1-1 By: Allen (Senate Sponsor - Moncrief) H.B. No. 1821
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
1-4 Intergovernmental Relations; May 25, 1993, reported adversely, with
1-5 favorable Committee Substitute by the following vote: Yeas 7, Nays
1-6 0; May 25, 1993, sent to printer.)
1-7 COMMITTEE VOTE
1-8 Yea Nay PNV Absent
1-9 Armbrister x
1-10 Leedom x
1-11 Carriker x
1-12 Henderson x
1-13 Madla x
1-14 Moncrief x
1-15 Patterson x
1-16 Rosson x
1-17 Shapiro x
1-18 Wentworth x
1-19 Whitmire x
1-20 COMMITTEE SUBSTITUTE FOR H.B. No. 1821 By: Moncrief
1-21 A BILL TO BE ENTITLED
1-22 AN ACT
1-23 relating to the investment of the funds of a local government or an
1-24 institution of higher education.
1-25 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-26 SECTION 1. Section 2, Public Funds Investment Act of 1987
1-27 (Article 842a-2, Vernon's Texas Civil Statutes), as amended by
1-28 Chapters 39, 628, 693, and 750, Acts of the 71st Legislature,
1-29 Regular Session, 1989, is amended to read as follows:
1-30 Sec. 2. Authorized Investments. (a) An incorporated city
1-31 or town, a county, a public school district, a district or
1-32 authority created under Article III, Section 52(b)(1) or (2), or
1-33 Article XVI, Section 59, of the Texas Constitution, an institution
1-34 of higher education as defined by Section 61.003 of the Education
1-35 Code, a hospital district, a fresh water supply district, or any
1-36 nonprofit corporation or public funds investment pool created under
1-37 Chapter 791, Government Code, <The Interlocal Cooperation Act
1-38 (Article 4413(32c), Vernon's Texas Civil Statutes)> acting on
1-39 behalf of any of those entities may, in accordance with this Act,
1-40 purchase, sell, and invest its funds and funds under its control in
1-41 the following:
1-42 (1) obligations of the United States or its agencies
1-43 and instrumentalities;
1-44 (2) direct obligations of the State of Texas or its
1-45 agencies;
1-46 (3) other obligations, the principal of and interest
1-47 on which are unconditionally guaranteed or insured by, or backed by
1-48 the full faith and credit of, the State of Texas or the United
1-49 States or its agencies and instrumentalities;
1-50 (4) obligations of states, agencies, counties, cities,
1-51 and other political subdivisions of any state having been rated as
1-52 to investment quality by a nationally recognized investment rating
1-53 firm and having received a rating of not less than A or its
1-54 equivalent;
1-55 (5) certificates of deposit issued by state and
1-56 national banks domiciled in this state that are:
1-57 (A) guaranteed or insured by the Federal Deposit
1-58 Insurance Corporation, or its successor; or
1-59 (B) secured by obligations that are described by
1-60 Subdivisions (1)-(4) of this subsection, which are intended to
1-61 include all direct federal agency or instrumentality issued
1-62 mortgage backed securities that have a market value of not less
1-63 than the principal amount of the certificates or in any other
1-64 manner and amount provided by law for deposits of the investing
1-65 entities;
1-66 (6) certificates of deposit issued by savings and loan
1-67 associations domiciled in this state that are:
1-68 (A) guaranteed or insured by the Federal Savings
2-1 and Loan Insurance Corporation, or its successor; or
2-2 (B) secured by obligations that are described by
2-3 Subdivisions (1)-(4) of this subsection, which are intended to
2-4 include all direct federal agency or instrumentality issued
2-5 mortgage backed securities that have a market value of not less
2-6 than the principal amount of the certificates or in any other
2-7 manner and amount provided by law for deposits of the investing
2-8 entities;
2-9 (7) certificates of deposit or share certificates
2-10 issued by state or federal credit unions domiciled in this state
2-11 that are:
2-12 (A) guaranteed or insured by the National Credit
2-13 Union Share Insurance Fund 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 (8) <(7)> prime domestic bankers' acceptances;
2-22 (9) <(8)> commercial paper with a stated maturity of
2-23 270 days or less from the date of its issuance that either:
2-24 (A) is rated not less than A-1, P-1, or the
2-25 equivalent by at least two nationally recognized credit rating
2-26 agencies; or
2-27 (B) is rated at least A-1, P-1, or the
2-28 equivalent by at least one nationally recognized credit rating
2-29 agency and is fully secured by an irrevocable letter of credit
2-30 issued by a bank organized and existing under the laws of the
2-31 United States or any state thereof; and
2-32 (10) <(9)> fully collateralized repurchase agreements
2-33 having a defined termination date, secured by obligations described
2-34 by Subdivision (1) of this subsection, pledged to the political
2-35 entity and deposited with a third party selected and <or> approved
2-36 by the political entity, and placed through a primary government
2-37 securities dealer, as defined by the Federal Reserve, or a bank
2-38 domiciled in this state.
2-39 (b) In addition to the investments <investment in
2-40 obligations, certificates, or agreements> described by <in>
2-41 Subsection (a) of this section, an institution of higher education
2-42 as defined by Section 61.003 of the Education Code may, in
2-43 accordance with this Act, purchase, sell, and invest its funds and
2-44 funds under its control in the following:
2-45 (1) cash management and fixed income funds sponsored
2-46 by organizations exempt from federal income taxation under Section
2-47 501(f), Internal Revenue Code of 1986 (26 U.S.C. Section 501(f)),
2-48 and its subsequent amendments;
2-49 (2) negotiable certificates of deposit issued by a
2-50 bank that has a certificate of deposit rating of at least 1 or the
2-51 equivalent by a nationally recognized credit rating agency or that
2-52 is associated with a holding company having a commercial paper
2-53 rating of at least A-1, P-1, or the equivalent by a nationally
2-54 recognized credit rating agency; and
2-55 (3) corporate bonds, debentures, or similar debt
2-56 obligations rated by a nationally recognized investment rating firm
2-57 in one of the two highest long-term rating categories, without
2-58 regard to gradations within those categories <bond proceeds of an
2-59 incorporated city or town, a county, a public school district, or a
2-60 navigation district, or local revenue of an institution of higher
2-61 education, may be invested in common trust funds or comparable
2-62 investment devices owned or administered by banks domiciled in this
2-63 state and whose assets consist exclusively of all or a combination
2-64 of the obligations described by Subsection (a) of this section.
2-65 Common trust funds of banks domiciled in this state may be used if
2-66 they:>
2-67 <(1) are available;>
2-68 <(2) comply with the provisions of the Internal
2-69 Revenue Code of 1986 and applicable federal regulations governing
2-70 the investment of bond proceeds; and>
3-1 <(3) meet the cash flow requirements and the
3-2 investment needs of the political subdivision or institution>.
3-3 (c) In this section:
3-4 (1) "Bond proceeds" includes but is not limited to
3-5 proceeds from the sale of bonds and reserves and funds maintained
3-6 for debt service purposes.
3-7 (2) "Prime domestic bankers' acceptances" means a
3-8 bankers' acceptance with a stated maturity of 270 days or less from
3-9 the date of its issuance that will be, in accordance with its
3-10 terms, liquidated in full at maturity, that is eligible for
3-11 collateral for borrowing from a Federal Reserve Bank, and that is
3-12 accepted by a bank organized and existing under the laws of the
3-13 United States or any state, the short-term obligations of which (or
3-14 of a bank holding company of which the bank is the largest
3-15 subsidiary) are rated at least A-1, P-1, or the equivalent by at
3-16 least one nationally recognized credit rating agency.
3-17 (3) "Repurchase agreement" means a simultaneous
3-18 agreement to buy, hold for a specified time, and then sell back at
3-19 a future date, obligations described by Subsection (a)(1) of this
3-20 section, the principal and interest of which are guaranteed by the
3-21 United States or any of its agencies, in market value of not less
3-22 than the principal amount of the funds disbursed. The term
3-23 includes direct security repurchase agreements and reverse security
3-24 repurchase agreements.
3-25 (4) "Public funds investment pool" means an entity
3-26 created to invest public funds jointly on behalf of the entities
3-27 that participate in the pool and whose investment objectives in
3-28 order of priority are: first, safety of principal; second,
3-29 liquidity; and third, income.
3-30 (d) In addition to the investments described by Subsection
3-31 (a) of this section, an entity listed in that subsection may, in
3-32 accordance with this Act, purchase, sell, and invest its funds and
3-33 funds under its control in a <an SEC-registered,> no-load money
3-34 market mutual fund that is regulated by the federal Securities and
3-35 Exchange Commission with a dollar-weighted average stated
3-36 <portfolio> maturity of 90 <120> days or less <whose assets consist
3-37 exclusively of the obligations that are described by Subsection (a)
3-38 of this section> and whose investment objectives include seeking to
3-39 maintain a stable net asset value of $1 per share. No entity
3-40 listed in Subsection (a) of this section is authorized by this Act
3-41 to invest in the aggregate more than 80 percent of its monthly
3-42 average fund balance, excluding bond proceeds, in money market
3-43 mutual funds described in this subsection or to invest its funds or
3-44 funds under its control, excluding bond proceeds, in any one money
3-45 market mutual fund in an amount that exceeds 10 percent of the
3-46 total assets of the money market mutual fund.
3-47 (e) An entity listed in Subsection (a) of this section may
3-48 invest its funds and funds under its control in an eligible public
3-49 funds investment pool if the governing body of the entity by
3-50 resolution authorizes investment in the particular pool. A public
3-51 funds investment pool may invest the funds it receives from
3-52 entities listed in Subsection (a) of this section in any investment
3-53 described by that subsection. A public funds investment pool shall
3-54 establish an advisory board composed of participants in the pool
3-55 and other persons who are qualified to advise the pool.
3-56 (f) To become eligible to receive funds from and invest
3-57 funds on behalf of an entity listed in Subsection (a) of this
3-58 section, a public funds investment pool must furnish to the chief
3-59 financial officer or other authorized representative of the entity
3-60 an offering circular or other similar disclosure instrument that
3-61 contains, at a minimum, the following information:
3-62 (1) the types of investments in which money is allowed
3-63 to be invested;
3-64 (2) the maximum average dollar-weighted maturity
3-65 allowed, based on the stated maturity date, of the pool;
3-66 (3) the maximum stated maturity date any investment
3-67 security within the portfolio may have;
3-68 (4) the objectives of the pool;
3-69 (5) the size of the pool;
3-70 (6) the names of the members of the advisory board of
4-1 the pool and the dates their terms expire;
4-2 (7) the custodian bank that will safekeep the pool's
4-3 assets;
4-4 (8) whether the intent of the pool is to maintain a
4-5 net asset value of one dollar and the risk of market price
4-6 fluctuation;
4-7 (9) whether the only source of payment is the assets
4-8 of the pool at market value or whether there is a secondary source
4-9 of payment, such as insurance or guarantees, and a description of
4-10 the secondary source of payment;
4-11 (10) the name and address of the independent auditor
4-12 of the pool;
4-13 (11) the requirements to be satisfied for an entity to
4-14 deposit funds in and withdraw funds from the pool and any
4-15 deadlines or other operating policies required for the entity to
4-16 invest funds in and withdraw funds from the pool; and
4-17 (12) the performance history of the pool, including
4-18 yield, average dollar-weighted maturities, and expense ratios.
4-19 (g) To maintain eligibility to receive funds from and invest
4-20 funds on behalf of an entity listed in Subsection (a) of this
4-21 section, a public funds investment pool must furnish to the chief
4-22 financial officer or other authorized representative of the entity:
4-23 (1) investment transaction confirmations; and
4-24 (2) a monthly report that contains, at a minimum, the
4-25 following information:
4-26 (A) the types and percentage breakdown of
4-27 securities in which the pool is invested;
4-28 (B) the current average dollar-weighted
4-29 maturity, based on the stated maturity date, of the pool;
4-30 (C) the current percentage of the pool's
4-31 portfolio in investments that have stated maturities of greater
4-32 than one year;
4-33 (D) the carrying value versus the market value
4-34 of the pool's portfolio, using amortized cost valuation;
4-35 (E) the size of the pool;
4-36 (F) the number of participants in the pool;
4-37 (G) the custodian bank that is safekeeping the
4-38 assets of the pool;
4-39 (H) a listing of daily transaction activity of
4-40 the entity participating in the pool;
4-41 (I) the yield and expense ratio of the pool;
4-42 (J) the portfolio managers of the pool; and
4-43 (K) any changes or addenda to the offering
4-44 circular.
4-45 SECTION 2. The importance of this legislation and the
4-46 crowded condition of the calendars in both houses create an
4-47 emergency and an imperative public necessity that the
4-48 constitutional rule requiring bills to be read on three several
4-49 days in each house be suspended, and this rule is hereby suspended,
4-50 and that this Act take effect and be in force from and after its
4-51 passage, and it is so enacted.
4-52 * * * * *
4-53 Austin,
4-54 Texas
4-55 May 25, 1993
4-56 Hon. Bob Bullock
4-57 President of the Senate
4-58 Sir:
4-59 We, your Committee on Intergovernmental Relations to which was
4-60 referred H.B. No. 1821, have had the same under consideration, and
4-61 I am instructed to report it back to the Senate with the
4-62 recommendation that it do not pass, but that the Committee
4-63 Substitute adopted in lieu thereof do pass and be printed.
4-64 Armbrister,
4-65 Chairman
4-66 * * * * *
4-67 WITNESSES
4-68 FOR AGAINST ON
4-69 FOR AGAINST ON
4-70 ___________________________________________________________________
5-1 ___________________________________________________________________
5-2 Name: Oliver Pennington x
5-3 Representing: Fulbright & Jaworski
5-4 City: Houston
5-5 -------------------------------------------------------------------
5-6 Name: Brenda F. Meglasson x
5-7 Representing: The University of Tx System
5-8 City: Austin
5-9 -------------------------------------------------------------------
5-10 Name: Jeff Huffman x
5-11 Representing: Tx Credit Union League
5-12 City: Dallas
5-13 -------------------------------------------------------------------
5-14 Name: Larry Casto x
5-15 Representing: City of Dallas
5-16 City: Dallas
5-17 -------------------------------------------------------------------