41 Report No:

Meeting Date

17-019a

April 26, 2017

Alameda-Contra Costa Transit District

STAFF RE PO RTTO:

FROM:

SUBJECT

AC Transit Board of Directors

Michael A. Hursh, General Manager

Wells Fargo Custody/Safekeeping Bank Services

ACTION ITEM

RECOMMENDED ACTION(S)

Determine the District's position with respect to Wells Fargo Bank and provide direction to stafftaking into consideration the Board's recent direction to the District's representative on theAlameda County Transportation Commission.

BACKGROUND/RATIONALE

Prior Board Actions

On February 8, 2017, the Board received a report on the existing contract with Wells Fargo forcustody/safekeeping bank services, and decided to reexamine the District's need for separatebank accounts and investigate the services provided by other localbanks.

On March 22, 2017, the Board gave direction to the District's representative on the AlamedaCounty Transportation Commission to advocate, and motion if necessary, that the ACTC directstaff not to invest in any other Wells Fargo products for one year; that they investigate severingtheir other relationships including insurance broker services and securities broker dealerservices; and that they begin drafting a new Request for Proposal(RFP) for the regular bankingservices that Wells Fargo provides.

Custody/Safekeeping Bank Services RFP/Contract Award ProfQ$$

The District's Investment Policy sets forth investment guidelines to maintain an appropriatebalance among safety, liquidity and yield. As preservation of principalis the first and foremostconsideration, the Investment Policy requires that the District's funds be secured by eligiblesecurities as collateral, pursuant to California Government Code, and that the District's fundsand collateral be maintained by a third-party Custody/Safekeeping bank. On July 11, 2013, aRequest for Proposal was issued for Custody/Safekeeping Bank Services. The RFP was sent totwenty (20) banking institutions including some local banks. The District received two (21proposals: Wells Fargo, and City National. Smaller banks faced challenges with meeting theminimum requirement to provide a Certificate of Participation for collateralin an initialamountof at ]east $50 mi]]ion or at].IO percent of the District's funds, whichever is greater, as requiredby the District's Investment Policy. From these written proposals, the evaluation panelrecommended the award to Wells Fargo based on which proposal met the technicalrequirement as detailed in the RFP's scope. Purchasing staff evaluated the pricing offered and

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Report No. 17-0].9aPage 2 of 4

the decision was made based on the combination of the ability to meet the scope and pricingOverallcomposite scores on technicaland costs were: Wells Fargo 98.67; City Nationa155.67

As the result of this fulland open competition, Wells Fargo was awarded a five(5) year contract

for Custody/Safekeeping Bank Services. The contract commenced on January 13, 2014 and willcontinue through January 14, 2019. The totalContract duration, including the exercise of the

two-year option period, sha]] not exceed seven (7) years, or beyond January 1.3, 2021. Thecontract has a "Termination for Convenience" clause.

Current Bank Accounts

Currently two (2) banking institution contracts are in place: one with Bank of America foroperating cash management known as Banking Services, and one with Wells Fargo forinvestment fund for Custody/Safekeeping purposes known as Custody/Safekeeping BankServices.

Bank of America Operating Account: The District's comprehensive banking services contractwith Bank of America covers four(4) zero balance accounts(Payroll, Pension, Accounts Payable,and Workers Compensation) and one Concentration Account which is used to aggregate fundsand facilitate settlement of transactions.

Wells Fargo Custody/Safekeeping Accounts: As custodial agent, the contractor maintainscontrol of District's deposits through its own independent safekeeping department. Inaccordance with Board Policy 349 - Investment Policy, Wells Fargo must maintain collateralat

110 percent of the District's assets held in the accounts. The funds in these accounts are mainly

two categories: 1) Restricted capital project funds that the project sponsor requires that the

funds be held in a separate bank deposit account for transparency of fund receipt and tosimplify tracking of interest earned; and 2) District's GeneraIFund investments. The balances in

Wells Fargo accounts as of November 30, 2016 are summarized below:

Wells Fargo Account Balance as of November 3Q. 201

Account Desc. I Accou nt Tvoe

Cash for operations 'PIBDA# IOperating funds earning interestPTMISEA 2012 PIBDA* l-Bondfunds-Restrictedforcapital(bus buy)LCTOP PIBDA'K Green House Gas Reduction Fund

General Fund Treasuries & CDs Investment in Treasury Bills and Notes,and CD's'K'k

Tota I

+PIBDA stands for Public Institutiona IBank Deposit Account'k#'Treasury notes and CD's with various maturity dates from 3 months to 18 months

Va I ue

l0,629,10224,328,986

574,271

40,152,15175,684,51 1

Fee Schedule

In recognition of the District's stable account balances, Wells Fargo offered a discount of up to100 percent to offset the Monthly Maintenance Fees. The Discount willbe based on the level

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Report No. 17-019aPage 3 of 4

of average assets maintained in fund: >$25 million(100%). As the District's average balances inrecent years have been over $25 million, maintenance fees have been completely eliminated.Compared with City Nationa]'s fees, this is a savings of $].2,000 per year in maintenance fees.

Other Relationships with Wells Fargo

Wells Fargo provides other ancillary services to the District, including Insurance Broker Services,and Securities Broker/Dealer Services. These services are governed by separate agreements.

BUDGETARY/FISCAL IMPACT

Over the base period of this five (5) year contract, the difference between Wells Fargo and CityNational in total maintenance fees will be $60,000, assuming that the District maintains anaverage balance over$25 million. The maintenance fees could go up if the existing contract isterminated and a new contract is awarded.

aDVANTAaES/DISADVANTAGES

The main advantages of keeping the existing contract for the contract duration(approximately2 more years) are cost savings and convenience. The District does not pay any maintenancefees under the current contract, and the District could avoid: 1) issuing a new RFP due to earlytermination of contract; 2) evaluating proposals and awarding a new contract; and 3)transferring funds from the existing accounts. One possible disadvantage may be publicperception given Wells Fargo's recent scandal.

ALTERNATIVES ANALYSIS

If the Board chooses to end the District's relationship with Wells Fargo during the contractperiod, ACTransit may break the contract, and issue an RFP to find a new custodian bank. Thiswill take at least several months of time in order to have a full, open competition to locate abank large enough to accommodate the collateralization required and get favorable terms.

Transferring allof the Wells Fargo accounts to the Bank of America Operating Account is not arecommended option, due to: 1) capitalproject fund sponsors' requirements that the funds beheld in a separate bank deposit account earning interest; and 2) the District's securities andcollateral for these securities must be maintained in the Trust Department or SafekeepingDepartment of the bank established by written third-party safekeeping agreement, inaccordance with Board Policy 349 - Investment Policy.

Having multiple Custody/Safekeeping accounts is also not recommended as maintenance feescould be significant.

PRIOR RELEVANT BOARD ACTION/POLICIES

Board Policy 349 (formerly 336) -Investment Policy

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Report No. 17-019aPage 4 of 4

ATTACHMENTS

].: Contract No. 20].3-].22].

2: Board Policy 349 (formerly 336) --Investment Policy

3: Custody/Safekeeping Bank Services Technical& Cost Evaluation4: CRA Snapshot

Approved by: Claudia L. Allen, Chief Financial Officer

Reviewed by: Denise C. Standridge, General Counsel

Prepared by: Sue Lee, Director of Revenue Management

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SR 17-019a Att.I

THIS CONTRACT is made and entered into this 13tH day of January 2014, by and between theALAMEDA CONTRA COSTA TRANSIT DISTRICT (hereinafter "District"), a special transit districtestablished pursuant to California Public Utilities Code, Section 24501 et seq.. and WELLSFARGO INSTITUTIONAL RETIREMENT and TRUST 608 2ND Avenue South. 9th Floor. MAC:N9303-09B: Mi nQqppli$: MN 114Q? 191$: (hereinafter "Contractor").

THE PARTIES AGREE AS FOLLOWS

l SCOPE OF SERVICES

Contractor shall furnish the District all services in full accordance with Request for ProposalNo. 2013-1221, prepared and issued by the District entitled BANKING SERVICES, datedJuly 1 1 , 2013.

2 COMPONENT PARTS

This Contract shall consist of the following documents, each of which is on file with theDistrict, and is incorporated into and made a part of this Contract by reference:

A. This Contract

B Request for ProposaINo. 2013-1221. all Exhibits and Addenda

C Contractor's submitted proposal, dated August 1 5. 201 3

In the event of a conflict between documents, the documents will control in the order listeddocument A shall control over B, and B over C.

3 PERIOD OF PERFORMANCE

A. Services under this Contract shall commence January 13. 2014. and continuethrough Januarv 14. 2019, a period of five (5) years with the District's unilateraloption to extend for an additional two (2) years.

B The total Contract duration, including the exercise of the option periodexceed seven (7) years, or beyond January 1 3, 2021 .

shall not

C Contractor shall not be held liable for delays resulting from problems of schedulingon the part of the District.

4 CONTRACT FEE

A The District agrees to pay the Contractor fees in accordance with submitted ServiceFee Schedule for the five (5) year base period and a two (2) year Option period), (ifexercised), with a not-to-exceed (NTE) Contract budgeted amount of six thousanddollars and zero cents ($6,000.00), per year, for a total seven (7) year Contractvalue of forty two thousand dollars ($42,000.00), for services performed inaccordance with this Contract.

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SR 17-019a Att.I

TRUST AND CUSTODY PER ANNUM FEES

Domestic Administration

Annual Maintenance Fee $ 6.000.00

Accounting & Reporting

Web-Based On-line Daily Access -- TPR, TID

Accounting & Reporting - EBR

PerAccount

Included

Included

NOTE

The Annual Maintenance Fee will be reduced by up to 100% for assets held in a WellsFargo depository fund based on the following chart:

More than$25.0 million: 100% discountMore than$20 MM up to$25 MM 80% discountMore than$15 MM up to$20 MM 60% discountMore than$10 MM up to$15 MM 40% discountFrom$ 5 MM upto$10 MM 20%discount

Discounts are calculated at the end of each calendar quarter based on the Account'saverage daily balance in the Wells Fargo depository fund during the quarter.

This Fee Schedule is guaranteed for 5 years

OWNER ACKNOWLEDGEMENT

Fees and expenses described in this Fee Agreement, together with any fees described inother agreements and/or disclosures, constitute amounts payable to Wells Fargo Bank,N.A. ("Wells Fargo") for services provided to the Owner on the Account.

Wells Fargo shall be paid the fees as described above at the time such services arerendered. If such fees are not paid by the Account, such payment shall be made by theOwner. Wells Fargo may deduct fees due for services rendered directly from the Accountassets. Fees for services rendered shall be payable upon presentation of invoices by WellsFargo and may be subject to late payment penalties. Past due fees may be deducted fromthe Account assets. Wells Fargo, in its sole discretion, may suspend services during anyperiod in which any unpaid amounts are 90 days overdue or may deduct such amountsfrom the Trust.

There is no charge for the collection of interest income and dividends

The Owner has identified all assets held in the Account to Wells Fargo. Should there beany material change to the Account's structure or asset base, or should the Owner fail totransfer any assets scheduled for receipt to Wells Fargo within 60 days of the Effective Dateof this Fee Agreement, Wells Fargo reserves the right to redefine fees and/or serviceconditions.

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SR 17-019a Att.I

Wells Fargo shall be entitled to charge additional fees for any additional services requestedby the Owner or any revisions to reports, forms, and documents resulting from (i) inaccurateor incomplete information supplied by the Owner, (ii) untimely payments of contributions orreimbursement of fees and expenses, (iii) retroactive amendment of the Trust, (iv) failure ofthe Owner to timely notify Wells Fargo of any error in reports, forms and documentsprepared by Wells Fargo. If the Owner requests a rerun of an allocation or report due toincorrect or untimely information being furnished, the Owner shall bear the extra costsattributable to such reallocations or new reports.

Wells Fargo is entitled to prompt reimbursement of all extraordinary out-of-pocket expensesincurred in the performance of its services on behalf of the Account including, but not limitedto, fees for legal process, outside legal fees, and courier services.

On Quarterly basis, Wells Fargo will send an invoice to the Owner for fees and expensesdue with respect to the Account. The invoice will denote Account fees to be "billed" that arepayable by the Owner and/or Account fees to be "deducted" that have been deducted fromAccount assets held in the Trust. Such amounts. if billed. shall be due not later than 30days following the billing date. Additional services not detailed in this Fee Agreement maybe negotiated by and between Wells Fargo and the Owner at normal prevailing rates. WellsFargo retains the right to revise its fee schedule from time to time.

If the Owner wishes to have the Account pay any fees or expenses, or wishes to bereimbursed by the Account for any fees or expenses previously paid by the Owner, theOwner shall be responsible for determining which fees and expenses may properly be paidor reimbursed by the Account and provide appropriate written direction certifying this toWells Fargo.

B. The District and the Contractor must mutually agree upon any adjustments inpayment. Compensation for services performed, shall be made underconditions stated in the RFP as authorized by the Treasury/Program Manager.

C. Monthly statements and reports will be provided within five (5) business days ofeach monthly closeout cycle. EACH STATEMENT MUST REFERENCE THECONTRACT NUMBER. FAILURE TO SUBMIT THIS INFORMATION COULDJEOPARDIZE THE WITHDRAWAL OF MONTHLY SERVICE FEES.

D Only after the District has received a monthly closeout statement and accountanalysis will authorization to withdraw monthly service fees be given.

5 OPTION TO EXTEND CONTRACT PERIOD OF PERFORMANCE

A

B

It is mutually understood and agreed that the District is under no obligationwhatsoever to exercise the option period of performance.

At the sole discretion of the District, the Contract OPTION period may be unilaterallyexercised. If exercised, the Contractor shall be notified in writing of the District'sintent to exercise the option period with at least thirty (30) days prior notice. Theoption period shall be exercised in accordance with Contract terms and Service FeeSchedule proposed in the originally submitted proposal, as negotiated, andsubsequently reviewed for reasonableness prior to option period extension

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SR 17-019a Att.I

C An option period of performance may be exercised by addendum to the Contractbased on service needs, funds availability, and acceptable Contractor performance.It is mutually agreed that all work performed and services provided under anyContract exercised option, shall be in strict compliance with all requirements of theContract. as amended.

D The total duration of the Contract, including the exercise of the option, shall notexceed seven (7) years.

6 PROGRAM MANAGER

A The Program Manager will be the primary point of contact for the District,coordinating program management between the Banking Services Contractor,Custody/Safekeeping Contractor, Contract Specialist, and Purchasing Manager.Technical project questions, issues and requests for clarifications should be directedto

Sue LeeTreasury ManagerAC Transit1600 Franklin Street. 3rd FloorOakland. CA 9461251 0-891 -7279

B All issues, decisions, or potential Contract changes, in conflict with any term and/orcondition of the Contract, are to be coordinated with the Purchasing Departmentprior to a final determination.

7 COMPENSATION

A

B

C

D

The fees awarded under the attached Service Fee Schedule shall be the solecompensation for account services.

The Contractor will compute the actual fees to service the account based ontransaction volumes and the actual services provided.

Bank analysis fees shall be charged monthly against the account on a predetermined schedule arranged at the time of Contract award.

An account analysis must be forwarded to the District within five (5) business days ofeach month for review. Upon review and any necessary corrections, the District willauthorize a debit to its General Account. No interest or other late charge paymentshall ever be made.

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SR 17-019a Att.I

E The Contractor shall have no duty to make any purchase, exchange, ordisbursement. or to incur any expense, unless the funds necessary to cover theamount in question are available in the District's account.

F New service charge elements and fees may be added or deleted by mutual consentthroughout the Contract period of performance via formal amendment. Addedcharge elements and fees must have prior approval of the Program Manager andContract Specialist before fee is incurred.

8. NOTICES

Any notice which may be required under this Contract shall be in writing, shall be effectivewhen received, and shall be given by personal service or by certified or registered mail,return receipt requested, to the addresses set forth below or to such other addresses whichmay be specified in writing by the parties to this Contract.

DISTRICT CONTRACTOR

Procurement and Materials Director1600 Franklin Street. 8th FloorOakland, California 94612

Wells Fargo608 2nd Ave. S.-9th FloorMAC:N9303-09BMinneapolis, MN 55402-191661 2-667-8400

9 ATTORNEY'S FEES

In the event it becomes necessary for either party to bring a lawsuit to enforce any of theprovisions of the Contract, the parties agree that the court having jurisdiction over suchdispute shall have the authority to determine and affix reasonable attorney's fees which willbe paid to the prevailing party.

10 SEVERABILITY

If any provision of this Contract is declared void or unenforceable, such provision shall bedeemed severed from this Contract, which shall otherwise remain in full force and effect.

11 BINDING EFFECT

All of the terms, provisions. and conditions of the Contract hereunder, shall be binding uponand inure to the parties hereto and their respective successors, assigns. and legalrepresentatives.

12 ASSIGNMENT

The Contractor may assign the contract or portions thereof to our affiliates or outsideinstitutions without prior approval. The Contractor's client manager will discuss anyassignment he becomes aware of with the District once the information becomes publicly

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SR 17-019a Att.I

available via a formal announcement by the Bankassume Contractor's rights and responsibilities.

Any successor institution must by law

13 CONFLICT OF INTEREST

By signing this Contract, the Contractor covenants that it presently has no interest, direct orindirect, which would conflict in any manner or degree with the performance of the servicescalled for under this Contract. The Contractor further covenants that in the performance ofthis Contract, the Contractor shall receive no commissions from parties other than theDistrict for work performed hereunder.

Failure to comply with this provision serves as a basis for Termination for Default and thecollection of any damages.

14 VENUE

In the event of a dispute or breach of Contract,California .

venue shall be in Alameda County

15 ENTIRE AGREEMENT

This Contract represents the entire agreement of the parties with respect to the subjectmatter hereof, and all such agreements entered into prior hereto, are revoked andsuperseded by this Contract, and no representations, warranties, inducements or oralagreements have been made by any of the parties except as expressly set forth herein, orin other contemporaneously written agreements.

This Contract may not be changed, modified or rescinded except in writing, signed by allparties hereto, and any attempt at oral amendment of this Contract shall be void and of noeffect

16 APPLICATION OF FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS

Contractor operates in a highly-regulated industry and seeks to comply with all federal andstate laws that pertain to national banks. As the need arises, the District will inform theContractor of any public transit industry-specific regulations, local laws, other regulations,ordinances, policies, procedures or directives that the District believes are relevant to abanking services contract.

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SR 17-019a Att.I

IN WITNESS WHEREOF, the parties have executed this Contract on the dates set forth below

ALAMEDA-CONTRA COSTA CONTRACTOR:TRANSIT DISTRICT WELLS FARGO

David J. ArmijoGeneral Manager

Date Michael J. Wade DateVice President, Relationship Manager

Approved as to Form and Content

Denise StandridgeInterim General Counsel

Date

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SR 17-019a Att.2

N EW # 349

INVESTMENT POLICY

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Investment Policy Statement

Investment Policies

Accounting Policies

Prudence(Prudent Person Rule)

Objectives

Delegation of Authority

Ethics and Conflicts of Interest

Authorized Financial Dealers and Institutions

Authorized and Suitable Investments

Collateralization

Safekeeping and Custody

Diversification

Maximum Maturities

Internal Controls

Reporting Requirements

Fuel Hedging Program

Investment Policy Adoption

Glossary of Terms Used

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Last Amended by Resolution No. 15-016Page I of 14 Adopted: ]Z92

Amended: 3/03. 3/04. 3/05. 3/06. 3/07. 6/093/1 0. 4/1 0. 1/1 1 . 6/1 2. 3/1 5

AC Transit   Policy No. 336BOARD POLICY  

    Category: FINANCIAL MATTERS

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1.0 - INVESTMENT POLICY STATEMENT

It is the policy of the District to invest all public funds in accordance with the following goalslisted in descending order of priority:

A.

B

C

D

Compliance with all applicable laws, statutes, ordinances, and regulationrequirements.

Preservation of capital

Liquidity to meet required cash demands

Maximization of income

2.0 - INVESTMENT POLICIES

This investment policy applies to the investment activities of the Alameda Contra Costa TransitDistrict. The financial assets of alIDistrict funds shallbe administered in accordance with theprovisions of this policy, except for Section 457 Deferred Compensation Plan funds, which shallbe invested in accordance with the applicable laws. regulations, and contracts for such funds.

Funds of the Alameda Contra Costa Transit District Pension Fund are not subject to this policyas the Pension Fund is administered by the Alameda Contra Costa Transit District RetirementBoard, a separate entity from the District.

3.0 ACCOUNTING POLICIES

Short-term investments(those with a remaining maturity at the time of purchase of one year orless) are reported at cost, which approximates fair value, provided that the fair value of thoseinvestments is not significantly affected by the impairment of the credit standing of the issuer orby other factors.

Investments with a remaining maturity at the time of purchase of greater than one year arecarried at fair value. For financial reporting purposes, allinvestment income, including changesin fair value of Investments, is recognized as revenue in the District's operating statement.

4.0 - PRUDENCE(Prudent Person Rule)

District investments shall be made with care, skill, prudence and diligence, under thecircumstances then prevailing, that a prudent person acting in a like capacity and familiar withsuch matters would use in the conduct of an enterprise of a like character and with like aims, tosafeguard the principal and maintain the liquidity needs of the District.

Persons acting in accordance with this policy and exercising due diligence, shallbe relieved ofpersonal responsibility for an individualsecurity's credit risk, or market price changes, provided

Last Amended by Resolution No. 15-016Page 2 of 14 Adopted: ilZ92

Amended: 3/03. 3/04. 3/05, 3/06. 3/07. 6/093/10. 4/10. 1/1 1 . 6/12. 3/1 5

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deviations from expectations are reported in the monthly investment report to the District Board,and appropriate action is immediately taken to control adverse developments.

5.0 - OBJECTIVES

The primary objectives. in priority order, of the investment activities of the District shall be

A With respect to all investments

l To be in compliance with all Federal, State and local laws as well as allDistrict policies and procedures.

2 To ensure safety of principal. All investments of the District shall beundertaken in a manner which seeks the preservation of principal.

3 To remain sufficiently liquid to enable the District to meet all operatingrequirements which might be reasonably anticipated.

4 To maximize yield consistent with risk limitations identified herein andprudent investment principles.

B With respect to short-term Cash Management objectives

l To accelerate receipt of all funds due the District

2

3

To accurately monitor and forecast expenditures and revenues, thusenabling the District to invest funds to the fullest extent possible.

The investment portfolio shallbe designed with the objective of obtaininga rate of return throughout budgetary and economic cycles,commensurate with the investment risk constraints and the cash flowneeds The basis used by the Treasury Manager to determine whethermarket yields are being achieved shall be the three (3) month U.S.Treasury Bill and the average Federal Funds rate. This index isconsidered a benchmark for "riskless" investment transactions andtherefore should be a minimum standard for the portfolio's rate of return.

6.0 - DELEGATION OF AUTHORITY

The following individuals are authorized to sign investment documents and/or execute cashtransfers and make investments of the District's funds:

A.B.

C

General ManagerChief Financial OfficerTreasury Manager or Treasury Services Administrator

Last Amended by Resolution No. 15-016

Page 3 of 14 Adopted: ]Z92Amended: 3/03. 3/04. 3/05. 3/06. 3/07. 6/09

3/1 Q. 4/1 0, 1/1 1 . 6/1 2. 3/1 5

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All investment documents and cash transfer authorization forms shall be approved by (2)signature authorities from the above list. In the exercise of this responsibility, the authority toperform specific investment tasks and duties may be delegated as follows:

Controller: if the General Manager or Chief Financial Officer are out of the office forany reason, the Controller may sign and execute the necessary investment documentsand cash transfer authorization forms as the 2" signature authority.

7.0 - ETHICS AND CONFLICTS OF INTEREST

The officers and authorized employees as defined in Section 6.0 of this policy who areresponsible for the investment of District funds shallrefrain from personalbusiness activity thatcould conflict with the proper execution of the District's investment program, or which couldimpair the ability to make impartial investment decisions.

Pursuant to the District's Conflict of Interest Code. employees shall disclose any financialinterests in financial institutions that conduct business within the District. They shall furtherdisclose any personal financial/investment holdings that could affect the performance of theDistrict's portfolio or the individual's judgement or decisions regarding the District's portfolio.

In addition, the services provided by the District's external auditors shall include an annualreview of the Fair Political Practices Commission ''Statement of Economic Interests, Form 700".for individuals authorized to make investments of District funds. As outlined in Section 6.0 ofthis policy, those individuals are:

A.B.

CD

General ManagerChief Financial OfficerTreasury ManagerTreasury Services Administrator

8.0 AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS

The Treasury Manager shallmaintain a list of authorized dealers and financialinstitutions thathave total capital in excess of $1 billion, are members of SIPC (Securities Investor ProtectionCorporation), and are in compliance with the Securities Exchange Commission's rule 15C3-1(uniform net capitalrule). In conformance with the District Investment Policy, only those entitleslisted will be considered as a viable dealer to provide investment services to the District.

All financial institutions and broker/dealers who desire to become qualified bidders forinvestment transactions must supply the following: 1) audited financial statementsl 2) proof ofNationaIAssociation of Security Dealers(NASD) certification13) certification of having read ourinvestment policy and agreement to comply with the policy requirements.

No public deposit shall be made except in a qualified public depository as established byGovernment Code Section 53635.2

Last Amended by Resolution No. 15-016

Page 4 of 14 AdoptedAmended

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9.0 - AUTHORIZED AND SUITABLE INVESTMENTS

In accordance with and subject to the restrictions in California Government Code Section 53601the District may invest in the following types of investments:

A.

B.

c.D.

E

F

G

Repurchase Ag reementsSecurities of U.S. Government and its agenciesCalifornia Local Agency Investment Fund (LAIF)Negotiable Certificates of DepositCommercial PaperBankers AcceptancesMoney Market Accounts (Non U.S. Gov't)

Although Local Agency Investment Funds, Negotiable Certificates of Deposit, CommercialPaper, and Bankers Acceptances, are allowed under the California Government Code, thesetypes of investments may not be utilized without the prior authorization of the Chief FinancialOfficer, after prudent investigation of the credit risk of such investments.

1 0.0 - COLLATERALIZATION

California banks and savings and loan associations are required to secure District deposits bypledging eligible securities as collateral, pursuant to California Government Code Section53651 . In accordance with California Government Code Section 53652, the fair value of thepledged securities must equal at least 1 1 0 percent of the District's deposits. California law alsoallows financial institutions to secure deposits by pledging first trust deed mortgage notes havinga value of 1 50 percent of the District's total deposits.

Pursuant to California Government Code Section 53601, the fair value of securities thatunderlay a repurchase agreement shall be valued at 102 percent or greater of the fundsborrowed against those securities and the value shall be adjusted no less than quarterly.

As a matter of District policy, all deposits of the District are secured by the pledge of eligiblesecurities equal to 1 1 0 percent of the District's deposits. All repurchase agreement transactionsof the District must meet the requirements in California Government Code Section 53601 andshall be secured by the pledge of eligible securities equal to 102 percent of the District'sprincipal investment.

In accordance with California Government Code 53653, the District Treasury Manager maywaive the 110 percent collateral requirement for deposits which are insured up to$250,000 bythe FDIC

1 1 .0 - SAFEKEEPING AND CUSTODY

Securities purchased as District investments must be physically delivered to a third-party agentof the District. If U.S. Treasury securities are purchased, delivery may be made by book entry

Last Amended by Resolution No. 15-016Page 5 of 14 Adopted: :lZ92

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only. All investment transactions for the District require "Delivery vs. Payment" method ofsettlement only.

The District's securities and collateralfor those securities shallbe maintained, in the name of theDistrict, in the Trust Department or Safekeeping Department of the various banks doingbusiness with the District as established by written third-party safekeeping agreements betweenthe District and the banks

1 2.0 - DIVERSIFICATION

The District shall diversify its investments by security type, institution and maturity. With theexception of securities of the U.S. Government and its Agencies, no more than 33% of theDistrict's total investment portfolio shall be invested in a single security type or with a singlefinancial institution.

1 3.0 - MAXIMUM MATURITIES

To the extent possible, the District shall match its General Fund investments with anticipatedcashflow requirements. Unless matched to a specific cashflow, the District shall not directlyinvest in maturities greater than 3 years from the date of purchase without prior authorization ofthe Board of Directors.

All investments of District funds shall be made in accordance with and subject to the restrictionsin California Government Code Section 53601 . Short term investment of District funds shallberestricted to the following instruments:

Maximum LengthTo Maturity

for ShortTerm Investments

MaximumPercentage/Amt$

of PortfolioInvestmentInstrument

Repurchase Agreements*U.S. Treasury Bills & NotesU.S. Government Agency SecuritiesBankers AcceptanceCommercial PaperLocal Agency Investment FundsNegotiable Cert. of DepositMoney Market Accounts (Non U.S. Gov't)Interest Bearing Cash Collateralized bySecurities of the U.S. Government or ltsAgencies

$25M100%100%20%20%20%20%$25M

7 days3 years3 years

1 80 days270 days

N/A

3 yearsN/A

100%

ball repurchase agreements entered into by the District require that an authorized masterrepurchase agreement between the District and the financial institution be in place before anyrepurchase agreement transactions occur.

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14.0 - INTERNAL CONTROLS

The Treasury Manager shall establish a system of internal controls through proceduresdesigned to prevent losses of public funds arising from fraud, employee error. misrepresentationof third parties, unanticipated changes in financialmarkets. or imprudent actions by employeesand officers of the District. These controls shall include:

A Development of investment procedures inclusive of but not limited to

l Separation of transaction authority from accounting and record keepingresponsibilities .

2

3

4

Third-Party safekeeping of securities

Competitive bids shall be obtained only from authorized dealers andfinancial institutions, as described in Section 8.0 of this policy.

All investments shall be selected through an informal documentedcompetitive telephone bid process. If a specific maturity date is required,bids will be requested from at least three "authorized dealers and financialinstitutions" for instruments which meet the maturity requirement. If nospecific maturity is required, a yield cube analysis will be conducted todetermine which maturities produce the greatest yield prior to securing therequired competitive bids described above.

5 Written confirmation of all financial transactions

6 Written documentation of bids, transactions and investment strategies

B.

C

Periodic independent reviews to be conducted to ensure the District's investmentoperation is in compliance with the established policy and associated procedures.

The investment portfolio and all related transactions are reviewed and balancedto appropriate general ledger accounts by the Controller's office on a monthlybasis

1 5.0 - REPORTING REQUIREMENTS

The Treasury Manager shall be responsible for preparing a monthly investment report asrequired by California Government Section 53607. The investment report shall include:

A. Type of Investment

B. Institution of Purchase

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C

D

Date of Purchase. and Maturity

Interest Rate, Rate of Return, and Yield

E

F

Target Benchmark

Par, Book and Fair Values

In addition. the investment report shall state compliance of the portfolio with the statement ofinvestment policy and a statement denoting the ability of the District to meet pool expenditurerequirements for the next 6 months in accordance with California Government Section 53646(b) (2) and (3).

The investment report is to be produced monthly and will be forwarded to the Finance andAudit Committee and then to the full Board of Directors for review.

1 6.0 - FUEL HEDGING PROGRAM

Staff is directed to utilize appropriate fuel hedging strategy to minimize the variability in theDistrict's budget due to fluctuations in the price of diesel fuel. This variability is due to the factthat the District primarily purchases fuelon the spot market, which varies daily and may subjectthe District to volatile variances between budgeted and actual fuel expense. Variances betweenbudgeted and actual fuel expenses vary significantly during any given year. The hedgingprogram is designed to minimize large budget variances resulting from the volatility of dieselfuel prices. Hedging increases budget certainty and facilitates more effective utilization ofbudgetary resources. The District's hedging program will include:

A Fixed price Physical Delivery Contracts

Subject to an open and competitive process, the District solicits bid prices andaward contracts for future delivery of fuel from suppliers.

B Fuel Commodity Swap

The District enters into a financially-settling contract with qualifying counterpartiesunder which the District either pays an upfront amount or exchanges futurepayments with a counterparty.

C Futures Contracts

The District may enter Into such contracts that allow it to enter into smallertransactions and make certain pricing decisions over time

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Risks

Any strategy to fix or otherwise hedge future prices carries certain risks, some of which areidentified below. Certain of these risks may be mitigated, in part, by taking certain measures,some of which are also identified below

Counterparty Risk: The risk that the counterparty fails to make required payments or otherwisecomply with the terms of the hedging contract. This non-performance would expected to resultfrom flnancialdifficulty, but also may occur for physical, legalor business reasons. This risk ismitigated by establishing minimum credit quality criteria, establishing maximum credit limits,requiring collateral upon a counterparty downgrade and when credit limits are exceeded, limitingthe term of the agreement and employing credit rating surveillance.

Pricing Risk: The risk that, during the term of the hedging contract, the District usually pays ahigher price than it would have paid by purchasing diesel fuelin the spot market alone, withoutentering into a hedging contract

Political Risk: The risk that the hedging program may be unjustly criticized. Political risk ismitigated by ensuring that the Board and public are fully informed about the purpose, nature andexpectations for the hedging program.

Basis Risk: The risk that there is a mismatch between any payment received from acounterparty and the variable cost for diesel fuel actually paid to a gas company. . Such basisrisk may be mitigated by basing hedging contracts on indices that have a strong historicalcorrelation with the price of diesel fuel in the relevant market.

Termination Risk: The risk that there willbe an early termination of a hedging contract. An earlytermination may result in the District either paying or receiving a termination payment. Earlytermination may result in the District either paying or receiving a termination payment. Earlyterminations generally occur when one of the parties deteriorates in credit quality, suffersbankruptcy or fails to perform. The risk is mitigated by establishing safeguards such asrequiring collateral posting if credit limits are exceeded or credit ratings decline.

Fuel Commodity Transactions

Each Fuel Commodity Transaction shall have a term not to exceed the Maximum Term andshallbe for a notionalquantity of diesel fuel not to exceed the Maximum Percentage. Further,each Fuel Commodity Transaction shallbe entered into solely with a Fuel Hedge Counterpartyunder a Fuel Hedge Agreement and shallcontain a Fuel Hedge CollateralProvision and a FuelHedge Termination Provision. Each Fuel Commodity Transaction shallinclude a provision thatpermits the District to early terminate such transaction at any time and for any reason, at itsoption

Each contemplated Fuel Commodity Transaction shall be approved by the Board prior to theStaff entering into such transaction. Subject to any additional parameters established by theBoard in its approval, the Staff shall be permitted to award a Fuel Commodity Transaction to any

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qualifying Fuel Hedge Counterparty bidding on such transaction after evaluating the pricequoted, credit quality and reputation of each bidding Fuel Hedge Counterparty, and any otherinformation it may deem relevant or appropriate. Each Fuel Hedge Counterparty shall enter intoa Fuel Hedge Agreement prior to or promptly following the execution of a Fuel CommodityTra nsaction .

The Staff shall monitor, on a continuing basis during the existence of a Fuel CommodityTransaction, the index upon which any Fuel Commodity Transaction is based and the creditratings of each Fuel Hedge Counterparty. On a quarterly basis following the execution of a FuelCommodity Transaction, the Staff shall deliver a report to the Board regarding such FuelCommodity Transaction. including the existence of any significant events or occurrences underthe Fuel Hedge Agreement, any operational or other issues relating to the management of suchtransaction and the overalleconomic performance of such transaction. The Staff shallreport tothe Board the occurrence of any default or termination event, however described, with respect toa Fuel Hedge Counterparty under a Fuel Hedge Agreement or the downgrade of any FuelHedge Counterparty immediately upon becoming aware of any such event or occurrence.

17.0 - INVESTMENT POLICY ADOPTION

The District's investment policy shall be adopted by resolution of the District's Board ofDirectors. This policy shall be reviewed on an annual basis by the Board of Directors. Anymodifications made thereto must be formally approved by the Board of Directors.

1 8.0 - GLOSSARY

ACCRUED INTEREST: The accumulated interest due on a bond as of the last interest paymentmade by the issuer.

AGENCY: A debt security issued by a federal or federally sponsored agency. Federal agenciesare backed by the full faith and credit of the U.S. Government. Federally sponsored agenciesare backed by each particular agency with a market perception that there is an implicitgovernment guarantee. An example of federal agency is the Government National MortgageAssociation (GNMA). An example of a FSA is the Federal National Mortgage Association(FEMA)

AMORTIZATION: The systematic reduction of the amount owed on a debt issued throughperiodic payments of principal.

BASIS POINT: A unit of measure used in the valuation of fixed-income securities equal to1/100 oflpercent of yield, e.g., "1/4" oflpercent is equal to 25 basis points.

BID: The price offered for securities

BROKER: A broker brings buyers and sellers together for a commission paid by the initiator ofthe transaction or by both sidesl he does not position. In the money market. brokers are activein markets in which banks buy and sell money and in interdealer markets.

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COLLATERAL: Securities, evidence of deposit or other property which a borrower pledges tosecure repayment of a loan. Also refers to securities pledged by a bank to secure deposits ofpublic monies.

COMMERCIAL PAPER: An unsecured short-term promissory note issued by corporations. withmaturities ranging from 2 to 270 days.

COUPON: The annual rate of interest that a bond's issuer promises to pay the bondholder onthe bond's face valued a certificate attached to a bond evidencing interest due on a paymentdate

DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, includingbuying and selling for his/her own account.

DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: deliveryversus payment and delivery versus receipt (also called free). Delivery versus payment isdelivery of securities with an exchange of money for the securities. Delivery versus receipt isdelivery of securities with an exchange of a signed receipt for the securities.

DISCOUNT: The amount by which the par value of a security exceeds the price paid for thesecurity

DIVERSIFICATION:independent returns

Dividing investment funds among a variety of securities offering

FAIR VALUE: The amount at which an investment could be exchanged in a current transactionbetween willing parties, other than in a forced or liquidation sale.

FEDERAL FUNDS (FED FUNDS): Funds placed in Federal Reserve banks by depositoryinstitutions in excess of current reserve requirements. These depository institutions may lendfed funds to each other overnight or on a longer basis. They may also transfer funds amongeach other on a same-day basis through the FederaIReserve banking systems. Fed funds areconsidered to be immediately available funds.

FEDERAL FUN DS RATEother.

Interest rate charged by one institution lending federalfunds to the

FUEL COMMODITY TRANSACTIONS: A financially-settling diesel fuel swap. cap. option orsimilar transaction (or combination thereof) entered into with a Fuel Hedge Counterparty thatenables the District to fix or otherwise hedge its budgeted fuel costs, whether for a pre-paidpremium or through regularly scheduled payments, based on a published index.

FUEL HEDGE AGREEMENT: A 1992 ISDA Master Agreement, including a Schedule andCredit Support Annex thereto. and a Confirmation reflecting the economic terms of the FuelCommodity Transactions.

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FUEL HEDGE COLLATERAL PROVISION: A provision that requires a Fuel HedgeCounterparty to deliver daily collateral(in the form of U.S. cash or U.S. Treasury obligations) ifsuch counterparty's (or its guarantor's) long-term debt rating becomes rated below "A3'' or "A-"by one or more nationally recognized statistical rating organization.

FUEL HEDGE TERMINATION PROVISION: A provision that permits the District to earlyterminate the Fuel Commodity Transaction if the FueIHedge Counterparty's(or its guarantor's)long-term debt rating becomes rated below ''Baa2'' or ''BBB" by one or more nationallyrecognized statistical rating organization.

FUEL HEDGE COUNTERPARTY: A financial institution or recognized commodity hedgecounterparty which, at the time of execution of a Fuel Commodity Transaction with the District,has(or is guaranteed by a party that has) a long-term debt rating(i) in at least the "Aa" or "AA ''category by at least one nationally recognized statisticalrating organization and(ii) no less than"A2'' or "A '' by any nationally recognized statistical rating organization(s).

GOVERNMENT SECURITIES: An obligation of the U.S. Government, backed by the full faithand credit of the government. These securities are regarded as the highest quality ofinvestment securities available in the U.S. securities market

LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without asubstantial loss of value. In the money market, a security is said to be liquid if the spreadbetween bld and asked prices is narrow and reasonable size can be done at those quotes.

LOCAL AGENCY INVESTMENT FUND: A voluntary investment fund open to governmententities in California that is managed by the State Treasurer's office.

MARKET VALUE: The price at which a security is trading and could presumable be purchasedor sold

MARK-TO-MARKET: The process whereby the book value or collateralvalue of a security isadjusted to reflect its current fair value.

MATURITY: The date upon which the principalor stated value of an investment becomes dueand payable.

MAXIMUM PERCENTAGE: Eighty percent(80%) of the District's budgeted dieselfuel costs fora fiscal year.

MAXIMUM TERM: With respect to each Fuel Commodity Transaction, no more than eighteenmonths

MONEY MARKET: The market in which short-term debt instruments(bills, commercial paper,bankers' acceptances, etc.) are issued and traded.

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NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD): A self-regulatoryorganization (SRO) of brokers and dealers in the over-the counter securities business. ltsregulatory mandate includes authority over firms that distribute mutual fund shares as well asother securities

NOTE: A written promise to pay a specified amount to a certain entity on demand or on aspecified date.

OFFER: An indicated price at which market participants are willing to sell a security orcommodity. Also referred to as the "Ask Price."

PAR VALUE: The amount of principal which must be paid at maturity. Also referred to as theface amount of a bond, normally quoted in $1 ,000 increments per bond.

PORTFOLIO: Collection of securities held by an investor

PRINCIPAL: The face value or par value of a debt instrument, orthe amount of capital investedin a given security.

PRUDENT PERSON RULE: An investment standard. California Government Code requiresthat a fiduciary may invest money only in a list of securities selected by the state-the so-calledlegallist. In addition, the fiduciary can only invest in a security if it is onewhich would be boughtby a prudent person of discretion and intelligence who is seeking a reasonable income andpreservation of capital.

PRIMARY DEALER: A group of government securities dealers that submit daily reports ofmarket activity and positions and monthly financialstatements to the Federal Reserve Bank ofNew York and are subject to its informal oversight. Primary dealers include Securities andExchange Commission (SEC) registered securities broker-dealers, banks, and a fewunregulated firms.

QUALIFIED PUBLIC DEPOSITORIES: A financial institution which does not claim exemptionfrom the payment of any sales or compensating use or ad valorem taxes under the laws of thisstate, which has segregated for the benefit of the commission eligible collateralhaving a valueof not less than its maximum liability and which has been approved by the Public DepositProtection Commission to hold public deposits.

RATE OF RETURN: The yield obtainable on a security based on its purchase price or its currentmarket price. This may be the amortized yield to maturity on a bond or the current incomereturn

REPURCHASE AGREEMENT(REPO): The purchase of securities by a local agency pursuantto an agreement by which the counterparty will repurchase the securities on or before aspecified date and for a specified amount and the counterparty will deliver the underlyingsecurities to the local agency by book entry, physical delivery, or by third party custodial

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agreement. Refer to section 10.0 for detailed information on the District's collateralizationpolicy

SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities andvaluables of all types and descriptions are held in the bank's vaults for protection.

SECONDARY MARKET: A market made for the purchase and sale of outstanding issuesfollowing the initialdistribution

SECURITIES & EXCHANGE COMMISSION (SEC): Agency created by Congress to protectinvestors in securities transactions by administering securities legislation.

TREASURY BILLS: A non-interest bearing discount security issued by the U.S. Treasury tofinance the national debt. Most bills are issued to mature in three months, six months, or oneyear

TREASURY BOND: Long-term U.S. Treasury securities having initial maturities of more thanten years.

TREASURY NOTES; Intermediate term coupon bearing U.S. Treasury securities having initialmaturities of from one to ten years.

YIELD: The rate of annual income return on an investment, expressed as a percentage. (a)INCOME YIELD is obtained by dividing the current dollar income by the current market price forthe security. (b) NET YIELD or YIELD TO MATURITY is the current income yield minus anypremium above par, or plus any discount from par in purchase price, with the adjustment spreadover period from the date of purchase to the date of maturity of the bond.

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