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-36- <br />from the expertise of professionals in the investment field. The composition of the portfolio will <br />change over time as old investments mature, or are sold, and as new investments are made <br />under the management of the investment advisor. Invested funds are managed to insure <br />preservation of capital through high quality investments, maintenance of liquidity and then <br />yield. Further, operating funds may not be invested in any investment with a maturity greater <br />than five years. The City does not invest in derivatives or reverse repurchase agreements and <br />such investments and instruments are not allowed by City policy. <br /> <br />For more information about the City’s investment policy, see APPENDIX C—CITY <br />INVESTMENT POLICY. <br /> <br /> <br />CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND FEES <br /> <br />Under the California Constitution, the power of initiative is reserved to the voters for the <br />purpose of enacting statutes and constitutional amendments. In the past, the voters have <br />exercised this power from time to time, including through the adoption of Propositions 13 and <br />218. <br /> <br />From time to time other State and local initiative measures could be adopted, affecting <br />the ability of the City to increase revenues and to increase appropriations. <br /> <br />Article XIIIA <br /> <br />On June 6, 1978, California voters approved Proposition 13, which added Article XIIIA <br />to the California Constitution (“Article XIIIA”). Article XIIIA limits the maximum ad valorem <br />tax on real property to 1% of full cash value thereof, except that additional ad valorem taxes <br />may be levied to pay debt service on indebtedness approved by voters prior to July 1, 1978 and <br />(as a result of an amendment to Article XIIIA approved by California voters on June 3, 1986) on <br />bonded indebtedness for the acquisition or improvement of real property which has been <br />approved on or after July 1, 1978 by two-thirds of the voters voting on such indebtedness. <br />Article XIIIA defines full cash value to mean “the County Assessor’s valuation of real property <br />as shown on the 1975-76 tax bill under “full cash value,” or, thereafter, the appraised value of <br />real property when purchased, newly constructed, or a change in ownership has occurred after <br />the 1975 assessment.” This full cash value may be increased at a rate not to exceed 2% per year <br />to account for inflation. <br /> <br />Article XIIIA has subsequently been amended to permit reduction of the full cash value <br />based in the event of declining property values caused by damage, destruction, or other factors <br />and to provide that there would be no increase in the full cash value base in the event of <br />reconstruction of property damaged or destroyed in a disaster and in other minor or technical <br />ways. <br /> <br />Article XIIIB <br /> <br />Article XIIIB of the California State Constitution limits the annual appropriations of the <br />State and of any city, county, school district, authority or other political subdivision of the State <br />to the level of appropriations of the particular governmental entity for the prior fiscal year, as <br />adjusted for changes in the cost of living and population. The “base year” for establishing such <br />appropriations limit is the 1978-79 fiscal year and the limit is to be adjusted annually to reflect <br />changes in population and consumer prices. Adjustments in the appropriations limit of an <br />entity may also be made if (i) the financial responsibility for a service is transferred to another <br />public entity or to a private entity, (ii) the financial sources for the provision of services is <br />8.C. - Page 61