74R9975 E
          By Marchant, Junell, Greenberg                        H.B. No. 2459
          Substitute the following for H.B. No. 2459:
          By Telford                                        C.S.H.B. No. 2459
                                 A BILL TO BE ENTITLED
    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 subchapter may be cited as
   1-11  the Public Funds Investment Act.
   1-12        Sec. 2256.002.  Definitions.  In this 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)  "Carrying value" means the total cost of an
   1-18  investment plus or minus amortization or accretion.
   1-19              (3)  "Funds" means public funds in the custody of a
   1-20  state agency or local government that:
   1-21                    (A)  are not required by law to be deposited in
   1-22  the state treasury; and
   1-23                    (B)  the state agency or local government has
   1-24  authority to invest.
    2-1              (4)  "Institution of higher education" has the meaning
    2-2  assigned by Section 61.003, Education Code.
    2-3              (5)  "Investment pool" means an entity  created under
    2-4  this code to invest public funds jointly on behalf of the entities
    2-5  that participate in the pool and whose investment objectives in
    2-6  order of priority are:
    2-7                    (A)  preservation and safety of principal;
    2-8                    (B)  liquidity; and
    2-9                    (C)  yield.
   2-10              (6)  "Local government" means a municipality, a county,
   2-11  a school district, a district or authority created under Section
   2-12  52(b)(1) or (2), Article III, or Section 59, Article XVI, Texas
   2-13  Constitution, a fresh water supply district, an institution of
   2-14  higher education, a hospital district, and any political
   2-15  subdivision, authority, public corporation, body politic, or
   2-16  instrumentality of the State of Texas, and any nonprofit
   2-17  corporation acting on behalf of any of those entities.
   2-18              (7)  "Market value" means the face or par value of an
   2-19  investment multiplied by the dollar price of the security.
   2-20              (8) <(2)>  "School district" means a public school
   2-21  district.
   2-22              (9)  "Investing entity" and "entity" mean an entity
   2-23  subject to this chapter and described by Section 2256.003.
   2-24              (10)  "State agency" means an office, department,
   2-25  commission, board, or other agency that is part of any branch of
   2-26  state government, and any nonprofit corporation acting on behalf of
   2-27  any of those entities.
    3-1        Sec. 2256.003.  Authority to Invest Funds; Entities Subject
    3-2  to This Chapter.  Each governing body of the following entities may
    3-3  purchase, sell, and invest its funds and funds under its control in
    3-4  investments authorized under this subchapter in compliance with
    3-5  investment policies approved by the governing body and according to
    3-6  the standard of care prescribed by Section 2256.005:
    3-7              (1)  a local government <municipality>;
    3-8              (2)  a state agency <a county;>
    3-9              <(3)  a school district;>
   3-10              <(4)  a district or authority created under:>
   3-11                    <(A)  Article III, Section 52(b)(1) or (2), of
   3-12  the Texas Constitution; or>
   3-13                    <(B)  Article XVI, Section 59, of the Texas
   3-14  Constitution;>
   3-15              <(5)  an institution of higher education;>
   3-16              <(6)  a hospital district;>
   3-17              <(7)  a nonprofit corporation acting on behalf of an
   3-18  entity listed in Subdivisions (1) through (6)>; or
   3-19              (3)  an investment pool acting on behalf of two or more
   3-20  local governments, state agencies, or a combination of those
   3-21  entities <(8)  a public funds investment pool created under Chapter
   3-22  791 acting on behalf of a combination of entities listed in
   3-23  Subdivisions (1) through (6)>.
   3-24        Sec. 2256.004.  Investment Policies; Investment Officer.
   3-25  (a)  The governing body of an investing entity shall adopt by rule,
   3-26  order, ordinance, or resolution, as appropriate, a written
   3-27  investment policy regarding the investment of its funds and funds
    4-1  under its control.
    4-2        (b)  The investment policies must:
    4-3              (1)  be written;
    4-4              (2)  primarily emphasize safety of principal and
    4-5  liquidity; and
    4-6              (3)  address investment diversification, yield, and
    4-7  maturity and the quality and capability of investment management.
    4-8        (c) <(b)>  The investment policies may provide that bids for
    4-9  certificates of deposit be solicited:
   4-10              (1)  orally;
   4-11              (2)  in writing;
   4-12              (3)  electronically; or
   4-13              (4)  in any combination of those methods.
   4-14        (d)  As an integral part of an investment policy, the
   4-15  governing body shall adopt an investment strategy governing the
   4-16  investment of its funds and funds under its control.  An investment
   4-17  strategy must describe the investment objectives of the entity
   4-18  using the following priorities in order of importance:
   4-19              (1)  understanding of the suitability of the investment
   4-20  to the financial requirements of the entity;
   4-21              (2)  preservation and safety of principal;
   4-22              (3)  liquidity;
   4-23              (4)  marketability of the investment if the need arises
   4-24  to liquidate the investment before maturity;
   4-25              (5)  diversification of the investment portfolio; and
   4-26              (6)  yield.
   4-27        (e)  Each investing entity shall designate, by rule, order,
    5-1  ordinance, or resolution, as appropriate, one or more officers or
    5-2  employees of the state agency, local government, or investment pool
    5-3  to be responsible for the investment of its funds.  Unless
    5-4  otherwise authorized by law, a person may not deposit, withdraw,
    5-5  invest, transfer, or manage in any other manner funds of a state
    5-6  agency, local government, or investment pool without express
    5-7  written authority of the governing body or chief executive officer
    5-8  of the state agency, local government, or investment pool,
    5-9  consistent with the investment policy adopted by the entity.
   5-10        (f)  Subsection (e) does not apply to a state agency, local
   5-11  government, or investment pool for which an officer of the entity
   5-12  is assigned by law the function of investing its funds.
   5-13        (g)  An officer or employee of a commission created under
   5-14  Chapter 391, Local Government Code, is ineligible to be designated
   5-15  as an investment officer under Subsection (e).
   5-16        (h)  The governing body of an investing entity may specify in
   5-17  its investment policy that any investment authorized by this
   5-18  chapter is not suitable.
   5-19        (i)  A written copy of the investment policy shall be
   5-20  presented to any person seeking to sell to the entity an authorized
   5-21  investment.  The registered principal of the person  seeking to
   5-22  sell an authorized investment shall execute a written instrument
   5-23  substantially to the effect that the registered principal has:
   5-24              (1)  received and thoroughly reviewed the investment
   5-25  policy of the entity; and
   5-26              (2)  acknowledged that reasonable procedures and
   5-27  controls have been implemented by the person in an effort to
    6-1  preclude imprudent investment activities arising out of investment
    6-2  transactions conducted between the entity and the person.
    6-3        (j)  The investment officer of an entity may not buy any
    6-4  securities from a person who does not execute and deliver to the
    6-5  entity an instrument in substantially the form provided by
    6-6  Subsection (i).
    6-7        Sec. 2256.005.  Standard of Care.  (a)  Investments shall be
    6-8  made with judgment and care, under prevailing circumstances, that a
    6-9  person of prudence, discretion, and intelligence would exercise in
   6-10  the management of the person's own affairs, not for speculation,
   6-11  but for investment, considering the probable safety of capital and
   6-12  the probable income to be derived.  Investment of funds shall be
   6-13  governed by the following investment objectives, in order of
   6-14  priority:
   6-15              (1)  preservation and safety of principal;
   6-16              (2)  liquidity; and
   6-17              (3)  yield.
   6-18        (b)  In determining whether an investment officer has
   6-19  exercised prudence with respect to an investment decision, the
   6-20  determination shall be made taking into consideration:
   6-21              (1)  the investment of all funds, or funds under the
   6-22  entity's control, over which the officer had responsibility rather
   6-23  than a consideration as to the prudence of a single investment; and
   6-24              (2)  whether the investment decision was consistent
   6-25  with the written investment policy of the entity.
   6-26        Sec. 2256.006.  Authorized Investments:  Obligations of, or
   6-27  Guaranteed by, Governmental Entities.  (a)  Except as provided by
    7-1  Subsection (b), the <The> following are authorized investments
    7-2  under this subchapter:
    7-3              (1)  obligations of the United States or its agencies
    7-4  and instrumentalities;
    7-5              (2)  direct obligations of this state or its agencies
    7-6  and instrumentalities;
    7-7              (3)  collateralized mortgage obligations directly
    7-8  issued by a federal agency or instrumentality of the United States,
    7-9  the underlying security for which is guaranteed by an agency or
   7-10  instrumentality of the United States;
   7-11              (4)  other obligations, the principal and interest of
   7-12  which are unconditionally guaranteed or insured by, or backed by
   7-13  the full faith and credit of, this state or the United States or
   7-14  their respective agencies and <its> instrumentalities; and
   7-15              (5)  obligations of states, agencies, counties, cities,
   7-16  and other political subdivisions of any state rated as to
   7-17  investment quality by a nationally recognized investment rating
   7-18  firm not less than A or its equivalent.
   7-19        (b)  The following are not authorized investments under this
   7-20  section:
   7-21              (1)  obligations whose payment represents the coupon
   7-22  payments on the outstanding principal balance of the underlying
   7-23  mortgage-backed security collateral and pays no principal;
   7-24              (2)  obligations whose payment represents the principal
   7-25  stream of cash flow from the underlying mortgage-backed security
   7-26  collateral and bears no interest;
   7-27              (3)  collateralized mortgage obligations that have a
    8-1  stated final maturity date of greater than 10 years; and
    8-2              (4)  collateralized mortgage obligations the interest
    8-3  rate of which is determined by an index that adjusts opposite to
    8-4  the changes in a market index.
    8-5        Sec. 2256.007.  Authorized Investments:  Certificates of
    8-6  Deposit.  A certificate of deposit is an authorized investment
    8-7  under this subchapter if the certificate of deposit is issued by a
    8-8  state or national bank domiciled in this state or a savings and
    8-9  loan association domiciled in this state and is:
   8-10              (1)  guaranteed or insured by the Federal Deposit
   8-11  Insurance Corporation or its successor;
   8-12              (2)  secured by obligations that are described by
   8-13  Section 2256.006(a) <2256.006>, including mortgage backed
   8-14  securities directly issued by a federal agency or instrumentality
   8-15  that have a market value of not less than the principal amount of
   8-16  the certificates, but excluding those mortgage-backed securities of
   8-17  the nature described by Section 2256.006(b); or
   8-18              (3)  secured in any other manner and amount provided by
   8-19  law for deposits of the investing entity.
   8-20        Sec. 2256.008.  Authorized Investments:  Repurchase
   8-21  Agreements.  (a)  A fully collateralized repurchase agreement is an
   8-22  authorized investment under this subchapter if the repurchase
   8-23  agreement:
   8-24              (1)  has a defined termination date;
   8-25              (2)  is secured by obligations described by Section
   8-26  2256.006(a)(1) <2256.006(1)>; and
   8-27              (3)  requires the securities being purchased by the
    9-1  entity to be <is> pledged to the entity and deposited with the
    9-2  entity or with a third party selected and <or> approved by the
    9-3  entity<; and>
    9-4              <(4)  is placed through a primary government securities
    9-5  dealer, as defined by the Federal Reserve, or a bank domiciled in
    9-6  this state>.
    9-7        (b)  In this section, "repurchase agreement" means a
    9-8  simultaneous agreement to buy, hold for a specified time, and sell
    9-9  back at a future date obligations described by Section
   9-10  2256.006(a)(1) <2256.006(1)>, at a <the principal and interest of
   9-11  which are guaranteed by the United States in> market value at the
   9-12  time the funds are disbursed of not less than the principal amount
   9-13  of the funds disbursed.  The term includes a direct security
   9-14  repurchase agreement and a reverse security repurchase agreement.
   9-15        (c)  Notwithstanding any other law, the term of any reverse
   9-16  security repurchase agreement may not exceed 90 days after the date
   9-17  the reverse security repurchase agreement is delivered.
   9-18        (d)  Money received by an entity under the terms of a reverse
   9-19  security repurchase agreement shall be used to acquire additional
   9-20  authorized investments, but the term of the authorized investment
   9-21  acquired must mature not later than the expiration date stated in
   9-22  the reverse security repurchase agreement.
   9-23        Sec. 2256.009.  Authorized Investments:  Bankers'
   9-24  Acceptances.  A bankers' acceptance is an authorized investment
   9-25  under this subchapter if the bankers' acceptance:
   9-26              (1)  has a stated maturity of 270 days or fewer from
   9-27  the date of its issuance;
   10-1              (2)  will be, in accordance with its terms, liquidated
   10-2  in full at maturity;
   10-3              (3)  is eligible for collateral for borrowing from a
   10-4  Federal Reserve Bank; and
   10-5              (4)  is accepted by a bank organized and existing under
   10-6  the laws of the United States or any state, if the short-term
   10-7  obligations of the bank, or of a bank holding company of which the
   10-8  bank is the largest subsidiary, are rated not less than A-1 or P-1
   10-9  or an equivalent rating by at least one nationally recognized
  10-10  credit rating agency.
  10-11        Sec. 2256.010.  Authorized Investments:  Commercial Paper.
  10-12  Commercial paper is an authorized investment under this subchapter
  10-13  if the commercial paper:
  10-14              (1)  has a stated maturity of 270 days or fewer from
  10-15  the date of its issuance; and
  10-16              (2)  is rated not less than A-1 or P-1 or an equivalent
  10-17  rating by at least:
  10-18                    (A)  two nationally recognized credit rating
  10-19  agencies; or
  10-20                    (B)  one nationally recognized credit rating
  10-21  agency and is fully secured by an irrevocable letter of credit
  10-22  issued by a bank organized and existing under the laws of the
  10-23  United States or any state.
  10-24        Sec. 2256.011.  Authorized Investments:  Mutual Funds.
  10-25  (a)  A no-load money market mutual fund is an authorized investment
  10-26  under this subchapter if the mutual fund:
  10-27              (1)  is regulated by <registered with> the Securities
   11-1  and Exchange Commission;
   11-2              (2)  has a dollar-weighted average stated <portfolio>
   11-3  maturity of 90 <120> days or fewer;
   11-4              (3)  is continuously rated as to investment quality by
   11-5  at least one nationally recognized investment rating firm of not
   11-6  less than AAA or its equivalent <is invested exclusively in
   11-7  obligations described by Sections 2256.006 through 2256.010>; and
   11-8              (4)  includes in its investment objectives the
   11-9  maintenance of a stable net asset value of $1 for each share.
  11-10        (b)  In addition to a no-load money market mutual fund
  11-11  permitted as an authorized investment in Subsection (a), a no-load
  11-12  mutual fund is an authorized investment under this subchapter if
  11-13  the mutual fund:
  11-14              (1)  is registered with the Securities and Exchange
  11-15  Commission;
  11-16              (2)  has an average weighted maturity of less than two
  11-17  years;
  11-18              (3)  is invested exclusively in obligations approved by
  11-19  this subchapter;
  11-20              (4)  is continuously rated as to investment quality by
  11-21  at least one nationally recognized investment rating firm of not
  11-22  less than AAA or its equivalent;
  11-23              (5)  is continuously rated as to volatility by at least
  11-24  one nationally recognized investment rating firm of not less than
  11-25  AAA or its equivalent; and
  11-26              (6)  conforms to the requirements set forth in Sections
  11-27  2256.013(b) and (c).
   12-1        (c)  An entity is not authorized by this section to:
   12-2              (1)  invest in the aggregate more than 80 percent of
   12-3  its monthly average fund balance, excluding bond proceeds and
   12-4  reserves and other funds held for debt service, in money market
   12-5  mutual funds described in Subsection (a) or mutual funds described
   12-6  in Subsection (b), either separately or collectively; or
   12-7              (2)  invest its funds or funds under its control,
   12-8  excluding bond proceeds and reserves and other funds held for debt
   12-9  service, in any one <money market> mutual fund described in
  12-10  Subsection (a) or (b) in an amount that exceeds 10 percent of the
  12-11  total assets of the <money market> mutual fund.
  12-12        Sec. 2256.012.  Authorized Investments:  Guaranteed
  12-13  Investment Contracts.  (a)  A guaranteed investment contract is an
  12-14  authorized investment for state agencies for bond proceeds under
  12-15  this subchapter if the guaranteed investment contract:
  12-16              (1)  has a defined termination date;
  12-17              (2)  is secured by obligations described by Section
  12-18  2256.006(a)(1), excluding those obligations described by Section
  12-19  2256.006(b), in an amount at least equal to the amount of bond
  12-20  proceeds invested under the contract; and
  12-21              (3)  is pledged to the entity and deposited with the
  12-22  entity or with a third party selected and approved by the entity.
  12-23        (b)  Bond proceeds, other than bond proceeds representing
  12-24  reserves and funds maintained for debt service purposes, may not be
  12-25  invested in a guaranteed investment contract with a term of longer
  12-26  than five years from the date of issuance of the bonds.
  12-27        (c)  To be eligible as an authorized investment:
   13-1              (1)  the governing body of the entity must specifically
   13-2  authorize guaranteed investment contracts as an eligible investment
   13-3  in the order, ordinance, or resolution authorizing the issuance of
   13-4  bonds;
   13-5              (2)  the entity must receive bids from at least three
   13-6  separate providers with no material financial interest in the bonds
   13-7  from which proceeds were received;
   13-8              (3)  the entity must purchase the highest yielding
   13-9  guaranteed investment contract for which a qualifying bid is
  13-10  received;
  13-11              (4)  the price of the guaranteed investment contract
  13-12  must take into account the reasonably expected drawdown schedule
  13-13  for the bond proceeds to be invested; and
  13-14              (5)  the provider must certify the administrative costs
  13-15  reasonably expected to be paid to third parties in connection with
  13-16  the guaranteed investment contract. <AUTHORIZED INVESTMENTS:
  13-17  COMMON TRUST FUNDS.  (a)  A qualified common trust fund is an
  13-18  authorized investment for the local funds of an institution of
  13-19  higher education and for the bond proceeds and reserves and other
  13-20  funds held for debt service of a municipality, county, school
  13-21  district, or navigation district if the common trust fund:>
  13-22              <(1)  is owned or administered by a bank domiciled in
  13-23  this state;>
  13-24              <(2)  consists exclusively of assets that are
  13-25  obligations described by Sections 2256.006 through 2256.010;>
  13-26              <(3)  complies with the Internal Revenue Code of 1986
  13-27  and applicable federal regulations governing the investment of bond
   14-1  proceeds and reserves and other funds held for debt service; and>
   14-2              <(4)  meets the cash flow requirements and the
   14-3  investment needs of the political subdivision or institution.>
   14-4        <(b)  In this section, "common trust fund" includes a
   14-5  comparable investment device.>
   14-6        Sec. 2256.013.  AUTHORIZED INVESTMENTS:  INVESTMENT POOLS.
   14-7  (a)  An entity may invest its funds and funds under its control
   14-8  through an eligible investment pool if the governing body of the
   14-9  entity by rule, order, ordinance, or resolution, as appropriate,
  14-10  authorizes investment in the particular pool.  An investment pool
  14-11  shall invest the funds it receives from entities in authorized
  14-12  investments permitted by this subchapter.
  14-13        (b)  To be eligible to receive funds from and invest funds on
  14-14  behalf of an entity under this chapter, an investment pool must
  14-15  furnish to the investment officer or other authorized
  14-16  representative of the entity an offering circular or other similar
  14-17  disclosure instrument that contains, at a minimum, the following
  14-18  information:
  14-19              (1)  the types of investments in which money is allowed
  14-20  to be invested;
  14-21              (2)  the maximum average dollar-weighted maturity
  14-22  allowed, based on the stated maturity date, of the pool;
  14-23              (3)  the maximum stated maturity date any investment
  14-24  security within the portfolio has;
  14-25              (4)  the objectives of the pool;
  14-26              (5)  the size of the pool;
  14-27              (6)  the names of the members of the advisory board of
   15-1  the pool and the dates their terms expire;
   15-2              (7)  the custodian bank that will safekeep the pool's
   15-3  assets;
   15-4              (8)  whether the intent of the pool is to maintain a
   15-5  net asset value of one dollar and the risk of market price
   15-6  fluctuation;
   15-7              (9)  whether the only source of payment is the assets
   15-8  of the pool at market value or whether there is a secondary source
   15-9  of payment, such as insurance or guarantees, and a description of
  15-10  the secondary source of payment;
  15-11              (10)  the name and address of the independent auditor
  15-12  of the pool;
  15-13              (11)  the requirements to be satisfied for an entity to
  15-14  deposit funds in and withdraw funds from the pool and any deadlines
  15-15  or other operating policies required for the entity to invest funds
  15-16  in and withdraw funds from the pool; and
  15-17              (12)  the performance history of the pool, including
  15-18  yield, average dollar-weighted maturities, and expense ratios.
  15-19        (c)  To maintain eligibility to receive funds from and invest
  15-20  funds on behalf of an entity under this chapter, an investment pool
  15-21  must furnish to the investment officer or other authorized
  15-22  representative of the entity:
  15-23              (1)  investment transaction confirmations; and
  15-24              (2)  a monthly report that contains, at a minimum, the
  15-25  following information:
  15-26                    (A)  the types and percentage breakdown of
  15-27  securities in which the pool is invested;
   16-1                    (B)  the current average dollar-weighted
   16-2  maturity, based on the stated maturity date, of the pool;
   16-3                    (C)  the current percentage of the pool's
   16-4  portfolio in investments that have stated maturities of more than
   16-5  one year;
   16-6                    (D)  the carrying value versus the market value
   16-7  of the pool's portfolio, using amortized cost valuation;
   16-8                    (E)  the size of the pool;
   16-9                    (F)  the number of participants in the pool;
  16-10                    (G)  the custodian bank that is safekeeping the
  16-11  assets of the pool;
  16-12                    (H)  a listing of daily transaction activity of
  16-13  the entity participating in the pool;
  16-14                    (I)  the yield and expense ratio of the pool;
  16-15                    (J)  the portfolio managers of the pool; and
  16-16                    (K)  any changes or addenda to the offering
  16-17  circular.
  16-18        (d)  An entity by contract may delegate to an investment pool
  16-19  the authority to hold legal title as custodian of investments
  16-20  purchased with its local funds.
  16-21        (e)  In this section, "yield" shall be calculated in
  16-22  accordance with regulations governing the registration of open-end
  16-23  management investment companies under the Investment Company Act of
  16-24  1940, as promulgated from time to time by the federal Securities
  16-25  and Exchange Commission.  <BIDS FOR COMMON TRUST FUND INVESTMENTS.
  16-26  (a)  An institution of higher education or a municipality, county,
  16-27  school district, or navigation district may invest in a common
   17-1  trust fund under Section 2256.012 only after soliciting orally or
   17-2  in another manner competitive bids from at least three banks.>
   17-3        <(b)  The solicitations for bids required by Subsection (a)
   17-4  for a county shall be made only to banks located in the county
   17-5  unless there are fewer than three banks available for the
   17-6  investment located in the county; in which case, the solicitations
   17-7  shall be made to each bank in the county and, as necessary to
   17-8  complete the solicitations, to banks located in this state.>
   17-9        <(c)  The solicitations for bids required by Subsection (a)
  17-10  for a municipality or a school district shall be made only to banks
  17-11  located in the municipality or school district unless there are
  17-12  fewer than three banks available for the investments located in the
  17-13  municipality or school district; in which case, the solicitations
  17-14  shall be made to each bank in the municipality or school district
  17-15  and, as necessary to complete the solicitations, to banks in a
  17-16  county in which the municipality or school district is located.  If
  17-17  there are fewer than three banks available for investments in the
  17-18  municipality or school district and in the counties in which the
  17-19  municipality or school district is located, the solicitations shall
  17-20  be made to each bank in the municipality or school district and in
  17-21  the counties in which the municipality or school district is
  17-22  located, and, as necessary to complete the solicitations, to banks
  17-23  located in this state.>
  17-24        <(d)  This section applies to a nonprofit corporation acting
  17-25  on behalf of a municipality, county, or school district as it
  17-26  applies to the municipality, county, or school district.>
  17-27        Sec. 2256.0131.  PORTFOLIO OF CERTAIN INVESTMENT POOLS.  A
   18-1  public funds investment pool created to function as a money market
   18-2  mutual fund must mark to market its portfolio daily and, to the
   18-3  extent reasonably possible, stabilize at a $1 net asset value.  If
   18-4  the ratio of the market value of the portfolio divided by the book
   18-5  value of the portfolio is less than 0.995 or greater than 1.005,
   18-6  portfolio holdings shall be sold as necessary to maintain the ratio
   18-7  between 0.995 and 1.005.
   18-8        Sec. 2256.0132.  ADVISORY BOARD OF INVESTMENT POOLS.  (a)  An
   18-9  investment pool other than a pool described by Subsection (b) shall
  18-10  establish an advisory board composed of participants in the pool
  18-11  and other persons.
  18-12        (b)  A public funds investment pool created under Chapter 791
  18-13  and managed by a state agency shall establish an advisory board
  18-14  composed equally of participants in the pool and other persons who
  18-15  do not have a business relationship with the pool.  A board member
  18-16  must be qualified to advise the pool.
  18-17        Sec. 2256.0133.  RATING OF CERTAIN INVESTMENT POOLS.  A
  18-18  public funds investment pool must be continuously rated no lower
  18-19  than AAA or AAA-m or at an equivalent rating by at least one
  18-20  nationally recognized rating service.
  18-21        Sec. 2256.014.  AUTHORIZED INVESTMENTS:  INSTITUTIONS OF
  18-22  HIGHER EDUCATION.  In addition to the authorized investments
  18-23  permitted by this subchapter, an institution of higher education
  18-24  may purchase, sell, and invest its funds and funds under its
  18-25  control in the following:
  18-26              (1)  cash management and fixed income funds sponsored
  18-27  by organizations exempt from federal income taxation under Section
   19-1  501(f), Internal Revenue Code of 1986 (26 U.S.C. Section 501(f));
   19-2              (2)  negotiable certificates of deposit issued by a
   19-3  bank that has a certificate of deposit rating of at least 1 or the
   19-4  equivalent by a nationally recognized credit rating agency or that
   19-5  is associated with a holding company having a commercial paper
   19-6  rating of at least A-1, P-1, or the equivalent by a nationally
   19-7  recognized credit rating agency; and
   19-8              (3)  corporate bonds, debentures, or similar debt
   19-9  obligations rated by a nationally recognized investment rating firm
  19-10  in one of the two highest long-term rating categories, without
  19-11  regard to gradations within those categories.  <BANK UNWILLING TO
  19-12  BID; PRESUMPTION.  A governmental entity or nonprofit corporation
  19-13  that is notified by a bank that the bank is unable or unwilling to
  19-14  bid for investments under Section 2256.012 may presume that the
  19-15  bank continues to be unable or unwilling to bid for investments
  19-16  until the bank in writing notifies the entity otherwise.>
  19-17        Sec. 2256.015.  INTERNAL MANAGEMENT REPORTS.  (a)  Not less
  19-18  than quarterly, the investment officer shall prepare and submit to
  19-19  the governing body of the entity a written report of the entity's
  19-20  local funds investment transactions for the preceding reporting
  19-21  period.
  19-22        (b)  The report must:
  19-23              (1)  describe in detail the investment position of the
  19-24  entity on the date of the report;
  19-25              (2)  be prepared jointly by all investment officers of
  19-26  the entity;
  19-27              (3)  be signed by each investment officer of the
   20-1  entity;
   20-2              (4)  contain a summary statement of each pooled fund
   20-3  group that states the:
   20-4                    (A)  beginning market value for the reporting
   20-5  period;
   20-6                    (B)  additions and changes to the market value
   20-7  during the period; and
   20-8                    (C)  ending market value for the period;
   20-9              (5)  state the carrying value and market value of each
  20-10  separately invested asset at the beginning and end of the reporting
  20-11  period by type of asset and fund type invested;
  20-12              (6)  state the maturity date of each separately
  20-13  invested asset;
  20-14              (7)  state the account or fund or pooled fund group in
  20-15  the state agency or local government for which each individual
  20-16  investment was acquired; and
  20-17              (8)  state the compliance of the investment portfolio
  20-18  of the state agency or local government as it relates to the
  20-19  investment strategy expressed in the agency's or local government's
  20-20  investment policy.
  20-21        (c)  The report shall be presented not less than quarterly to
  20-22  the governing body and the chief executive officer of the entity.
  20-23        (d)  In this section:
  20-24              (1)  "Pooled fund group" means an internally created
  20-25  fund of a state agency or local government in which one or more
  20-26  institutional accounts of the state agency or local government are
  20-27  invested.
   21-1              (2)  "Separately invested asset" means an account or
   21-2  fund of a state agency or local government that is not invested in
   21-3  a pooled fund group.
   21-4        Sec. 2256.016.  SUBCHAPTER CUMULATIVE.  (a) The authority
   21-5  granted by this subchapter is in addition to that granted by other
   21-6  law.  Except as provided by Subsection (b), this subchapter does
   21-7  not:
   21-8              (1)  prohibit an investment specifically authorized by
   21-9  other law; or
  21-10              (2)  authorize an investment specifically prohibited by
  21-11  other law.
  21-12        (b)  Notwithstanding any other law, a security described by
  21-13  Section 2256.006(b) is not an authorized investment for an
  21-14  investing entity.
  21-15        Sec. 2256.017 <2256.016>.  SUBCHAPTER NOT APPLICABLE TO
  21-16  RETIREMENT SYSTEMS AND CERTAIN STATE AGENCIES.  This subchapter
  21-17  does not apply to a public retirement system as defined by Section
  21-18  802.001, to state funds invested as authorized by Section 404.024,
  21-19  or to funds invested by an institution of higher education as
  21-20  authorized by Section 51.0031(c), Education Code.
  21-21                SUBCHAPTER B.  MISCELLANEOUS PROVISIONS
  21-22                      <INVESTMENT OF LOCAL FUNDS>
  21-23        Sec. 2256.051.  PRIVATE AUDITOR.  Notwithstanding any other
  21-24  law, a state agency shall employ a private auditor if authorized by
  21-25  the legislative audit committee on the committee's initiative or on
  21-26  request of the governing body of the agency.
  21-27        Sec. 2256.052.  PAYMENT FOR SECURITIES PURCHASED BY STATE.
   22-1  The comptroller, the state treasurer, or the disbursing officer of
   22-2  an agency that has the power to invest assets directly may pay for
   22-3  authorized securities purchased from or through a member in good
   22-4  standing of the National Association of Securities Dealers or from
   22-5  or through a national or state bank on receiving an invoice from
   22-6  the seller of the securities showing that the securities have been
   22-7  purchased by the board or agency and that the amount to be paid for
   22-8  the securities is just, due, and unpaid.
   22-9        Sec. 2256.053.  DELIVERY OF SECURITIES PURCHASED BY STATE.  A
  22-10  security purchased under this chapter may be delivered to the state
  22-11  treasurer, a bank, or the board or agency investing its funds.  The
  22-12  delivery shall be made under normal and recognized practices in the
  22-13  securities and banking industries, including the book entry
  22-14  procedure of the Federal Reserve Bank.
  22-15        Sec. 2256.054.  DEPOSIT OF SECURITIES PURCHASED BY STATE.  At
  22-16  the direction of the state treasurer or the agency, a security
  22-17  purchased under this chapter may be deposited in trust with a bank
  22-18  or federal reserve bank or branch designated by the treasurer,
  22-19  whether in or outside the state.  The deposit shall be evidenced by
  22-20  a trust receipt of the bank with which the securities are
  22-21  deposited.
  22-22        Sec. 2256.055.  ELECTRONIC FUNDS TRANSFER.  Any local
  22-23  government may use electronic means to transfer or invest all funds
  22-24  collected or controlled by the local government.
  22-25        <Sec. 2256.051.  ><Definitions><.  In this subchapter:>
  22-26              <(1)  "Investment pool" means an entity created under
  22-27  Chapter 791 to invest public funds of two or more local
   23-1  governments.>
   23-2              <(2)  "Local funds" means public funds in the custody
   23-3  of a state agency or political subdivision that:>
   23-4                    <(A)  are not required by law to be deposited in
   23-5  the state treasury; and>
   23-6                    <(B)  the agency or subdivision has authority to
   23-7  invest.>
   23-8              <(3)  "Political subdivision" means a county,
   23-9  municipality, or special purpose district.>
  23-10              <(4)  "State agency" means an office, department,
  23-11  commission, board, other agency, institution of higher education,
  23-12  or river authority that is part of any branch of state government.>
  23-13        <Sec. 2256.052.  ><Rules Governing Investment><.  Each state
  23-14  agency or political subdivision shall adopt rules governing the
  23-15  investment of its local funds, including rules specifying the scope
  23-16  of authority of officers and employees designated to invest local
  23-17  funds.>
  23-18        <Sec. 2256.053.  ><Investment Rate of Return><.  A state agency,
  23-19  political subdivision, or investment pool shall invest its local
  23-20  funds in investments that:>
  23-21              <(1)  yield the highest possible rate of return;>
  23-22              <(2)  protect the principal; and>
  23-23              <(3)  are consistent with the operating requirements of
  23-24  the agency, subdivision, or pool as determined by the governing
  23-25  body.>
  23-26        <Sec. 2256.054.  ><Designation of Investment Officer><.
  23-27  (a)  Each state agency or political subdivision shall designate, by
   24-1  rule, order, ordinance, or resolution, one or more officers or
   24-2  employees of the agency, subdivision, or investment pool to be
   24-3  responsible for the investment of its local funds.>
   24-4        <(b)  Subsection (a) does not apply if an officer of the
   24-5  agency or subdivision is assigned by law the function of investing
   24-6  its local funds.>
   24-7        <(c)  An officer or employee of a commission created under
   24-8  Chapter 391, Local Government Code, is ineligible to be designated
   24-9  as an investment officer under Subsection (a).>
  24-10        <Sec. 2256.055.  ><Express Authority Required><.  A person may
  24-11  not deposit, withdraw, invest, transfer, or manage in any other
  24-12  manner local funds of a state agency or political subdivision
  24-13  without express written authority of the governing body or chief
  24-14  executive officer of the agency or subdivision.>
  24-15        <Sec. 2256.056.  ><Legal Title in Investment Pool><.  A political
  24-16  subdivision by contract may delegate to an investment pool the
  24-17  authority to hold legal title as custodian of investments purchased
  24-18  with its local funds.>
  24-19        <Sec. 2256.057.  ><Internal Management Reports><.  (a)  At least
  24-20  annually, the investment officer of a state agency or political
  24-21  subdivision shall prepare a written report of the agency's or
  24-22  subdivision's local funds investment transactions for the preceding
  24-23  year.>
  24-24        <(b)  The report must:>
  24-25              <(1)  describe in detail the investment position of the
  24-26  agency or subdivision on the date of the report;>
  24-27              <(2)  be prepared jointly by all investment officers of
   25-1  the agency or subdivision; and>
   25-2              <(3)  be signed by each investment officer of the
   25-3  agency or subdivision.>
   25-4        <(c)  The report shall be delivered to the governing body and
   25-5  the chief executive officer of the agency or subdivision.>
   25-6        <Sec. 2256.058.  ><Private Auditor><.  Notwithstanding any other
   25-7  law, a state agency shall employ a private auditor if authorized by
   25-8  the legislative audit committee on the committee's initiative or on
   25-9  request of the governing body of the agency.>
  25-10        <Sec. 2256.059.  ><Effect of Other Law><.  This subchapter does
  25-11  not:>
  25-12              <(1)  prohibit an investment specifically authorized by
  25-13  other law; or>
  25-14              <(2)  authorize an investment specifically prohibited
  25-15  by other law.>
  25-16         <SUBCHAPTER C.  PAYMENT FOR AND DELIVERY AND DEPOSIT
  25-17                   OF SECURITIES PURCHASED BY STATE>
  25-18        <Sec. 2256.101.  ><Authorized Investments; Application of
  25-19  Income><.  (a)  A board or agency of the state that may direct the
  25-20  investment of funds of the board or agency may invest those funds
  25-21  in:>
  25-22              <(1)  direct obligations of the United States;>
  25-23              <(2)  obligations the principal and interest of which
  25-24  are guaranteed by the United States;>
  25-25              <(3)  direct obligations of or participation
  25-26  certificates guaranteed by:>
  25-27                    <(A)  a farm credit bank;>
   26-1                    <(B)  the Federal National Mortgage Association;>
   26-2                    <(C)  a federal home loan bank; or>
   26-3                    <(D)  a bank for cooperatives;>
   26-4              <(4)  certificates of deposit of a bank or trust
   26-5  company, the deposits of which are fully secured by a pledge of
   26-6  securities described by Subdivisions (1) through (3);>
   26-7              <(5)  other securities made eligible for investment by
   26-8  other law or the constitution; or>
   26-9              <(6)  a combination of securities described by
  26-10  Subdivisions (1) through (5).>
  26-11        <(b)  The board or agency shall direct the application of
  26-12  income from investments under this section.>
  26-13        <Sec. 2256.102.  ><Payment for Securities Purchased by State><.
  26-14  The comptroller, the state treasurer, or the disbursing officer of
  26-15  an agency that has the power to invest assets directly may pay for
  26-16  authorized securities purchased from or through a member in good
  26-17  standing of the National Association of Securities Dealers or from
  26-18  or through a national or state bank on receiving an invoice from
  26-19  the seller of the securities showing that the securities have been
  26-20  purchased by the board or agency and that the amount to be paid for
  26-21  the securities is just, due, and unpaid.>
  26-22        <Sec. 2256.103.  ><Delivery of Securities Purchased by State><.
  26-23  A security purchased under Section 2256.102 may be delivered to the
  26-24  state treasurer, a bank, or the board or agency investing its
  26-25  funds.  The delivery shall be made under normal and recognized
  26-26  practices in the securities and banking industries, including the
  26-27  book entry procedure of the Federal Reserve Bank.>
   27-1        <Sec. 2256.104.  ><Deposit of Securities Purchased by State><.
   27-2  At the direction of the state treasurer or the agency, a security
   27-3  purchased under Section 2256.102 may be deposited in trust with a
   27-4  bank or federal reserve bank or branch designated by the treasurer,
   27-5  whether in or outside the state.  The deposit shall be evidenced by
   27-6  a trust receipt of the bank with which the securities are
   27-7  deposited.>
   27-8        SECTION 2.  Section 1, Chapter 181; Section 1, Chapter 858;
   27-9  and Section 1, Chapter 946, Acts of the 73rd Legislature, Regular
  27-10  Session, 1993, are repealed.
  27-11        SECTION 3.  As provided by Section 1.02, Senate Bill No. 959,
  27-12  Acts of the 74th Legislature, Regular Session, 1995, this Act
  27-13  controls over Senate Bill No. 959 to the extent of any conflict.
  27-14        SECTION 4.  This Act takes effect September 1, 1995.
  27-15        SECTION 5.  An entity that acquired authorized investment
  27-16  securities under Chapter 2256, Government Code, before the
  27-17  effective date of this Act that are no longer authorized investment
  27-18  securities under that chapter as amended by this Act is not
  27-19  required by this Act to liquidate those securities before the final
  27-20  stated maturity of the investment.
  27-21        SECTION 6.  The importance of this legislation and the
  27-22  crowded condition of the calendars in both houses create an
  27-23  emergency and an imperative public necessity that the
  27-24  constitutional rule requiring bills to be read on three several
  27-25  days in each house be suspended, and this rule is hereby suspended.