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****PRELIMINARY AND TENTATIVE FINDINGS**** rated lower than AA+ by S&P and Fitch and lower than Aa1 by Moody's, which would require the Treasurer to submit a rationale to the Risk Management Department for maintaining the security if it had not been sold if the policy were interpreted to only allow AAA and AA+ for S&P and Fitch and Aaa and Aal from Moody's. However, if the policy were interpreted based on the Treasurer's e-mail, then only two bond issues, totaling $1.1 million, one rated A+ by both S&P and Fitch, and one rated A by S&P would require reporting by the Treasurer to the Risk Management Department for maintaining the security if it had not been sold. Amending the policy to clarify the Board's intention regarding the precise ratings allowable for various types of securities would help ensure that future investments are purchased with ratings consistent with Board urtent. Additionally, the September 30, 2014, report indicated that FMPA investments included two bond issues totaling approximately $1.9 million, one of which was rated AA by S&P but only rated A+ by Fitch, and one rated AA -by Fitch but only rated A+ by S&P. Because the investment policy does not specifically indicate how many rating firms are required to assign a rating, and there are multiple rating agencies that sometimes assign different ratings, the policy may be subject to inconsistent application. Diversification. Section 5.5 of the investment policy addresses diversification of investments, both by type of investment and by issuer, by establishing maximum percentages by type and by issuer; however, it does not address whether the percentage limitation applies for investments held by the FMPA in its entirety or by each individual project. In practice, FMPA personnel interpret the maximum percentages as applying to individual projects; however, amending the policy to clarify the Board's intention, regarding whether the diversification percentages apply to the FMPA as a whole or to each individual project, would reduce the risk that diversification requirements may not be implemented consistent with Board intent. Additionally, the policy does not address diversification based upon geography. Pursuant to an agreement with a forward paying agent, in which the purchasing agent would purchase and provide securities to the FMPA to pay debt associated with the St. Lucie project at a future date, the FMPA has been investing in capital appreciation bonds (CABs). CABs are deep discount debt, which do not pay interest because they are issued at steep discounts to face value and redeemed for face value at maturity. As of September 30, 2014, the FMPA had CAB investments with a face value of approximately $155 million and fair market value of approximately $114 million. While the CABs are diversified across several issuers, they are predominantly issued by California school districts, resulting in increased risk that a large natural disaster or localized economic conditions could impact multiple CABs simultaneously, increasing the FMPA's exposure to investment losses. Recommendation: The FMPA should enhance its investment policy to clarify the application of credit ratings. Additionally, the FMPA should enhance its investment policy to clarify that the investment diversification requirements are to be applied at the individual project level and to establish requirements for geographical diversification. Personnel and Payroll Administration As of September 30, 2014, the FMPA employed 73 full and part-time staff and maintained 5 vacant positions. Salah' and benefit expenditures for the fiscal year ended September 30, 2014, totaled $7.2 million for administrative and general salaries and $2.4 million for benefits. 14 16