BOARD AGENDA MEMORANDUM
Government Code § 84308 Applies: Yes ☐ No ☒
(If “YES” Complete Attachment A - Gov. Code § 84308)
SUBJECT:
Title
Adopt a Resolution Delegating Authority to Deposit and Invest Funds to the Treasurer or Their Designees and Approve the Board Investment Policy.
End
RECOMMENDATION:
Recommendation
A. Adopt the Resolution DELEGATING AUTHORITY TO DEPOSIT AND INVEST FUNDS TO THE TREASURER OR THEIR DESIGNEES; and
B. Approve the Board Investment Policy.
Body
SUMMARY:
In accordance with Executive Limitation 4.9 regarding treasury and investment management, and pursuant to California Government Code (Government Code) Sections 53607 and 53608, staff recommends that the Board:
A. Adopt a resolution delegating authority to deposit and invest funds to the Treasurer, or their designees (Attachment 1); and
B. Approve the Investment Policy (Attachment 2).
Delegation of Authority to Deposit and Invest Public Funds
Per Government Code Sections 53607 and 53608, 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. The Treasurer for Santa Clara Valley Water District (Valley Water) is the Chief Financial Officer who in turn has delegated the investment duties to the Treasury and Debt Officer. The Chief Financial Officer submits monthly and quarterly Investment Reports to the Board through the Non-Agenda Memorandum in compliance with Government Code Section 53608 (https://www.valleywater.org/how-we-operate/board-non-agendas).
The Board’s current delegation of authority to invest funds expires on June 30, 2024. If the Board chooses not to delegate the authority to invest funds in Fiscal Year 2024-25, the Treasurer, or their designees, will be limited to making deposits only, and the Board will be responsible for the investment of Valley Water’s funds. Furthermore, Government Code Section 53608 requires the Board to delegate the authority to deposit funds for safekeeping with a federal or state association (as defined by Section 5102 of the California Financial Code), a trust company or 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.
Investment Policy
The Valley Water Investment Policy is consistent with the Government Code and follows the priorities of safety, liquidity, and yield. The Investment Policy applies to Valley Water’s pooled investment fund which encompasses all monies under the direct oversight of the Treasurer or their designees. Included in the investment pool are Valley Water’s General Fund, the Safe, Clean Water Fund, the Watershed Funds, the Water Utility Enterprise Fund, the Equipment Service Fund, the Risk Insurance Fund, and debt proceeds with special consideration given to specific provisions contained in the indentures for each debt issuance.
The Investment Policy in Attachment 2 reflects minor editorial changes as well as the following updates to conform to the current Government Code requirements:
• Chapter 427, Statutes of 2022 (SB 1489), the Local Government Omnibus Act, amended Government Code sections related to the investment of surplus funds by local agency treasurers. This bill amended Government Code Section 53601 to clarify that a public agency investment’s term or remaining maturity is to be mea-sured from the settlement date to final maturity. In addition, this code section was amended to prohibit the purchase of a security with a forward settlement date exceeding 45 days from the time of investment.
• A provision of this bill also amended 53646(b)(1) to increase the timeline that the treasurer or chief fiscal officer has for presenting a quarterly report to the chief executive officer, the internal auditor, and the legislative body of the local agency by 15 days, from 30- to 45 days following the end of the quarter.
Climate Divestment Policy
On August 27, 2013, the Board adopted Executive Limitation, EL-4.9.3. No investments will be made in fossil fuel companies with significant carbon emissions potential. As a result of this action, Valley Water shall not invest in the top 200 fossil fuel companies based on the list published by the non-profit organization, 350.org. The list published by 350.org is included in Exhibit C of Attachment 2-Investment Policy.
Valley Water’s investment portfolio is in full compliance with the Climate Divestment Policy and has zero investments in fossil fuel companies.
ESG Policy
At its August 11, 2020, meeting, the Board approved an update to Executive Limitation 4.7.7 to stipulate that Valley Water can only do business with banks that have an Environmental, Social and Governance (ESG) risk rating of average/medium or better from at least one professional ESG research company. Small and local banks/credit unions located within the nine Bay Area counties with total assets at or below $10 billion are exempt from this provision.
Valley Water currently conducts commercial banking and trustee banking services with US Bank, with an ESG rating of ‘A’ from MSCI (Attachment 3), thus meeting the Board Executive Limitation requirement.
Community Bank Investments
Valley Water Board has implemented an innovative financing approach which promotes small, local banks participation in Valley Water’s financing business. The following banking arrangements have been established with Bay area small local banks:
• $20 million in Revolving Lines of Credit from three small local California banks (Bank of San Francisco, Community Bank of the Bay and First Foundation Bank).
• $51 million in investments in various small, local banks’ various deposits that are secured by either the Federal Depository Insurance Corporation or collateralized by Letters of Credit from the Federal Home Loan Bank of San Francisco.
• Three separate letters of credit issued by Technology Credit Union, based in San Jose, totaling $841,000 to Valley Water to meet the U.S. Army Corp’s financial assurance requirements for the operations of Upper Penitencia, Coyote Ridge, and Rancho Cañada de Pala Preserve watershed projects.
• Valley Water underwriting pool is limited to US investment banks with ESG ratings of medium or better with preference for small, local California banks.
ENVIRONMENTAL JUSTICE AND EQUITY IMPACT:
There are no environmental justice and equity impacts associated with this item.
FINANCIAL IMPACT:
Adoption of the resolution will ensure that Valley Water funds continue to be invested under the Investment Policy for Fiscal Year 2024-25. Estimated investment earnings of $10 million have been included in the Fiscal Year 2024-25 budget.
CEQA:
The recommended action does not constitute a project under CEQA because it does not have a potential for resulting in direct or reasonably foreseeable indirect physical change in the environment.
ATTACHMENTS:
Attachment 1: Resolution
Attachment 2: Fiscal Year 2024-25 Board Investment Policy
Attachment 3: ESG Report
UNCLASSIFIED MANAGER:
Manager
Darin Taylor, 408-630-3068