H.B. No. 2459
1-1 AN ACT
1-2 relating to public funds investment.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Chapter 2256, Government Code, is amended to
1-5 conform to Section 1, Chapter 181, Section 1, Chapter 858, and
1-6 Section 1, Chapter 946, Acts of the 73rd Legislature, Regular
1-7 Session, 1993, and amended to read as follows:
1-8 CHAPTER 2256. PUBLIC FUNDS INVESTMENT
1-9 SUBCHAPTER A. AUTHORIZED INVESTMENTS FOR GOVERNMENTAL ENTITIES
1-10 Sec. 2256.001. Short Title. This chapter <subchapter> may
1-11 be cited as the Public Funds Investment Act.
1-12 Sec. 2256.002. Definitions. In this chapter <subchapter>:
1-13 (1) "Bond proceeds" means the proceeds from the sale
1-14 of bonds, notes, and other obligations issued by an entity, and
1-15 reserves and funds maintained by an entity for debt service
1-16 purposes.
1-17 (2) "Book value" means the face or par value of an
1-18 investment plus accrued interest or minus amortization or
1-19 accretion.
1-20 (3) "Funds" means public funds in the custody of a
1-21 state agency or local government that:
1-22 (A) are not required by law to be deposited in
1-23 the state treasury; and
1-24 (B) the investing entity has authority to
2-1 invest.
2-2 (4) "Institution of higher education" has the meaning
2-3 assigned by Section 61.003, Education Code.
2-4 (5) "Investing entity" and "entity" mean an entity
2-5 subject to this chapter and described by Section 2256.003.
2-6 (6) "Investment pool" means an entity created under
2-7 this code to invest public funds jointly on behalf of the entities
2-8 that participate in the pool and whose investment objectives in
2-9 order of priority are:
2-10 (A) preservation and safety of principal;
2-11 (B) liquidity; and
2-12 (C) yield.
2-13 (7) "Local government" means a municipality, a county,
2-14 a school district, a district or authority created under Section
2-15 52(b)(1) or (2), Article III, or Section 59, Article XVI, Texas
2-16 Constitution, a fresh water supply district, a hospital district,
2-17 and any political subdivision, authority, public corporation, body
2-18 politic, or instrumentality of the State of Texas, and any
2-19 nonprofit corporation acting on behalf of any of those entities.
2-20 (8) "Market value" means the face or par value of an
2-21 investment multiplied by the premium or discount quoted on the
2-22 valuation date.
2-23 (9) "Pooled fund group" means an internally created
2-24 fund of an investing entity in which one or more institutional
2-25 accounts of the investing entity are invested.
2-26 (10) <(2)> "School district" means a public school
2-27 district.
3-1 (11) "Separately invested asset" means an account or
3-2 fund of a state agency or local government that is not invested in
3-3 a pooled fund group.
3-4 (12) "State agency" means an office, department,
3-5 commission, board, or other agency that is part of any branch of
3-6 state government, an institution of higher education, and any
3-7 nonprofit corporation acting on behalf of any of those entities.
3-8 Sec. 2256.003. Authority to Invest Funds; Entities Subject
3-9 to This Chapter. Each governing body of the following entities may
3-10 purchase, sell, and invest its funds and funds under its control in
3-11 investments authorized under this subchapter in compliance with
3-12 investment policies approved by the governing body and according to
3-13 the standard of care prescribed by Section 2256.006 <2256.005>:
3-14 (1) a local government <municipality>;
3-15 (2) a state agency <a county;>
3-16 <(3) a school district;>
3-17 <(4) a district or authority created under:>
3-18 <(A) Article III, Section 52(b)(1) or (2), of
3-19 the Texas Constitution; or>
3-20 <(B) Article XVI, Section 59, of the Texas
3-21 Constitution;>
3-22 <(5) an institution of higher education;>
3-23 <(6) a hospital district>;
3-24 (3) <(7)> a nonprofit corporation acting on behalf of
3-25 a local government or a state agency <an entity listed in
3-26 Subdivisions (1) through (6)>; or
3-27 (4) an investment pool acting on behalf of two or more
4-1 local governments, state agencies, or a combination of those
4-2 entities <(8) a public funds investment pool created under Chapter
4-3 791 acting on behalf of a combination of entities listed in
4-4 Subdivisions (1) through (6)>.
4-5 Sec. 2256.004. APPLICABILITY. This subchapter does not
4-6 apply to:
4-7 (1) a public retirement system as defined by Section
4-8 802.001;
4-9 (2) state funds invested as authorized by Section
4-10 404.024;
4-11 (3) an institution of higher education having total
4-12 endowments of at least $95 million in book value on May 1, 1995; or
4-13 (4) funds invested by the Veterans' Land Board as
4-14 authorized by Chapter 161, 162, or 164, Natural Resources Code.
4-15 Sec. 2256.005. INVESTMENT POLICIES; INVESTMENT STRATEGIES;
4-16 INVESTMENT OFFICER. (a) The governing body of an investing entity
4-17 shall adopt by rule, order, ordinance, or resolution, as
4-18 appropriate, a written investment policy regarding the investment
4-19 of its funds and funds under its control.
4-20 (b) The investment policies must:
4-21 (1) be written;
4-22 (2) primarily emphasize safety of principal and
4-23 liquidity; <and>
4-24 (3) address investment diversification, yield, and
4-25 maturity and the quality and capability of investment management;
4-26 and
4-27 (4) include:
5-1 (A) a list of the types of authorized
5-2 investments in which the investing entity's funds may be invested;
5-3 (B) the maximum allowable stated maturity of any
5-4 individual investment owned by the entity; and
5-5 (C) for pooled fund groups, the maximum average
5-6 dollar-weighted maturity allowed based on the stated maturity date
5-7 for the portfolio.
5-8 (c) <(b)> The investment policies may provide that bids for
5-9 certificates of deposit be solicited:
5-10 (1) orally;
5-11 (2) in writing;
5-12 (3) electronically; or
5-13 (4) in any combination of those methods.
5-14 (d) As an integral part of an investment policy, the
5-15 governing body shall adopt a separate written investment strategy
5-16 for each of the funds under its control. Each investment strategy
5-17 must describe the investment objectives for the particular fund
5-18 using the following priorities in order of importance:
5-19 (1) understanding of the suitability of the investment
5-20 to the financial requirements of the entity;
5-21 (2) preservation and safety of principal;
5-22 (3) liquidity;
5-23 (4) marketability of the investment if the need arises
5-24 to liquidate the investment before maturity;
5-25 (5) diversification of the investment portfolio; and
5-26 (6) yield.
5-27 (e) The governing body of an investing entity shall review
6-1 its investment policy and investment strategies not less than
6-2 annually.
6-3 (f) Each investing entity shall designate, by rule, order,
6-4 ordinance, or resolution, as appropriate, one or more officers or
6-5 employees of the state agency, local government, or investment pool
6-6 as investment officer to be responsible for the investment of its
6-7 funds. Unless otherwise authorized by law, a person may not
6-8 deposit, withdraw, invest, transfer, or manage in any other manner
6-9 funds of a state agency, local government, or investment pool
6-10 without express written authority of the governing body, chief
6-11 executive officer, or chief financial officer of the state agency,
6-12 local government, or investment pool, consistent with the
6-13 investment policy adopted by the entity. Authority granted to a
6-14 person to deposit, withdraw, invest, transfer, or manage an
6-15 entity's funds is effective until rescinded by the investing entity
6-16 or until termination of the person's employment by the investing
6-17 entity.
6-18 (g) Subsection (f) does not apply to a state agency, local
6-19 government, or investment pool for which an officer of the entity
6-20 is assigned by law the function of investing its funds.
6-21 (h) An officer or employee of a commission created under
6-22 Chapter 391, Local Government Code, is ineligible to be designated
6-23 as an investment officer under Subsection (f).
6-24 (i) An investment officer of an entity who has a personal
6-25 business relationship with an entity seeking to sell an investment
6-26 to the entity shall file a statement disclosing that personal
6-27 business interest. An investment officer who is related within the
7-1 second degree by affinity or consanguinity, as determined under
7-2 Chapter 573, to an individual seeking to sell an investment to the
7-3 investment officer's entity shall file a statement disclosing that
7-4 relationship. A statement required under this subsection must be
7-5 filed with the Texas Ethics Commission and the governing body of
7-6 the entity.
7-7 (j) The governing body of an investing entity may specify in
7-8 its investment policy that any investment authorized by this
7-9 chapter is not suitable.
7-10 (k) A written copy of the investment policy shall be
7-11 presented to any person seeking to sell to the entity an authorized
7-12 investment. The registered principal of the business organization
7-13 seeking to sell an authorized investment shall execute a written
7-14 instrument substantially to the effect that the registered
7-15 principal has:
7-16 (1) received and thoroughly reviewed the investment
7-17 policy of the entity; and
7-18 (2) acknowledged that the organization has implemented
7-19 reasonable procedures and controls in an effort to preclude
7-20 imprudent investment activities arising out of investment
7-21 transactions conducted between the entity and the organization.
7-22 (l) The investment officer of an entity may not buy any
7-23 securities from a person who has not delivered to the entity an
7-24 instrument in substantially the form provided by Subsection (k).
7-25 (m) An investing entity, in conjunction with its annual
7-26 financial audit, shall perform a compliance audit of management
7-27 controls on investments and adherence to the entity's established
8-1 investment policies. State agencies shall report the results of
8-2 the audit performed under this subsection to the state auditor.
8-3 The state auditor shall compile the results of reports received
8-4 under this subsection and annually report those results to the
8-5 legislative audit committee.
8-6 Sec. 2256.006 <2256.005>. Standard of Care.
8-7 (a) Investments shall be made with judgment and care, under
8-8 prevailing circumstances, that a person of prudence, discretion,
8-9 and intelligence would exercise in the management of the person's
8-10 own affairs, not for speculation, but for investment, considering
8-11 the probable safety of capital and the probable income to be
8-12 derived. Investment of funds shall be governed by the following
8-13 investment objectives, in order of priority:
8-14 (1) preservation and safety of principal;
8-15 (2) liquidity; and
8-16 (3) yield.
8-17 (b) In determining whether an investment officer has
8-18 exercised prudence with respect to an investment decision, the
8-19 determination shall be made taking into consideration:
8-20 (1) the investment of all funds, or funds under the
8-21 entity's control, over which the officer had responsibility rather
8-22 than a consideration as to the prudence of a single investment; and
8-23 (2) whether the investment decision was consistent
8-24 with the written investment policy of the entity.
8-25 Sec. 2256.007. INVESTMENT TRAINING; STATE AGENCY BOARD
8-26 MEMBERS AND OFFICERS. (a) Each member of the governing board of a
8-27 state agency and its investment officer shall attend at least one
9-1 training session relating to the person's responsibilities under
9-2 this chapter within six months after taking office or assuming
9-3 duties.
9-4 (b) The governor's office shall provide training under this
9-5 section for members and officers other than members and officers of
9-6 an institution of higher education. The Texas Higher Education
9-7 Coordinating Board shall provide the training for members and
9-8 officers of institutions of higher education.
9-9 (c) Training under this section must include education in
9-10 investment controls, security risks, strategy risks, market risks,
9-11 and compliance with this chapter.
9-12 Sec. 2256.008. INVESTMENT TRAINING; LOCAL GOVERNMENTS.
9-13 (a) The treasurer, the chief financial officer if the treasurer is
9-14 not the chief financial officer, and the investment officer of a
9-15 local government shall attend at least one training session
9-16 relating to the treasurer's or officer's responsibilities under
9-17 this chapter within 12 months after taking office or assuming
9-18 duties.
9-19 (b) Training under this section must include education in
9-20 investment controls, security risks, strategy risks, market risks,
9-21 and compliance with this chapter.
9-22 Sec. 2256.009 <2256.006>. Authorized Investments:
9-23 Obligations of, or Guaranteed by, Governmental Entities.
9-24 (a) Except as provided by Subsection (b), the <The> following are
9-25 authorized investments under this subchapter:
9-26 (1) obligations of the United States or its agencies
9-27 and instrumentalities;
10-1 (2) direct obligations of this state or its agencies
10-2 and instrumentalities;
10-3 (3) collateralized mortgage obligations directly
10-4 issued by a federal agency or instrumentality of the United States,
10-5 the underlying security for which is guaranteed by an agency or
10-6 instrumentality of the United States;
10-7 (4) other obligations, the principal and interest of
10-8 which are unconditionally guaranteed or insured by, or backed by
10-9 the full faith and credit of, this state or the United States or
10-10 their respective agencies and <its> instrumentalities; and
10-11 (5) obligations of states, agencies, counties, cities,
10-12 and other political subdivisions of any state rated as to
10-13 investment quality by a nationally recognized investment rating
10-14 firm not less than A or its equivalent.
10-15 (b) The following are not authorized investments under this
10-16 section:
10-17 (1) obligations whose payment represents the coupon
10-18 payments on the outstanding principal balance of the underlying
10-19 mortgage-backed security collateral and pays no principal;
10-20 (2) obligations whose payment represents the principal
10-21 stream of cash flow from the underlying mortgage-backed security
10-22 collateral and bears no interest;
10-23 (3) collateralized mortgage obligations that have a
10-24 stated final maturity date of greater than 10 years; and
10-25 (4) collateralized mortgage obligations the interest
10-26 rate of which is determined by an index that adjusts opposite to
10-27 the changes in a market index.
11-1 Sec. 2256.010 <2256.007>. Authorized Investments:
11-2 Certificates of Deposit. A certificate of deposit is an authorized
11-3 investment under this subchapter if the certificate of deposit is
11-4 issued by a state or national bank domiciled in this state or a
11-5 savings and loan association domiciled in this state and is:
11-6 (1) guaranteed or insured by the Federal Deposit
11-7 Insurance Corporation or its successor;
11-8 (2) secured by obligations that are described by
11-9 Section 2256.009(a) <2256.006>, including mortgage backed
11-10 securities directly issued by a federal agency or instrumentality
11-11 that have a market value of not less than the principal amount of
11-12 the certificates, but excluding those mortgage backed securities of
11-13 the nature described by Section 2256.009(b); or
11-14 (3) secured in any other manner and amount provided by
11-15 law for deposits of the investing entity.
11-16 Sec. 2256.011 <2256.008>. Authorized Investments:
11-17 Repurchase Agreements. (a) A fully collateralized repurchase
11-18 agreement is an authorized investment under this subchapter if the
11-19 repurchase agreement:
11-20 (1) has a defined termination date;
11-21 (2) is secured by obligations described by Section
11-22 2256.009(a)(1) <2256.006(1)>; and
11-23 (3) requires the securities being purchased by the
11-24 entity to be <is> pledged to the entity, held in the entity's name,
11-25 and deposited at the time the investment is made with the entity or
11-26 with a third party selected and <or> approved by the entity; and
11-27 (4) is placed through a primary government securities
12-1 dealer, as defined by the Federal Reserve, or a financial
12-2 institution doing business in this state <a bank domiciled in this
12-3 state>.
12-4 (b) In this section, "repurchase agreement" means a
12-5 simultaneous agreement to buy, hold for a specified time, and sell
12-6 back at a future date obligations described by Section
12-7 2256.009(a)(1) <2256.006(1)>, at a <the principal and interest of
12-8 which are guaranteed by the United States in> market value at the
12-9 time the funds are disbursed of not less than the principal amount
12-10 of the funds disbursed. The term includes a direct security
12-11 repurchase agreement and a reverse security repurchase agreement.
12-12 (c) Notwithstanding any other law, the term of any reverse
12-13 security repurchase agreement may not exceed 90 days after the date
12-14 the reverse security repurchase agreement is delivered.
12-15 (d) Money received by an entity under the terms of a reverse
12-16 security repurchase agreement shall be used to acquire additional
12-17 authorized investments, but the term of the authorized investments
12-18 acquired must mature not later than the expiration date stated in
12-19 the reverse security repurchase agreement.
12-20 Sec. 2256.012 <2256.009>. Authorized Investments: Bankers'
12-21 Acceptances. A bankers' acceptance is an authorized investment
12-22 under this subchapter if the bankers' acceptance:
12-23 (1) has a stated maturity of 270 days or fewer from
12-24 the date of its issuance;
12-25 (2) will be, in accordance with its terms, liquidated
12-26 in full at maturity;
12-27 (3) is eligible for collateral for borrowing from a
13-1 Federal Reserve Bank; and
13-2 (4) is accepted by a bank organized and existing under
13-3 the laws of the United States or any state, if the short-term
13-4 obligations of the bank, or of a bank holding company of which the
13-5 bank is the largest subsidiary, are rated not less than A-1 or P-1
13-6 or an equivalent rating by at least one nationally recognized
13-7 credit rating agency.
13-8 Sec. 2256.013 <2256.010>. Authorized Investments:
13-9 Commercial Paper. Commercial paper is an authorized investment
13-10 under this subchapter if the commercial paper:
13-11 (1) has a stated maturity of 270 days or fewer from
13-12 the date of its issuance; and
13-13 (2) is rated not less than A-1 or P-1 or an equivalent
13-14 rating by at least:
13-15 (A) two nationally recognized credit rating
13-16 agencies; or
13-17 (B) one nationally recognized credit rating
13-18 agency and is fully secured by an irrevocable letter of credit
13-19 issued by a bank organized and existing under the laws of the
13-20 United States or any state.
13-21 Sec. 2256.014 <2256.011>. AUTHORIZED INVESTMENTS: MUTUAL
13-22 FUNDS. (a) A no-load money market mutual fund is an authorized
13-23 investment under this subchapter if the mutual fund:
13-24 (1) is regulated by <registered with> the Securities
13-25 and Exchange Commission;
13-26 (2) has a dollar-weighted average stated <portfolio>
13-27 maturity of 90 <120> days or fewer; and
14-1 <(3) is invested exclusively in obligations described
14-2 by Sections 2256.006 through 2256.010; and>
14-3 (3) <(4)> includes in its investment objectives the
14-4 maintenance of a stable net asset value of $1 for each share.
14-5 (b) In addition to a no-load money market mutual fund
14-6 permitted as an authorized investment in Subsection (a), a no-load
14-7 mutual fund is an authorized investment under this subchapter if
14-8 the mutual fund:
14-9 (1) is registered with the Securities and Exchange
14-10 Commission;
14-11 (2) has an average weighted maturity of less than two
14-12 years;
14-13 (3) is invested exclusively in obligations approved by
14-14 this subchapter;
14-15 (4) is continuously rated as to investment quality by
14-16 at least one nationally recognized investment rating firm of not
14-17 less than AAA or its equivalent; and
14-18 (5) conforms to the requirements set forth in Sections
14-19 2256.016(b) and (c) relating to the eligibility of investment pools
14-20 to receive and invest funds of investing entities.
14-21 (c) An entity is not authorized by this section to:
14-22 (1) invest in the aggregate more than 80 percent of
14-23 its monthly average fund balance, excluding bond proceeds and
14-24 reserves and other funds held for debt service, in money market
14-25 mutual funds described in Subsection (a) or mutual funds described
14-26 in Subsection (b), either separately or collectively;
14-27 (2) invest in the aggregate more than 15 percent of
15-1 its monthly average fund balance, excluding bond proceeds and
15-2 reserves and other funds held for debt service, in mutual funds
15-3 described in Subsection (b);
15-4 (3) invest any portion of bond proceeds, reserves and
15-5 funds held for debt service, in mutual funds described in
15-6 Subsection (b); or
15-7 (4) <(2)> invest its funds or funds under its control,
15-8 including <excluding> bond proceeds and reserves and other funds
15-9 held for debt service, in any one <money market> mutual fund
15-10 described in Subsection (a) or (b) in an amount that exceeds 10
15-11 percent of the total assets of the <money market> mutual fund.
15-12 Sec. 2256.015. AUTHORIZED INVESTMENTS: GUARANTEED
15-13 INVESTMENT CONTRACTS. (a) A guaranteed investment contract is an
15-14 authorized investment for state agencies for bond proceeds under
15-15 this subchapter if the guaranteed investment contract:
15-16 (1) has a defined termination date;
15-17 (2) is secured by obligations described by Section
15-18 2256.009(a)(1), excluding those obligations described by Section
15-19 2256.009(b), in an amount at least equal to the amount of bond
15-20 proceeds invested under the contract; and
15-21 (3) is pledged to the entity and deposited with the
15-22 entity or with a third party selected and approved by the entity.
15-23 (b) Bond proceeds, other than bond proceeds representing
15-24 reserves and funds maintained for debt service purposes, may not be
15-25 invested under this subchapter in a guaranteed investment contract
15-26 with a term of longer than five years from the date of issuance of
15-27 the bonds.
16-1 (c) To be eligible as an authorized investment:
16-2 (1) the governing body of the entity must specifically
16-3 authorize guaranteed investment contracts as an eligible investment
16-4 in the order, ordinance, or resolution authorizing the issuance of
16-5 bonds;
16-6 (2) the entity must receive bids from at least three
16-7 separate providers with no material financial interest in the bonds
16-8 from which proceeds were received;
16-9 (3) the entity must purchase the highest yielding
16-10 guaranteed investment contract for which a qualifying bid is
16-11 received;
16-12 (4) the price of the guaranteed investment contract
16-13 must take into account the reasonably expected drawdown schedule
16-14 for the bond proceeds to be invested; and
16-15 (5) the provider must certify the administrative costs
16-16 reasonably expected to be paid to third parties in connection with
16-17 the guaranteed investment contract.
16-18 <Sec. 2256.012. AUTHORIZED INVESTMENTS: COMMON TRUST FUNDS.
16-19 (a) A qualified common trust fund is an authorized investment for
16-20 the local funds of an institution of higher education and for the
16-21 bond proceeds and reserves and other funds held for debt service of
16-22 a municipality, county, school district, or navigation district if
16-23 the common trust fund:>
16-24 <(1) is owned or administered by a bank domiciled in
16-25 this state;>
16-26 <(2) consists exclusively of assets that are
16-27 obligations described by Sections 2256.006 through 2256.010;>
17-1 <(3) complies with the Internal Revenue Code of 1986
17-2 and applicable federal regulations governing the investment of bond
17-3 proceeds and reserves and other funds held for debt service; and>
17-4 <(4) meets the cash flow requirements and the
17-5 investment needs of the political subdivision or institution.>
17-6 <(b) In this section, "common trust fund" includes a
17-7 comparable investment device.>
17-8 Sec. 2256.016 <2256.013>. AUTHORIZED INVESTMENTS: INVESTMENT
17-9 POOLS. (a) An entity may invest its funds and funds under its
17-10 control through an eligible investment pool if the governing body
17-11 of the entity by rule, order, ordinance, or resolution, as
17-12 appropriate, authorizes investment in the particular pool. An
17-13 investment pool shall invest the funds it receives from entities in
17-14 authorized investments permitted by this subchapter.
17-15 (b) To be eligible to receive funds from and invest funds on
17-16 behalf of an entity under this chapter, an investment pool must
17-17 furnish to the investment officer or other authorized
17-18 representative of the entity an offering circular or other similar
17-19 disclosure instrument that contains, at a minimum, the following
17-20 information:
17-21 (1) the types of investments in which money is allowed
17-22 to be invested;
17-23 (2) the maximum average dollar-weighted maturity
17-24 allowed, based on the stated maturity date, of the pool;
17-25 (3) the maximum stated maturity date any investment
17-26 security within the portfolio has;
17-27 (4) the objectives of the pool;
18-1 (5) the size of the pool;
18-2 (6) the names of the members of the advisory board of
18-3 the pool and the dates their terms expire;
18-4 (7) the custodian bank that will safekeep the pool's
18-5 assets;
18-6 (8) whether the intent of the pool is to maintain a
18-7 net asset value of one dollar and the risk of market price
18-8 fluctuation;
18-9 (9) whether the only source of payment is the assets
18-10 of the pool at market value or whether there is a secondary source
18-11 of payment, such as insurance or guarantees, and a description of
18-12 the secondary source of payment;
18-13 (10) the name and address of the independent auditor
18-14 of the pool;
18-15 (11) the requirements to be satisfied for an entity to
18-16 deposit funds in and withdraw funds from the pool and any deadlines
18-17 or other operating policies required for the entity to invest funds
18-18 in and withdraw funds from the pool; and
18-19 (12) the performance history of the pool, including
18-20 yield, average dollar-weighted maturities, and expense ratios.
18-21 (c) To maintain eligibility to receive funds from and invest
18-22 funds on behalf of an entity under this chapter, an investment pool
18-23 must furnish to the investment officer or other authorized
18-24 representative of the entity:
18-25 (1) investment transaction confirmations; and
18-26 (2) a monthly report that contains, at a minimum, the
18-27 following information:
19-1 (A) the types and percentage breakdown of
19-2 securities in which the pool is invested;
19-3 (B) the current average dollar-weighted
19-4 maturity, based on the stated maturity date, of the pool;
19-5 (C) the current percentage of the pool's
19-6 portfolio in investments that have stated maturities of more than
19-7 one year;
19-8 (D) the book value versus the market value of
19-9 the pool's portfolio, using amortized cost valuation;
19-10 (E) the size of the pool;
19-11 (F) the number of participants in the pool;
19-12 (G) the custodian bank that is safekeeping the
19-13 assets of the pool;
19-14 (H) a listing of daily transaction activity of
19-15 the entity participating in the pool;
19-16 (I) the yield and expense ratio of the pool;
19-17 (J) the portfolio managers of the pool; and
19-18 (K) any changes or addenda to the offering
19-19 circular.
19-20 (d) An entity by contract may delegate to an investment pool
19-21 the authority to hold legal title as custodian of investments
19-22 purchased with its local funds.
19-23 (e) In this section, "yield" shall be calculated in
19-24 accordance with regulations governing the registration of open-end
19-25 management investment companies under the Investment Company Act of
19-26 1940, as promulgated from time to time by the federal Securities
19-27 and Exchange Commission.
20-1 Sec. 2256.017. PORTFOLIO OF CERTAIN INVESTMENT POOLS. A
20-2 public funds investment pool created to function as a money market
20-3 mutual fund must mark its portfolio to market daily and, to the
20-4 extent reasonably possible, stabilize at a $1 net asset value. If
20-5 the ratio of the market value of the portfolio divided by the book
20-6 value of the portfolio is less than 0.995 or greater than 1.005,
20-7 portfolio holdings shall be sold as necessary to maintain the ratio
20-8 between 0.995 and 1.005.
20-9 Sec. 2256.018. ADVISORY BOARD OF INVESTMENT POOLS. (a) An
20-10 investment pool other than a pool described by Subsection (b) shall
20-11 establish an advisory board composed of participants in the pool
20-12 and other persons.
20-13 (b) A public funds investment pool created under Chapter 791
20-14 and managed by a state agency shall establish an advisory board
20-15 composed equally of participants in the pool and other persons who
20-16 do not have a business relationship with the pool. A board member
20-17 must be qualified to advise the pool.
20-18 Sec. 2256.019. RATING OF CERTAIN INVESTMENT POOLS. A public
20-19 funds investment pool must be continuously rated no lower than AAA
20-20 or AAA-m or at an equivalent rating by at least one nationally
20-21 recognized rating service. <BIDS FOR COMMON TRUST FUND
20-22 INVESTMENTS. (a) An institution of higher education or a
20-23 municipality, county, school district, or navigation district may
20-24 invest in a common trust fund under Section 2256.012 only after
20-25 soliciting orally or in another manner competitive bids from at
20-26 least three banks.>
20-27 <(b) The solicitations for bids required by Subsection (a)
21-1 for a county shall be made only to banks located in the county
21-2 unless there are fewer than three banks available for the
21-3 investment located in the county; in which case, the solicitations
21-4 shall be made to each bank in the county and, as necessary to
21-5 complete the solicitations, to banks located in this state.>
21-6 <(c) The solicitations for bids required by Subsection (a)
21-7 for a municipality or a school district shall be made only to banks
21-8 located in the municipality or school district unless there are
21-9 fewer than three banks available for the investments located in the
21-10 municipality or school district; in which case, the solicitations
21-11 shall be made to each bank in the municipality or school district
21-12 and, as necessary to complete the solicitations, to banks in a
21-13 county in which the municipality or school district is located. If
21-14 there are fewer than three banks available for investments in the
21-15 municipality or school district and in the counties in which the
21-16 municipality or school district is located, the solicitations shall
21-17 be made to each bank in the municipality or school district and in
21-18 the counties in which the municipality or school district is
21-19 located, and, as necessary to complete the solicitations, to banks
21-20 located in this state.>
21-21 <(d) This section applies to a nonprofit corporation acting
21-22 on behalf of a municipality, county, or school district as it
21-23 applies to the municipality, county, or school district.>
21-24 Sec. 2256.020 <2256.014>. AUTHORIZED INVESTMENTS:
21-25 INSTITUTIONS OF HIGHER EDUCATION. In addition to the authorized
21-26 investments permitted by this subchapter, an institution of higher
21-27 education may purchase, sell, and invest its funds and funds under
22-1 its control in the following:
22-2 (1) cash management and fixed income funds sponsored
22-3 by organizations exempt from federal income taxation under Section
22-4 501(f), Internal Revenue Code of 1986 (26 U.S.C. Section 501(f));
22-5 (2) negotiable certificates of deposit issued by a
22-6 bank that has a certificate of deposit rating of at least 1 or the
22-7 equivalent by a nationally recognized credit rating agency or that
22-8 is associated with a holding company having a commercial paper
22-9 rating of at least A-1, P-1, or the equivalent by a nationally
22-10 recognized credit rating agency; and
22-11 (3) corporate bonds, debentures, or similar debt
22-12 obligations rated by a nationally recognized investment rating firm
22-13 in one of the two highest long-term rating categories, without
22-14 regard to gradations within those categories.
22-15 Sec. 2256.021. EFFECT OF LOSS OF REQUIRED RATING. An
22-16 investment that requires a minimum rating under this subchapter
22-17 does not qualify as an authorized investment during the period the
22-18 investment does not have the minimum rating. An entity shall take
22-19 all prudent measures that are consistent with its investment policy
22-20 to liquidate an investment that does not have the minimum rating.
22-21 Sec. 2256.022. EXPANSION OF INVESTMENT AUTHORITY. Expansion
22-22 of investment authority granted by this chapter shall require a
22-23 risk assessment by the state auditor or performed at the direction
22-24 of the state auditor.
22-25 Sec. 2256.023. INTERNAL MANAGEMENT REPORTS. (a) Not less
22-26 than quarterly, the investment officer shall prepare and submit to
22-27 the governing body of the entity a written report of investment
23-1 transactions for all funds covered by this chapter for the
23-2 preceding reporting period.
23-3 (b) The report must:
23-4 (1) describe in detail the investment position of the
23-5 entity on the date of the report;
23-6 (2) be prepared jointly by all investment officers of
23-7 the entity;
23-8 (3) be signed by each investment officer of the
23-9 entity;
23-10 (4) contain a summary statement of each pooled fund
23-11 group that states the:
23-12 (A) beginning market value for the reporting
23-13 period;
23-14 (B) additions and changes to the market value
23-15 during the period; and
23-16 (C) ending market value for the period;
23-17 (5) state the book value and market value of each
23-18 separately invested asset at the beginning and end of the reporting
23-19 period by the type of asset and fund type invested;
23-20 (6) state the maturity date of each separately
23-21 invested asset that has a maturity date;
23-22 (7) state the account or fund or pooled group fund in
23-23 the state agency or local government for which each individual
23-24 investment was acquired; and
23-25 (8) state the compliance of the investment portfolio
23-26 of the state agency or local government as it relates to:
23-27 (A) the investment strategy expressed in the
24-1 agency's or local government's investment policy; and
24-2 (B) relevant provisions of this chapter.
24-3 (c) The report shall be presented not less than quarterly to
24-4 the governing body and the chief executive officer of the entity
24-5 within a reasonable time after the end of the period. <BANK
24-6 UNWILLING TO BID; PRESUMPTION. A governmental entity or nonprofit
24-7 corporation that is notified by a bank that the bank is unable or
24-8 unwilling to bid for investments under Section 2256.012 may presume
24-9 that the bank continues to be unable or unwilling to bid for
24-10 investments until the bank in writing notifies the entity
24-11 otherwise.>
24-12 Sec. 2256.024 <2256.015>. SUBCHAPTER CUMULATIVE. (a) The
24-13 authority granted by this subchapter is in addition to that granted
24-14 by other law. Except as provided by Subsection (b), this
24-15 subchapter does not:
24-16 (1) prohibit an investment specifically authorized by
24-17 other law; or
24-18 (2) authorize an investment specifically prohibited by
24-19 other law.
24-20 (b) Except with respect to those investing entities
24-21 described in Subsection (c), a security described in Section
24-22 2256.009(b) is not an authorized investment for a state agency, a
24-23 local government, or another investing entity, notwithstanding any
24-24 other provision of this chapter or other law to the contrary.
24-25 (c) Mortgage pass-through certificates and individual
24-26 mortgage loans that may constitute an investment described in
24-27 Section 2256.009(b) are authorized investments with respect to the
25-1 housing bond programs operated by:
25-2 (1) the Texas Department of Housing and Community
25-3 Affairs or a nonprofit corporation created to act on its behalf;
25-4 (2) an entity created under Chapter 392, Local
25-5 Government Code; or
25-6 (3) an entity created under Chapter 394, Local
25-7 Government Code.
25-8 <Sec. 2256.016. SUBCHAPTER NOT APPLICABLE TO RETIREMENT
25-9 SYSTEMS. This subchapter does not apply to a public retirement
25-10 system as defined by Section 802.001.>
25-11 (Sections 2256.025 <2256.017>-2256.050 reserved for expansion)
25-12 SUBCHAPTER B. MISCELLANEOUS PROVISIONS
25-13 <INVESTMENT OF LOCAL FUNDS>
25-14 Sec. 2256.051. ELECTRONIC FUNDS TRANSFER. Any local
25-15 government may use electronic means to transfer or invest all funds
25-16 collected or controlled by the local government. <DEFINITIONS. In
25-17 this subchapter:>
25-18 <(1) "Investment pool" means an entity created under
25-19 Chapter 791 to invest public funds of two or more local
25-20 governments.>
25-21 <(2) "Local funds" means public funds in the custody
25-22 of a state agency or political subdivision that:>
25-23 <(A) are not required by law to be deposited in
25-24 the state treasury; and>
25-25 <(B) the agency or subdivision has authority to
25-26 invest.>
25-27 <(3) "Political subdivision" means a county,
26-1 municipality, or special purpose district.>
26-2 <(4) "State agency" means an office, department,
26-3 commission, board, other agency, institution of higher education,
26-4 or river authority that is part of any branch of state government.>
26-5 <Sec. 2256.052. ><Rules Governing Investment><. Each state
26-6 agency or political subdivision shall adopt rules governing the
26-7 investment of its local funds, including rules specifying the scope
26-8 of authority of officers and employees designated to invest local
26-9 funds.>
26-10 <Sec. 2256.053. ><Investment Rate of Return><. A state agency,
26-11 political subdivision, or investment pool shall invest its local
26-12 funds in investments that:>
26-13 <(1) yield the highest possible rate of return;>
26-14 <(2) protect the principal; and>
26-15 <(3) are consistent with the operating requirements of
26-16 the agency, subdivision, or pool as determined by the governing
26-17 body.>
26-18 <Sec. 2256.054. ><Designation of Investment Officer><.
26-19 (a) Each state agency or political subdivision shall designate, by
26-20 rule, order, ordinance, or resolution, one or more officers or
26-21 employees of the agency, subdivision, or investment pool to be
26-22 responsible for the investment of its local funds.>
26-23 <(b) Subsection (a) does not apply if an officer of the
26-24 agency or subdivision is assigned by law the function of investing
26-25 its local funds.>
26-26 <(c) An officer or employee of a commission created under
26-27 Chapter 391, Local Government Code, is ineligible to be designated
27-1 as an investment officer under Subsection (a).>
27-2 <Sec. 2256.055. ><Express Authority Required><. A person may
27-3 not deposit, withdraw, invest, transfer, or manage in any other
27-4 manner local funds of a state agency or political subdivision
27-5 without express written authority of the governing body or chief
27-6 executive officer of the agency or subdivision.>
27-7 <Sec. 2256.056. ><Legal Title in Investment Pool><. A political
27-8 subdivision by contract may delegate to an investment pool the
27-9 authority to hold legal title as custodian of investments purchased
27-10 with its local funds.>
27-11 <Sec. 2256.057. ><Internal Management Reports><. (a) At least
27-12 annually, the investment officer of a state agency or political
27-13 subdivision shall prepare a written report of the agency's or
27-14 subdivision's local funds investment transactions for the preceding
27-15 year.>
27-16 <(b) The report must:>
27-17 <(1) describe in detail the investment position of the
27-18 agency or subdivision on the date of the report;>
27-19 <(2) be prepared jointly by all investment officers of
27-20 the agency or subdivision; and>
27-21 <(3) be signed by each investment officer of the
27-22 agency or subdivision.>
27-23 <(c) The report shall be delivered to the governing body and
27-24 the chief executive officer of the agency or subdivision.>
27-25 Sec. 2256.052 <2256.058>. PRIVATE AUDITOR. Notwithstanding
27-26 any other law, a state agency shall employ a private auditor if
27-27 authorized by the legislative audit committee either on the
28-1 committee's initiative or on request of the governing body of the
28-2 agency.
28-3 <Sec. 2256.059. ><Effect of Other Law><. This subchapter does
28-4 not:>
28-5 <(1) prohibit an investment specifically authorized by
28-6 other law; or>
28-7 <(2) authorize an investment specifically prohibited
28-8 by other law.>
28-9 <Sections 2256.060-2256.100 reserved for expansion>
28-10 <SUBCHAPTER C. PAYMENT FOR AND DELIVERY AND DEPOSIT
28-11 OF SECURITIES PURCHASED BY STATE>
28-12 <Sec. 2256.101. ><Authorized Investments; Application of
28-13 Income><. (a) A board or agency of the state that may direct the
28-14 investment of funds of the board or agency may invest those funds
28-15 in:>
28-16 <(1) direct obligations of the United States;>
28-17 <(2) obligations the principal and interest of which
28-18 are guaranteed by the United States;>
28-19 <(3) direct obligations of or participation
28-20 certificates guaranteed by:>
28-21 <(A) a farm credit bank;>
28-22 <(B) the Federal National Mortgage Association;>
28-23 <(C) a federal home loan bank; or>
28-24 <(D) a bank for cooperatives;>
28-25 <(4) certificates of deposit of a bank or trust
28-26 company, the deposits of which are fully secured by a pledge of
28-27 securities described by Subdivisions (1) through (3);>
29-1 <(5) other securities made eligible for investment by
29-2 other law or the constitution; or>
29-3 <(6) a combination of securities described by
29-4 Subdivisions (1) through (5).>
29-5 <(b) The board or agency shall direct the application of
29-6 income from investments under this section.>
29-7 Sec. 2256.053 <2256.102>. PAYMENT FOR SECURITIES PURCHASED
29-8 BY STATE. The comptroller, the state treasurer, or the disbursing
29-9 officer of an agency that has the power to invest assets directly
29-10 may pay for authorized securities purchased from or through a
29-11 member in good standing of the National Association of Securities
29-12 Dealers or from or through a national or state bank on receiving an
29-13 invoice from the seller of the securities showing that the
29-14 securities have been purchased by the board or agency and that the
29-15 amount to be paid for the securities is just, due, and unpaid. A
29-16 purchase of securities may not be made at a price that exceeds the
29-17 existing market value of the securities.
29-18 Sec. 2256.054 <2256.103>. DELIVERY OF SECURITIES PURCHASED
29-19 BY STATE. A security purchased under this chapter <Section
29-20 2256.102> may be delivered to the state treasurer, a bank, or the
29-21 board or agency investing its funds. The delivery shall be made
29-22 under normal and recognized practices in the securities and banking
29-23 industries, including the book entry procedure of the Federal
29-24 Reserve Bank.
29-25 Sec. 2256.055 <2256.104>. DEPOSIT OF SECURITIES PURCHASED BY
29-26 STATE. At the direction of the state treasurer or the agency, a
29-27 security purchased under this chapter <Section 2256.102> may be
30-1 deposited in trust with a bank or federal reserve bank or branch
30-2 designated by the treasurer, whether in or outside the state. The
30-3 deposit shall be held in the entity's name as evidenced by a trust
30-4 receipt of the bank with which the securities are deposited.
30-5 SECTION 2. Section 51.003(b), Education Code, is amended to
30-6 read as follows:
30-7 (b) The funds shall either be deposited in the depository
30-8 bank or banks or invested as authorized by Chapter 2256, Government
30-9 Code (<the> Public Funds Investment Act) <of 1987>. Funds that are
30-10 to be deposited in the depository bank or banks must be deposited
30-11 within seven days from the date of collection.
30-12 SECTION 3. Section 51.0031(a), Education Code, is amended to
30-13 read as follows:
30-14 (a) A governing board may deposit funds under its control as
30-15 provided in Section 51.003 of this code, may invest funds under its
30-16 control in accordance with Chapter 2256, Government Code <financial
30-17 instruments eligible for investment of funds in the state treasury>
30-18 and, with regard to donations, gifts, and trusts, may establish
30-19 endowment funds that operate as trusts and are managed under
30-20 prudent person standards.
30-21 SECTION 4. Subchapter A, Chapter 51, Education Code, is
30-22 amended by adding Section 51.0032 to read as follows:
30-23 Sec. 51.0032. INVESTMENT REPORTS AND POLICIES. (a) A
30-24 governing board shall adopt by rule or resolution a written
30-25 investment policy for the investment of its institutional funds.
30-26 (b) Not less than quarterly, an institution of higher
30-27 education shall prepare and submit to the governing board of the
31-1 institution a written report of the institution's institutional
31-2 funds investment transactions for the preceding reporting period.
31-3 (c) In addition to other information that may be required by
31-4 the governing board, the report must contain:
31-5 (1) a summary statement of each pooled fund group that
31-6 states the beginning market value for the reporting period,
31-7 additions and changes to the market value during the period, and
31-8 the ending market value for the period; and
31-9 (2) the book value and market value of each separately
31-10 invested asset at the beginning and end of the reporting period by
31-11 type of asset and fund type invested.
31-12 (d) In this section:
31-13 (1) "Governing board" means a governing board
31-14 described in Section 51.0031(c).
31-15 (2) "Institution of higher education" means an
31-16 institution of higher education under the governance of a governing
31-17 board to which this section applies.
31-18 (3) "Pooled fund group" means an internally created
31-19 fund of an institution of higher education in which one or more
31-20 institutional accounts are invested.
31-21 (4) "Separately invested asset" means an account of an
31-22 institution of higher education that is not invested in a pooled
31-23 fund group.
31-24 SECTION 5. Section 1, Chapter 181; Section 1, Chapter 858;
31-25 and Section 1, Chapter 946, Acts of the 73rd Legislature, Regular
31-26 Session, 1993, are repealed.
31-27 SECTION 6. As provided by Section 1.02, Senate Bill No. 959,
32-1 Acts of the 74th Legislature, Regular Session, 1995, this Act
32-2 controls over Senate Bill No. 959 to the extent of any conflict.
32-3 SECTION 7. Each member of a governing board and each
32-4 investment officer who is in office or who has assumed duties on
32-5 September 1, 1995, and who would be required by Section
32-6 2256.007(a), Government Code, as amended by this Act, to attend
32-7 investment training within six months after taking office or
32-8 assuming duties shall attend at least one training session relating
32-9 to the person's responsibilities under Chapter 2256, Government
32-10 Code, that meets the requirements of that section not later than
32-11 March 1, 1996.
32-12 SECTION 8. Each treasurer, chief financial officer, and
32-13 investment officer who is in office or who has assumed duties on
32-14 September 1, 1995, and who would be required by Section
32-15 2256.008(a), Government Code, as amended by this Act, to attend
32-16 investment training within 12 months after taking office or
32-17 assuming duties shall attend at least one training session relating
32-18 to the person's responsibilities under Chapter 2256, Government
32-19 Code, that meets the requirements of that section not later than
32-20 September 1, 1997.
32-21 SECTION 9. The state auditor shall conduct, or shall hire an
32-22 independent evaluator to conduct, an assessment of the risks and
32-23 benefits associated with authorizing entities subject to this
32-24 chapter to invest in mutual funds other than money market mutual
32-25 funds, investment pools other than investment pools that function
32-26 as money market mutual funds, and guaranteed investment contracts.
32-27 The state auditor shall report these findings to the legislature
33-1 not later than September 1, 1996. This section expires on
33-2 September 2, 1996.
33-3 SECTION 10. This Act takes effect September 1, 1995.
33-4 SECTION 11. An entity that acquired authorized investment
33-5 securities under Chapter 2256, Government Code, before the
33-6 effective date of this Act that are no longer authorized investment
33-7 securities under that chapter as amended by this Act is not
33-8 required by this Act to liquidate those securities before the final
33-9 stated maturity of the investment.
33-10 SECTION 12. The importance of this legislation and the
33-11 crowded condition of the calendars in both houses create an
33-12 emergency and an imperative public necessity that the
33-13 constitutional rule requiring bills to be read on three several
33-14 days in each house be suspended, and this rule is hereby suspended.