By Allen H.B. No. 1821
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the investment of the funds of a local government or an
1-3 institution of higher education.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 2, Public Funds Investment Act of 1987
1-6 (Article 842a-2, Vernon's Texas Civil Statutes), as amended by
1-7 Chapters 39, 628, 693, and 750, Acts of the 71st Legislature,
1-8 Regular Session, 1989, is amended to read as follows:
1-9 Sec. 2. Authorized Investments. (a) An incorporated city
1-10 or town, a county, a public school district, a district or
1-11 authority created under Article III, Section 52(b)(1) or (2), or
1-12 Article XVI, Section 59, of the Texas Constitution, an institution
1-13 of higher education as defined by Section 61.003 of the Education
1-14 Code, a hospital district, a fresh water supply district, or any
1-15 nonprofit corporation or public funds investment pool created under
1-16 Chapter 791, Government Code, <The Interlocal Cooperation Act
1-17 (Article 4413(32c), Vernon's Texas Civil Statutes)> acting on
1-18 behalf of any of those entities may, in accordance with this Act,
1-19 purchase, sell, and invest its funds and funds under its control in
1-20 the following:
1-21 (1) obligations of the United States or its agencies
1-22 and instrumentalities;
1-23 (2) direct obligations of the State of Texas or its
1-24 agencies;
2-1 (3) other obligations, the principal of and interest
2-2 on which are unconditionally guaranteed or insured by, or backed by
2-3 the full faith and credit of, the State of Texas or the United
2-4 States or its agencies and instrumentalities;
2-5 (4) obligations of states, agencies, counties, cities,
2-6 and other political subdivisions of any state having been rated as
2-7 to investment quality by a nationally recognized investment rating
2-8 firm and having received a rating of not less than A or its
2-9 equivalent;
2-10 (5) certificates of deposit issued by state and
2-11 national banks domiciled in this state that are:
2-12 (A) guaranteed or insured by the Federal Deposit
2-13 Insurance Corporation, or its successor; or
2-14 (B) secured by obligations that are described by
2-15 Subdivisions (1)-(4) of this subsection, which are intended to
2-16 include all direct federal agency or instrumentality issued
2-17 mortgage backed securities that have a market value of not less
2-18 than the principal amount of the certificates or in any other
2-19 manner and amount provided by law for deposits of the investing
2-20 entities;
2-21 (6) certificates of deposit issued by savings and loan
2-22 associations domiciled in this state that are:
2-23 (A) guaranteed or insured by the Federal Savings
2-24 and Loan Insurance Corporation, or its successor; or
2-25 (B) secured by obligations that are described by
2-26 Subdivisions (1)-(4) of this subsection, which are intended to
2-27 include all direct federal agency or instrumentality issued
3-1 mortgage backed securities that have a market value of not less
3-2 than the principal amount of the certificates or in any other
3-3 manner and amount provided by law for deposits of the investing
3-4 entities;
3-5 (7) prime domestic bankers' acceptances;
3-6 (8) commercial paper with a stated maturity of 270
3-7 days or less from the date of its issuance that either:
3-8 (A) is rated not less than A-1, P-1, or the
3-9 equivalent by at least two nationally recognized credit rating
3-10 agencies; or
3-11 (B) is rated at least A-1, P-1, or the
3-12 equivalent by at least one nationally recognized credit rating
3-13 agency and is fully secured by an irrevocable letter of credit
3-14 issued by a bank organized and existing under the laws of the
3-15 United States or any state thereof; and
3-16 (9) fully collateralized repurchase agreements having
3-17 a defined termination date, secured by obligations described by
3-18 Subdivision (1) of this subsection, pledged to the political entity
3-19 and deposited with a third party selected and <or> approved by the
3-20 political entity, and placed through a primary government
3-21 securities dealer, as defined by the Federal Reserve, or a bank
3-22 domiciled in this state.
3-23 (b) In addition to the investments <investment in
3-24 obligations, certificates, or agreements> described by <in>
3-25 Subsection (a) of this section, an institution of higher education
3-26 as defined by Section 61.003 of the Education Code may, in
3-27 accordance with this Act, purchase, sell, and invest its funds and
4-1 funds under its control in the following:
4-2 (1) cash management and fixed income funds sponsored
4-3 by organizations exempt from federal income taxation under Section
4-4 501(f), Internal Revenue Code of 1986 (26 U.S.C. Section 501(f)),
4-5 and its subsequent amendments;
4-6 (2) negotiable certificates of deposit issued by a
4-7 bank that has a certificate of deposit rating of at least 1 or the
4-8 equivalent by a nationally recognized credit rating agency or that
4-9 is associated with a holding company having a commercial paper
4-10 rating of at least A-1, P-1, or the equivalent by a nationally
4-11 recognized credit rating agency; and
4-12 (3) corporate bonds, debentures, or similar debt
4-13 obligations rated by a nationally recognized investment rating firm
4-14 in one of the two highest long-term rating categories, without
4-15 regard to gradations within those categories <bond proceeds of an
4-16 incorporated city or town, a county, a public school district, or a
4-17 navigation district, or local revenue of an institution of higher
4-18 education, may be invested in common trust funds or comparable
4-19 investment devices owned or administered by banks domiciled in this
4-20 state and whose assets consist exclusively of all or a combination
4-21 of the obligations described by Subsection (a) of this section.
4-22 Common trust funds of banks domiciled in this state may be used if
4-23 they:>
4-24 <(1) are available;>
4-25 <(2) comply with the provisions of the Internal
4-26 Revenue Code of 1986 and applicable federal regulations governing
4-27 the investment of bond proceeds; and>
5-1 <(3) meet the cash flow requirements and the
5-2 investment needs of the political subdivision or institution>.
5-3 (c) In this section:
5-4 (1) "Bond proceeds" includes but is not limited to
5-5 proceeds from the sale of bonds and reserves and funds maintained
5-6 for debt service purposes.
5-7 (2) "Prime domestic bankers' acceptances" means a
5-8 bankers' acceptance with a stated maturity of 270 days or less from
5-9 the date of its issuance that will be, in accordance with its
5-10 terms, liquidated in full at maturity, that is eligible for
5-11 collateral for borrowing from a Federal Reserve Bank, and that is
5-12 accepted by a bank organized and existing under the laws of the
5-13 United States or any state, the short-term obligations of which (or
5-14 of a bank holding company of which the bank is the largest
5-15 subsidiary) are rated at least A-1, P-1, or the equivalent by at
5-16 least one nationally recognized credit rating agency.
5-17 (3) "Repurchase agreement" means a simultaneous
5-18 agreement to buy, hold for a specified time, and then sell back at
5-19 a future date, obligations described by Subsection (a)(1) of this
5-20 section, the principal and interest of which are guaranteed by the
5-21 United States or any of its agencies, in market value of not less
5-22 than the principal amount of the funds disbursed. The term
5-23 includes direct security repurchase agreements and reverse security
5-24 repurchase agreements.
5-25 (4) "Public funds investment pool" means an entity
5-26 created to invest public funds jointly on behalf of the entities
5-27 that participate in the pool and whose investment objectives in
6-1 order of priority are: first, safety of principal; second,
6-2 liquidity; and third, income.
6-3 (d) In addition to the investments described by Subsection
6-4 (a) of this section, an entity listed in that subsection may, in
6-5 accordance with this Act, purchase, sell, and invest its funds and
6-6 funds under its control in a <an SEC-registered,> no-load money
6-7 market mutual fund that is regulated by the federal Securities and
6-8 Exchange Commission with a dollar-weighted average stated
6-9 <portfolio> maturity of 90 <120> days or less <whose assets consist
6-10 exclusively of the obligations that are described by Subsection (a)
6-11 of this section> and whose investment objectives include seeking to
6-12 maintain a stable net asset value of $1 per share. No entity
6-13 listed in Subsection (a) of this section is authorized by this Act
6-14 to invest in the aggregate more than 80 percent of its monthly
6-15 average fund balance, excluding bond proceeds, in money market
6-16 mutual funds described in this subsection or to invest its funds or
6-17 funds under its control, excluding bond proceeds, in any one money
6-18 market mutual fund in an amount that exceeds 10 percent of the
6-19 total assets of the money market mutual fund.
6-20 (e) An entity listed in Subsection (a) of this section may
6-21 invest its funds and funds under its control in an eligible public
6-22 funds investment pool if the governing body of the entity by
6-23 resolution authorizes investment in the particular pool. A public
6-24 funds investment pool may invest the funds it receives from
6-25 entities listed in Subsection (a) of this section in any investment
6-26 described by that subsection. A public funds investment pool shall
6-27 establish an advisory board composed of participants in the pool
7-1 and other persons who are qualified to advise the pool.
7-2 (f) To become eligible to receive funds from and invest
7-3 funds on behalf of an entity listed in Subsection (a) of this
7-4 section, a public funds investment pool must furnish to the chief
7-5 financial officer or other authorized representative of the entity
7-6 an offering circular or other similar disclosure instrument that
7-7 contains, at a minimum, the following information:
7-8 (1) the types of investments in which money is allowed
7-9 to be invested;
7-10 (2) the maximum average dollar-weighted maturity
7-11 allowed, based on the stated maturity date, of the pool;
7-12 (3) the maximum stated maturity date any investment
7-13 security within the portfolio may have;
7-14 (4) the objectives of the pool;
7-15 (5) the size of the pool;
7-16 (6) the names of the members of the advisory board of
7-17 the pool and the dates their terms expire;
7-18 (7) the custodian bank that will safekeep the pool's
7-19 assets;
7-20 (8) whether the intent of the pool is to maintain a
7-21 net asset value of one dollar and the risk of market price
7-22 fluctuation;
7-23 (9) whether the only source of payment is the assets
7-24 of the pool at market value or whether there is a secondary source
7-25 of payment, such as insurance or guarantees, and a description of
7-26 the secondary source of payment;
7-27 (10) the name and address of the independent auditor
8-1 of the pool;
8-2 (11) the requirements to be satisfied for an entity to
8-3 deposit funds in and withdraw funds from the pool and any
8-4 deadlines or other operating policies required for the entity to
8-5 invest funds in and withdraw funds from the pool; and
8-6 (12) the performance history of the pool, including
8-7 yield, average dollar-weighted maturities, and expense ratios.
8-8 (g) To maintain eligibility to receive funds from and invest
8-9 funds on behalf of an entity listed in Subsection (a) of this
8-10 section, a public funds investment pool must furnish to the chief
8-11 financial officer or other authorized representative of the entity:
8-12 (1) investment transaction confirmations; and
8-13 (2) a monthly report that contains, at a minimum, the
8-14 following information:
8-15 (A) the types and percentage breakdown of
8-16 securities in which the pool is invested;
8-17 (B) the current average dollar-weighted
8-18 maturity, based on the stated maturity date, of the pool;
8-19 (C) the current percentage of the pool's
8-20 portfolio in investments that have stated maturities of greater
8-21 than one year;
8-22 (D) the carrying value versus the market value
8-23 of the pool's portfolio, using amortized cost valuation;
8-24 (E) the size of the pool;
8-25 (F) the number of participants in the pool;
8-26 (G) the custodian bank that is safekeeping the
8-27 assets of the pool;
9-1 (H) a listing of daily transaction activity of
9-2 the entity participating in the pool;
9-3 (I) the yield and expense ratio of the pool;
9-4 (J) the portfolio managers of the pool; and
9-5 (K) any changes or addenda to the offering
9-6 circular.
9-7 SECTION 2. The importance of this legislation and the
9-8 crowded condition of the calendars in both houses create an
9-9 emergency and an imperative public necessity that the
9-10 constitutional rule requiring bills to be read on three several
9-11 days in each house be suspended, and this rule is hereby suspended,
9-12 and that this Act take effect and be in force from and after its
9-13 passage, and it is so enacted.