to market interest rate fluctuations is provided by the following table that shows the distribution of the City’s investments by maturity. For purposes of the schedule shown below, any callable securities are assumed to be held to maturity. 50
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Comprehensive Annual Financial Report - City of Santa Monica

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