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6.1.D. - Page 66 <br />Notes to the Basic Financial Statements <br />For the fiscal year ended June 30, 2016 <br />NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) <br />F. Cash and Cash Equivalents <br />The City pools cash resources from all funds in order to facilitate the management of cash. The balance <br />in the pooled cash account is available to meet current operating requirements. Cash in excess of current <br />requirements is invested in various interest-bearing accounts and other investments for varying terms. <br />In accordance with GASB Statement No. 40, Deposit and Investment Disclosures (Amendment of GASB No. <br />3), certain disclosure requirements for Deposits and Investment Risks were made in the following areas: <br />• Interest Rate Risk <br />• Credit Risk <br />o Overall <br />o Custodial Credit Risk <br />o Concentrations of Credit Risk <br />In addition, other disclosures are specified including use of certain methods to present deposits and <br />investments, highly sensitive investments, credit quality at year-end, and other disclosures. <br />In accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments <br />and for External Investment Pools, highly liquid market investments with maturities of one year or less at <br />time of purchase are stated at amortized cost. All other investments are stated at fair value. The City <br />categorizes the fair value measurements of its investments based on the hierarchy established by generally <br />accepted accounting principles. The fair value hierarchy, which has three levels, is based on the valuation <br />inputs used to measure an asset's fair value: Level 1 inputs are quoted prices in active markets for identical <br />assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable <br />inputs. The City does not have any investments that are measured using Level 3 inputs. <br />The City participates in an investment pool managed by the State of California titled Local Agency <br />Investment Fund (LAIF) which has invested a portion of the pooled funds in Structured Notes and Asset - <br />Backed Securities. LAIF's investments are subject to credit risk with the full faith and credit of the State of <br />California collateralizing these investments. In addition, these Structured Notes and Asset -Backed <br />Securities are subject to market risk as to the change in interest rates. <br />Cash equivalents are considered amounts in demand deposits and short-term investments with a <br />maturity date within three months of the date acquired by the City and are presented as "Cash and <br />Investments" in the accompanying Basic Financial Statements. <br />For purposes of the statement of cash flows, cash equivalents are defined as investments with original <br />maturities of 90 days or less, which are readily convertible to known amounts of cash. The City considers <br />all pooled cash and investments (consisting of cash and investments and restricted cash and investments) <br />held by the City as cash and cash equivalents because the pool is used essentially as a demand deposit <br />account from the standpoint of the funds. The City also considers all non -pooled cash and investments <br />(consisting of cash with fiscal agent and restricted cash and investments held by fiscal agent) as cash and <br />cash equivalents because investments meet the criteria for cash equivalents defined above. <br />39 <br />