1-1 By: A. Smith of Harris (Senate Sponsor - Montford) H.B. No. 1608
1-2 (In the Senate - Received from the House May 13, 1993;
1-3 May 14, 1993, read first time and referred to Committee on Finance;
1-4 May 21, 1993, reported favorably by the following vote: Yeas 9,
1-5 Nays 0; May 21, 1993, sent to printer.)
1-6 COMMITTEE VOTE
1-7 Yea Nay PNV Absent
1-8 Montford x
1-9 Turner x
1-10 Armbrister x
1-11 Barrientos x
1-12 Bivins x
1-13 Ellis x
1-14 Haley x
1-15 Moncrief x
1-16 Parker x
1-17 Ratliff x
1-18 Sims x
1-19 Truan x
1-20 Zaffirini x
1-21 A BILL TO BE ENTITLED
1-22 AN ACT
1-23 relating to the investment of state funds, the liquidity of
1-24 obligations issued by state agencies, and the availability of
1-25 federal reserve services.
1-26 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-27 SECTION 1. Section 404.001(3), Government Code, is amended
1-28 to read as follows:
1-29 (3) "Direct security repurchase agreement" means an
1-30 agreement under which the state buys, holds for a specified time,
1-31 and then sells back any of the following securities, obligations,
1-32 or participation certificates:
1-33 (A) United States government securities;
1-34 (B) direct obligations of or obligations the
1-35 principal and interest of which are guaranteed by the United
1-36 States; or
1-37 (C) direct obligations of or obligations
1-38 guaranteed by agencies or instrumentalities of the United States
1-39 government <the Federal Home Loan Bank, the Federal National
1-40 Mortgage Association, the Federal Farm Credit System, the Student
1-41 Loan Marketing Association, or the Federal Home Loan Mortgage
1-42 Corporation>.
1-43 SECTION 2. Section 404.013, Government Code, is amended to
1-44 read as follows:
1-45 Sec. 404.013. Rules. The board may adopt and enforce rules
1-46 governing the establishment and conduct of state depositories
1-47 and<,> the investment <handling> of state funds in the
1-48 depositories<, and the investment of state funds> that the public
1-49 interest requires and that are not inconsistent with the law
1-50 governing the depositories <and investments>. The rules must be
1-51 entered in the minutes of the board.
1-52 SECTION 3. Section 404.024, Government Code, is amended to
1-53 read as follows:
1-54 Sec. 404.024. Authorized Investments. (a) The board may
1-55 determine and designate the amount of state funds to be deposited
1-56 in time deposits in state depositories. The treasurer shall
1-57 recommend to the board a maximum limit for state funds deposited by
1-58 the treasurer at approved state depositories. The percentage of
1-59 state funds to be deposited in state depositories shall be based on
1-60 the interest rates available in competing investments, the demand
1-61 for funds from Texas banks, and the state's liquidity requirements.
1-62 The treasurer shall provide periodic investment reports to the
1-63 board.
1-64 (b) State<, the amount of those deposits that shall be
1-65 demand deposits and the amount that shall be time deposits, and the
1-66 amount of state> funds not deposited in state depositories <that>
1-67 shall be invested by the treasurer in:
1-68 (1) direct security repurchase agreements;
2-1 (2) reverse security repurchase agreements;
2-2 (3) direct obligations of or obligations the principal
2-3 and interest of which are guaranteed by the United States;
2-4 (4) direct obligations of or obligations guaranteed by
2-5 agencies or instrumentalities of the United States government;
2-6 (5) bankers' acceptances that:
2-7 (A) are eligible for purchase by the Federal
2-8 Reserve System;
2-9 (B) do not exceed 270 days to maturity; and
2-10 (C) are issued by a bank that has received the
2-11 highest short-term credit rating by a nationally recognized
2-12 investment rating firm;
2-13 (6) commercial paper that:
2-14 (A) does not exceed 270 days to maturity; and
2-15 (B) except as provided by Subsection (j), has
2-16 received the highest short-term credit rating by a nationally
2-17 recognized investment rating firm;
2-18 (7) contracts written by the treasury in which the
2-19 treasury grants the purchaser the right to purchase securities in
2-20 the treasury's marketable securities portfolio at a specified price
2-21 over a specified period and for which the treasury is paid a fee
2-22 and specifically prohibits naked-option or uncovered option
2-23 trading; and
2-24 (8) direct obligations of or obligations guaranteed by
2-25 the Inter-American Development Bank, the International Bank for
2-26 Reconstruction and Development (the World Bank), the African
2-27 Development Bank, the Asian Development Bank, and the International
2-28 Finance Corporation that have received the highest credit rating by
2-29 a nationally recognized investment rating firm.
2-30 (c) <(b) The amount deposited in state depositories at any
2-31 one time must be at least 25 percent of the average daily balance
2-32 of all state funds eligible for deposit or investment under this
2-33 chapter unless the board approves a lower percentage.> Investments
2-34 in direct security repurchase agreements and reverse security
2-35 repurchase agreements may be made with state or national banks
2-36 domiciled in this state or with primary dealers as approved by the
2-37 Federal Reserve System.
2-38 (d) <(c)> The board may contract with a depository for the
2-39 payment of interest on time or demand deposits at a rate not to
2-40 exceed a rate that is lawful under an Act of Congress and rules and
2-41 regulations of the board of governors of the Federal Reserve
2-42 System, the board of directors of the Federal Deposit Insurance
2-43 Corporation, the Federal Savings and Loan Insurance Corporation,
2-44 and the Federal Home Loan Banking Board.
2-45 (e) <(d)> Not more than 20 percent of the aggregate funds on
2-46 deposit in financial institutions at any time may be in depository
2-47 institutions other than banks.
2-48 (f) <(e)> The treasurer may invest the gross proceeds from
2-49 obligations of this state or any agency of this state in:
2-50 (1) obligations of a state or an agency, county, city,
2-51 or other political subdivision of a state; and
2-52 (2) mutual funds composed of obligations described by
2-53 Subdivision (1).
2-54 (g) <(f)> To the extent practicable, the treasurer shall
2-55 give first consideration to Texas banks when investing in direct
2-56 security repurchase agreements.
2-57 (h) <(g)> The treasurer may not use state funds to invest in
2-58 or purchase obligations of a private corporation or other private
2-59 business entity doing business in the Republic of South Africa
2-60 unless the corporation or other entity:
2-61 (1) has:
2-62 (A) adopted the Statement of Principles for
2-63 South Africa as they existed in 1987, as described in the Report on
2-64 the Signatory Companies to the Statement of Principles for South
2-65 Africa published by Arthur D. Little, Inc., Cambridge,
2-66 Massachusetts, and has obtained a performance rating in Category 1
2-67 or 2 of the Statement of Principles for South Africa rating system
2-68 as determined by Arthur D. Little, Inc.; or
2-69 (B) agreed to the Code of Conduct that is
2-70 enforced by the United States Department of State under Section
3-1 208, Comprehensive Anti-Apartheid Act of 1986 (Pub. L. No. 99-440)
3-2 and has received a rating of "Making Satisfactory Progress"; and
3-3 (2) does not supply strategic products or services for
3-4 use by the government, military, or police of the Republic of South
3-5 Africa.
3-6 (i) <(h)> For the purposes of Subsection (h) <(g)> of this
3-7 section:
3-8 (1) "Doing business in the Republic of South Africa"
3-9 means conducting or performing manufacturing, assembly, or
3-10 warehousing operations within the Republic of South Africa or, if a
3-11 bank or other financial institution, lending money to the
3-12 government of the Republic of South Africa or any of its agencies
3-13 or instrumentalities.
3-14 (2) "Strategic products or services" means articles
3-15 designated as arms, ammunition, or implements of war as provided by
3-16 22 Code of Federal Regulations Part 121 or data processing
3-17 equipment or computers sold for military or police use or for use
3-18 in connection with restrictions on travel within the Republic of
3-19 South Africa by residents of that country.
3-20 (j) Notwithstanding Subsection (a)(6)(B), the treasurer may
3-21 purchase commercial paper with a rating lower than the rating
3-22 required by that subsection to provide liquidity for commercial
3-23 paper issued by the treasurer or an agency of the state.
3-24 SECTION 4. Subchapter C, Chapter 404, Government Code, is
3-25 amended by adding Section 404.027 to read as follows:
3-26 Sec. 404.027. LIQUIDITY. (a) The treasurer may enter into
3-27 credit agreements or other similar agreements to provide liquidity
3-28 for obligations issued for governmental purposes by an agency of
3-29 the state if the agreements do not conflict with the liquidity
3-30 needs of the treasury. An agency may enter into a credit agreement
3-31 with the treasurer on the issuance of obligations or at a later
3-32 date as agreed to by the treasurer and the agency.
3-33 (b) The treasurer may charge reasonable costs to provide
3-34 services under this section.
3-35 (c) In this section:
3-36 (1) "Credit agreement" has the meaning assigned by
3-37 Section 1(6), Chapter 656, Acts of the 68th Legislature, Regular
3-38 Session, 1983 (Article 717q, Vernon's Texas Civil Statutes); and
3-39 (2) "Obligations" include commercial paper, variable
3-40 rate demand obligations, and "bonds" as defined by Section (1)(b),
3-41 Chapter 845, Acts of the 67th Legislature, Regular Session, 1981
3-42 (Article 717k-6, Vernon's Texas Civil Statutes).
3-43 SECTION 5. Section 404.032, Government Code, is amended to
3-44 read as follows:
3-45 Sec. 404.032. Deposits and Investments. (a) The treasurer
3-46 shall deposit state funds in depositories that satisfy the security
3-47 requirements of this chapter or invest the funds in investments
3-48 authorized by Section 404.024 <the board>. The treasurer may
3-49 deposit funds designated as demand deposits only in banks
3-50 designated as centrally located depositories and in other
3-51 depositories authorized by the board.
3-52 (b) The treasurer shall monitor the financial stability of
3-53 state depositories in which state deposits are held and take
3-54 appropriate action to protect state funds. <A depository may not
3-55 keep on deposit state funds in an amount in excess of its paid-up
3-56 capital stock and permanent surplus. A reduction in the capital
3-57 stock and permanent surplus of a depository reduces correspondingly
3-58 the amount of state funds that it may retain as a depository, and
3-59 the treasurer may withdraw from the depository funds in excess of
3-60 its capital stock and permanent surplus. However, this limitation
3-61 does not apply if the depository pledges as security for the state
3-62 funds warrants drawn on the treasury against the general revenue
3-63 fund. In this case the amount of state funds to be deposited in
3-64 the depository shall be determined by the board. This subsection
3-65 does not affect arrangements for clearing checks made by the board
3-66 with state depositories.>
3-67 (c) <If a surplus of state funds remains after all
3-68 depositories are designated, the surplus shall be prorated among
3-69 the designated banks after collateral and stock and surplus
3-70 requirements have been met.>
4-1 <(d)> A state depository shall collect all checks, drafts,
4-2 and demands for money deposited with it by the treasurer. If the
4-3 depository uses due diligence, it is not liable for the collections
4-4 until the proceeds of the collections are duly received by the
4-5 depository bank. An expense incurred in collection that the
4-6 depository is not permitted to pay by reason of an Act of Congress
4-7 or a rule or regulation adopted under such an Act by the board of
4-8 governors of the Federal Reserve System or the board of directors
4-9 of the Federal Deposit Insurance Corporation shall be charged to
4-10 and paid by the treasurer out of money appropriated by the
4-11 legislature for that purpose.
4-12 (d) <(e)> The treasurer shall keep sufficient money on
4-13 deposit in demand deposit accounts in depositories designated by
4-14 the board as clearing institutions to meet all current claims on
4-15 the state. Items received by the treasurer for collection shall be
4-16 deposited with a clearing institution to be credited to the demand
4-17 deposit account in the depository. Checks, drafts, or warrants
4-18 drawn by the treasurer for the payment of obligations due by the
4-19 state may be drawn on such an account in such a depository or on
4-20 the demand deposit account in another state depository so that the
4-21 checks, drafts, or warrants of the state may at all times pass
4-22 current as cash.
4-23 SECTION 6. Sections 404.103(a) and (b), Government Code, are
4-24 amended to read as follows:
4-25 (a) The trust company may receive, transfer, and disburse
4-26 money and securities as provided by statute or belonging to the
4-27 state, agencies and local political subdivisions of the state, and
4-28 nonprofit corporations, foundations, and other charitable
4-29 organizations created on behalf of the state or an agency or local
4-30 political subdivision of the state in a manner that qualifies the
4-31 trust company for federal reserve services <as a "depository
4-32 institution" as defined by Section 19, Federal Reserve Act (12
4-33 U.S.C. Section 461)>.
4-34 (b) The <While qualified as a depository institution, the>
4-35 trust company may enter into contracts and trust agreements or
4-36 other fiduciary instruments with the treasurer, the Federal Reserve
4-37 System, and other third parties. The trust company shall be liable
4-38 under those contracts in accordance with the terms contained in the
4-39 contracts. Notwithstanding any other statute to the contrary, to
4-40 the extent permitted by the Texas Constitution and the contracts,
4-41 trust agreements, or other fiduciary instruments between the trust
4-42 company and the Federal Reserve System, the trust company's
4-43 obligations shall be guaranteed by the state, and the state
4-44 expressly waives all defenses of governmental immunity by and on
4-45 behalf of the trust company, the treasurer, and the state and
4-46 expressly consents to sue and be sued in federal court or in any
4-47 court of competent jurisdiction. However, this provision does not
4-48 alter or affect the immunity accorded to state officials and
4-49 employees under state law. The trust company may enter into
4-50 contracts with the treasurer and the Federal Reserve System to
4-51 provide any services that the Federal Reserve System makes
4-52 available, including <the following federal reserve services>:
4-53 (1) safekeeping book-entry United States Treasury and
4-54 agency securities owned by the state and its agencies;
4-55 (2) using the federal reserve wire transfer system to
4-56 transfer money and book-entry securities and to settle securities
4-57 transactions involving book-entry United States Treasury and agency
4-58 securities owned by the state and its agencies;
4-59 (3) collecting, through the Federal Reserve System,
4-60 checks deposited with the treasury;
4-61 (4) receiving payments from and making payments to the
4-62 federal government on behalf of the state and its agencies;
4-63 (5) originating automated clearinghouse transactions
4-64 or other electronic transfers to make payments on behalf of the
4-65 state and its agencies, collecting revenues due the state and its
4-66 agencies, and transferring money between state depositories;
4-67 (6) paying warrants drawn on the treasury and
4-68 presented through the Federal Reserve System for payment; and
4-69 (7) safekeeping collateral pledged to secure deposits
4-70 of public funds.
5-1 SECTION 7. Sections 403.016(c) and 404.103(e), Government
5-2 Code, are repealed.
5-3 SECTION 8. The importance of this legislation and the
5-4 crowded condition of the calendars in both houses create an
5-5 emergency and an imperative public necessity that the
5-6 constitutional rule requiring bills to be read on three several
5-7 days in each house be suspended, and this rule is hereby suspended.
5-8 * * * * *
5-9 Austin,
5-10 Texas
5-11 May 21, 1993
5-12 Hon. Bob Bullock
5-13 President of the Senate
5-14 Sir:
5-15 We, your Committee on Finance to which was referred H.B. No. 1608,
5-16 have had the same under consideration, and I am instructed to
5-17 report it back to the Senate with the recommendation that it do
5-18 pass and be printed.
5-19 Montford,
5-20 Chairman
5-21 * * * * *
5-22 WITNESSES
5-23 FOR AGAINST ON
5-24 ___________________________________________________________________
5-25 Name: John A. Bell x
5-26 Representing: State Treasury's Office
5-27 City: Austin
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