By: Allen H.B. No. 1821
73R3526 SMH-D
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 in one of the four highest
2-9 long-term debt rating categories, without regard to gradations
2-10 within those categories <of not less than A or its equivalent>;
2-11 (5) certificates of deposit issued by <state and>
2-12 national banks or by banks domiciled in this state that are:
2-13 (A) guaranteed or insured by the Federal Deposit
2-14 Insurance Corporation, or its successor; or
2-15 (B) secured by obligations that are described by
2-16 Subdivisions (1)-(4) of this subsection, which are intended to
2-17 include all direct federal agency or instrumentality issued
2-18 mortgage backed securities that have a market value of not less
2-19 than the principal amount of the certificates or in any other
2-20 manner and amount provided by law for deposits of the investing
2-21 entities;
2-22 (6) certificates of deposit issued by savings and loan
2-23 associations domiciled in this state that are:
2-24 (A) guaranteed or insured by the Federal Savings
2-25 and Loan Insurance Corporation, or its successor; or
2-26 (B) secured by obligations that are described by
2-27 Subdivisions (1)-(4) of this subsection, which are intended to
3-1 include all direct federal agency or instrumentality issued
3-2 mortgage backed securities that have a market value of not less
3-3 than the principal amount of the certificates or in any other
3-4 manner and amount provided by law for deposits of the investing
3-5 entities;
3-6 (7) prime domestic bankers' acceptances;
3-7 (8) commercial paper with a stated maturity of 270
3-8 days or less from the date of its issuance that either:
3-9 (A) is rated not less than A-1, P-1, or the
3-10 equivalent by at least two nationally recognized credit rating
3-11 agencies; or
3-12 (B) is rated at least A-1, P-1, or the
3-13 equivalent by at least one nationally recognized credit rating
3-14 agency and is fully secured by an irrevocable letter of credit
3-15 issued by a bank organized and existing under the laws of the
3-16 United States or any state thereof; <and>
3-17 (9) fully collateralized repurchase agreements having
3-18 a defined termination date, secured by obligations described by
3-19 Subdivision (1) of this subsection, pledged to the political entity
3-20 and deposited with a third party selected and <or> approved by the
3-21 political entity, and placed through a primary government
3-22 securities dealer, as defined by the Federal Reserve, or a domestic
3-23 bank; and <domiciled in this state.>
3-24 (10) collateralized mortgage obligations directly
3-25 issued by an agency or instrumentality of the United States, the
3-26 underlying security for which is guaranteed by an agency or
3-27 instrumentality of the United States.
4-1 (b) In addition to investment in obligations, certificates,
4-2 or agreements described in Subsection (a) of this section, an
4-3 institution of higher education may invest in the following:
4-4 (1) corporate bonds, debentures, or similar debt
4-5 obligations having been rated and maintaining a current rating as
4-6 to investment quality by a nationally recognized investment rating
4-7 firm in one of the two highest long-term rating categories, without
4-8 regard to gradations within those categories; and
4-9 (2) cash management and fixed-income funds sponsored
4-10 by organizations exempt from federal income taxation by reason of
4-11 Section 501(c) of the Internal Revenue Code of 1986 and its
4-12 subsequent amendments <bond proceeds of an incorporated city or
4-13 town, a county, a public school district, or a navigation district,
4-14 or local revenue of an institution of higher education, may be
4-15 invested in common trust funds or comparable investment devices
4-16 owned or administered by banks domiciled in this state and whose
4-17 assets consist exclusively of all or a combination of the
4-18 obligations described by Subsection (a) of this section. Common
4-19 trust funds of banks domiciled in this state may be used if they:>
4-20 <(1) are available;>
4-21 <(2) comply with the provisions of the Internal
4-22 Revenue Code of 1986 and applicable federal regulations governing
4-23 the investment of bond proceeds; and>
4-24 <(3) meet the cash flow requirements and the
4-25 investment needs of the political subdivision or institution>.
4-26 (c) In this section:
4-27 (1) "Bond proceeds" includes but is not limited to
5-1 proceeds from the sale of bonds and reserves and funds maintained
5-2 for debt service purposes.
5-3 (2) "Prime domestic bankers' acceptances" means a
5-4 bankers' acceptance with a stated maturity of 270 days or less from
5-5 the date of its issuance that will be, in accordance with its
5-6 terms, liquidated in full at maturity, that is eligible for
5-7 collateral for borrowing from a Federal Reserve Bank, and that is
5-8 accepted by a bank organized and existing under the laws of the
5-9 United States or any state, the short-term obligations of which (or
5-10 of a bank holding company of which the bank is the largest
5-11 subsidiary) are rated at least A-1, P-1, or the equivalent by at
5-12 least one nationally recognized credit rating agency.
5-13 (3) "Repurchase agreement" means a simultaneous
5-14 agreement to buy, hold for a specified time, and then sell back at
5-15 a future date, obligations described by Subsection (a)(1) of this
5-16 section, the principal and interest of which are guaranteed by the
5-17 United States or any of its agencies, in market value of not less
5-18 than the principal amount of the funds disbursed. The term
5-19 includes direct security repurchase agreements and reverse security
5-20 repurchase agreements.
5-21 (4) "Public funds investment pool" means an entity
5-22 that receives funds from and invests funds on behalf of one or more
5-23 entities listed in Subsection (a) of this section.
5-24 (d) In addition to the investments described by Subsection
5-25 (a) of this section, an entity listed in that subsection may, in
5-26 accordance with this Act, purchase, sell, and invest its funds and
5-27 funds under its control in a <an SEC-registered,> no-load money
6-1 market mutual fund that is regulated by the federal Securities and
6-2 Exchange Commission, whose portfolios consist exclusively of
6-3 securities authorized by Subsection (a) of this section <with a
6-4 dollar-weighted average portfolio maturity of 120 days or less
6-5 whose assets consist exclusively of the obligations that are
6-6 described by Subsection (a) of this section> and whose investment
6-7 objectives include seeking to maintain a stable net asset value of
6-8 $1 per share. <No entity listed in Subsection (a) of this section
6-9 is authorized by this Act to invest in the aggregate more than 80
6-10 percent of its monthly average fund balance, excluding bond
6-11 proceeds, in money market mutual funds described in this subsection
6-12 or to invest its funds or funds under its control, excluding bond
6-13 proceeds, in any one money market mutual fund in an amount that
6-14 exceeds 10 percent of the total assets of the money market mutual
6-15 fund.>
6-16 (e) An entity listed in Subsection (a) of this section may
6-17 invest its funds and funds under its control in an eligible public
6-18 funds investment pool if the governing body of the entity by
6-19 resolution authorizes investment in the particular pool. A public
6-20 funds investment pool may invest the funds it receives from
6-21 entities listed in Subsection (a) of this section in any investment
6-22 described by that subsection.
6-23 (f) To become eligible to receive funds from and invest
6-24 funds on behalf of an entity listed in Subsection (a) of this
6-25 section, a public funds investment pool:
6-26 (1) must have as its investment objectives, in
6-27 descending order of priority, safety of principal, liquidity, and
7-1 income; and
7-2 (2) must furnish to the chief financial officer of the
7-3 entity an offering circular or other similar disclosure instrument
7-4 that contains, at a minimum, the following information:
7-5 (A) the types of investments in which money is
7-6 allowed to be invested;
7-7 (B) the maximum average dollar-weighted maturity
7-8 allowed, based on the stated maturity date, of the investment pool;
7-9 (C) the maximum stated maturity date any
7-10 investment security within the portfolio may have;
7-11 (D) the objectives of the pool;
7-12 (E) the size of the pool;
7-13 (F) whether the pool has an advisory or
7-14 oversight board and, if so, its role and composition;
7-15 (G) the custodian bank that will safekeep the
7-16 pool's assets;
7-17 (H) whether the intent of the pool is to
7-18 maintain a net asset value of one dollar and the risk of market
7-19 price fluctuation;
7-20 (I) whether the only source of payment is the
7-21 assets of the pool at market value or whether there is a secondary
7-22 source of payment, such as insurance or guarantees, and a
7-23 description of the secondary source of payment;
7-24 (J) the name and address of the independent
7-25 auditor of the pool;
7-26 (K) the requirements to be satisfied for an
7-27 entity to deposit funds in and withdraw funds from the public
8-1 funds investment pool and any deadlines or other operating policies
8-2 required for the entity to invest funds in and withdraw funds from
8-3 the pool; and
8-4 (L) the performance history of the pool,
8-5 including yield, average dollar-weighted maturities, and expense
8-6 ratios.
8-7 (g) To maintain eligibility to receive funds from and invest
8-8 funds on behalf of an entity listed in Subsection (a) of this
8-9 section, a public funds investment pool must furnish to the chief
8-10 financial officer of the entity:
8-11 (1) investment transaction confirmations; and
8-12 (2) a monthly report that contains, at a minimum, the
8-13 following information:
8-14 (A) the types and percentage breakdown of
8-15 securities in which the pool is invested;
8-16 (B) the current average dollar-weighted
8-17 maturity, based on the stated maturity date, of the investment
8-18 pool;
8-19 (C) the current percentage of the pool's
8-20 portfolio with 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. This Act takes effect September 1, 1993.
9-8 SECTION 3. The importance of this legislation and the
9-9 crowded condition of the calendars in both houses create an
9-10 emergency and an imperative public necessity that the
9-11 constitutional rule requiring bills to be read on three several
9-12 days in each house be suspended, and this rule is hereby suspended.