9.3.1 Statutory Authority

California Government Code Section 53601 (Section 53601) lists the securities in which local public agencies are authorized to invest. These securities are generally referred to as “permitted investments.” Section 53601(m), however, provides that bond funds may be invested according the terms of the financing as long as these are not inconsistent with the statutes governing the issuance of the bonds. Specifically, Section 53601(m) reads:

Moneys held by a trustee or fiscal agent and pledged to the payment or security of bonds or other indebtedness, or obligations under a lease, installment sale, or other agreement of a local agency, or certificates of participation in those bonds, indebtedness, or lease installment sale or other agreements may be invested in accordance with the statutory provisions governing the issuance of those bonds, indebtedness, or lease installment sale, or other agreement, or to the extent not inconsistent therewith or if there are no specific statutory provisions, in accordance with the ordinance, resolution, indenture, or agreement of the local agency providing for the issuance.

Under Section 53601(m) a local public agency and its creditors may agree to a broader, as well as to a more limited, set of permitted investments than the investments specified in Section 53601.

California Government Code Sections 5903 and 5922 provide similar flexibility for local and state agencies with respect to hedging transactions.