HomeMy WebLinkAbout2026-02-09 City Council Agenda PacketCITY COUNCIL
Regular Meeting
Monday, February 09, 2026
Council Chambers & Hybrid
5:30 PM
Amended Agenda
Amended agenda items appear below in RED (Time Estimates Updated)
Palo Alto City Council meetings will be held as “hybrid” meetings with the option to attend by
teleconference or in person. Information on how the public may observe and participate in the
meeting is located at the end of the agenda. The meeting will be broadcast on Cable TV Channel
26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamed to Midpen Media
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VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/362027238)
Meeting ID: 362 027 238 Phone:1(669)900-6833
PUBLIC COMMENTS
General Public Comment for items not on the agenda will be accepted in person for up to three
minutes or an amount of time determined by the Chair. General public comment will be heard
for 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.
Public comments for agendized items will be accepted both in person and via Zoom for up to
three minutes or an amount of time determined by the Chair. Requests to speak will be taken
until 5 minutes after the staff’s presentation or as determined by the Chair. Written public
comments can be submitted in advance to city.council@PaloAlto.gov and will be provided to
the Council and available for inspection on the City’s website. Please clearly indicate which
agenda item you are referencing in your subject line. Multiple individuals who wish to speak on
the same item may designate a spokesperson. Spokespersons must be representing five or more
verified individuals who are present either in person or via zoom. Spokespeople will be allowed
up to 10 minutes, at the discretion of the presiding officer. Speaking time may be reduced if the
presiding officer reduces the speaking time for individual speakers.
PowerPoints, videos, or other media to be presented during public comment are accepted only
by email to city.clerk@PaloAlto.gov at least 24 hours prior to the meeting. Once received, the
Clerk will have them shared at public comment for the specified item. To uphold strong
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TIME ESTIMATES
Listed times are estimates only and are subject to change at any time, including while the
meeting is in progress. The Council reserves the right to use more or less time on any item, to
change the order of items and/or to continue items to another meeting. Particular items may be
heard before or after the time estimated on the agenda. This may occur in order to best manage
the time at a meeting or to adapt to the participation of the public.
1 February 09, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas.
CALL TO ORDER
AGENDA CHANGES, ADDITIONS AND DELETIONS
PUBLIC COMMENT (5:35 - 6:05 PM)
Members of the public may speak in-person ONLY to any item NOT on the agenda. 1-3 minutes depending on number of
speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.
COUNCIL MEMBER QUESTIONS, COMMENTS, ANNOUNCEMENTS (6:05 - 6:20 PM)
Members of the public may not speak to the item(s).
CONSENT CALENDAR (6:20 - 6:25 PM)
Items will be voted in one motion unless removed from the calendar by three Council Members.
1.Approval of Minutes from January 20 and January 24, 2026 Meeting
2.Adoption of a Resolution Amending the El Camino Real Retail Node Map for Purposes of
Palo Alto Municipal Code Section 18.40.180: Retail Preservation. CEQA Status:
Addendum to the Comprehensive Plan Environmental Impact Report (EIR), adopted
November 17, 2023 (SCH #2014052101)
3.Adoption of Revisions to the Investment Policy as Recommended by the Finance
Committee. CEQA Status – Not a Project
4.Adoption of a Resolution Authorizing the City Manager to Negotiate and Execute
Purchase Orders with To-Be-Determined Vendor(s) to Procure Nine Vehicle/Equipment
Purchases for a Total Not-to-Exceed Amount of $1,430,000; Approval of a Fourth
Amended and Restated Purchase Order Number 4521000199 with Altec Industries, Inc.,
to Increase the Purchase Order Amount by $94,911 to a New Not-to Exceed Amount of
$1,167,986 for Two Vehicle/Equipment Purchases; and Amend the FY 2026 Budget in the
Vehicle Replacement and Maintenance Fund and Electric Funds; CEQA Status – Not a
Project
5.Approval of an Increase of Construction Contingency for Contract No. C24189237 with
SAK Construction, LLC in the Amount of $800,000 and Amend the FY 2026 Budget in the
Wastewater Treatment Fund for the Joint Intercepting Sewer Rehabilitation (Phase 1)
Project (WQ-24000); CEQA Status - Exempt under CEQA Guidelines Section 15301
(Repairs to Existing Facilities)
6.Approval of Amendment No. 1. of the Future Talent of Silicon Valley dba First Tee - Silicon
Valley (Contract S25192927) Facility Use Agreement to Extend the Term for Three Years
to February 2029; CEQA status – not a project.
2 February 09, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas.
7.Approval of Amendment No. 3 to Contract No. S23187281 with Urban Planning Partners,
Inc. in the Amount of $52,409, Increasing the Not-to-Exceed Amount to $137,409 and
Extending the Contract Term Through December 31, 2027 to Create Standalone Pre-
Approved Parklet Plans as Part of the California Avenue Streetscape Update PL-23000;
CEQA Status – Categorically Exempt under CEQA Guidelines Section 15301 and 15304(e)
8.Approval of Four Professional Services Contracts C26194180A-D, with Interwest
Consulting Group, Inc, TRB and Associates, Inc., Atlas Environmental and West Coast
Code Consultants, Inc. in the Aggregate Total Not-to-Exceed amount of $1,438,800 for
On-Call Fire Code, and Hazardous Material Related Services, Inspection, Plan Review and
Environmental Consultation over a three-year term; CEQA status: not a project.
CITY MANAGER COMMENTS (6:25 - 6:40 PM)
BREAK (15 MINUTES)
ACTION ITEMS (Item 9: 6:55 - 7:05 PM, Item 10: 7:05 - 7:20 PM; Item 11: 7:20 - 8:50 PM; Item
12: 8:50 - 10:00 PM)
Include: Report of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Report of Officials, Unfinished
Business and Council Matters.
9.Approve a resolution for an exception to the CalPERS 180-day waiting period to appoint
retired annuitant Aaron Miller; CEQA Status - Not a Project
10.PUBLIC HEARING: Objections to Weed Abatement at Affected Properties and Approval
of Affected Property List for Commencing Weed Abatement in 2026; CEQA Status -
exempt
11.Cubberley Project: Receive update on Third Round Polling Results, Approve a Letter of
Intent with TheatreWorks Silicon Valley, and Direct Staff on Next Steps Late Packet
Report added
12.Review and Approval of Suggested Changes to the City Council Procedures and
Protocols Handbook as Recommended by the Policy and Services Committee. CEQA
Status – Not a project. Supplemental Report added
CLOSED SESSION (10:00 - 10:30 PM)
3 February 09, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas.
AA1.Conference with Labor Negotiators
Authority: Gov. Code section 54957.6;
Agency representative: Sandra Blanch and Nicholas Raisch, Teri Black, Teri Black & Co.
Unrepresented Employee: City Attorney
New Item added
ADJOURNMENT
INFORMATION REPORTS
Information reports are provided for informational purposes only to the Council and the public but are not listed for action or
discussion during this meeting’s agenda.
A.Rental Residential Vacancy Rate Determination for Properties Containing Three or More
Dwelling Units for the Second Half of 2025. CEQA: Not a Project, Pursuant to CEQA
Guidelines Section 15378(b).
OTHER INFORMATION
Standing Committee Meetings this week
Policy & Services Committee February 10, 2026
Public Comment Letters
Schedule of Meetings
AMENDED / SUPPLEMENTAL AGENDA ITEMS
11.Cubberley Project: Receive update on Third Round Polling Results, Approve a Letter of
Intent with TheatreWorks Silicon Valley, and Direct Staff on Next Steps Late Packet
Report added
12.Review and Approval of Suggested Changes to the City Council Procedures and
Protocols Handbook as Recommended by the Policy and Services Committee. CEQA
Status – Not a project. Supplemental Report added
4 February 09, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas.
AA1.Conference with Labor Negotiators
Authority: Gov. Code section 54957.6;
Agency representative: Sandra Blanch and Nicholas Raisch, Teri Black, Teri Black & Co.
Unrepresented Employee: City Attorney
New Item added
PUBLIC COMMENT INSTRUCTIONS
Members of the Public may provide public comments to teleconference meetings via email,
teleconference, or by phone.
1.Written public comments may be submitted by email to city.council@PaloAlto.gov.
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discussion of the item.
3.Spoken public comments for agendized items using a computer or smart phone will be
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CLICK HERE TO JOIN Meeting ID: 362-027-238 Phone: 1-669-900-6833
Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public
programs, services and meetings in a manner that is readily accessible to all. Persons with
disabilities who require materials in an appropriate alternative format or who require auxiliary
aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at
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service.
5 February 09, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas.
California Government Code §84308, commonly referred to as the "Levine Act," prohibits an
elected official of a local government agency from participating in a proceeding involving a
license, permit, or other entitlement for use if the official received a campaign contribution
exceeding $500 from a party or participant, including their agents, to the proceeding within the
last 12 months. A “license, permit, or other entitlement for use” includes most land use and
planning approvals and the approval of contracts that are not subject to lowest responsible bid
procedures and have a value over $50,000. A “party” is a person who files an application for, or
is the subject of, a proceeding involving a license, permit, or other entitlement for use. A
“participant” is a person who actively supports or opposes a particular decision in a proceeding
involving a license, permit, or other entitlement for use, and has a financial interest in the
decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform
Act, which encompasses interests in business entities, real property, sources of income, sources
of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a
“party” or “participant” to a proceeding, and you have made a campaign contribution to a
Council Member exceeding $500 made within the last 12 months, you must disclose the
campaign contribution before making your comments.
6 February 09, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas.
City Council
Staff Report
Report Type: CONSENT CALENDAR
Lead Department: City Clerk
Meeting Date: February 9, 2026
Report #:2601-5864
TITLE
Approval of Minutes from January 20 and January 24, 2026 Meetings
RECOMMENDATION
Staff recommends that the City Council review and approve the minutes.
ATTACHMENTS
Attachment A: January 20, 2026 Draft Action Minutes
Attachment B: January 24, 2026 Draft Action Minutes
APPROVED BY:
Mahealani Ah Yun, City Clerk
Item 1
Item 1 Staff Report
Item 1: Staff Report Pg. 1 Packet Pg. 7 of 341
CITY COUNCIL
DRAFT ACTION MINUTES
Page 1 of 4
Special Meeting
January 20, 2026
The City Council of the City of Palo Alto met on this date in the Council Chambers and by virtual
teleconference at 5:30 P.M.
Present In Person: Burt, Lauing, Lu, Lythcott-Haims, Reckdahl, Stone, Veenker
Present Remotely:
Absent:
Special Orders of the Day
1. Proclamation honoring Aaron (Bunk) Miller for 34 Years of Service to the Palo Alto
Regional Water Quality Control Plant and its partner agencies.
NO ACTION
Agenda Changes, Additions and Deletions
Public Comment
Council Member Questions, Comments and Announcements
Study Session
2. Presentation of the 2025 Annual Community Survey Results. CEQA Status -- Not a
project.
NO ACTION
Item 1
Attachment A - January 20,
2026 Draft Action Minutes
Item 1: Staff Report Pg. 2 Packet Pg. 8 of 341
DRAFT ACTION MINUTES
Page 2 of 4
Sp. City Council Meeting
Draft Action Minutes: 01/20/2026
Consent Calendar
Councilmember Lythcott-Haims registered a no vote on Agenda Item Number 10.
MOTION: Vice Mayor Stone moved, seconded by Councilmember Reckdahl to approve Agenda
Item Numbers 3-10.
MOTION PASSED ITEMS 3-9: 7-0
MOTION PASSED ITEM 10: 6-1, Lythcott-Haims
3. Approval of Minutes from January 5, 2026 Meeting
4. Accept CalPERS Pension Annual Valuation Report as of June 30, 2024; CEQA Status – Not
a project.
5. Approval of the Advisory Report: Contract Solicitation & Authority Levels and
Subsequent Management Response as recommended by the Policy & Services
Committee. CEQA Status – Not a Project.
6. Approval of the City of Palo Alto’s Updated 2026 Water, Gas, and Wastewater Utility
Standards (Design and Construction); CEQA Status- Not a Project.
7. Adopt a Resolution to Allow Consumption of Alcohol under PAMC section 9.04.010 on
Certain Days and Times through May 31, 2026, on California Avenue.
8. Approve Recommended Changes that will Align Increased General Liability Insurance
Costs in the General Liability Fund to be Included in the Mid-Year Budget Report as
Recommended by the Finance Committee. CEQA Status—Not a project.
9. Approval of Contract Amendment Number 3 to Contract C23183770 with Townsend
Public Affairs, Inc. in the amount of $186,000 to Revise the Not-to-Exceed Total to
$744,000 and to Extend the Term for an Additional Year of Service (the third of four
one-year options to renew) for State and Federal Legislative Advocacy and Grant
Consulting and Compliance Services; CEQA Status - Not a Project
10. SECOND READING: Ordinance of the Council of the City of Palo Alto Repealing and
Replacing Section 18.40.250 (Lighting) of Chapter 18.40 (General Standards and
Exceptions) and Amending Chapters 18.10, 18.12, 18.28 and Section 18.40.230 of Title
18 (Zoning) of the Palo Alto Municipal Code to Adopt New Outdoor Lighting Regulations
(REINTRODUCED FIRST READING: December 8, 2025; PASSED:6-1, Lythcott-Haims, no)
Item 1
Attachment A - January 20,
2026 Draft Action Minutes
Item 1: Staff Report Pg. 3 Packet Pg. 9 of 341
DRAFT ACTION MINUTES
Page 3 of 4
Sp. City Council Meeting
Draft Action Minutes: 01/20/2026
City Manager Comments
Ed Shikada, City Manager
Action Items
11. Policy and Services Committee Recommendation to Adopt the 2026 State and Federal
State Legislative Guidelines and 2026 Utility Policy Guidelines, and Receive an Update on
State and Federal Legislative Advocacy; CEQA Status – Not a Project
MOTION: Mayor Veenker moved, seconded by Councilmember Reckdahl to:
1. Adopt the 2026 State and Federal Legislative Guidelines and 2026 Utility Policy
Guidelines and receive an update on State and Federal Legislative Advocacy and add the
following amendments to the Housing Section of Guidelines:
a. Clarify and streamline the process for developing affordable housing on city-
owned land
b. Advocate for additional state and federal funding in support of affordable
housing
c. Advocacy for reevaluations to the RHNA requirements for mid-cycle mandates
on cities
d. Support changes to the legislative guidelines that align with Council’s
recommended reforms to SB79, if any.
2. Direct staff to next year review and revise, as appropriate, the Utilities Legislative
Guidelines and the Climate and Environment Section Guidelines to be consistent with
each other and mutually supportive.
MOTION PASSED: 7-0
PORTION OF MOTION REMOVED WITH THE CONSENT OF THE MAKER AND SECONDER
MOTION SPLIT FOR THE PURPOSE OF VOTING
MOTION: Mayor Veenker moved, seconded by Councilmember Reckdahl to:
3. Adopt a support position for SB63 advocacy (Connect Bay Area Transit Committee) and
follow up accordingly.
MOTION PASSED/FAILED: X-X
Item 1
Attachment A - January 20,
2026 Draft Action Minutes
Item 1: Staff Report Pg. 4 Packet Pg. 10 of 341
DRAFT ACTION MINUTES
Page 4 of 4
Sp. City Council Meeting
Draft Action Minutes: 01/20/2026
12. Review the FY 2027-FY 2036 Long Range Financial Forecast (LRFF) and FY 2027 Budget
Development Guidelines using the LRFF as the Baseline for Developing the FY 2027
Budget as Recommended by the Finance Committee, CEQA Status – Not a Project
MOTION: Councilmember Lauing moved, seconded by Councilmember Reckdahl to accept the
Long Range Financial Forecast (LRFF) for Fiscal Year 2027-2036 (Attachment A) and the FY 2027
annual Budget Development Guidelines (Attachment B) and direct staff to use this forecast as
the baseline for developing the FY 2027 budget.
MOTION PASSED: 7-0
Adjournment: The meeting was adjourned at 10:42 P.M.
ATTEST: APPROVED:
____________________ ____________________
City Clerk Mayor
NOTE: Action minutes are prepared in accordance with Palo Alto Municipal Code (PAMC)
2.04.160(a) and (b). Summary minutes (sense) are prepared in accordance with PAMC Section
2.04.160(c). Beginning in January 2018, in accordance with Ordinance No. 5423, the City Council
found action minutes and the video/audio recordings of Council proceedings to be the official
records of both Council and committee proceedings. These recordings are available on the
City’s website.
Item 1
Attachment A - January 20,
2026 Draft Action Minutes
Item 1: Staff Report Pg. 5 Packet Pg. 11 of 341
CITY COUNCIL RETREAT
DRAFT ACTION MINUTES
Page 1 of 2
Special Meeting
January 24, 2026
The City Council of the City of Palo Alto met on this date at Mitchell Park Community Center (El
Palo Alto Room) and by virtual teleconference at 9:00 A.M.
Present In Person: Burt, Lauing, Lu, Reckdahl, Stone, Veenker
Present Remotely: Lythcott-Haims (Just Cause Alternative Teleconference)
Absent:
Call to Order
2026 Annual Council Retreat Program
1. Overview and orientation to retreat focus
City Council Retreat: Discussion and Selection of the 2026 City Council Priorities and Ad
Hoc Committees. CEQA Status -- Not a Project.
A. Public Comment
B. Discussion and selection of Priorities and methods to prioritize and ensure
progress
• Key inputs, including Council values, 2025 priorities, and staff draft
2026 objectives
• Discussion of terminology and process for selecting priorities
• Selection of 2026 priorities
C. Discussion of Council ad hoc committees and other strategies to achieve goals
D. Next Steps
MOTION: Councilmember Reckdahl moved, seconded by Councilmember Burt to set the
following as the 2026 Council Priorities:
Item 1
Attachment B January 24,
2026 Draft Action Minutes
Item 1: Staff Report Pg. 6 Packet Pg. 12 of 341
DRAFT ACTION MINUTES
Page 2 of 2
Sp. City Council Meeting
Draft Action Minutes: 01/25/2025
1. Government Efficiency
2. Achieve Near-term Priority Housing Milestones
3. Cubberley Acquisition and Renovation Funding
MOTION PASSED: 7-0
MOTION: Mayor Veenker moved, seconded by Vice Mayor Stone to add a fourth 2026 Council
priority of “Enhance Business Vibrancy”.
MOTION PASSED: 5-2, Lauing, Reckdahl no
2026 City Council Priorities:
1. Government Efficiency
2. Achieve Near-term Priority Housing Milestones
3. Cubberley Acquisition and Renovation Funding
4. Enhance Business Vibrancy
Adjournment: The meeting was adjourned at 3:05 P.M.
ATTEST: APPROVED:
____________________ ____________________
City Clerk Mayor
NOTE: Action minutes are prepared in accordance with Palo Alto Municipal Code (PAMC)
2.04.160(a) and (b). Summary minutes (sense) are prepared in accordance with PAMC Section
2.04.160(c). Beginning in January 2018, in accordance with Ordinance No. 5423, the City Council
found action minutes and the video/audio recordings of Council proceedings to be the official
records of both Council and committee proceedings. These recordings are available on the
City’s website.
Item 1
Attachment B January 24,
2026 Draft Action Minutes
Item 1: Staff Report Pg. 7 Packet Pg. 13 of 341
City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Planning and Development Services
Meeting Date: February 9, 2026
Report #:2506-4768
TITLE
Adoption of a Resolution Amending the El Camino Real Retail Node Map for Purposes of Palo
Alto Municipal Code Section 18.40.180: Retail Preservation. CEQA Status: Addendum to the
Comprehensive Plan Environmental Impact Report (EIR), adopted November 17, 2023 (SCH
#2014052101)
RECOMMENDATION
Adopt the Resolution (Attachment A) amending the El Camino Real Retail Node Map for the
purposes of Palo Alto Municipal Code Section 18.40.180: Retail Preservation unanimously
recommended for adoption by the Planning and Transportation Commission.
EXECUTIVE SUMMARY
As directed by City Council on March 3, 2025, the Planning and Transportation Commission
(PTC) discussed the El Camino Real Retail Node Map, including the temporary “interim node”
adopted by City Council with the modifications to the Retail Preservation Ordinance. A revised
map, as unanimously recommended by the PTC and the Retail Committee, is provided as
Exhibit 1 to the Draft Resolution in Attachment A.
BACKGROUND
The 2023-2031 Housing Element identified the retail preservation ordinance as a potential
constraint to housing development. Housing Element Program 3.4B calls for waivers from and
modifications to these regulations to accommodate more housing density and affordability
while focusing retail development in the most desirable locations in Palo Alto, including retail
node locations along the southern portion of El Camino Real.
December 2024 Planning and Transportation Commission Hearing
On December 17, 2024, the PTC held a public hearing and recommended that the City Council
adopt an ordinance to modify the Housing Incentive Program, Affordable Housing Incentive
Program, and Retail Preservation Ordinance. As part of the motion, the PTC asked for the map
of retail nodes on El Camino Real to return to the PTC in the first quarter of 2025 to consider
additional retail node locations.
Item 2
Item 2 Staff Report
Item 2: Staff Report Pg. 1 Packet Pg. 14 of 341
March 2025 City Council Hearing
1 April 30, 2025,2
and May 28, 2025.3, 4 PTC recommendations, summarized below have been incorporated into
the subject attachment. Specifically, the Commission focused on the following refinements:
Reduce complexity of overlapping rules, especially for:
o Parcels with little/no existing retail;
o Housing Element sites eligible for 100% housing, though some Housing Element
sites were included for contiguity of the nodes;
o Parcels zoned Planned Community (PC), where the RPO does not apply; and
o Areas covered by other regulations (Retail Overlay) or recent plans (El Camino Real
Focus Area, North Ventura CAP).
Assess impacts of retail-preservation requirements on future housing feasibility,
particularly on narrow/shallow lots.
Address small-site parking constraints, especially along long segments of El Camino Real
where on-street parking has been replaced by bike lanes.
1 March 26, 2025 PTC Meeting, Agenda Item 3:
2 April 30, 2025 PTC Meeting Video:
3 May 28, 2025 PTC Meeting, Agenda Item 3:
4 May 28, 2025 PTC Meeting Video:
Item 2
Item 2 Staff Report
Item 2: Staff Report Pg. 2 Packet Pg. 15 of 341
Consider including student-serving retail areas along the West Charleston/Arastradero
corridor.
The unanimous PTC recommendation is for adoption of a revised El Camino Real Retail Node
Map with three nodes (Attachment A):
1.Central Node: This node is located halfway between California Avenue and the City’s
southern boundary, including properties on both sides of El Camino Real from Matadero
Creek to Los Robles Avenue.
2.Triangle Node: This node includes the properties on the “triangle” between El Camino
Real and El Camino Way, as well as the commercial properties on the other side of El
Camino Way.
3.Bike to School Node: This node incorporates the “Auto Dealerships Node” with
additional adjacent commercial properties, and those on two of the other three corners
of the Charleston Road/Arastradero Road/El Camino Real intersection.
This process and ordinance change is separate and distinct from other retail ordinance work
underway. Specifically, the City Council adopted a 2025 Council priority objective
“consideration of an ordinance that expends retail opportunities and promotes retail resiliency”
Work is underway to prepare recommendations on retail approaches and ordinance revision
with PTC review is anticipated in calendar year 2025 followed by Council review in 2026.
Retail Committee
On January 22, 2026, the Retail Committee reviewed the map recommended by the PTC. After
discussion of several questions, including the deliberation by the PTC, the names given to the
proposed nodes, and the impact of the Housing Element opportunity sites in the area, the
Retail Committee voted unanimously to recommend that Council approve the map as
proposed.
ANALYSIS
The El Camino Real Retail Node Map adopted by City Council on March 2, 2025, included an
“interim node” to temporarily preserve retail preservation protections for existing retail on
properties on El Camino Real and El Camino Way between Page Mill Road and the southern City
boundary, plus a small node at the intersection of El Camino Real and California Avenue. As
provided in the Background Section above, the motion on March 2, 2025, to adopt the map also
referred the map to the Planning and Transportation Commission for further discussion and
recommendation to City Council.
Housing Element Program 3.4 specified changes to be made to the City’s Housing Incentive
Program (HIP) and specified that this work should include modifications to the retail
preservation ordinance to reduce the amount of retail replacement except in certain combining
districts and “strategic locations generally depicted in the draft South El Camino Real Design
Guidelines.”
Item 2
Item 2 Staff Report
Item 2: Staff Report Pg. 3 Packet Pg. 16 of 341
Figure 1: Draft South El Camino Real Design Guidelines Node Map
The PTC recommendation aligns closely to this map, with more detail and specificity, along with
an understanding that California Avenue retail is already protected by the existing Retail (R) and
Pedestrian (P) overlays and therefore does not need a specific node.
As recommended by the Streetsense Economic Development Strategies Report, shared with
City Council on August 14, 2023, the goal is to concentrate ground-floor retail in a few strategic
areas (“nodes”) where foot traffic, transit, and anchor destinations already cluster, so that each
storefront reinforces the next and creates a true “stroll” experience. Reducing and focusing the
areas of stronger retail preservation requirements, allows those properties outside these
nodes, more flexible uses (e.g., services, offices, housing) to right-size supply, reduce vacancies,
and channel investment to the places with the best chance of thriving.
The revised map recommended by the PTC is based on a detailed discussion, as described
above. PTC’s efforts focused on simplifying overlapping retail regulations, aligning retail-
preservation requirements with housing feasibility (especially on narrow/shallow lots),
addressing small-site parking constraints, including along El Camino Real where on-street
spaces were replaced by bike lanes, and evaluating inclusion of student-serving retail corridors
along West Charleston/Arastradero.
As part of the implementation of Program 3.2 (Monitor Constraints to Housing) of the Housing
Element, the City committed to prepare an analysis in staff reports for initiatives proposing new
regulations. This analysis details how the regulations may impact housing production, if at all,
and recommend solutions to address any adverse impacts.
The recommended map is the final step in the HIP, AHIP, Retail Preservation update efforts to
implement the following Housing Element programs:
• Housing Element Program 3.3A, B, and D to streamline, incentivize, and improve project
feasibility of 100% affordable housing projects.
• Housing Element Program 3.4A-D to expand development incentives in the Housing
Incentive Program (HIP) and extend the program to additional zoning districts to
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facilitate housing production. Based on quantified objectives in the Housing Element,
this modification is anticipated to generate 550 housing units.
• Housing Element Program 6.2A to incentivize larger units and create family-friendly
housing.
As a result, the recommended map, that reduces the areas with strongest retail preservation
protections, would help affirmatively affirm fair housing goals expressed in the Housing
Element.
FISCAL/RESOURCE IMPACT
Changes to the nodes subject to the Retail Preservation Ordinance are consistent with Housing
Element Program 3.4C, which committed to reductions in retail requirements in support of
future housing development; as discussed with the City Council on March 3, 2025, and
described above. Direct fiscal impacts are not anticipated from this action. However, the
actions recommended in this report more effectively concentrate retail into three nodes along
El Camino Real, thereby creating clusters of retail that can provide goods and services to the
surrounding neighborhood. The previous ’interim’ retail node that extended from Page Mill
south along El Camino Real to the City limits would have applied retail preservation
requirements to that entire corridor, which was not consistent with Housing Element Program
3.4C and included areas that were less viable retail locations. This refined map confers greater
flexibility and better balances the potential for residential development with the continued
need for neighborhood-serving retail opportunities. This is anticipated to create a greater
synergy between commercial and potential residential in this corridor, which may positively
impact revenues in Sales Tax and Property Tax categories.
STAKEHOLDER ENGAGEMENT
Preparation of the Housing Element included a range of community outreach methods,
including surveys, Working Group meetings, community workshops, and public hearings.
Hundreds of community members have participated in the Housing Element update over the
course of the project. Community members have an opportunity to provide feedback on the
draft standards at PTC, Architectural Review Board (ARB), and City Council study sessions and
public hearings.
ENVIRONMENTAL REVIEW
On April 15, 2024, the City Council adopted Resolution No. 10155, approving an Addendum to
the Comprehensive Plan Environmental Impact Report (EIR). The addendum analyzed potential
environmental impacts of the 6th Cycle Draft Housing Element. This includes implementation of
Housing Element Programs 3.4, including changes to the Retail Preservation Ordinance.
ATTACHMENTS
Attachment A: Draft Resolution (including Exhibit 1 - El Camino Real Retail Nodes Map)
APPROVED BY: Jonathan Lait, Planning and Development Services Director
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*NOT YET APPROVED*
1
0160176_20250820_ay16
Resolution No. ____
Resolution of the Council of the City of Palo Alto Updating
the El Camino Real Retail Node Map
R E C I T A L S
WHEREAS, on April 7, 2025, the City Council adopted Ordinance No. 5650, amending Title
18 of the Palo Alto Municipal Code to implement Programs 3.3 and 3.4 of the 2023-2031 Housing
Element.
WHEREAS, Ordinance No. 5650 revised the City’s retail preservation regulations for
housing projects, and adopted an El Camino Real Retail Node map to define areas where more
specific retail preservation requirements may apply.
WHEREAS, the El Camino Real Retail Node map approved by the City Council on April 7,
2025 included an “interim” node encompassing most of El Camino Real, allowing the Planning
and Transportation Commission to further review and recommend refinements for a final retail
node map; and
WHEREAS, the Planning and Transportation Commission considered map revisions on
March 26, 2025, April 30, 2025, and May 28, 2025 before arriving at a recommendation to the
City Council; and
WHEREAS, the City Council now wishes to update the El Camino Real Retail Node map;
NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE as follows:
SECTION 1. The El Camino Real Retail Node map shall be updated to reflect the
boundaries shown in Exhibit 1, attached hereto and incorporated herein.
SECTION 2. Upon adoption of this resolution, the City Clerk shall direct that Figure 5 in
Section 18.40.140 of the Palo Alto Municipal Code shall be updated to reflect the new El Camino
Real Retail Node map.
//
//
//
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Attachment A - Draft
Resolution
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*NOT YET APPROVED*
2
0160176_20250820_ay16
SECTION 3. In accordance with the California Environmental Quality Act (CEQA), the
City prepared an Addendum to the 2017 Comprehensive Plan Environmental Impact Report (EIR),
analyzing the potential environmental impacts of the 2023-2031 Housing Element. On May 8,
2023, the City Council adopted Resolution No. 10107, and on December 18, 2023, the City Council
approved a Revised Addendum, finding that the Addendum, as revised, and the 2017 EIR
adequately analyzed the environmental impacts of the Housing Element, including the Programs
implemented by this resolution.
INTRODUCED:
PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
____________________________ ____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
____________________________ ____________________________
Assistant City Attorney City Manager
____________________________
Director of Planning and
Development Services
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Attachment A - Draft
Resolution
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X
X
X
X
Triangle Node
Bike to School Node
StanfordUniversity
Mountain View
Los Altos
Page Mill Road
Charleston Road
Yale Street
Jacaranda
Lane
MackayDrive
Ash Street
El Camino Real
Orme Street
Ramos Way(Private)
Hanover Street
Nevada
Avenue
Columbia Street
Deodar
Street
Redwood Circle
Margarita Avenue
Hansen Way
Portage
Avenue
Lambert Avenue
Paradise Way
Fernando Avenue
Olive Avenue
Cambridge
Avenue Ventura Avenue
Grant
Avenue
Matadero Avenue
Maybell Avenue
Curtner Avenue
Wilton
Avenue
Barron Avenue
SecondStreet
High Street
Oregon Avenue
RickeysWay(Private)
Oregon Expressway
Whitclem Drive
Alger Drive
Marion Avenue
Military
Way
Cowper Street
VillaVera(Private)
Loma Verde Avenue
Bowdoin Street
La Donna Street
Whitsell Street
Glenbrook Drive
FerneCourt
McGregorWay
Lane 66
Laguna Avenue
Stanford Avenue
La Jennifer
Way Amaranta Avenue
JulieCourt
Saint
Claire
Drive
Terman Drive
Gary
Court
Arastradero Road
WrightPlace
PeralLane
Ramona Street
Miller Avenue
El CentroStreet
La Calle
Creekside Drive
Suzanne Drive
Monroe Drive
PenaCourt
El CerritoRoad
Duluth
Circle
South Court
Irven
Court
El Capitan
Place
Silva Avenue
Rincon
Circle
Waverley Street
Nelson
Court
Encina
Grande
Drive
Timlott
Lane
YnigoWay
Laguna
Oaks
Place
Florales Drive
Anton
Court
Ely Place
DartmouthStreet
Los
Palos
Place
Adobe
Place
ScrippsAvenue
WellesleyStreet
Amherst
Way
Park Boulevard
Cesano
Court
Nelson Drive
Josina Avenue
Cypress Lane(Private)
McKellarLane
CarlsonCourt
Ferne Avenue
Campana Drive
ArbolDrive
MumfordPlace
SolanaDrive
Santa Rita Avenue
Washington
Avenue
North California Avenue
DakeAvenue
Bryant StreetEl Dorado Avenue
MackallWay
Alma Street
Wilkie Way
Jacobs
Court
(Private)
Georgia Avenue
Carolina
Lane
Acacia
Avenue
Keats
Court
CassWay
Colorado Avenue
Lundy
Lane
El Verano Avenue
Campesino Avenue
College
Avenue
Drake
Way
Los Robles Avenue
West
Charleston
Road
California Avenue
East Meadow Drive
MagnoliaDrive
OberlinStreet
La SelvaDrive
DixonPlace
Thain
Way
Cornell Street
Princeton Street
Harvard Street
Williams Street
Kipling Street
Verdosa Drive
El Carmelo Avenue
Scripps
Court
Pomona Avenue
OrindaStreet
Shauna
Lane
Emerson Street
Los PalosAvenue
Birch Street
MaybellWay
La MataWay
StauntonCourt
Tennessee
Lane
Ashton
Avenue
Maclane
Duncan Place
CherryOaksPlace
Sheridan
Avenue
Amherst Street
Chestnut
Avenue
El CaminoWay
Tioga
Court
Lindero
Drive
Shasta
Drive
Diablo
Court
Cerrito
Way
Greenmeadow
Way
CarlsonCircle
Maureen
Avenue
Starr King
Circle
West Meadow Drive
Dinah's
Court
Magnolia
Drive
South
Ilima
Court
Cowper
Court
Juniper Lane(Private)
KingArthur'sCourt
BakerAvenue
Silva
Court
Oxford Avenue
AbelAvenue
San Jude
Avenue
Edlee Avenue
Miller
Court
Rinconada Avenue
Pepper
Avenue
Clemo Avenue
James
Road
CoulombeDrive
Manzana Lane
Rambow Drive
Parkside Drive
Fairmede
Avenue
Ilima Way
Kendall Avenue
SaintMichaelDrive
Chimalus Drive
Laguna Way
Hubbartt Drive
Donald Drive
Paul Avenue
Cereza Drive
Roosevelt Circle
La Para Avenue
Roble Ridge (Private)
Willmar Drive
Ben
Lomond
Drive
PC-4637
PF
RM-30
CS CS
R-1
R-1 (10000)
CS (H)
RM-40
PF
RE
PC-2930
RM-15
PC-3023
CS
RM-30
CC(2)(R)
R-2
RM-30
RM-30RM-15
R-2
NV-R4
RM-30
GM
R-2
PF
RM-15
NV-MXH
NV-R3
RE
PF (AS3)
CN
RP (L)
CN
CS (AS1)
RP (L)
R-2
CS
RP (AS2)
RMD
CC (2)(R)(P)
R-2
R-2
R-2
RM-30RM-30
RM-30
CC (2)(R)
CC (2)(R)
CC (2)(R)
PF (R)
PF (R)
PF(R)
PC-4127
RM-30
R-1 PF
RM-15 R-2
RM-15RM-15
RM-30
PF
PF
R-1 (10000)
R-2
RM-15
PF
PC-4268
PC-2224
PC-3028
PC-4354
PC-2293
CC
RM-15
NV-MXLNV-R2
CSPC-4463
PF
RM-40
R-1
RM-15
RM-30
CN
R-1(S)
R-2
R-1 PF
RM-15
RM-30
PF
PF
PC-2666 PC-2666
RM-30
R-1 (10000)
R-1
R-2
R-1
CNRM-15
CC(2)CC(2)
PF
PF
PF
PFPF
PF
RMD (NP)
R-1
RP
PF
PF
PF
RM-15
CS (H)
RM-30
PC-4190PC-3041
PF
RM-30
R-1
RM-30
PC-2218
PC-2656
RM-15
PC-5116
RM-30
RM-15
PC-3133
PC-4511
RM-15
RM-30
R-1 (7000)
PF
RM-30RM-40
R-1 (S)
CS(L)
PC-4448
CS
CS (L)
RM-40
RM-15PC-2744
R-1 (8000)
RM-30PC-5034
R-1
CC (2)(P)
NV-MXM
CS CSCS(AD)
PC-4831
CN
PC-4956
RM-30RM-30
PC-2236
R-1 (7000)
R-2
R-1 (8000)
R-1(8000)
CN (GF/P)
PFPF (D)
R-2
R-1 (10000)
R-1 (8000)
R-1 (7000)(S)
R-1
R-1 (8000)(S)
R-1 (8000)RM-15
RM-15
PC-3036
CS
CS CS
CS (H)
RM-15
PF
RM-15
CN RM-30
R-2
PF
CN
PC-5069
RM-15CS (L)(D)
PTODRM-40
RM-40CC(2)(R)
CC (2)(R)
CC (2)CC (2)
CC (2)
PF
R-1
R-1
PC-4753 NV-R1
NV-MXM
CS
NV-MXH
GM
NV-MXL
NV-PF
Central Node
This map is a product of
City of Palo Alto GIS
[
0 480 960240
Feet
South El Camino Real Retail Nodes and Zoning
South El Camino Real Retail Nodes
Housing Element Sites
City Limit
Zone Districts
X Transportation Stations
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Attachment A Exhibit 1 - El Camino Real Retail
Nodes Map
Item 2: Staff Report Pg. 8 Packet Pg. 21 of 341
City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: February 9, 2026
Report #:2512-5767
TITLE
Adoption of Revisions to the Investment Policy as Recommended by the Finance Committee.
CEQA Status – Not a Project
RECOMMENDATION
The Finance Committee and staff recommend the City Council approve the City’s Investment
Policy (Attachment A).
BACKGROUND
The Investment Policy (Policy) requires that the Policy be reviewed annually, and that any
changes be approved by the City Council. The Policy and revisions were reviewed by the
Finance Committee on January 6, 20261. The Policy, and monthly and quarterly investment
activity reports can be found on the City’s website2.
Earlier this year, the City’s investment management function transitioned from an in-house to a
specialized asset portfolio management firm, Chandler Asset Management (Chandler). In
addition to active investment management, this transition leverages the expertise of a
professional firm in areas such as cash flow forecasting and investment advisory and strategy
services.
On October 21, 2025, the Finance Committee received and discussed an overview of
investment advisory services to be performed by Chander3. At this meeting, the Committee,
staff, and Chandler discussed the City Auditor’s recommendations from the December 2023
Investment Management4; initial observations made by Chandler related to the City’s cash flow
1 Finance Committee, January 6, 2026, Item #1:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=18526
2 City Investment Reports and Policy: www.paloalto.gov/investmentreporting
3 Finance Committee, October 21, 2025, Item #2:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=16276
4 Policy & Services Committee, December 12, 2023, Item #5:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=12186
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analysis, banking and custodial arrangements, active asset management strategy, and the
Policy; and staff and Chandler’s workplan to transition investment management from in-house
to Chandler. The Details of these items are outlined in staff’s report to the Committee.
th meeting and unanimously
approved the following motion:
MOTION: Councilmember Reckdahl moved, seconded by Councilmember Lythcott-Haims, to
recommend the City Council approve revisions to the City’s Investment Policy (Attachment B)
with the following changes:
In #3 of the General Investment Guidelines section, define “liquid investments”
Edit #4 of the General Investment Guidelines section to read: “Should the ratio of the
market value of the portfolio to the book value of the portfolio fall below 95 percent,
the Administrative Services Department will report this fact to the City Council
quarterly within a reasonable time frame and evaluate whether there is any risk of
holding any of the securities to maturity.”
Edit the final sentence of #5 of the General Investment Guidelines section to read:
“As soon as reasonably possible, percentage limitations will be restored as
investments mature in each category.”
In #8 of the Authorized Investment section, reference the California Government
Code limits and collateralization requirements
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ANALYSIS
The primary recommended changes to the Policy are listed below:
The staff report from the Finance Committee’s January 6, 2025 meeting1 and Chandler’s
memorandum9 provide a detailed discussion of these changes.
The transition to Chandler Asset Management is expected to increase the City’s return on
investments. Revised forecasts assume average portfolio returns of 3.0 to 3.3% over the next
several years as existing investments mature and are reinvested under the new investment
strategy, compared to previous earnings of approximately 2.6% (as of August 2025 snapshot).
Additionally, the City implemented a new automated daily sweep into interest earning
accounts, this streamlined process is also yielding additional interest income. Based on these
improvements and assumptions, citywide investment returns are projected to be
approximately $18.7 million in FY 2027, with the General Fund receiving approximately 20% of
these receipts. Citywide, this reflects a $2.9 million or 18.4% increase over FY 2026 Adopted
Budget levels. Changes in the Policy can be accommodated with existing staff and investment
advisory resources.
Staff worked internally, with its investment advisory, and the Finance Committee to review the
Policy and consider the changes that align the policy with investment portfolio goals and
objectives, industry best practices, and alignment with the California Government Code.
9 Finance Committee, January 6, 2026, Item #1:
https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=03d484c6-e481-427c-83ff-85e88651d701
POLICY PHILOSOPHY &
GOVERNANCE
•Removed “hold to maturity”
language to allow for tactical sales
before maturity
READABILITY
•Clarified and more strongly
defined descriptions of prohibited
investments.
TECHNICAL UPATES
•Revised concentration limits and
credit quality limits to be more
inline with Code.
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ENVIRONMENTAL REVIEW
ATTACHMENTS
APPROVED BY:
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Investment Policy
(Proposed February 9, 2026)
INTRODUCTION
The City of Palo Alto invests its pooled idle cash according to State of California law and the charter
of the City of Palo Alto. In particular, the City follows “The Prudent Investor Standard” cited in the
State Government Code (Section 53600.3). Under this standard, all governing bodies of local
agencies or persons authorized to make investment decisions on behalf of the City are trustees and
therefore fiduciaries subject to the prudent investor standard. When 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.
INVESTMENT PHILOSOPHY
The basic principles underlying Palo Alto's investment philosophy is to ensure the safety of public
funds, provide that sufficient money is always available to meet current expenditures, and achieve
a reasonable rate of return on its investments.
The City's preferred and chief practice is to buy securities and to hold them to their date of
maturity rather than to trade or sell securities prior to maturity. The City may, however, elect to sell
a security prior to its maturity should there be a significant financial need. If securities are
purchased and held to their maturity date, then any changes in the market value of those securities
during their life will have no effect on their principal value. Under a buy and hold philosophy, the
City is able to protect its invested principal. The economy, the money markets, and various financial
institutions (such as the Federal Reserve System) are monitored carefully to make prudent
investments and to assess the condition of the City’s portfolio.
INVESTMENT OBJECTIVES
The primary objectives, in priority order, of investment activities shall be safety, liquidity, and
yieldreturn:
1. Safety: Safety of principal is the foremost objective of the investment program.
Investments shall be undertaken in a manner that seeks to ensure the preservation of
capital in the overall portfolio. The objective will be to mitigate credit risk and interest
rate risk.
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a) Credit risk is the risk that an obligation will not be paid and a loss will result. The
City will seek to minimize this risk by:
Limiting investment to the safest types of securities or minimum credit
quality rating as listed in the “Authorized Investment” section
Diversifying its investments among the types of securities that are
authorized under this investment policy
b) Interest rate risk is the risk that changes in interest rates will adversely affect the
value of an investor’s portfolio. For example, an investor with large holdings in
long‐term bonds has assumed significant interest rate risk because the value of
the bonds will fall if interest rates rise. The City can minimize this risk by:
Buying and holding its securities until maturity
Structuring the investment portfolio so that securities mature to meet
cash flow requirements
To further achieve the objective of safety, the amount that can be invested in all
investment categories, excluding obligations of the U.S. Government and its agencies,
is limited either as a percentage of the portfolio or by a specific dollar amount. These
limits are defined under the “Authorized Investments” section.
2. Liquidity: Liquidity is the second most important objective of the investment
program. The investment portfolio shall remain sufficiently liquid to meet all operating
requirements that may be reasonably anticipated. This is accomplished by
maintaining a portion of the portfolio in liquid money market mutual funds or local
government investment poolsshort‐term investments. In addition, the City will
maintain one month’s net cash needs in short term and/or liquid investments and at
least $50 million shall be maintained in securities maturing in less than two years.
Although the City’s practice is to buy and hold securities to maturity, since all possible
cash demands cannot be anticipated, theThe investment portfolio will consist of
securities with active secondary or resale markets should the need to sell a security
prior to maturity arises.
3. YieldReturn: Yield Return on the City’s portfolio is last in priority among investment
objectives. The investment portfolio shall be designed to obtain a market rate of
return throughout budgetary and economic cycles that reflects the authorized
investments, risk constraints, and liquidity needs outlined in the City’s investment
policy. Compared to similar sized cities, the City of Palo Alto should be able to take
advantage of its relatively large reserve balances to achieve higher yields through
long‐term investments. In addition, the City will strive to maintain the level of
investment of idle funds as close to 100 percent as possible.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) RESPONSIBILITIES
In addition to and subordinate to the Safety, Liquidity, and Yield Return investment objectives,
investments that support sound environmental, social and governance (ESG) objectives are also
considered. While the City’s portfolio is not classified as an ESG portfolio, investments in entities
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Investment Policy (Redline)
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that support community well‐being through practices that emphasize safe and environmentally
sound objectives; fair labor practices; and equality of rights regardless of sex, race, age, disability,
or sexual orientation, is encouraged. Direct investments in entities that manufacture tobacco
products, firearms, and engage in direct production or drilling of fossil fuels is discouraged.
This section applies to new investments (after November 5, 2018) only and does not require
divestment of existing investments. Investments in Certificates of Deposit (CDs) and Negotiable
Certificates of Deposit are exempt from the ESG investing objective.
SCOPE
A. This investment policy shall apply to all financial assets of the City of Palo Alto as accounted for
in the Annual Comprehensive Financial Report (ACFR), including but not limited to the
following funds:
1. General Fund
2. Special Revenue Funds
3. Debt Service Funds
4. Capital Project Fund
5. Enterprise Funds
6. Internal Service Funds
7. Trust and Agency Funds
B. The policy does not cover funds held by in the City’s Public Pension Retirement Fundsthe
California Public Employees Retirement System (CalPERS), the Retiree Medical Funds (Other
Post‐Employment Benefits Trust or OPEB) California Employers’ Retiree Benefit Trust (CERBT),
the Pension Trust Fund (Section 115 Trust), Deferred Compensation programs (e.g. ICMA,
Hartford), and sthe elf‐insurance funds held by City’s Risk PollPool Joint Powers
AuthorityAuthority for California Cities Excess Liability (ACCEL), and the Public Agency
Retirement Services (PARS) Section 115 Irrevocable Trust.
C. Investments of bond proceeds shall be governed by the provisions of the related bond
indentures.
GENERAL INVESTMENT GUIDELINES
1. The maximum stated final maturity of individual securities in the portfolio should be ten
years.
2. A maximum ofNo more than 30 percent% of the par market value of the total portfolio
shall be invested in securities with maturities beyond five years.
3. The City shall maintain a minimum of one month’s net cash needs in short term
and/or liquid investments. Liquid investments are investment with a maturity of one
year or less, cash deposit accounts, pooled investment fund (i.e. LAIF), or a money
market mutual fund.
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4. At least $50 million shall be maintained in securities maturing in less than two (2)
years.
5.4. Should the ratio of the market value of the portfolio to the book value of the portfolio
fall below 95 percent%, the Administrative Services Department will report this fact to
the City Council within a reasonable time framequarterly and evaluate whether there
is any risk of holding any of the securities to maturity.
6. Commitments to purchase securities newly introduced on the market shall be made no
more than three (3) working days before pricing.
7. Whenever possible, the City will obtain and record three or more quotations on the
purchase or sale of comparable securities and take the higher yield on purchase or
higher price on sale. This rule will not apply to new issues, which are purchased at
market no more than three (3) working days before pricing, as well as to LAIF, City of
Palo Alto bonds, money market accounts and mutual funds, all of which shall be
evaluated separately.
8.5. Where the Investment Policy specifies a percentage limitation for a particular category
of investment, that percentage is applicable only at the date of purchase. A later
increase or decrease in a percentage resulting from a change in the portfolio’s assets
or values shall not constitute a violation of that restriction. As soon as reasonably
possible, percentage limitations will be restored as investments mature in each
category.
AUTHORIZED INVESTMENTS
The California Government Code (Sections 53600 et seq.) governs investment of City funds. Within
the investments permitted by the Code, the City seeks to further restrict eligible investments to the
guidelines listed below. In the event there is a difference between the Policy and the Code, the
more restrictive parameters will take precedence. Percentage holding limits and minimum credit
quality requirements listed in this section apply at the time the security is purchased.
Any investment currently held at the time the policy is adopted, which does not meet the new
policy guidelines, can be held until maturity and shall be exempt from the current policy. At the
time of the investment’s maturity or liquidation, such funds shall be reinvested only as provided in
the current policy. The following investments are authorized:
1. U.S. Government SecuritiesTreasuries (e.g. Treasury notes, bonds and bills)
Securities and other government obligations that are backed by the full faith and
credit of the United Statesfor which the full faith and credit of the Unites States are
pledged for the payment of principal and interest.
a) There is no limit on purchase of these securities.
b) Securities will not exceed 10 years maturity.
c) All purchased securities must have an explicit or a de facto backing of the
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full faith and credit of the U.S. Government.
2. U.S. Government Agency SecuritiesFederal Agencies or United States
Government‐Sponsored Enterprise Obligations – Obligations issued by the
Federal Government agencies including those issued by or fully guaranteed as to
principal and interest by federal agencies or United States government‐sponsored
enterprises (GSE)(e.g. Federal National Mortgage Association, etc.).
a. There is no limit on purchase of these securities except for:
No more than 30 percent% of the total portfolio may be invested in
any single federal agency/GSE issuer.
Callable and Multi‐step‐up securities provided that:
‐ The potential call dates are known at the time of purchase
‐ The interest rates at which they “step‐up” are known at the
time of purchase
‐ The entire face value of the security is redeemed at the call date
‐ No more than 25 20 percent% of the par market value of the
total portfolio may be invested in federal agency callable and
step‐up securities
b. Securities will not exceed 10 years maturity.
3. California State, California Local Government Agencies, and other United States
State BondsMunicipal Securities
a) Municipal securities must be rated in a rating category of “A” or its
equivalent or better by at least one nNationally rRecognized sStatistical
rRating oOrganization (“NRSRO”) that is registered with the U.S.
Securities and Exchange Commission. Having at time of investment a
minimum Double A (AA/Aa2) rating as
b)
c)a) provided by a nationally recognized rating service (e.g. Moody’s,
Fitch, and/or Standard and Poor’s).
b) Municipal securities may not exceed 40 30 percent% of the par market
value of the total portfolio.
c) No more than 5 percent% of the market value of the total portfolio may be
invested in any single issuer.
d) Securities will not exceed 10 years maturity.
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e) Investments include:
i) Registered state warrants or treasury notes or bonds of the State of
California and bonds, notes, warrants, or other evidences of
indebtedness of any local agency within California, including bonds
payable solely out of the revenues from a revenue producing
property owned, controlled, or operated by the state or local
agency or by a department, board, agency, or authority of the state
or local agency.
ii) Registered treasury notes or bond of any of the 49 United States in
addition to the State of California, 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 other 49 United States, in addition
to the State of California.
4. Certificates of Deposit (CD) ‐ A debt instrument issued by a bank for a specified
period of time at a specified rate of interest. Purchase of CD’s are limited to:
a) May not exceed 20 percent% of the par market value of the portfolio.
b) No more than 10 percent% of the par market value of the portfolio in
collateralized CDs in any institution.
c) Purchase collateralized deposits only from federally insured large banks
that are rated by a nationally recognized rating service (e.g. Moody’s,
Fitch, and/or Standard and Poor’s).one NRSRO .
d) For non‐rated banks, deposit should be limited to amounts federally
insured (FDIC). – See Appendix C
e) Rollovers are not permitted without specific instruction from authorized
City staff.
5. Banker's Acceptance Notes (BA) – Bills of exchange or time drafts drawn on and
accepted by commercial banks. Purchase of banker’s acceptances are limited to:
a) No more than 30 40 percent% of the par market value of the portfolio.
b) Not to exceed 180 days maturity.
c) No more than $5 million 5 percent% of the market value of the total
portfolio with any one institution.
6. Commercial Paper ‐ Short‐term unsecured obligations issued by banks, corporations,
and other borrowers. Purchases of commercial paper are limited to entities that
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meets all of the following conditions in either paragraph (a) or (b) and other
requirements specified below:
a) Securities issued by corporations:
i) A corporation organized and operating in the United States with
assets more than $500 million.
ii) The securities are rated “A‐1” or its equivalent or better by at least
one NRSRO.
iii) If the issuer has other debt obligations, they must be rated in a
rating category of “A” or its equivalent or better by at least one
NRSRO.
b) Securities issued by other entities:
i) The issuer is organized within the United States as a special purpose
corporation, trust, or limited liability company.
ii) The securities must have program‐wide credit enhancements
including, but not limited to, overcollateralization, letters of credit,
or a surety bond.
iii) The securities are rated “A‐1” or its equivalent or better by at least
one NRSRO.
Moreover, no more than 10 percent% of the outstanding commercial paper of any
single issuer is permitted, and under a provision sunsetting on January 1, 2031 (SB 998),
no more than 40 percent% of the total portfolio market value may be invested in
Commercial Paper. No more than 5 percent% of the total portfolio market value may be
invested in any single issuer. The maximum maturity may not exceed 397 days.
a) Having highest letter or numerical rating as provided for by a nationally
recognized rating service (e.g. Moody’s, Fitch, and/or Standard and
Poor’s).
b) No more than 15 percent of the par value of the portfolio.
c) Not to exceed 270 days maturity.
d) No more than $3 million or 10 percent of the outstanding commercial
paper of any one institution, whichever is lesser.
7. Local Agency Investment Fund (LAIF) – A State of California managed investment pool
may be used up to the maximum permitted by California State Law.
8. Short‐Term Repurchase Agreements (REPO) – A contractual agreement between a
seller and a buyer, usually of U.S. government securities, whereby the seller agrees to
repurchase the securities at an agreed upon price and, usually, at a stated time.
Purchases of REPO’s must:
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a) Not to exceed one (1) year.
b) Market value of securities that underlay a repurchase agreement shall be
valued at 102 percent% or greater of the funds borrowed against those
securities.
c) A Master Repurchase agreement must be signed with the bank or dealer.
Terms of the Master Purchase Agreement must be aligned with
requirements outlined in California Government Code section 53601(j).
Money Market Deposit Accounts – Collateralized Bank Deposits – City’s deposits with
financial institutions will be collateralized with pledged securities per California
Government Code, Section 53651. There are no limits on the dollar amount or
percentage that the City may invest in collateralized bank deposits.
8.9. Liquid bank accounts which seek to maintain a net asset value of $1.00.
10. Money Market Mutual Funds – Money Market Mutual Funds registered with the
Securities and Exchange Commission under the Investment Company Act of 1940 and
issued by diversified management companies and meet either of the following
criteria:
a) Have attained the highest ranking or the highest letter and numerical
rating provided by not less than two (2) NRSROs; or
b) Have retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not less
than five years’ experience managing money market mutual funds with
assets under management in excess of $500 million.
a) No more than 20 percent% of the total portfolio market value may be
invested in the shares of any one Money Market Mutual Fund.which
seek to maintain a net asset value of $1.00 and which are limited
essentially to the above investments and further defined in note 9 of
Appendix A
c)
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No more than 20 percent of the par value of the portfolio.
No more than 10 percent of the par value with any one institution.
11. Shares of Beneficial Interest Issued by a Joint Powers Authority (JPA) – provided that:
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a) The JPA is organized pursuant to California Government Code Section
6509.7 and invests in the securities and obligations authorized in
subdivisions (a) to (r), inclusive.
b) Each share shall represent an equal proportional interest in the
underlying pool of securities owned by the JPA.
c) The JPA has retained an investment advisor who is registered with the
SEC (or exempt from registration), has assets under management in
excess of $500 million, and has at least five years’ experience investing in
instruments authorized by Section 53601, subdivisions (a) to (q).
d) No more than 20 percent% of the total market value of the portfolio may
be invested in shares of beneficial interest issued by a joint powers
authority.
9.12. Negotiable Certificates of Deposit (NCD) issued by nationally or state‐chartered
banks, a savings association or a federal association, a state or federal credit union, or
by a federally licensed and or state or federal savings institutions and further defined
in note 11 of Appendix Alicensed branch of a foreign bank. Purchases of negotiable
certificates of deposit:
a) The amount of the NCD insured up to the FDIC limit does not require any
credit ratings.
b) Any amount above the FDIC insured limit must be issued by institutions
which have short‐term debt obligations rated “A‐1” or its equivalent or
better by at least one NRSRO; or long‐term obligations rated in a rating
category of “A” or its equivalent or better by at least one NRSRO.
c) No more than 30 percent% of the total portfolio market value may be
invested in NCDs.
d) No more than 5 percent% of the total portfolio market may be invested
in any single issuer.
e) The maximum maturity may not exceed five (5) years.
a) May not exceed 20 percent of the par value of the portfolio.
b) No more than $5 million in any one institution.
10.13. Medium‐Term Corporate Notes – Issued by corporation organized and operating
within the United States or by depository institutions licensed by the United States or
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any state and operating with the United States.
a) Not to exceed five (5) years maturity.
The securities shall be rated in a rating category of “A” or its equivalent
or better by at least one NRSRO.
b) Securities eligible for investment shall have a minimum rating of AA or
Aa2 from a nationally recognized rating service (e.g. Moody’s, Fitch,
and/or Standard & Poor’s).
c) No more than 10 30 percent% of the par market value of the total
portfolio may be invested in medium‐term corporate notes.
d) No more than $5 million5 percent% of the par market value of the total
portfolio may be invested in securities of any single issuer., other than the
U.S. Government, its agencies and instrumentality.
e) If securities owned by the City are downgraded by Moody’s, Fitch, or
Standard & Poor’s to a level below the rating category of AAA or Aa2, it shall
be the City’s policy to review the credit situation and make a
determination as to whether to sell or retain such securities in the
portfolio.
14. Asset‐Backed, Mortgage‐Backed, Mortgage Pass‐Through Securities, and
Collateralized Mortgage Obligations – from issuers not defined in subparagraphs 1
and 2 of the Authorized Investments section of this policy, provided that:
a. The securities are rated in a rating category of “AA” or its equivalent or
better by a NRSRO.
b. No more than 20% of the total portfolio may be invested in these
securities.
c. No more than 5% of the total portfolio may be invested in any single
Asset‐Backed or Commercial Mortgage security issuer.
d. The maximum maturity does not exceed five (5) years.
11.15. Supranational Organizations Securities – Supranational organizations refer to Issues
that are US dollar denominated senior unsecured unsubordinated obligations issued
or unconditionally guaranteed by International Bank for Reconstruction and
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Development (IBRD), International Finance Corporation (IFC) and Inter‐American
Development Bank (IADB).
a. Securities will not exceed five (5) years maturity.
b. No more than 20 30 percent% of the par market value of the total
portfolio.
c. No more than 10 percent% of the par market value of the total portfolio
with any one institution.
d. Securities must be rated in a rating category of “AA” or its equivalent or
better by a NRSRO.eligible for investment shall have a minimum rating of
AA or Aa2 from a nationally recognized rating service (e.g. Moody’s, Fitch,
e. .
Limited to United States dollar denominated senior unsecured unsubordinated
obligations issued or unconditionally guaranteed by IBRD, IFC, and IADB.
Appendix A provides a more detailed description of each investment vehicle and its security and
liquidity features. Most of the City's short‐term investments will be in securities which pay
principal upon maturity, while long‐term investments may be in securities that periodically repay
principal, as well as interest. Most of the City's investments will be at a fixed rate. However, some
of the investments may be at a variable rate, so long as that rate changes on specified dates in pre‐
determined increments.
PROHIBITED INVESTMENTS:
Includes all investments not specified above, and in particular:
1. Reverse repurchase agreements
2. Derivatives, as defined in Appendix B
3. State law notwithstanding, any investments not specifically described herein are
prohibited, including, but not limited to futures and options.
4. In accordance with Government Code, Section 53601.6, investment in inverse floaters,
range notes, or mortgage derived interest‐only strips is prohibited.
5. Investment in any security that could result in a zero interest accrual if held to maturity
is prohibited. Under a provision sunsetting on January 1, 2031, securities backed by the
U.S. Government that could result in a zero‐ or negative‐interest accrual if held to
maturity are permitted.
6. Trading securities for the sole purpose of speculating on the future direction of interest
rates is prohibited.
7. Purchasing or selling securities on margin is prohibited.
8. The use of reverse repurchase agreements, securities lending or any other form of
borrowing or leverage is prohibited.
9. The purchase of foreign currency denominated securities is prohibited.
2.10. The purchase of a security with a forward settlement date exceeding 45 days from
the time of the investment is prohibited.
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Appendix B provides a more detailed description of each investmentreverse repurchase agreements
and derivatives, which is are prohibited, for City investment.
AUTHORIZED INVESTMENT PERSONNEL
Idle cash management and investment transactions are the responsibility of the Administrative
Services Department. The Administrative Services Department is under the control of the Director
of Administrative Services (Director), as treasurer, who is subject to the direction and supervision
of the City Manager.
The Assistant Directors of Administrative Services (Assistant Director), who reports to the Director,
are authorized to make all investment transactions allowed by the Statement of Investment Policy.
The Assistant Director may authorize the Manager of Treasury, Debt & Investments (Manager),
Senior Management Analyst (Analyst), and/or designated investment firm (Firm) to enter into
investments within clearly specified parameters. The City may engage the services of one or more
external investment advisers, who are registered under the Investment Advisers Act of 1940, to
assist in the management of the City’s investment portfolio in a manner consistent with the City’s
objectives. External investment advisers may be granted discretion to purchase and sell investment
securities in accordance with this investment policy.
The Investment function is under the supervision of the Assistant Director. The Assistant Director is
charged with the responsibility to manage the investment program (portfolio), which includes
developing and monitoring the City's cash flow model and developing long‐term revenue and
financing strategies and forecasts.
The Manager, Analyst, and/or Firm are subject to the direction and supervision of the Assistant
Director. The Manager, Analyst, and/or Firm assist the Assistant Director, in the purchase and sale
of securities. The Manager, Analyst, and/or Firm also prepare the quarterly report, and record
daily all investment transactions as to the type of investment, amount, yield, and maturity. Cash
flow projections are prepared as needed.
In all circumstances, approval from the Director of Administrative Services is required before selling
securities from the City's portfolio. The Manager and/or Analyst may also transfer no more than a
total of $10 million a day from the City's general account to any one financial institution, without
the prior approval of the Assistant Director.
No other person has authority to make investment transactions without the written authority of
the Director or Assistant Director of Administrative Services.
USE OF BROKERS AND DEALERS
The Administrative Services Department maintains a list of acceptable dealers. A dealer acts as a
principal in security transactions, selling securities from and buying securities for their own
position. A dealer must have:
a) At least three years’ experience operating with California municipalities;
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b) Maintain a record free of disclosure events, evidenced on the individual’s Financial
Industry Regulatory Authority (FINRA) BrokerCheck report;
c) Maintain an inventory of trading securities of at least $10 million;
d) Meet net capital requirements as outlined in Security Exchange Commission Rule
(SEC) 15c3‐1 (uniform net capital rule) for brokers or dealers;
e) Annually provide documentation showing their financial condition and relevant
registration;
f) Annually certify in writing that they have reviewed the applicable California
Government Code sections and the City’s Investment Policy; and
g) Be approved by the Assistant Director before being added to the City's list of approved
dealers; including individual traders or agents representing a dealer:
A dealer will be removed from the list if any of these criteria not be met and/or should there
develop a history of problems to include: failure to deliver securities as promised, failure to honor
transactions as quoted, or failure to provide accurate information.
AUTHORIZED FINANCIAL INSTITUTIONS, DEPOSITORIES, AND BROKER/DEALERS
A. The Director of Administrative Services or designee shall maintain procedures for establishing
a list of authorized broker/dealers and financial institutions which are approved for investment
purposes. Due inquiry shall determine whether such authorized broker/dealers, and the
individuals covering the City are reputable and trustworthy, knowledgeable and experienced in
public agency investing and able to meet all of their financial obligations. These institutions
may include "primary" dealers or regional dealers that qualify under Securities and Exchange
Commission (SEC) Rule 15c3‐1 (uniform net capital rule).
B. In accordance with Section 53601.5, institutions eligible to transact investment business with
the AgencyCity include:
1. Institutions licensed by the state and proof of FINRA certification as a broker‐dealer, as
defined in Section 25004 of the Corporations Code, with proof of FINRA certification.
2. Institutions that are members of a federally regulated securities exchange.
3. Primary government dealers as designated by the Federal Reserve Bank and non‐
primary government dealers.
4. Nationally or state‐chartered banks.
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5. Savings association or federal association (as defined in Section 5102 of the Financial
Code).
6. The Federal Reserve Bank.
7. Direct issuers of securities eligible for purchase.
C. Selection of financial institutions and broker/dealers authorized to engage in transactions will
be at the sole discretion of the City, except where the City utilizes an external investment
adviser in which case the City may rely on the adviser for selection.
D. All financial institutions which desire to become qualified bidders for investment transactions
(and which are not dealing only with the investment adviser) must supply the Director of
Administrative Services or designee with audited financials and a statement certifying that the
institution has reviewed the California Government Code, Section 53600 et seq. and the City’s
investment policy. The Director of Administrative Services or designee will conduct an annual
review of the financial condition and registrations of such qualified bidders.
E. To the extent practicable, the Director of Administrative Services or designee shall endeavor to
complete investment transactions using a competitive bid process whenever possible. The
City’s Director of Administrative Services will determine which financial institutions are
authorized to provide investment services to the City. It shall be the City’s policy to purchase
securities only from authorized institutions and firms.
F. Selection of broker/dealers used by an external investment adviser retained by the City will be
at the sole discretion of the adviser. Where possible, transactions with broker/dealers shall be
selected on a competitive basis and their bid or offering prices shall be recorded. If there is no
other readily available competitive offering, best efforts will be made to document quotations
for comparable or alternative securities. When purchasing original issue instrumentality
securities, no competitive offerings will be required as all dealers in the selling group offer
those securities at the same original issue price.
G. Public deposits will be made only in qualified public depositories as established by State law.
Deposits will be insured by the Federal Deposit Insurance Corporation, or, to the extent the
amount exceeds the insured maximum, will be collateralized in accordance with State law.
SAFEKEEPING AND CUSTODY
All securities shall be delivered to the City's safekeeping custodian and held in the name of the
City of Palo Alto, with the exception of the following investments:
a) Certificates of deposit, which may be held by the City itself.
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b) City shares in pooled investment funds, under contract.
c) Mutual funds
d) Local Agency Investment Fund (LAIF)
POLICY REVIEW AND REPORTING ON INVESTMENTS
Monthly, the Administrative Services Department will review performance in relation to Council
adopted Policy. Per California Government Code Section 53646, quarterly, the Department will
report to Council (within 45 days after the end of the quarter) investment activity, including: the
portfolio’s performance in comparison to policy, explain any variances from policy, provide any
recommendations for policy changes, and discuss overall compliance with the City’s Investment
Policy. In addition, the Department will provide Council with:
a) An asset listing showing par value, cost and independent third‐party fair market value of
each security as of the date of the report, the source of the valuation, type of
investment, issuer, maturity date and interest rate.
b) A description of the funds, investments and programs (including lending programs)
managed by contracted parties (i.e. LAIF; LGIPS, outside money managers and
securities lending agents)
c) A statement of compliance with investment policy, including a schedule of any
transactions or holdings which do not comply with this policy or with the California
Government Code, including a justification for their presence in the portfolio and a
timetable for resolution, and
d) Report on the City’s ability to meet expenditure requirements over the next six months.
Per California Government Code Section 53607, the Department shall provide a monthly report of
transactions (investments, reinvestment, sold, and exchanged securities) made during the month
to the Council. This reporting requirement is separate and distinct from the quarterly investment
report submitted under Code Section 53646.
Annually, the Administrative Services Department will present a Proposed Statement of Investment
Policy, to include the delegation of investment authority, to the City Council for review during the
annual budget process. All proposed changes in policy must be approved by the Council prior to
implementation.
Adopted by City Council October 22, 1984 Amended by City Council June 17, 2003
Monthly reporting effective January 1985 Amended by City Council June 28, 2004
Amended and Adopted by City Council June 24,
1985
Amended by City Council June 20, 2005
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Amended by City Council December 2, 1985 Amended by City Council June 12, 2006
Amended by City Council June 23, 1986 Amended by City Council June 11, 2007
Amended by City Council June 22, 1987 Amended by City Council June 09, 2008
Amended by City Council August 8, 1988 Amended by City Council June 15, 2009
Amended by City Council November 28, 1988 Amended by City Council June 28, 2010
Amended by City Council June 26, 1989 Amended by City Council June 20, 2011
Amended by City Council May 14, 1990 Amended by City Council June 18, 2012
Amended by City Council June 24, 1991 Amended by City Council June 03, 2013
Amended by City Council June 22, 1992 Amended by City Council June 16, 2014
Amended by City Council June 23, 1993 Amended by City Council June 15, 2015
Amended by City Council June 20, 1994 Amended by City Council June 13, 2016
Amended by City Council June 19, 1995 Amended by City Council June 27, 2017
Amended by City Council June 24, 1996 Amended by City Council November 5, 2018
Amended by City Council June 23, 1997 Amended by City Council June 24, 2019
Amended by City Council January 26, 1998 Adopted by City Council June 22, 2020
Amended by City Council June 22, 1998 Amended by City Council June 21, 2021
Amended by City Council June 28, 1999 Adopted by City Council June 20, 2022
Amended by City Council June 19, 2000 Adopted by City Council June 19, 2023
Amended by City Council June 11, 2001 Amended by City Council June 17, 2024
Amended by City Council June 17, 2002 Adopted by City Council June 16, 2025
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APPENDIX A
EXPLANATION OF PERMITTED INVESTMENTS
1. U.S. Government Securities: United States Treasury notes, bonds, bills, or certificates of
indebtedness or those for which the faith and credit of the United States are pledged for the
payment of principal and interest.
2. U.S. Government Agency Securities: U.S. Government Agency Obligations include the
securities of the Federal National Mortgage Association (FNMA), Federal Land Banks (FLB),
Federal Intermediate Credit Banks (FICB), banks for cooperatives, Federal Home Loan Banks
(FHLB), Government National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC), Student Loan Marketing Association (SLMA), Small Business
Administration (SBA), Federal Farm Credit (FFC), and Federal Agricultural Mortgage
Corporation (FAMC or FMAC). Federal Agency securities are debt obligations that essentially
result from lending programs of the Government. Federal agency securities differ from other
types of securities, as well as among themselves. Their characteristics depend on the issuing
agency. It is possible to distinguish three types of issues: (A) participation certificates (pooled
securities), (B) Certificates of interest (pooled loans), (C) notes, bonds, and debentures. The
securities of a few agencies are explicitly backed by the full faith and credit of the U.S.
Government. All other issues purchased by the City have the de facto implied but not
guaranteed backing from the federal government, and it is highly unlikely that the government
would let any agency default on its obligations.
3. Certificates of Deposit: A certificate of deposit (CDs) is a receipt for funds deposited in a
bank, savings bank, or savings and loan association for a specified period of time at a specified
rate of interest. Denominations are $250,000 and up. The first $250,000 of a certificate of
deposit is guaranteed by the Federal Deposit Insurance Corporation (FDIC), if the deposit is
with a bank or savings bank, or the Savings Association Insurance Fund (SAIF), if the deposit is
with a savings and loan. CDs with a face value in excess of $250,000 can be collateralized by
U.S. Government Agency and Treasury Department securities or first mortgage loans.
Government securities must be at least 110 percent% of the face value of the CD
collateralized in excess of the first $250,000. The value of first mortgages must be at least
150 percent% of the face value of the CD balance insured in excess of the first
$250,000. Generally, CDs are issued for more than 30 days and the maturity can be selected by
the purchaser.
4. Bankers' Acceptance: A Banker's Acceptance (BA) is a negotiable time draft or bill of
exchange drawn on and accepted by a commercial bank. Acceptance of the draft irrevocably
obligates the bank to pay the bearer the face amount of the draft at maturity. BAs are usually
created to finance the import and export of goods, the shipment of goods within the United
States and storage of readily marketable staple commodities. In over 70 years of usage in the
United States, there has been no known instance of principal loss to
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5. POLICY AND PROCEDURES 1‐39/ASD
6.4. Revised: June 2025 any investor in BAs. In addition to the guarantee by the accepting bank, the
transaction is identified with a specific commodity. Warehouse receipts verify that the pledged
commodities exist, and, by definition, these commodities are readily marketable. The sale of the
underlying goods generates the necessary funds to liquidate the indebtedness.
BAs enjoy marketability since the Federal Reserve Bank is authorized to buy and sell prime
BAs with maturities of up to nine months. The Federal Reserve Bank enters into repurchase
agreements in the normal course of open market operations with BA dealers.
As are sold at a discount from par. An acceptance is tied to a specific loan transaction;
therefore, the amount and maturity of the acceptance is fixed.
7.5. Commercial Paper: Commercial paper notes are unsecured promissory notes of industrial
corporations, utilities, and bank holding companies. Interest is discounted from par and
calculated using actual number of days on a 360‐day year. The notes are in bearer form, with
maturities up to 270 397 days selected by the purchaser, and denominations generally start
at $100,000. There is a small secondary market for commercial paper notes and an investor
may sell a note prior to maturity.
Commercial paper notes are backed by unused lines of credit from major banks. Some
issuer's notes are insured, while some are backed by irrevocable letters of credit from major
banks. State law limits a City to investments in United States corporations having assets in
excess of five hundred million dollars with an "A" or higher rating by a nationally recognized
rating service for the issuer's debentures. Cities may not invest more than 25 percent of idle
cash in commercial paper.
8.6. Local Agency Investment Fund Demand Deposit: The Local Agency Investment Fund LAIF)
was established by the State to enable treasurers to place funds in a pool for investments.
The City is limited to an investment of the amount allowed by LAIF (currently $75 million).
LAIF has been particularly beneficial to those jurisdictions with small portfolios. Palo Alto uses
this fund for short‐term investment, liquidity, and yield.
9.7. Repurchase Agreements: A Repurchase Agreement (REPOS) is not a security, but a
contractual arrangement between a financial institution or dealer and an investor. The
agreement normally can run for one or more days. The investor puts up funds for a certain
number of days at a stated yield. In return, the investor takes title to a given block of
securities as collateral. At maturity, the securities are repurchased and the funds repaid, plus
interest. Usually, amounts are $500,000 or more, but some REPOS can be smaller.
10. Money Market Deposit Accounts: Money Market Deposit Accounts are market‐sensitive
bank accounts, which are available to depositors at any time, without penalty. The interest
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rate is generally comparable to rates on money market mutual funds, though any individual
bank's rate may be higher or lower. These accounts are insured by the Federal Deposit
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POLICY AND PROCEDURES 1‐39/ASD
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Insurance Corporation or the Savings Association Insurance Fund.
11.8. Mutual Funds: Mutual funds are shares of beneficial interest issued by diversified
management companies, as defined by Section 23701 M of the Revenue and Taxation Code. To
be eligible for investment, these funds must:
a) Attain the highest ranking in the highest letter and numerical rating provided by
not less than two of the three largest nationally recognized rating services; or
b) Have an investment advisor registered with the Securities and Exchange
Commission with not less than five years’ experience investing in the securities
and obligations, as authorized by subdivisions (a) to (n), inclusive, of Section
53601 of the California Government Code, and with assets under management in
excess of five hundred million dollars; and
c) Invest solely in those securities and obligations authorized by Sections 53601 and
53635 of the California Government Code. Where the Investment Policy of the
City of Palo Alto may be more restrictive than the State Code, the Policy
authorizes investments in mutual funds that shall have minimal investment in
securities otherwise restricted by the City's Policy. Minimal investment is
defined as less than 5 percent% of the mutual fund portfolio; and
d) The purchase price of shares of beneficial interest purchased shall not include
any commission that these companies may charge.
e) Have a net asset value of $1.00.
12. Callable Securities and Multi‐Step‐ups: Callable securities are defined as fixed interest rate
government agency securities that give the issuing agency the option of returning the
invested funds at a specific point in time to the purchaser. Multi‐step‐ups are government
agency securities in which the interest rate increases ("steps‐up") at preset intervals, and
which also have a callable option that allows the issuing agency to return the invested funds at
a preset interval. Callable and multi‐step‐ups are permitted, provided that:
13.
14. the potential call dates are known at the time of purchase;
15. the interest rates at which they “step‐up” are known at the time of purchase; and
16. the entire face value of the security is redeemed at the call date.
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18.9. Revised: June 2025
19.10. Negotiable Certificates of Deposit (NCD): NCDs are large‐dollar‐amount, short‐term
certificate of deposit. Such certificates are issued by large banks and bought mainly by
corporations and institutional investors. They are payable either to the bearer or to the order
of the depositor, and, being negotiable, they enjoy an active secondary market, where they
trade in round lots of $5 million. Although they can be issued in any denomination from
$100,000 up, the typical amount is $1 million also called a Jumbo Certificate of Deposit.
State law prohibits the investment of local agency funds in negotiable certificates of deposit
issued by a state or federal credit union if a member of the legislative body of the local
agency, or any person with investment decision making authority in the administrative,
manager’s, budget, auditor‐controller’s, or treasurer’s offices of the local agency also serves on
the board of directors, other credit committee or the supervisory committee of the state or
federal credit union issuing the negotiable certificate of deposit.
20.11. Medium‐Term Corporate Notes: All corporate and depository institution debt securities
with a maximum remaining maturity of five years or less, 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. According to California
Government Code Section 53601, “Notes eligible for investment under this subdivision shall be
rated in a rating category of “A” or its equivalent or better by a nationally recognized rating
service. Purchase of medium‐term notes shall include other instruments authorized by this
section and shall not exceed 30 percent% of the agency’s moneys that may be invested
pursuant to this section.”
21.12. Supranational Securities: California Government Code Section 53601 defines allowable
supranational securities as United States dollar denominated senior unsecured
unsubordinated obligations issued or unconditionally guaranteed by the International Bank for
Reconstruction and Development, the International Finance Corporation, and Inter‐ American
Development Bank. Supranationals are well capitalized and in most cases have strong credit
support from contingent capital calls from their member countries. Section 53601 was
amended effective January 1, 2015 to allow local agencies to invest in the senior debt
obligations of these three supranational issuers which are eligible for purchase and resale
within the United States. These entities were established with the purpose of ending poverty
and raising the standard of living around the world through sustainable economic growth.
a) The supranationals are international organization owned by member countries.
These are:
International Bank for Reconstruction and Development (IBRD or World
Bank), a member of the World Bank Group, provides direct loans and
guarantees to sovereigns and government‐backed projects
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International Finance Corporation (IFC), a member of the World Bank
Group, supports the creation and growth of private companies through direct
lending and equity investment, attracting third party capital, and providing advisory
services
Inter‐American Development Bank (IADB), a member of the Inter‐ American
Development Bank Group, provides loans, grants, and guarantees to
sovereigns in Latin America and the Caribbean
b) Additional characteristics shared by the IBRD, IFC, and IADB include:
Headquartered in Washington, D.C. with the United States as the largest
shareholder of each organization
Rated AAA/Aaa by S&P and Moody’s
22.13. Asset‐Backed, Mortgage‐Backed, Mortgage Pass‐Through Securities, and Collateralized
Mortgage Obligations are securities that represent pools of debt collateralized by an
underlying pool of assets—usually ones that generate a cash flow from debt, such as
mortgages, loans, leases, credit card balances, or receivables. It takes the form of a bond or
note, paying income at a fixed rate for a set amount of time, until maturity.
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APPENDIX B
EXPLANATION OF PROHIBITED INVESTMENTS
1. Reverse Repurchase Agreements: A Reverse Repurchase Agreement (Reverse REPO) is a
contractual agreement by the investor (e.g. local agency) to post a security it owns as
collateral, and a bank or dealer temporarily exchanges cash for this collateral, for a specific
period of time, at an agreed‐upon interest rate. During the period of the agreement, the local
agency may use this cash for any purpose. At maturity, the securities are repurchased from
the bank or dealer, plus interest.
California law contains a number of restrictions on the use of Reverse REPOS by local
agencies.
2. Derivatives: A derivative is a financial instrument created from, or whose value depends on (is
derived from), the value of one or more underlying assets or indices. The term "derivative"
refers to instruments or features, such as collateralized mortgage obligations, forwards,
futures, currency and interest rate swaps, options, caps and floors. Except for those callable
and multi‐step‐up securities as described under Permitted Investments, derivatives are
prohibited.
Certain derivative products have characteristics which could include high price volatility,
liquid markets, products that are not market‐tested, products that are highly leveraged,
products requiring a high degree of sophistication to manage, and products that are difficult to
value.
According to California law, a local agency shall not invest any funds in inverse floaters, range
notes, or interest‐only strips that are derived from a pool of mortgages.
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APPENDIX C
GLOSSARY OF INVESTMENT TERMS
AGENCIES: Federal agency and instrumentality securities.
ASKED: The price at which securities are offered.
BID: The price offered by a buyer of securities (when one sells securities, one asks for a bid). See
“Offer”.
BROKER: A person or institution that conducts investment transactions on behalf of the buyer and
seller of the investment and earns a commission on the transaction.
COLLATERAL: Securities, evidence of deposit, or other property, which a borrower pledges to
secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public
monies.
ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR): The official annual report for the City of
Palo Alto. It includes combined financial statements for each individual fund and account group
prepared in conformity with Generally Accepted Accounting Principles and pronouncements set
forth by the Governmental Accounting Standards Board (GASB). The ACFR also includes supporting
schedules that are necessary to demonstrate compliance with finance‐ related legal and
contractual provisions, extensive introductory material, and a detailed statistical section.
COUPON: The annual rate of interest that a bond’s issuer promises to pay the bondholder on the
bond’s face value or the certificate attached to a bond evidencing interest due on a payment date.
DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling
for his own account.
DEBENTURE: A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: (1) delivery versus
payment (DVP); and (2) delivery versus receipt (DVR). DVP is delivery of securities with an exchange
of money for the securities. DVR is delivery of securities with an exchange of a signed receipt for
the securities.
DISCOUNT: The difference between the acquisition cost of a security and its value at maturity
when quoted at lower than face value. A security that sells below original offering price shortly
after sale, is also is considered to be at a discount.
DISCOUNT SECURITIES: Non‐interest‐bearing money market instruments that are issued a
discount and that are redeemed at maturity for full face value (e.g., U.S. Treasury Bills).
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DIVERSIFICATION: Dividing investment funds among a variety of securities that offer
independent returns.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION (“FAMC” or “FMAC”): A federal agency
established in 1988 to provide a secondary market for farm mortgage loans. Informally called
Farmer Mac.
FEDERAL CREDIT AGENCIES: Agencies of the Federal Government that were established to supply
credit to various classes of institutions and individuals (e.g., S&Ls, small business firms, students,
farmers, farm cooperatives, and exporters).
FEDERAL DEPOSIT INSURANCE CORPORATION (“FDIC”): A federal agency that insures all types of
deposits received at an insured bank, including deposits in a checking account, negotiable order of
withdrawal (NOW) account, savings account, money market deposit account (MMDA) or time
deposit such as a certificate of deposit (CD). FDIC insurance covers depositors' accounts at each
insured bank, dollar‐for‐dollar, including principal and any accrued interest through the date of the
insured bank's closing, up to the insurance limit.
The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies,
annuities or municipal securities, even if these investments are purchased at an insured bank. The
FDIC does not insure U.S. Treasury bills, bonds or notes, but these investments are backed by the
full faith and credit of the United States government.
The standard maximum deposit insurance amount is described as the “SMDIA” in FDIC regulations.
The SMDIA is $250,000 per depositor, per insured bank.
FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently
pegged by the Federal Reserve through open‐market operations.
FEDERAL HOME LOAN BANKS (“FHLB”): Government‐sponsored wholesale banks (currently 12
regional banks) which lend funds and provide correspondent banking services to member
commercial banks, thrift institutions, credit unions, and insurance companies. The mission of the
FHLBs is to liquefy the housing‐related assets of its members, who must purchase stock in their
District Bank.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (“FNMA”): FNMA, like GNMA, was chartered
under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation
working under the auspices of the Department of Housing and Urban Development (HUD). It is the
largest single provider of residential mortgage funds in the United States. Fannie Mae, as the
corporation is called, is a private stockholder‐owned corporation. The corporation’s purchases
include a variety of adjustable mortgages and second loans, in addition to fixed‐rate mortgages.
FNMA’s securities are also highly liquid and are widely accepted. FNMA assumes and guarantees
that all security holders will receive timely payment of principal and interest.
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FEDERAL OPEN MARKET COMMITTEE (“FOMC”): The FOMC consists of seven members of the
Federal Reserve Board and five of the 12 Federal Reserve Bank Presidents. The President of the
New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a
rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding
purchases and sales of government securities in the open market, as a means of influencing the
volume of bank credit and money.
FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and
consisting of a seven‐member Board of Governors in Washington, D.C., 12 regional banks, and
about 5,700 commercial banks that are members of the system.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (“GNMA” or “Ginnie Mae”): Securities
that influence the volume of bank credit that is guaranteed by GNMA and issued by mortgage
bankers, commercial banks, savings and loan associations, and other institutions. A security holder
is protected by the full faith and credit of the U.S. Government. Ginnie Mae securities are backed by
the FHA, VA, or FMHM mortgages. The term “pass‐throughs” is often used to describe Ginnie Maes.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a
substantial loss of value. In the money market, a security is said to be liquid if the spread between bid
and asked prices is narrow, and reasonable amount can be done at those quotes.
LOCAL GOVERNMENT AGENCY: A local government agency is any city, county, city and county,
district, or other local governmental body or corporation, including the California State Universities
(CSU) and University of California (UC) systems, K‐12 schools and community colleges empowered to
expend public funds.
LOCAL GOVERNMENT INVESTMENT FUND (“LAIF”): Monies from local governmental units may be
remitted to the California State Treasurer for deposit in this special fund for the purpose of
investment.
MARKET VALUE: The price at which a security is trading and could presumably be purchased or
sold.
MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the
parties to repurchase‐reverse repurchase agreements that establish each party’s rights in the
transactions. A master agreement will often specify, among other things, the right of the buyer
(lender) to liquidate the underlying securities in the event of default by the seller (borrower).
MATURITY: The date upon which the principal or stated value of an investment becomes due and
payable.
MONEY MARKET: The market in which short‐term debt instruments (e.g., bills, commercial paper,
and bankers’ acceptances) are issued and traded.
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OFFER: The price asked by a seller of securities (when one buys securities, one asks for an offer). See
“Asked” and “Bid”.
OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the
open market by the New York Federal Reserve Bank, as directed by the FOMC in order to influence
the volume of money and credit in the economy. Purchases inject reserves into the bank system
and stimulate growth of money and credit; sales have the opposite effect. Open market operations
are the Federal Reserve’s most important and most flexible monetary policy tool.
PORTFOLIO: A collection of securities that an investor holds.
PRIMARY DEALER: A group of government securities dealers that submit daily reports of market
activity and positions, and monthly financial statements to the Federal Reserve Bank of New York,
and are subject to its informal oversight. Primary dealers include Securities and Exchange
Commission (SEC) ‐‐ registered securities broker‐dealers, banks, and a few unregulated firms.
PRUDENT INVESTOR RULE: An investment standard cited in the California Government Code
Section 53600 et seq. Under this standard, all governing bodies of local agencies or persons
authorized to make investment decisions on behalf of the City are trustees and therefore
fiduciaries subject to the prudent investor standard. When 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.
QUALIFIED PUBLIC DEPOSITORIES: A financial institution that: (1) does not claim exemption from
the payment of any sales, compensating use, or ad valorem taxes under the laws of this state; (2)
has segregated for the benefit of the commission eligible collateral having a value of not less than
its maximum liability; and (3) has been approved by the Public Deposit Protection Commission to
hold public deposits.
RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current
market price.
SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and
valuables 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 issues following the
initial distribution.
SECURITIES AND EXCHANGE COMMISSION: An agency created by Congress to administer
securities legislation for the purpose of protecting investors in securities transactions.
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STRUCTURED NOTES: Notes issued by instrumentalities (e.g., FHLB, FNMA, SLMA) and by
corporations, that have imbedded options (e.g., call features, step‐up coupons, floating rate
coupons, derivative‐based returns) in their debt structure. The market performance of structured
notes is affected by fluctuating interest rates; the volatility of imbedded options; and shifts in the
yield curve.
SUPRANATIONALS: International institutions that provide development financing, advisory services
and/or financial services to their member countries to achieve the overall goal of improving living
standards through sustainable economic growth. The California Government Code Section 53601
allows local agencies to purchase the United States dollar denominated senior unsecured
unsubordinated obligations issued or unconditionally guaranteed by the International Bank for
Reconstruction and Development (IBRD), International Finance Corporation (IFC), or Inter‐American
Development Bank (IADB).
TIME CERTIFICATE OF DEPOSIT: A non‐negotiable certificate of deposit, which cannot be sold prior
to maturity.
TREASURY BILLS: A non‐interest‐bearing discount security that is issued by the U.S. Treasury to
finance the national debt. Most T‐bills are issued to mature in three months, six months, or one
year.
TREASURY BONDS: Long‐term, coupon‐bearing U.S. Treasury securities that are issued as direct
obligations of the U.S. Government, and having initial maturities of more than 10 years.
TREASURY NOTES: Medium‐term, coupon‐bearing U.S. Treasury securities that are issued as direct
obligations of the U.S. Government, and having initial maturities of two to 10 years.
YIELD: The rate of annual income return on an investment, expressed as a percentage.
YIELD‐TO‐CALL (YTC): The rate of return an investor earns from a bond assuming the bond is
redeemed (called) prior to its nominal maturity date.
YIELD‐TO‐MATURITY: The current income yield minus any premium above par or plus any discount
from par in purchase price, with the adjustment spread over the period from the date of purchase to the
date of maturity.
ZERO‐COUPON SECURITIES: Security that is issued at a discount and makes no periodic interest
payments. The rate of return consists of a gradual accretion of the principal of the security and is
payable at par upon maturity.
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Recommended: Date:__________________
Chief Financial Officer
Approved: Date:__________________
City Manager
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