H.B. No. 1821
    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.