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BACKGROUND California Government Code Section 53646 provides for the City Council to adopt an annual investment policy. The proposed investment policy for FY 2022/23 and the adopting resolution are attached. DISCUSSION Aside from being legally required, an investment policy is important because it provides the framework for a prudent investment program and helps fulfill the City's fiduciary responsibilities. Specifically, a formal investment policy is necessary to identify investment objectives, define risk tolerance, assign responsibility, and establish control over the investment process. Safekeeping of cash and investments is one of the most important responsibilities of the City Council, City Manager, and the Director of Finance. A well- developed investment policy serves as a working document that directs the investment activities of the staff and protects the government from potential losses stemming from unsuitable investment practices. Staff annually reviews and follows the California Debt and Investment Advisory Commission's Local Agency Investment Guidelines. The 2022 Local Agency Investment Guidelines states no approved changes to the local agency investment related codes. Therefore, no updates to the City's current policy are required. Investment Strategy The overall strategy of the investment program is to earn a market rate of return, while maintaining sufficient liquidity to meet operating cash requirements. This is accomplished by maintaining a portfolio of allowable investment instruments that have acceptable credit quality standards with maturities matching expected cash needs. The City does not actively trade securities in the open market, instead utilizing a conservative approach, which is described as "buy and hold", and means that once a security is purchased, it is held until maturity. Allowable Investment Instruments The California Government Code restricts the type of investments that can be made by a municipal government, and the City's investment policy further restricts the type of investment instruments that are allowed. The California Government Code also restricts the maturities of investments to no more than five years and restricts the percentage of certain investment instruments in the portfolio. The City's investment policy mirrors those same restrictions. The following table summarizes the investments allowed by the California Government Code, and of those, the investments allowed by the recommended City investment policy. It also lists the value of each category in the current portfolio as of April 30, 2022. Page 2 of 4