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Staff Report with attachments PREPARED BY: Gitta Ungvari Finance Director Reviewed by: Town Manager, Assistant Town Manager, and Town Attorney 110 E. Main Street Los Gatos, CA 95030 ● (408)354-6832 www.losgatosca.gov TOWN OF LOS GATOS COUNCIL AGENDA REPORT MEETING DATE: 1/10/2023 ITEM NO: 14 DATE: January 11, 2023 TO: Mayor and Town Council FROM: Laurel Prevetti, Town Manager SUBJECT: Review and Approve the Town’s Response to the 2022 Civil Grand Jury of Santa Clara County Report Entitled, “Show Me the Money: Financial Transparency Needed” and the Changes to the Town’s Operating Portfolio Investment Policy as Reviewed by the Finance Commission RECOMMENDATION: Review and approve the Town’s response to the 2022 Civil Grand Jury of Santa Clara County report entitled, “Show Me the Money: Financial Transparency Needed” and the changes to the Town’s Operating Portfolio Investment Policy as reviewed by the Finance Commission. BACKGROUND: On December 14, 2022, the 2021-2022 Civil Grand Jury of Santa Clara County released a report entitled, “Show Me the Money: Financial Transparency Needed.” The Grand Jury’s final report is included as Attachment 1. General law cities in California are required to comply with California Government Code Section 41004 (Section 41004), which states, “at least once each month, the city treasurer shall submit to the city clerk a written report and accounting of all receipts, disbursements, and fund balances. The city treasurer shall file a copy with the legislative body.” The benefit of the law is to ensure financial accountability and public transparency as well as to foster better fiscal affairs. Treasurer's reports provide city councils with timely and accurate financial information necessary to make reliable and sound decisions. The Grand Jury’s final report includes the following finding related to the Town of Los Gatos: PAGE 2 OF 3 SUBJECT: Operating Portfolio Investment Policy Review and Recommendation to Town Council DATE: January 11, 2023 BACKGROUND (continued): Finding: The Town of Los Gatos produced reports that contain the required content but does not produce the treasurer’s reports on a monthly basis as required by California Government Code section 41004. Recommendation: The Town of Los Gatos should produce its reports on a monthly basis to comply with California Government Code section 41004 by March 15, 2023. Pursuant to Penal Code Sections 933 and 933.05, the Grand Jury requested a response from the Town of Los Gatos and other jurisdictions by March 14, 2023. DISCUSSION: The Town’s current Investment Policy was last reviewed by the Finance Committee in January 2021 and adopted by Council in November of 2021. The Investment Policy establishes the investment scope, objectives, delegation of authority, standards of prudence, reporting requirements, internal controls, State mandated eligible investments, transactions, diversification requirements, risk tolerance, and safekeeping and custodial procedures for the investment of the operating funds of the Town. All Town funds are invested and/or will be invested in accordance with the Investment Policy and with applicable sections of the California Government Code. The Finance Commission is tasked with the review of the Town Investment Policy. At its January 10, 2023 meeting, the Finance Commission reviewed the proposed changes provided by staff and suggested one additional change to clarify that the monthly report will comply with Government Code Section 41004 (Attachment 2). Town Council approval of the staff and Commission recommendations will ensure the Town is in compliance with California Government Code Section 41004. The Finance Commission plans to review additional elements of the Investment Policy and potentially recommend supplemental reporting. The draft Town response to the Civil Grand Jury of Santa Clara County for Town Council consideration is included as Attachment 3. The response is consistent with the proposed changes to the Town’s Investment Policy. FISCAL IMPACT: There is no fiscal impact associated with responding to the Grand Jury and modifying the Investment Policy. PAGE 3 OF 3 SUBJECT: Operating Portfolio Investment Policy Review and Recommendation to Town Council DATE: January 11, 2023 Attachments: 1. 2021-22 Civil Grand Jury Report “Show Me the Money: Financial Transparency Needed” 2. Town Council Policy 4-02: Investment Policy - Redlined 3. Staff Response to the Civil Grand Jury Report “Show Me the Money: Financial Transparency Needed” This Page Intentionally Left Blank Release date here Page 0 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED 2022 Santa Clara County Civil Grand Jury December 14, 2022 ATTACHMENT 1 Page 1 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED TABLE OF CONTENTS GLOSSARY AND ABBREVIATIONS ...................................................................................... 2 SUMMARY ................................................................................................................................... 3 BACKGROUND ........................................................................................................................... 4 METHODOLOGY ....................................................................................................................... 5 INVESTIGATION ........................................................................................................................ 6 CONCLUSION ........................................................................................................................... 11 FINDINGS AND RECOMMENDATIONS ............................................................................. 12 REQUIRED RESPONSES ......................................................................................................... 15 APPENDIX ................................................................................................................................. 16 REFERENCES ............................................................................................................................ 19 Page 2 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED GLOSSARY AND ABBREVIATIONS Government Code, Section 41004 California Government Code section 41004 states: “Regularly, at least once each month, the city treasurer shall submit to the city clerk a written report and accounting of all receipts, disbursements, and fund balances. The city treasurer shall file a copy with the legislative body.” Treasurer’s Reports The reports required by Government Code section 41004 may have various styles and titles. For purposes of this report, the Civil Grand Jury will refer to these reports throughout as "treasurer's reports." Charter City Article XI, section 3(a) of the California Constitution authorizes the adoption of a city charter and provides that the charter has the force and effect of state law. Article XI, section 5(a), the "home rule" provision, grants to charter cities the ability to govern over "municipal affairs." There are six charter cities in Santa Clara County: San José, Palo Alto, Santa Clara, Sunnyvale, Gilroy, and Mountain View. General Law City A general law city may only have a form of government authorized by state general law. A city that has not adopted a charter is bound by the state’s general laws even with respect to municipal affairs. There are nine general law cities and towns in Santa Clara County: Los Altos, Los Altos Hills, Los Gatos, Milpitas, Campbell, Monte Sereno, Cupertino, Saratoga and Morgan Hill. The scope of this investigation is limited to general law cities. GAAP Generally Accepted Accounting Principles: a set of accounting rules and standards established by the accounting industry. Page 3 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED SUMMARY General law cities in California are required to comply with California Government Code section 41004 (Section 41004), which states, “at least once each month, the city treasurer shall submit to the city clerk a written report and accounting of all receipts, disbursements, and fund balances. The city treasurer shall file a copy with the legislative body.” The benefit of the law is to ensure financial accountability and public transparency as well as to foster better fiscal affairs. Treasurer's reports provide city councils with timely and accurate financial information necessary to make reliable and sound decisions. The 2022 Santa Clara County Civil Grand Jury (Civil Grand Jury) found that there is widespread noncompliance with this state requirement throughout Santa Clara County (County) by the general law cities. As of the date of this report, six of the nine general law cities1 in the County are noncompliant with this state law: Los Altos, Los Altos Hills, Los Gatos, Milpitas, Campbell, and Monte Sereno. Additionally, the City of Cupertino was initially noncompliant until the city took corrective action during the Civil Grand Jury’s investigation. The City of Saratoga and City of Morgan Hill were the only two cities compliant prior to the investigation. Based on responses from city officials, the Civil Grand Jury determined that there is a widespread misunderstanding among these general law cities in the County regarding Section 41004 reporting requirements. The Civil Grand Jury recommends that the noncompliant cities – Los Altos, Los Altos Hills, Los Gatos, Milpitas, Campbell, and Monte Sereno – comply with Section 41004. 1 The Town of Los Altos Hills and the Town of Los Gatos are general law cities. Page 4 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED BACKGROUND The State Legislature established the office of city treasurer by enactment of California Government Code, Title 4 - Government of Cities, Division 3 - Other Officers, Chapter 3 - City Treasurer. The statutory duties for city treasurers may generally be found in the following sections: Section 41001: The city treasurer shall receive and safely keep all money the treasurer receives. Section 41002: (a) The city treasurer shall comply with all laws governing the deposit and securing of public funds and the handling of trust funds in their possession; and (b) if the city has issued bonds, the city treasurer shall use a system of accounting and auditing that adheres to generally accepted accounting principles. Section 41003: The city treasurer shall pay out money only on warrants signed by legally designated persons. Section 41004: Regularly, at least once each month, the city treasurer shall submit to the city clerk a written report and accounting of all receipts, disbursements, and fund balances. The city treasurer shall file a copy with the legislative body. Pursuant to California Government Code section 36502, the city treasurer is an elective office. California Government Code section 36508 and California Elections Code section 9222 permit cities to submit to the electors the question of whether the city treasurer position should be an appointive office. In that instance, the financial duties assigned by the state statutes to the city treasurer are transferred from an elected treasurer to an appointed officer if approved by the electorate. Only one general law city in the County, Morgan Hill, continues to have an elected city treasurer, who serves for four years. All other cities in the County have opted to assign city treasurer duties to senior administrative staff. Page 5 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED METHODOLOGY Upon receiving a complaint regarding Government Code section 41004 noncompliance in Cupertino, the Civil Grand Jury decided to expand the investigation to review all nine general law cities in the County: Los Altos, Los Altos Hills, Los Gatos, Milpitas, Campbell, Monte Sereno, Cupertino, Saratoga, and Morgan Hill. From March to August 2022, the Civil Grand Jury began the process by polling these Cities to determine if they produced treasurer’s reports. The Civil Grand Jury took the following steps: • Contacted a total of 22 officials across nine cities who were responsible for tasks relevant to the topic of this report. • Reviewed relevant sections of the California Government Code, California Elections Code, and examined the ordinances, policies, and memos of each city relevant to their city treasurer duties. • Reviewed published city council and city committee agendas relevant to Section 41004. • Reviewed other relevant city documents, including but not limited to financial audits, city organizational charts, and relevant job descriptions. • Verified the six most recent treasurer’s reports of each city, if submitted. The Civil Grand Jury inspected the contents of each report to verify the inclusion of the required elements: monthly disbursements, receipts, and fund balances. The Civil Grand Jury also determined whether the reports were published at least once each month to be compliant with Section 41004. It should be noted that most cities do not call their report “Treasurer’s Report.” Appendix A provides links to examples of compliant Section 41004 reports, showcasing variations in terms of report name, style, layout, and appearance. The Civil Grand Jury used the 2011-2012 Solano County Civil Grand Jury report entitled “City Treasurer Functional Review” as a reference for this report. Page 6 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED INVESTIGATION All interviews and email correspondence were designed to determine if general law cities complied with Section 41004. To be deemed compliant, a city must produce a financial document at least once each month that details all of the following: monthly disbursements, receipts, and fund balances – and must be filed with the legislative body. Six months of reports were requested to verify an existing track record. Data collection and verification took place from March to July 2022. The results of this investigation are depicted in Table 1 below. Table 1. Section 41004 Compliance Among Nine General Law Cities City/Town Compliant Noncompliant Los Altos X Los Altos Hills X Los Gatos X Milpitas X Campbell X Monte Sereno X Cupertino X* Saratoga X Morgan Hill X *During the investigation, Cupertino started complying with Section 41004. There are a number of reasons for cities’ noncompliance: • Some cities were under the impression that the Section 41004 mandate was a discretionary guideline. • Others adopted the practice of other cities that did not produce the requisite monthly reports. However, the primary error among the cities was that they produced abbreviated reports that omitted required information such as receipts, disbursements, and fund balances. Some of the deficient reports lacked substance, with abbreviated information presented without context or details. The Civil Grand Jury believes there is no fiscal impact involved in complying with Section 41004. Outside resources should not be required since existing staff already make some financial reports, collect this type of data, and should be able to produce treasurer’s reports. Therefore, each of the deficient cities can be compliant with minimal effort or burden. Page 7 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED Noncompliant Cities and Towns Los Altos The City of Los Altos does not have an elected city treasurer. Further, the Los Altos Municipal Code does not specifically state which official performs the duties of a city treasurer. Los Altos Municipal Code Section 2.01.060, however, provides that the city manager is the administrative head of the city and is specifically empowered “keep the council at all times fully advised as to the financial condition and needs of the city.” In the City of Los Altos, monthly treasurer’s reports are not prepared and submitted to the city clerk in accordance with Section 41004. At the time of the Civil Grand Jury inquiry in June 2022, the City of Los Altos did not submit any treasurer’s reports. According to the City of Los Altos, Government Code section 37208 indemnified them from the Section 41004 mandate. However, the language of Government Code Section 37208 refers to payroll warrants or checks and makes no mention of the reporting required by Section 41004, which requires a report of “receipts, disbursements and general fund balances.” Moreover, the language of Government Code Section 37208 neither excuses a city from complying with Section 41004 nor makes any reference to Section 41004. Further, the city erroneously noted that its Generally Accepted Accounting Principles (GAAP) policy on financial reporting excused noncompliance with Section 41004 reporting requirements. In 2015, the city adopted a “Financial Policy” that reads in part, “The city’s accounting and financial reports are to be maintained in accordance with GAAP.” GAAP accounting does not address the Section 41004 mandated requirements. Page 8 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED The Civil Grand Jury determined that the City of Los Altos does not produce treasurer’s reports and thus is noncompliant. Los Altos Hills The Town of Los Altos Hills does not have an elected city treasurer. The town’s Municipal Code is silent on who performs the duties of the treasurer; however, the Civil Grand Jury learned that the treasurer responsibilities fall to the director of administrative services. The Civil Grand Jury received monthly treasurer’s reports in June 2022. Upon inspection, however, they contained only disbursements and lacked receipts as well as fund balances; thus the reports are incomplete and noncompliant. Los Gatos The Town of Los Gatos does not have an elected city treasurer. The town’s Municipal Code Section 2.30.035 delegates the responsibility of the treasurer and the ability to assign those duties to the town manager. The director of finance is responsible for the town’s financial matters. The Town of Los Gatos produces quarterly reports, not monthly reports as required by Section 41004. While the disbursements, receipts, and fund balances are in the reports, they must be published at least once each month to comply with Section 41004. Because the production intervals are quarterly, the Town of Los Gatos is not in compliance. Milpitas The City of Milpitas does not have an elected city treasurer. Milpitas Municipal Code section VI- 1-3.02 vests the duties of a city treasurer with the city manager, who is empowered to appoint a city treasurer pursuant to Section VI-1-3.04. In the City of Milpitas, the finance director produces weekly disbursement reports, quarterly receipt and investment reports for the general and special districts’ funds, and annual reports for all other reporting. At the time of inquiry in June 2022, the Civil Grand Jury noted well-prepared reports. However, the frequency of report submission does not meet Section 41004 criteria, which requires monthly reports. Reports showing all receipts, disbursements, and fund balances must be filed with the city clerk at least once each month. Due to submission infrequency, the City of Milpitas is not in compliance. Campbell In November of 2010, voters in the City of Campbell approved Measure O, which changed the office of the city treasurer (and city clerk) from an elected to an appointed office. The City of Page 9 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED Campbell’s Municipal Code is silent on who has officially assumed those duties.2 The Civil Grand Jury learned that the city’s finance director has the responsibilities of a treasurer and oversees the preparation of financial reports. The reports are prepared by the accounting clerk, reviewed by the finance manager and the finance director, and approved by the city manager for inclusion in the council packet. At the time of inquiry in June 2022, 21 reports were submitted. The submitted documents had no payroll records and accounts payable balances with paid or disbursed funds. Additionally, the required information was not published at least once each month. The City of Campbell’s submitted reports do not comply with Section 41004 because disbursements, receipts, and balances are not filed at least once each month. Monte Sereno The City of Monte Sereno does not have an elected city treasurer. The Monte Sereno Municipal Code section 2.04.010 designates the city manager as the director of finance and tasks the city manager with “performing all duties of City treasurer as set forth in Government Code sections 41000 et seq.” At the time of inquiry in June 2022, six treasurer’s reports were received by the Civil Grand Jury. While the reports did contain the required fund balances, the receipts and disbursements were not compliant with the Section 41004 requirement. Compliant Cities Cupertino The City of Cupertino does not have an elected city treasurer. The City of Cupertino’s Municipal Code section 2.24.030 states: The treasurer shall make monthly reports which conform to the requirements of Government Code Section 41004. Said reports shall be delivered to the City Council, city manager and made available for review by such other persons who may so request. Until 2022, no staff member for the City of Cupertino had been preparing and delivering a monthly treasurer’s report to the Cupertino City council. However, during the Civil Grand Jury's 2 The City of Campbell’s Municipal Code does not appear to have been updated. The City of Campbell’s Municipal Code section 2.08.010 still states that the elected officers shall be those designated by general laws, which includes a city treasurer. Further, the code has other references to an elected city treasurer. (See Sections 2.16.040 [city treasurer compensation] and 2.16.010 [establishment of salaries].) Page 10 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED investigation, the belated monthly treasurer’s reports for January and February 2022 were published and placed on the Cupertino Audit Committee agenda. The Civil Grand Jury recognizes the action taken by the City of Cupertino as soon as it was brought to their attention. The City of Cupertino is now compliant with Section 41004 as of March 2022, despite the stated history of not submitting the required reports. Saratoga The City of Saratoga does not have an elected city treasurer. The City of Saratoga Municipal Code section 2-20.035 states that the city manager shall serve as the city treasurer and be responsible for “other duties and responsibilities as required by law to be performed by the City Treasurer.” Thus, the city manager is responsible for the preparation and submission of monthly treasurer’s reports. The Civil Grand Jury verified in June 2022 that regular monthly treasurer’s reports are filed with the City of Saratoga and are fully compliant with Section 41004. These reports can also be found by the public on the city’s website. An example is shown in Appendix A. Morgan Hill The City of Morgan Hill has an elected city treasurer. The treasurer, in conjunction with the finance director, prepares the treasurer’s reports. The Civil Grand Jury verified in June 2022 that regular monthly treasurer’s reports are produced. The reports contain all the required components of disbursements, receipts, and fund balances. Thus, the City of Morgan Hill is compliant with Section 41004. A compliant Morgan Hill treasurer’s report is shown in Appendix A. Page 11 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED CONCLUSION Within the County, there is widespread noncompliance with California Government Code section 41004 by the general law cities. The Civil Grand Jury commends the cities of Saratoga and Morgan Hill for being in full compliance and notes the City of Cupertino’s quick action to become compliant. The Civil Grand Jury recommends that the noncompliant cities of Los Altos, Los Altos Hills, Los Gatos, Milpitas, Campbell, and Monte Sereno comply with Section 41004. This is to be done by producing treasurer’s reports at least once each month containing the required disbursements, receipts, and fund balance information. The benefit of implementing this recommendation overshadows any limited cost impact since existing staff could compile the report. In short, there is great benefit in producing these reports, as they improve financial transparency to the residents of the cities. Page 12 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED FINDINGS AND RECOMMENDATIONS It is recommended that noncompliant cities start producing treasurer’s reports as required by law. Some cities produce abbreviated information that does not include requisite financial information as defined in state Government Code section 41004. Some cities produce requisite reports, but not on a monthly basis. Finding 1 The City of Los Altos is not submitting monthly treasurer’s reports in compliance with California Government Code section 41004. Recommendation 1 The City of Los Altos should comply with Government Code section 41004 by submitting monthly treasurer’s reports that include monthly disbursements, receipts, and fund balances and by filing those reports with the city. This recommendation should be implemented by March 15, 2023. Finding 2 The City of Los Altos does not produce treasurer’s reports in compliance with California Government Code section 41004. The reason provided for non-compliance was that the City of Los Altos’ financial policy does not require the preparation and submission of treasurer’s reports. It is an erroneous belief that internal policies excuse compliance with Government Code section 41004. Recommendation 2 The City of Los Altos should amend its financial policy to require that monthly treasurer’s reports be prepared and submitted in accordance with California Government Code section 41004 by March 15, 2023. Finding 3 The Town of Los Altos Hills produces monthly treasurer’s reports but the content of those reports lacks monthly disbursements, receipts, and fund balances required by California Government Code section 41004. Recommendation 3 The Town of Los Altos Hills should update their existing monthly reports to include monthly disbursements, receipts, and fund balances by March 15, 2023. Finding 4 The Town of Los Gatos produced reports that contain the required content but does not produce the treasurer’s reports on a monthly basis as required by California Government Code section 41004. Page 13 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED Recommendation 4 The Town of Los Gatos should produce its reports on a monthly basis to comply with California Government Code section 41004 by March 15, 2023. Finding 5 The City of Milpitas does not produce monthly treasurer’s reports as required by California Government Code section 41004. Recommendation 5 The Civil Grand Jury recommends that the City of Milpitas comply with California Government Code section 41004 by producing monthly treasurer’s reports that include monthly disbursements, receipts, and fund balances by March 15, 2023. Finding 6 The City of Campbell does not produce monthly treasurer’s reports as required by California Government Code section 41004. Recommendation 6 The City of Campbell should comply with California Government Code section 41004 by producing monthly treasurer’s reports that include monthly disbursements, receipts, and fund balances by March 15, 2023. Finding 7 The City of Monte Sereno does not produce monthly treasurer’s reports as required by California Government Code section 41004. Recommendation 7 The City of Monte Sereno should comply with California Government Code section 41004 by producing monthly treasurer’s reports that include monthly disbursements, receipts, and fund balances by March 15, 2023. Finding 8 When the Civil Grand Jury began this investigation, the City of Cupertino was not in compliance with California Government Code section 41004. However, starting in March 2022, the City of Cupertino began producing treasurer’s reports compliant with Section 41004. Recommendation 8 The City of Cupertino should maintain compliance with California Government Code section 41004. Continued compliance is recommended. Page 14 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED Finding 9 The Civil Grand Jury commends the City of Saratoga for producing monthly treasurer’s reports that include disbursements, receipts, and fund balances. The City of Saratoga is in full compliance with California Government Code section 41004. Recommendation 9 No recommendation. Finding 10 The Civil Grand Jury commends the elected city treasurer for producing monthly treasurer’s reports that include monthly disbursements, receipts, and fund balances. The City of Morgan Hill is in full compliance with California Government Code section 41004. Recommendation 10 No recommendation. Page 15 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED REQUIRED RESPONSES Pursuant to California Penal Code section 933(b) et seq. and California Penal Code section 933.05, the Civil Grand Jury requests responses from the following governing bodies: Responding Agency Findings Recommendations City of Los Altos 1, 2 1, 2 Responding Agency Findings Recommendations Town of Los Altos Hills 3 3 Responding Agency Findings Recommendations Town of Los Gatos 4 4 Responding Agency Findings Recommendations City of Milpitas 5 5 Responding Agency Findings Recommendations City of Campbell 6 6 Responding Agency Findings Recommendations City of Monte Sereno 7 7 Responding Agency Findings Recommendations City of Cupertino 8 8 Responding Agency Findings Recommendations City of Saratoga 9 Responding Agency Findings Recommendations City Treasurer of Morgan Hill 10 Page 16 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED APPENDIX A: EXAMPLES OF COMPLIANT TREASURER’S REPORTS On the following pages are two examples of monthly treasurer’s reports that contain the required disbursements, receipts, and starting and ending fund balances and are therefore compliant with California Government Code section 41004. They are included to show that there are various names and formats that the reports may take. Following the examples are links to the full reports for ease of access. Page 17 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED Example 1. Page 3 of 7 from Saratoga August 2022 Treasurer’s Report https://legistarweb- production.s3.amazonaws.com/uploads/attachment/pdf/1578630/Treasurer_Report_for_August_ 2022.pdf Page 18 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED Example 2. Page 12 of 21 from Morgan Hill March 2022 Financial and Investment Report https://www.morgan-hill.ca.gov/DocumentCenter/View/40944/March-2022-Financial-and-Investment-Report-PDF Page 19 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED REFERENCES Bibliography Campbell City Council meetings: December 7, 2021-June 7, 2022. Regular agenda item from the Finance Department, titled Approving Bills and Claims. https://campbellca.gov/AgendaCenter/ (Accessed November 28, 2022). Campbell City Council meeting: February 1, 2022. Regular agenda item from the Finance Department, titled Investment Report – Quarter Ending December 2021. https://campbellca.gov/AgendaCenter/ (Accessed November 28, 2022). Campbell City Council meeting: May 3, 2022. Regular agenda item from the Finance Department, titled Investment Report – Quarter Ending March 2022. https://campbellca.gov/AgendaCenter/ (Accessed November 28, 2022). Campbell City Council meetings: December 7, 2021 – June 7, 2022. Regular agenda item from the Finance Department, titled Monthly Investment Transactions Report. https://campbellca.gov/AgendaCenter/ (Accessed November 28, 2022). Campbell City Council meeting: April 25, 2022, Study Session Meeting of the Campbell City Council. https://campbellca.gov/AgendaCenter/ (Accessed November 28, 2022). City of Cupertino, A- Payments to Chamber Jan 2015- Mar 2022. Report, 2022. https://cupertino.legistar.com/ (Accessed November 28, 2022). City of Cupertino Administrative Services Department Finance Division, Fiscal Year 2019-2020 Comprehensive Annual Financial Report. https://cupertino.legistar.com/ (Accessed November 28, 2022). City of Cupertino, Audit Committee meeting, May 23, 2022. https://cupertino.legistar.com/MeetingDetail.aspx?ID=923553&GUID=0C41F4A6-93D2-4B90- AAEB-7E5FF0F1EF8C&Search= (Accessed November 28, 2022). City of Cupertino, B- Festivals – City Fees Waived & City Expenses. Report, 2022. https://cupertino.legistar.com/ (Accessed November 28, 2022). Cupertino City Council meeting, April 21, 2022: March 2022 Report of City-wide Fund Balances/Net Position. http://cupertino.legistar.com/ (Accessed November 28, 2022). Cupertino City Council meeting April 21, 2022: March 2022 Report of City-wide Receipts, Disbursements, and Cash Balances Cash Investments. http://cupertino.legistar.com/ (Accessed November 28, 2022). Page 20 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED Cupertino City Council meeting, April 25, 2022. Administrative Services Department, Audit Committee Staff Report for March, 2022. https://cupertino.legistar.com/ (Accessed November 28, 2022). Cupertino City Council meeting, May 3, 2022. City Manager’s Office, City Council Staff Report. https://cupertino.legistar.com/ (Accessed November 28, 2022). Cupertino City Council meeting, May 19, 2022. Amended Agenda of the Cupertino City Council. https://cupertino.legistar.com/ (Accessed November 28, 2022). Cupertino Office of the City Clerk, Notice of Adjournment of the May 17, 2022. Notice, May 17, 2022. https://cupertino.legistar.com/ (Accessed November 28, 2022). Cupertino, Payment Register. Report, December 21, 2021. http://cupertino.legistar.com/ (Accessed November 28, 2022). Cupertino, Resolution NO. 22-015. Resolution, 2022. http://cupertino.legistar.com/ (Accessed November 28, 2022). City of Lancaster, Excerpt from A Quick Summary for the Press and Researchers, https://www.cityoflancasterca.org/home/showpublisheddocument/10103/635775792210230000 (Accessed November 28, 2022). Los Altos City Council meetings, January, 2022 – May, 2022. Monthly Disbursement Listing. https://www.losaltosca.gov/calendar/month?field_microsite_tid=2131&field_microsite_tid_1=All (Accessed November 28, 2022). Los Altos City Council meeting, May 24, 2022. Quarterly Investment Portfolio Report – Quarter Ended March 31, 2022. https://www.losaltosca.gov/citycouncil/page/city-council-meeting-155 (Accessed November 28, 2022). Los Altos City Council meeting, March 8, 2022. Quarterly Investment Portfolio Report – Quarter Ended December 31, 2021. https://mccmeetingspublic.blob.core.usgovcloudapi.net/losaltosca-meet-419c5823741c494d9706451908d3061f/ITEM-Attachment-001- 0979a9a16c5c4dc898b8e8d7d4d4a6e1.pdf (Accessed November 28, 2022). Los Gatos Town Council meeting, February 15, 2022. Second Quarter Investment Report (October through December 2021) for Fiscal Year 2021/22. https://mccmeetings.blob.core.usgovcloudapi.net/losgatos-pubu/MEET-Packet-94e86df454424b8b95ccc3f6eff96e41.pdf (Accessed November 28, 2022). Los Gatos Town Council meeting, May 17, 2022. Third Quarter Investment Report (January through March 2022) for Fiscal Year 2021/22 https://mccmeetings.blob.core.usgovcloudapi.net/losgatos-pubu/MEET-Packet-997ea555609c4af9b94eeb28b34fc7e3.pdf (Accessed November 28, 2022). Monte Sereno City Council meetings: December 28, 2021 – June 3, 2022. Regular agenda item from the Finance Department submitting the monthly Treasurer’s Report. https://montesereno.civicweb.net (Accessed November 28, 2022). Page 21 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED City of Morgan Hill Finance Division, Monthly Financial and Investment Reports. March 31, 2022. https://www.morgan-hill.ca.gov/DocumentCenter/View/40944/March-2022-Financial-and- Investment-Report-PDF (Accessed November 28, 2022). City of Saratoga Administrative Services, Treasurer’s Report for the Month Ended August 31, 2022. Final Report, October 5, 2022. https://legistarweb-production.s3.amazonaws.com/uploads/attachment/pdf/1578630/Treasurer_Report_for_August_ 2022.pdf (Accessed November 28, 2022). Solano County 2011-2012 Grand Jury, City Treasurer Functional Review. Final Report, January 12, 2012. https://solano.courts.ca.gov/wp-content/uploads/2020/01/111227-City-Treasurer-Final.pdf (Accessed November 28, 2022). California Government Code Sections 34000 – 45345. Los Gatos Municipal Code 2.30.035. Milpitas Municipal Code VI-1-3.04. Interviews Interviews were conducted with 16 individuals between April 25, 2022, and June 16, 2022. Page 22 of 22 SHOW ME THE MONEY: FINANCIAL TRANSPARENCY NEEDED This report was ADOPTED by the 2022 Santa Clara County Civil Grand Jury on this 14th day of December, 2022. ______________________________ Karen Enzensperger Foreperson This Page Intentionally Left Blank COUNCIL POLICY MANUAL TITLE: Investment Policy POLICY NUMBER: 4-02 EFFECTIVE DATE: 11/1/16 PAGES: 8 ENABLING ACTIONS: 2016-063 REVISED DATES: 5/16/17;5/15/2018; 9/3/2019; 11/03/2020, 1/17/2023 APPROVED: PURPOSE The Town of Los Gatos (the “Town”), incorporated in 1887, is located approximately 60 miles south of San Francisco, in the southwestern portion of Santa Clara County. The Town operates under the Council/Manager form of government. The Town Council is the legislative body for the Town. It has five members elected to serve staggered four year terms. The Town Manager is appointed by the Town Council. The Town Council has adopted this Investment Policy in order to establish the investment scope, objectives, delegation of authority, standards of prudence, reporting requirements, internal controls, eligible investments and transactions, diversification requirements, risk tolerance, and safekeeping and custodial procedures for the investment of the funds of the Town. All Town funds will be invested in accordance with this Investment Policy and with applicable sections of the California Government Code. This Investment Policy was originally adopted by the Town Council of the Town of Los Gatos November 1, 2016. Town Council adopted revisions replace any previous investment policy or investment procedures of the Town. SCOPE This Investment Policy applies to all of the Town's short-term operating funds. These funds are described in the Town's annual financial report and include, but are not limited to: General Fund Special Revenue Funds Capital Project Funds Debt Service Funds Enterprise Fund Internal Service Funds Fiduciary Funds ATTACHMENT 2 Small Town Service Community Stewardship Future Focus TITLE: Investment Policy PAGE: 2 of 10 POLICY NUMBER: 4-02 Specifically excluded from this Investment Policy are amounts which are held by a trustee or fiscal agent and pledged as payment or security for bonds or other indebtedness, obligations under a lease, or obligations under certificates of participation. Such funds are invested in accordance with statutory provisions, ordinance, resolution, or indenture governing the issuance of the obligations. In addition, this Investment Policy is not applicable to the Town's Deferred Compensation Plan. These investments are directed by each employee participant in accordance with the rules of the Deferred Compensation Plan. POLICY OBJECTIVES The Town’s funds shall be invested in accordance with all applicable Town policies and codes, State statutes, and Federal regulations, and in a manner designed to accomplish the following objectives, which are listed in priority order: 1. Preservation of capital and protection of investment principal. 2. Maintenance of sufficient liquidity to meet anticipated cash flows. 3. Attainment of a market value rate of return. 4. Diversification to avoid incurring unreasonable market risks. DELEGATION OF AUTHORITY Management responsibility for the Town’s investment program is delegated annually by the Town Manager to the Town Treasurer/Finance Director (the “Treasurer”) pursuant to California Government Code Section 36510. The Treasurer may delegate the authority to conduct investment transactions and to manage the operation of the investment portfolio to other specifically authorized staff members. The Treasurer shall maintain a list of persons authorized to transact securities business for the Town. No person may engage in an investment transaction except as expressly provided under the terms of this Investment Policy. The Treasurer shall develop written administrative procedures and internal controls, consistent with this Investment Policy, for the operation of the Town's investment program. Such procedures shall be designed to prevent losses arising from fraud, employee error, misrepresentation by third parties, or imprudent actions by employees. The Town may engage the support services of outside investment advisors in regard to its investment program, so long as it can be demonstrated that these services produce a net financial advantage or necessary financial protection of the Town's financial resources. PRUDENCE The standard of prudence to be used for managing the Town's investments shall be California Government Code Section 53600.3, the prudent investor standard which states, “When TITLE: Investment Policy PAGE: 3 of 10 POLICY NUMBER: 4-02 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.” The Town's overall investment program shall be designed and managed with a degree of professionalism that is worthy of the public trust. The Town recognizes that no investment is totally without risk and that the investment activities of the Town are a matter of public record. Accordingly, the Town recognizes that occasional measured losses may occur in a diversified portfolio and shall be considered within the context of the overall portfolio's return, provided that adequate diversification has been implemented and that the sale of a security is in the best long-term interest of the Town. The Treasurer and authorized investment personnel acting in accordance with written procedures and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided that the deviations from expectations are reported in a timely fashion to the Town Council and appropriate action is taken to control adverse developments. ETHICS AND CONFLICTS OF INTEREST Elected officials and Town employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program or could impair or create the appearance of an impairment of their ability to make impartial investment decisions. Elected officials and Town employees shall disclose to the Town Council any business interests they have in financial institutions that conduct business with the Town and they shall subordinate their personal investment transactions to those of the Town. In addition, the Town Manager and the Treasurer shall file a Statement of Economic Interests each year pursuant to California Government Code Section 87203 and regulations of the Fair Political Practices Commission. SOCIALLY RESPONSIBLE INVESTING In addition to and subordinate to the objectives set forth above, investment of funds should be guided by the following socially responsible investment goals when investing in corporate securities and depository institutions. Investments shall be made in compliance with the responsible investment goals to the extent that such investments achieve substantially equivalent safety, liquidity and yield compared to other investments permitted by state law. TITLE: Investment Policy PAGE: 4 of 10 POLICY NUMBER: 4-02 (1) Environmental, Social Responsibility and Governance Concerns Investments are encouraged in entities that support community well-being through safe and environmentally sound practices and fair labor practices. Investments are encouraged in entities that support equality of rights regardless of sex, race, age, disability or sexual orientation. All corporate securities within the portfolio will be monitored by an independent third-party who will provide the Town with an ESG (Environmental, Social Responsibility, and Governance) rating. The Town will prefer companies when appropriate that maintain a higher ESG rating as opposed to those companies that have a lower ESG Rating. (2) Community Investments Investments are encouraged in entities that promote community economic development, and investments are discouraged in entities that finance high-cost check-cashing and deferred deposit (payday-lending) businesses. Investments are encouraged in entities that have a demonstrated involvement in the development or rehabilitation of low-income affordable housing and have a demonstrated commitment to reducing predatory mortgage lending and increasing the responsible servicing of mortgage loans. Securities investments are encouraged in financial institutions that have a Community Reinvestment Act (CRA) rating of either Satisfactory or Outstanding, as well as financial institutions that are designated as a Community Development Financial Institution (CDFI) by the United States Treasury Department, or otherwise demonstrate commitment to community economic development. AUTHORIZED SECURITIES AND TRANSACTIONS All investments and deposits of the Town shall be made in accordance with California Government Code Sections 16429.1, 53600-53609 and 53630-53686, except that pursuant to California Government Code Section 5903(e), proceeds of bonds and any moneys set aside or pledged to secure payment of the bonds may be invested in securities or obligations described in the ordinance, resolution, indenture, agreement, or other instrument providing for the issuance of the bonds. Any revisions or extensions of these code sections will be assumed to be part of this Investment Policy immediately upon being enacted. However, in the event that amendments to these sections conflict with this Investment Policy and past Town investment practices, the Town may delay adherence to the new requirements when it is deemed in the best interest of the Town to do so. In such instances, after consultation with the Town’s attorney, the Treasurer will present a recommended course of action to the Town Council for approval. All investment limits specified in the Policy are calculated at the time of investment. The Town has further restricted the eligible types of securities and transactions as follows: 1. United States Treasury bills, notes, bonds, or certificates with a final maturity not exceeding five years from the date of trade settlement. 2. Federal Agency Obligations for which the faith and credit of the United States are pledged for the payment of principal and interest and which have a final maturity not exceeding five years from the date of trade settlement. There is no limit on the percentage of the TITLE: Investment Policy PAGE: 5 of 10 POLICY NUMBER: 4-02 portfolio that can be invested in this category, however, no more than 20% of the town’s total portfolio shall be invested in the combination of Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) mortgage-backed securities. 3. Federal Instrumentality (government sponsored enterprise) debentures, discount notes, callable securities, step-up securities, and mortgage-backed securities (including FNMA and FHLMC) with a final maturity not exceeding five years from the date of trade settlement. There is no limit on the percentage of the portfolio that can be invested in this category, however, no more than 20% of the town’s total portfolio shall be invested in the combination of GNMA, FNMA, and FHLMC mortgage-backed securities. 4. Prime Commercial Paper with a maturity not exceeding 270 days from the date of trade settlement with 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 sub-paragraph A. or sub-paragraph B. below: A. The entity shall (1) be organized and operating in the United States as a general corporation, (2) have total assets in excess of five hundred million dollars ($500,000,000) and (3) Have debt other than commercial paper, if any, that is rated “A” or higher by a NRSRO. B. The entity shall (1) be organized within the United States as a special purpose corporation, trust, or limited liability company, (2) have program wide credit enhancements, including, but not limited to, over collateralization, letters of credit or surety bond and (3) have commercial paper that is rated “A-1” or higher, or the equivalent, by a NRSRO. Purchases of eligible commercial paper shall not exceed: • 10% of the outstanding commercial paper of any single corporate issuer, • 5% of the Town’s total portfolio in the commercial paper of any one issuer, and • 25% of the Town’s total portfolio. 5. Eligible Bankers Acceptances with a maturity not exceeding 180 days from the date of trade settlement, issued by a state or national bank with combined capital and surplus of at least $250 million, whose deposits are insured by the FDIC, and whose senior long-term debt is rated at least A or the equivalent by a NRSRO at the time of purchase. No more than 5% of the Town’s total portfolio shall be invested in banker’s acceptances of any one issuer, and the aggregate investment in banker’s acceptances shall not exceed 30% of the Town’s total portfolio. TITLE: Investment Policy PAGE: 6 of 10 POLICY NUMBER: 4-02 6. Medium Term Notes (Corporate Notes) 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, with a final maturity not exceeding five years from the date of trade settlement and rated at least “A” or the equivalent by a NRSRO. No more than 5% of the Town’s total portfolio shall be invested in the medium-term notes of any one issuer and the aggregate investment in medium term notes shall not exceed 30% of the Town’s total portfolio. 7. Municipal & State Obligations: A. Municipal bonds including registered notes or bonds of any of the 50 states, 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 50 states. B. In addition, bonds, notes, warrants, or other evidences of indebtedness of any local agency in California, including bonds payable solely out of the revenues from a revenue- producing property owned, controlled, operated by the local agency, or by a department, board, agency, or authority of the local agency. Municipal bonds must be rated at least “A” or the equivalent by a NRSRO with maturities not exceeding five years from the date of the trade settlement. No more than 5% of the Town’s total portfolio shall be invested in “A” rated bonds or in the bonds of any one municipality. In addition, the aggregate investment in municipal bonds may not exceed 30% of the total portfolio. 8. Certificates of Deposit with a final maturity not exceeding five years from the date of trade settlement. The aggregate investment in certificates of deposit shall not exceed 30% of the Town’s portfolio, and no more than 5% of the portfolio shall be held in any one deposit or allocated to any one issuer. Certificates of Deposit shall be issued by a nationally or state- chartered bank or a state or federal savings and loan association or by a state-licensed branch of a foreign bank or by a federally licensed branch of a foreign bank provided that the senior debt obligations of the issuing institution are rated at least “A” or the equivalent by a NRSRO. Negotiable certificates of deposit issued by a nationally or state-chartered bank, or by a federally licensed or state-licensed branch of a foreign bank. Purchases of negotiable certificates of deposits are subject to the limitations of Section 53601(i), shall be fully insured by the FDIC with a corresponding FDIC certification number, and shall be delivered through the Depository Trust Company. Non-Negotiable certificates of deposit issued by a nationally or state-chartered bank, or by a federally licensed or state-licensed branch of a foreign bank. Purchases of non-negotiable certificates of deposit are subject to the limitations of Sections 53601(n) and 53638 and shall be fully insured by the FDIC with a corresponding FDIC certification number. TITLE: Investment Policy PAGE: 7 of 10 POLICY NUMBER: 4-02 Private sector entities may be used to place certificates of deposit subject to the limitations of Section 53601.8. 9. State of California’s Local Agency Investment Fund (LAIF), pursuant to California Government Code Section 16429.1. The aggregate amount invested in LAIF shall not exceed the maximum allowed by the fund. 10. Money Market Funds registered under the Investment Company Act of 1940 that (1) are “no-load” (meaning no commission or fee shall be charged on purchases or sales of shares); (2) have a constant net asset value per share of $1.00; (3) invest only in government securities, and (4) have a rating of at least AAA or the equivalent by at least two NRSROs. No more than 10% of the Town’s total portfolio shall be invested in money market funds of any one issuer, and the aggregate investment in money market funds shall not exceed 20% of the Town’s total portfolio. Securities that have been downgraded to a level that is below the minimum ratings described herein may be sold or held at the Town’s discretion. The portfolio will be brought back into compliance with Investment Policy guidelines as soon as is practical. The foregoing list of authorized securities and transactions shall be strictly interpreted. Any deviation from it must be preapproved by resolution of the Town Council. PORTFOLIO MATURITIES AND LIQUIDITY To the extent possible, investments shall be matched with anticipated cash flow requirements and known future liabilities. The Town will not invest in securities maturing more than five years from the date of trade settlement, unless the Town Council has by resolution granted authority to make such an investment at least three months prior to the date of investment. SELECTION OF BROKER/DEALERS The Treasurer shall maintain a list of broker/dealers approved for investment purposes, and it shall be the policy of the Town to purchase securities only from those authorized firms. To be eligible, a firm must meet at least one of the following criteria: • Be recognized as a Primary Dealer by the Federal Reserve Bank of New York or have a primary dealer within their holding company structure; or • Report voluntarily to the Federal Reserve Bank of New York; or • Qualify under Securities and Exchange Commission (SEC) Rule 15c3-1 (Uniform Net Capital Rule). In addition, authorized broker/dealers must be licensed by the State of California as a broker/dealer as defined in Section 25004 of the California Corporations Code. The Town may engage the services of investment advisory firms to assist in the management of the portfolio and investment advisors may utilize their own list of approved broker/dealers. TITLE: Investment Policy PAGE: 8 of 10 POLICY NUMBER: 4-02 Such broker/dealers will comply with the selection criteria above and the list of approved firms shall be provided to the Town on an annual basis or upon request. In the event that an external investment advisor is not used in the process of recommending a particular transaction in the Town’s portfolio, authorized broker/dealers shall attest in writing that they have received and reviewed a copy of the this Investment Policy and shall be required to submit and annually update a Town approved Broker/Dealer Information request form, which includes the firm’s most recent financial statements. The Town may purchase commercial paper from direct issuers even though they are not on the approved broker/dealer list as long as they meet the criteria outlined in Item 4 of the Authorized Securities and Transactions section of this Investment Policy. COMPETITIVE TRANSACTIONS Each investment transaction shall be competitively transacted with authorized broker/dealers. At least three broker/dealers shall be contacted for each transaction and their bid and offering prices shall be recorded. If the Town is offered a security for which there is no other readily available competitive offering, the Treasurer will document quotations for comparable or alternative securities. SELECTION OF BANKS The Treasurer shall maintain a list of banks and savings banks approved to provide banking services for the Town. To be eligible, a bank must be a member of the Federal Deposit Insurance Corporation, must qualify as a depository of public funds in the State of California as defined in California Government Code Section 53630.5 and shall secure deposits in excess of FDIC coverage in accordance with California Government Code Section 53652. Authorized banks that accept deposits from the Town shall meet high standards with regard to liquidity, asset quality, profitability and capital adequacy. The Treasurer shall utilize a commercial bank rating service to perform credit analysis on banks seeking authorization. Banks that in the judgment of the Treasurer no longer offer adequate safety to the Town shall be removed from the Town’s list of authorized banks. SAFEKEEPING AND CUSTODY The Treasurer shall select one or more financial institutions to provide safekeeping and custodial services for the Town. A Safekeeping Agreement shall be executed with each custodian bank prior to utilizing that bank's safekeeping services. Custodian banks will be selected on the basis of their ability to provide services for the Town's account and the competitive pricing of their safekeeping related services. TITLE: Investment Policy PAGE: 9 of 10 POLICY NUMBER: 4-02 The purchase and sale of securities and repurchase agreement transactions shall be settled on a delivery versus payment basis. All securities shall be perfected in the name of the Town. Sufficient evidence to title shall be consistent with modern investment, banking and commercial practices. All investment securities, purchased by the Town, will be delivered by book entry and will be held in third-party safekeeping by a Town approved custodian bank or its Depository Trust Company (DTC) participant account. All Fed wireable book entry securities owned by the Town shall be held in the Federal Reserve System in a customer account for the custodian bank which will name the Town as “customer.” All DTC eligible securities shall be held in the custodian bank’s DTC participant account and the custodian bank shall provide evidence that the securities are held for the Town as “customer.” PORTFOLIO PERFORMANCE The investment portfolio shall be designed to attain a market rate of return throughout budgetary and economic cycles, taking into account prevailing market conditions, risk constraints for eligible securities, and cash flow requirements. The performance of the Town’s investments shall be compared to the average yield on the U.S. Treasury security that most closely corresponds to the portfolio’s weighted average effective maturity. When comparing the performance of the Town’s portfolio, its rate of return will be computed net of all fees and expenses. REPORTING No less than quarterly Every month, the Treasurer shall prepare a report that conforms to Government Code Section 41004. of the investment earnings and performance results of the Town’s investment portfolio. The report shall be submitted to the Town Clerk within 45 days after the end of each quarter month for inclusion as an agenda item at the next scheduled Town Council meeting. The report shall include the following information: 1. Investment type, issuer, date of maturity, par value and dollar amount invested in all securities, and investments and monies held by the Town; 2. A market value as of the date of the report (or the most recent valuation as to assets not valued monthly) and the source of the valuation; 3. Realized and unrealized gains or losses calculated by amortized cost and by fair value; 4. The weighted average maturity of the portfolio and a percentage breakdown of the total portfolio by maturity; 5. A description of the funds, investments and programs that are under the management of contracted parties; 6. The Town of Los Gatos Environmental, Social and Governance (ESG) scores; TITLE: Investment Policy PAGE: 10 of 10 POLICY NUMBER: 4-02 7. A statement of compliance with this Investment Policy or an explanation for non- compliance; and 8. A statement of the ability to meet expenditure requirements for the next six months, and an explanation of why money will not be available if that is the case. PROCEDURES This Investment Policy shall be adopted by resolution of the Town Council. Annually the Town Manger shall present this Investment Policy to the Town Council and the Finance Commission for review to ensure its consistency with the Town’s investment objectives, current law and economic trends. Any amendments to this Investment Policy shall be approved by the Town Council. APPROVED AS TO FORM: _________ Gabrielle Whelan, Town Attorney TOWN OF LOS GATOS OFFICE OF THE TOWN COUNCIL (408) 354-6801 Council@LosGatosCA.gov January 18, 2023 The Honorable Beth McGowen, Presiding Judge Santa Clara County Civil Grand Jury Superior Court Building 191 North First Street San Jose, CA 95113 RE: Response to the Santa Clara Civil Grand Jury Report on “Show Me the Money: Financial Transparency Needed” Dated December 14, 2023 Dear Presiding Judge McGowen, The Town would like to thank the Grand Jury for its work on this important topic. Enclosed please find the Town’s response to the Santa Clara Civil Grand Jury Report on “Show Me the Money, Financial Transparency Needed.” The response was reviewed and approved by the Los Gatos Town Council on January 17, 2023. The Town is required to respond to one Finding and one Recommendation. The attached document contains the Town’s responses to the Finding and Recommendation. In summary, the Town agrees and already implemented the recommendation of monthly reporting. If you have any questions, please contact me at Council@LosGatosCA.gov or (408) 354-6801. Sincerely, Maria Ristow Town of Los Gatos Mayor Enclosure cc: Karen Enzensperger, Foreperson, 2022 Civil Grand Jury Clerk of the Santa Clara County Superior Court ATTACHMENT 3 Town of Los Gatos Response to Grand Jury Report on Ballot Questions Finding: The Town of Los Gatos produced reports that contain the required content but does not produce the treasurer’s reports on a monthly basis as required by California Government Code section 41004. Recommendation: The Town of Los Gatos should produce its reports on a monthly basis to comply with California Government Code section 41004 by March 15, 2023. Response: The Town has already implemented changing the frequency of the reporting from quarterly to monthly.