Memorandum
Date: September 23, 2025
To: The Honorable Lake County Board of Supervisors
From: Patrick Sullivan, Treasurer - Tax Collector
Jenavive Herrington, Auditor - Controller
Subject: Consideration of Impacts Resulting from Recent and Pending Withdrawals from County Treasury Pool and Potential Changes to County Investment Policy
Executive Summary:
County Treasurers act as the ex-oficio district treasurer for all fire districts, unless and until the district board appoints their own district treasurer to assume those duties. Up until now, county fire districts have utilized the Lake County Treasurer both for Treasury operations and the Lake County Treasury pool to invest their funds.
On August 20, 2025, the Lake County Fire Protection District (District) Board of Directors approved Resolution No. 25-0801 “Cancelling Reserves and Appropriating Funds for Investments Outside the County Treasury Pool and Appointing a Treasurer.” There was recently another type of independent district that withdrew completely from the County Treasury, and there is at least one other fire district considering such action.
District Board Has Exercised Its Authority to Withdraw from the County Treasury Pool and Create An Independent Investment Program.
The District has entered into an agreement with Optimized Investment Partners (OIP) to provide investment services. Given the higher advisory costs associated with the District’s decision to move forward with OIP and managing its own investments, coupled with new custodial banking and other fees it will assume, it is difficult to identify where the opportunities for increased investment performance going forward may exist. A de facto available opportunity would be to leverage the County investment pool, for example by withdrawing funds and investing elsewhere where better short-term returns can be earned. Likewise, the District could allow incoming funds to remain in the county investment pool to take advantage of higher rates, or transfer funds from the outside portfolio back into the pool to affect the same result.
While we recently have had a district leave the pool entirely, this is the first we have encountered a district attempting to stay partially in as a now voluntary participant and while continuing to utilize County Treasurer services. For the reasons described above, this presents an inherent instability to our pool. While we appreciate District staff indicating afterwards that this was not the District’s intent, it does not change that the outcome has created new risks for the remaining pool participants.
At this time, the County must consider measures to protect not only itself, but the schools and other districts who would bear the brunt of any resulting losses. While higher returns could have been achieved by expanded utilization of short-term investment pools and securities, the County pool traded those potential gains to purchase laddered securities to insulate it from anticipated rate decreases, providing a hedge against a declining rate of return by locking in those rates long term. The Treasury Pool is designed for participants to share equally in both the risks and rewards of our investment strategy, and it does not work if there is the possibility that someone can move funds in and out.
Potential Changes to the County Investment Policy
There are potential options identified to address these issues, some of which may require amending the County’s investment policy to protect local agencies:
1) Creating a separate voluntary pool, crediting the lower return of either a sweep account rate or the primary pool rate;
2) Creating a separate district account for a voluntary participant who partially withdraws and then declines to remove the County Treasurer. This could then be restricted solely to funds needed for banking/treasury operations, rather than accepting “surplus” funds as well for investment;
3) Setting a minimum balance threshold for voluntary participants and restrict pool earnings solely to the amount in excess.
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Estimated Cost: ________ Amount Budgeted: ________ Additional Requested: ________ Future Annual Cost: ________
Purchasing Considerations (check all that apply): ☐ Not applicable
☐ Fully Article X. <https://library.municode.com/ca/lake_county/codes/code_of_ordinances?nodeId=COOR_CH2AD_ARTXPU_S2-38EXCOBI>- and/or Consultant Selection Policy <http://lcnet.co.lake.ca.us/Assets/Intranet/Policy/Policies+$!26+Procedures+Manual/Ch4_2021v2.pdf>-Compliant (describe process undertaken in “Executive Summary”)
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☐ Economic Development ☐ Infrastructure ☐ County Workforce
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Recommended Action: Provide Board input on any potential investment policy changes.