BILL ANALYSIS


                                                    C.S.S.B. 1128
                                                        By: Ellis
                                                    State Affairs
                                                          4-26-95
                                   Committee Report (Substituted)
BACKGROUND

Currently, the State Depository Board has the responsibility to
review and approve applications from banks to be state
depositories.  

Under current law, the treasury can invest in mutual funds and
obligations of any state agency or political subdivision but only
using the proceeds from bond sales.  There are no restrictions on
the purchase of derivatives by the treasurer.  Although the
treasury can make prudent investments in derivatives that will
provide a good return to the state, some of these investments may
be subject to interest rate swings and can be highly volatile.

PURPOSE

As proposed, C.S.S.B. 1128 sets forth regulations regarding the
handling of funds by the state treasurer, including rating
requirements for regulated financial institutions to serve as state
depositories, collateral requirements to secure state deposits, and
reporting requirements.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not grant any
additional rulemaking authority to a state officer, institution, or
agency.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Chapter 404C, Government Code, by adding Section
404.0212, as follows:

     Sec. 404.0212.  DEPOSITORY RATING UNDER CERTAIN FEDERAL LAW. 
     (a) Defines "regulated financial institution."
     
     (b) Requires a regulated financial institution that accepts
       a deposit from the treasurer to report to the treasurer the
       rating assigned to the financial institution.
       
       (c) Requires a regulated financial institution to make a
       report annually, by August 1, and not later than the 30th
       day after the financial institution is notified that the
       assigned rating has been changed.
       
       (d) Prohibits the treasurer from selecting as a depository
       a regulated financial institution that has been assigned a
       rating below "outstanding record of meeting community credit
       needs" or "satisfactory record of meeting community credit
       needs."
       
       (e) Requires the treasurer to take immediate action to
       transfer all state funds subject to the treasurer's control
       that are on deposit with an institution whose rating has
       changed to a rating below the required rating to a qualified
       financial institution.
       
       (f) Requires the depository contract between a regulated
       financial institution and the treasurer to authorize the
       withdrawal without penalty of the state funds subject to the
       treasurer's control that are on deposit with the institution
       whose rating has changed to a rating below the required
       rating.  
SECTION 2. Amends Section 404.022, Government Code, by adding
Subsection (j), to authorize the State Depository Board (board) to
execute a simplified version of a depository agreement with an
eligible institution desiring to hold $98,000 or less in state
deposits that are fully insured by the Federal Deposit Insurance
Corporation (FDIC).  Authorizes the treasurer to give the
institution contingent approval as a depository until the board's
next meeting.

SECTION 3. Amends Chapter 404C, Government Code, by adding Section
404.0221, as follows:

     Sec. 404.0221.  ELIGIBLE COLLATERAL.  (a) Defines "public
     agency."
     
     (b) Sets forth obligations included as collateral eligible
       to be pledged with the treasurer to secure state deposits.
       
       (c) Prohibits the market value of the collateral pledged
       from being less than 125 percent of the amount of the state
       deposits to be secured if the collateral consists of
       securities with a declining principal balance.
       
       (d) Provides that eligible collateral includes only a
       security with fixed, stated rates.
       
       (e) Authorizes a loss sustained by a depository that has
       secured its deposits by collateral to be enforced against
       the collateral.
       
       (f) Authorizes the treasurer, in a judgment that is final
       and not subject to review, to reject at any time collateral
       tendered by a state depository without assigning a reason
       for the rejection.
       
       (g) Provides that collateral is not required for deposits to
       the extent that the deposits are insured by the FDIC.
SECTION 4. Amends Section 404.024, Government Code, as follows:

     Sec. 404.024.  AUTHORIZED INVESTMENTS.  (a) Makes no changes.
     
     (b) Requires state funds not deposited in state depositories
       to be invested by the treasurer in obligations of a state or
       an agency, or political subdivision of a state and mutual
       funds or other investment pools secured by obligations that
       are described by Subdivisions (1) through (6).  Makes
       conforming changes.
       
       (c)  Authorizes investments in direct security repurchase
       agreements and reverse security repurchase agreements to be
       made with state or national banks doing business, rather
       than domiciled, in this state.
       
       (d) Deletes a provision authorizing the board to contract
       with a depository for the payment of interest on time or
       demand deposits at a rate not to exceed a rate that is
       lawful under rules and regulations of the board of directors
       of the Federal Savings and Loan Insurance Corporation.
       
       (e) Prohibits the treasury from purchasing certain types of
       investments in an amount that at the time of purchase will
       cause the aggregate value of the investments to exceed five
       percent of the treasury's total investments.  Deletes
       existing subsection prohibiting more than 20 percent of
       aggregate funds from being in depository institutions other
       than banks.
       
       (f) Authorizes the treasurer to contract with registered
       investment advisors and other consultants to assist in
       investment management and to pay fees directly from
       investment earnings.  Deletes existing subsection
       authorizing the treasurer to invest the gross proceeds from
       obligations in certain obligations or funds.
       
       (g) Makes no changes.
       
       (h) Redesignates existing Subsection (j).  Deletes existing
       Subsection (h) prohibiting state investment in South Africa.
       
       (i) Redesignates existing Subsection (k) and makes
       conforming changes.
SECTION 5. Amends Section 404.0245(c), Government Code, as follows:

     (c) Prohibits the principal amount of state funds invested and
     outstanding in hedging transactions on any one day from
     exceeding $500,000 with a maximum risk of loss of $5,000,000
     in a biennium. 
     
SECTION 6. Amends the heading of Chapter 404D, Government Code, as
follows:

       SUBCHAPTER D.  COLLATERAL, DEPOSITS, AND WITHDRAWALS

SECTION 7. Amends the heading of Section 404.031, Government Code,
as follows:

     Sec. 404.031.  COLLATERAL REQUIREMENTS.
SECTION 8. Amends Sections 404.031(b), (e), (g), and (j),
Government Code, as follows:

     (b) Requires the treasurer to require that additional
     collateral be pledged immediately or deposits reduced if the
     market value of the securities pledged by a depository becomes
     less than the amount of funds on deposit in the depository.
     
     (e) Provides that the custodian with whom a depository may
     deposit securities, rather than a bank, is for all purposes
     the bailee or agent of the treasurer.  Makes conforming
     changes.
     
     (g) Makes conforming changes.
     
     (j) Authorizes the treasurer to sell or convert the securities
     to money if a state depository fails to credit a deposit made
     by the treasurer.  Deletes a provision requiring this money to
     be disbursed on certain warrants drawn by the comptroller.
     
SECTION 9. Amends the heading of Section 404.032, Government Code,
as follows:

     Sec. 404.032.  DEPOSITS.
SECTION 10.    Amends Sections 404.032(a) and (d), Government Code,
to make conforming changes.

SECTION 11.    Amends Section 404.043, Government Code, to
authorize, rather than require, the treasurer to employ security
officers to provided services for the treasury.

SECTION 12.    Amends Section 404.047, Government Code, to require
the treasurer to keep records, rather than legal vouchers,
distinguishing between the receipts and disbursements of each
fiscal year.

SECTION 13.    Amends Section 404.048, Government Code, to require
the treasurer, as required by the governor, rather than specifying
a time frame, to submit a statement of the balance of money
remaining in the treasury.  Makes conforming changes.

SECTION 14.    Amends Sections 404.052(b), (d), and (f), Government
Code, to require the payment of interest and principal due on an
obligation of the municipality, district, or political subdivision
to be on deposit with the treasurer within five business days
before the date of maturity.  Requires any charges incurred for
later receipt of funds to be assessed to the municipality,
district, or political subdivision.  Requires the treasurer to
request the comptroller to issue a warrant for the payment of
amounts due on receipt of those amounts by the treasurer.  Deletes
provisions setting forth requirements for the warrant.  Makes
conforming changes.  

SECTION 15.    Amends Section 404.055, Government Code, as follows:

     Sec. 404.055.  New heading:  TIME AND DEMAND DEPOSITS. 
     Requires the treasurer to preserve records of the daily
     balances of and the interest income from funds deposited in
     time and demand deposit accounts in each state depository
     according to the provisions of Chapters 441D and 552.  Deletes
     provisions requiring the treasurer to make annual reports to
     the legislature and governor of the amount of income earned on
     each depository.  Makes conforming changes.
SECTION 16.    Amends Section 404.060, Government Code, to require
the treasurer to determine the priority of payment, rather than
setting forth a procedure for determining the priority of payment
and setting forth warrants to which this section does not apply.

SECTION 17.    Amends Section 404.062, Government Code, as follows:

     Sec. 404.062.  New heading:  UNDETERMINED REMITTANCES.  (a)-(c) Redesignate existing Subsections (c)-(e).  Deletes
     existing Subsections (a) and (b) setting forth requirements to
     a daily list of certain persons remitting money. 
SECTION 18.    Amends Section 404.064, Government Code, as follows:

     Sec. 404.064.  New heading:  OFFICE FEES.  Requires the
     treasurer to keep records, rather than an office fee book, of
     the fees earned by the treasury department to be deposited to
     the appropriate treasury fund.
SECTION 19.    Amends Section 404.065, Government Code, as follows:

     Sec. 404.065.  New heading:  CASH BALANCING.  Requires the
     treasurer to keep records, rather than a cash balancing book,
     for the purpose of arriving at the daily cash balance.  Makes
     conforming changes.
SECTION 20.    Amends Section 404.067, Government Code, as follows:

     Sec. 404.067.  New heading:  SAFEKEEPING; INVESTMENT AGENCIES. 
     (a) Requires the treasurer to keep custodial records, rather
     than a bond book, which shall reflect all deposits and
     releases of securities held by the treasurer and belonging to
     a state investment agency.
     
     (b) Requires the treasurer to keep appropriate ledger
       accounts that include a short description of each security
       held in safekeeping for certain investment agencies of the
       state.  Makes conforming changes.
       
       (c) Makes conforming changes.
       
       (d) Redesignates existing Subsection (e).  Deletes existing
       Subsection (d) regarding controlling accounts for interest
       to accrue on the bonds.  Makes conforming changes.
       
       SECTION 21.  Amends Section 404.068, Government Code, as follows:

     Sec. 404.068.  New heading:  STATE REGULATORY AGENCIES
     SAFEKEEPING AND PLEDGED COLLATERAL.  (a) Requires the
     treasurer to keep a suitable system in which all securities
     deposited with the treasurer by state depositories and other
     state agencies shall be entered, rather than including
     deposits by bond investment, surety, and insurance companies.
     
     (b) Requires the treasurer to keep a securities ledger in
       which appropriate accounts for each custodial agency are
       kept.
SECTION 22.    Amends Section 404.070, Government Code, as follows:

     Sec. 404.070.  New heading:  VALIDITY OF VOIDED WARRANTS.  (a)
     Provides that a warrant issued by the comptroller in payment
     of refunds from a fund in the treasury, rather than from a
     suspense or trust fund, becomes void unless presented to the
     treasurer for payment to the treasurer within a certain time
     period.  Makes conforming changes.
     
     (b) Deletes a provision requiring a list showing the
       outstanding warrants representing the transfer to show the
       name of the payee and a provision requiring proper notation
       to be made on each entry on the list when the legislature
       makes an appropriation for the refund of the amount listed.
     SECTION 23.    Amends Section 404.071(e), Government Code, to
require the treasurer to provide the comptroller information
necessary for the comptroller to compute the amount of interest to
be paid from the information in accordance with the comptroller's
requirements.

SECTION 24.    Amends Section 404.095, Government Code, as follows:

     Sec. 404.095.  ELECTRONIC TRANSFER OF CERTAIN PAYMENTS.  (a)-(c) Require a state agency to require a person to transfer
     payment amounts, rather than specifying amounts, due in a
     category of payments to the agency by electronic funds
     transfer approved by the treasurer.   
     
     (d) Provides that a person's failure to transfer payment
     amounts by electronic funds transfer may result in the
     assessment of a penalty by the state agency equal to five
     percent of the payment amount.
     
     (e) Provides that a person's failure to comply with the rules
     may result in the assessment of a penalty by the state agency
     equal to five percent of the payment amount.
     
     (f)-(g) Redesignate existing Subsections (e)-(f).
SECTION 25.  Amends Section 404.105, Government Code, to make
conforming changes.

SECTION 26.    Amends Section 404.106, Government Code, by adding
Subsection (c) to provide that the trust company has the same
investment authority as a particular participant for specific funds
held by the trust company for the participant.

SECTION 27.    Amends Section 404.123(d), Government Code, to
delete provisions setting forth the requirements for determining
the interest rate on tax and revenue anticipation notes.

SECTION 28.    Repealer:  Sections 404.0245(e), 404.0245(f),
404.025, and 404.061, Government Code (relating to Crude Oil and
Natural Gas Futures Contracts-Eligible Security-Collateral-State
Warrants Payable to U.S. Postal Service).

     Repealer:  Section 2, Chapter 234, V.T.C.S. (Public Funds
     Collateral Act).
SECTION 29.    (a) Authorizes a regulated financial institution
that is acting as a depository of funds subject to Section 404.0212
on the effective date of this Act and that does not have an
assigned rating under 12 U.S.C. Section 2906 that satisfies the
requirement of that section to continue to hold the funds only for
the period necessary to avoid the imposition of penalty on that
state.

     (b) Makes application of Section 404.0212(f), Government Code,
     prospective.
SECTION 30.    Effective date: upon passage, except that a state
depository approved before the effective date of this Act and
operating as a state depository on the effective date of this Act
is not required to meet a requirement of Chapter 404, Government
Code, until January 1, 1996.

SECTION 31.    Emergency clause.
           Effective date: upon passage.