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
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    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
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