By Marchant, Junell, Greenberg                        H.B. No. 2459
       74R6786 RJA-F
                                 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              (3) <(7)>  a nonprofit corporation acting on behalf of
   3-18  a local government or a state agency <an entity listed in
   3-19  Subdivisions (1) through (6)>; or
   3-20              (4)  an investment pool acting on behalf of two or more
   3-21  local governments, state agencies, or a combination of those
   3-22  entities <(8)  a public funds investment pool created under Chapter
   3-23  791 acting on behalf of a combination of entities listed in
   3-24  Subdivisions (1) through (6)>.
   3-25        Sec. 2256.004.  Investment Policies; Investment Officer.
   3-26  (a)  The governing body of an investing entity shall adopt by rule,
   3-27  order, ordinance, or resolution, as appropriate, a written
    4-1  investment policy regarding the investment of its funds and funds
    4-2  under its control.
    4-3        (b)  The investment policies must:
    4-4              (1)  be written;
    4-5              (2)  primarily emphasize safety of principal and
    4-6  liquidity; and
    4-7              (3)  address investment diversification, yield, and
    4-8  maturity and the quality and capability of investment management.
    4-9        (c) <(b)>  The investment policies may provide that bids for
   4-10  certificates of deposit be solicited:
   4-11              (1)  orally;
   4-12              (2)  in writing;
   4-13              (3)  electronically; or
   4-14              (4)  in any combination of those methods.
   4-15        (d)  As an integral part of an investment policy, the
   4-16  governing body shall adopt an investment strategy governing the
   4-17  investment of its funds and funds under its control.  An investment
   4-18  strategy must describe the investment objectives of the entity
   4-19  using the following priorities in order of importance:
   4-20              (1)  suitability of the investment to the financial
   4-21  requirements of the entity;
   4-22              (2)  safety of principal;
   4-23              (3)  liquidity;
   4-24              (4)  marketability of the investment if the need arises
   4-25  to liquidate the investment before maturity;
   4-26              (5)  diversification of the investment portfolio; and
   4-27              (6)  yield.
    5-1        (e)  Each investing entity shall designate, by rule, order,
    5-2  ordinance, or resolution, as appropriate, one or more officers or
    5-3  employees of the state agency, local government, or investment pool
    5-4  to be responsible for the investment of its funds.  A person may
    5-5  not deposit, withdraw, invest, transfer, or manage in any other
    5-6  manner funds of a state agency, local government, or investment
    5-7  pool without express written authority of the governing body or
    5-8  chief executive officer of the state agency, local government, or
    5-9  investment pool, consistent with the investment policy adopted by
   5-10  the entity.
   5-11        (f)  Subsection (e) does not apply to a state agency, local
   5-12  government, or investment pool for which an officer of the entity
   5-13  is assigned by law the function of investing its funds.
   5-14        (g)  An officer or employee of a commission created under
   5-15  Chapter 391, Local Government Code, is ineligible to be designated
   5-16  as an investment officer under Subsection (e).
   5-17        (h)  The governing body of an investing entity may specify in
   5-18  its investment policy that any investment authorized by this
   5-19  chapter is not suitable.
   5-20        (i)  A written copy of the investment policy shall be
   5-21  presented to any person seeking to sell to the entity an authorized
   5-22  investment.  The person, either in an individual capacity or on
   5-23  behalf of the employer of the person, seeking to sell an authorized
   5-24  investment shall execute a written instrument substantially to the
   5-25  effect that the person has:
   5-26              (1)  received and thoroughly reviewed the investment
   5-27  policy of the entity; and
    6-1              (2)  certifies that reasonable procedures and controls
    6-2  have been implemented in an effort to preclude imprudent investment
    6-3  activities arising out of investment transactions conducted between
    6-4  the entity and the person, either in an individual capacity or on
    6-5  behalf of the employer of the person.
    6-6        (j)  The investment officer of an entity may not buy any
    6-7  securities from a person who does not execute and deliver to the
    6-8  entity an instrument in substantially the form provided by
    6-9  Subsection (i).
   6-10        Sec. 2256.005.  Standard of Care.  (a)  Investments shall be
   6-11  made with judgment and care, under prevailing circumstances, that a
   6-12  person of prudence, discretion, and intelligence would exercise in
   6-13  the management of the person's own affairs, not for speculation,
   6-14  but for investment, considering the probable safety of capital and
   6-15  the probable income to be derived.  Investment of funds shall be
   6-16  governed by the following investment objectives, in order of
   6-17  priority:
   6-18              (1)  preservation and safety of principal;
   6-19              (2)  liquidity; and
   6-20              (3)  yield.
   6-21        (b)  In determining whether an investment officer has
   6-22  exercised prudence with respect to an investment decision, the
   6-23  determination shall be made taking into consideration:
   6-24              (1)  the investment of all funds, or funds under the
   6-25  entity's control, over which the officer had responsibility rather
   6-26  than a consideration as to the prudence of a single investment; and
   6-27              (2)  whether the investment decision was consistent
    7-1  with the written investment policy of the entity.
    7-2        Sec. 2256.006.  Authorized Investments:  Obligations of, or
    7-3  Guaranteed by, Governmental Entities.  (a)  Except as provided by
    7-4  Subsection (b), the <The> following are authorized investments
    7-5  under this subchapter:
    7-6              (1)  obligations of the United States or its agencies
    7-7  and instrumentalities;
    7-8              (2)  direct obligations of this state or its agencies;
    7-9              (3)  collateralized mortgage obligations directly
   7-10  issued by a federal agency or instrumentality of the United States,
   7-11  the underlying security for which is guaranteed by an agency or
   7-12  instrumentality of the United States;
   7-13              (4)  other obligations, the principal and interest of
   7-14  which are unconditionally guaranteed or insured by, or backed by
   7-15  the full faith and credit of, this state or the United States or
   7-16  its instrumentalities, including bonds issued, assumed, or
   7-17  guaranteed by the State of Israel; and
   7-18              (5)  obligations of states, agencies, counties, cities
   7-19  and other political subdivisions of any state rated as to
   7-20  investment quality by a nationally recognized investment rating
   7-21  firm not less than A or its equivalent.
   7-22        (b)  The following are not authorized investments under this
   7-23  section:
   7-24              (1)  obligations whose payment represents the coupon
   7-25  payments on the outstanding principal balance of the underlying
   7-26  mortgage-backed security collateral and pays no principal;
   7-27              (2)  obligations whose payment represents the principal
    8-1  stream of cash flow from the underlying mortgage-backed security
    8-2  collateral and bears no interest;
    8-3              (3)  collateralized mortgage obligations that have a
    8-4  stated final maturity date of greater than 10 years; and
    8-5              (4)  collateralized mortgage obligations the interest
    8-6  rate of which is determined by an index that adjusts opposite to
    8-7  the changes in a market index.
    8-8        Sec. 2256.007.  Authorized Investments:  Certificates of
    8-9  Deposit.  A certificate of deposit is an authorized investment
   8-10  under this subchapter if the certificate of deposit is issued by a
   8-11  state or national bank domiciled in this state or a savings and
   8-12  loan association domiciled in this state and is:
   8-13              (1)  guaranteed or insured by the Federal Deposit
   8-14  Insurance Corporation or its successor;
   8-15              (2)  secured by obligations that are described by
   8-16  Section 2256.006(a) <2256.006>, including mortgage backed
   8-17  securities directly issued by a federal agency or instrumentality
   8-18  that have a market value of not less than the principal amount of
   8-19  the certificates, but excluding those mortgage-backed securities of
   8-20  the nature described by Section 2256.006(b); or
   8-21              (3)  secured in any other manner and amount provided by
   8-22  law for deposits of the investing entity.
   8-23        Sec. 2256.008.  Authorized Investments:  Repurchase
   8-24  Agreements.  (a)  A fully collateralized repurchase agreement is an
   8-25  authorized investment under this subchapter if the repurchase
   8-26  agreement:
   8-27              (1)  has a defined termination date;
    9-1              (2)  is secured by obligations described by Section
    9-2  2256.006(1);
    9-3              (3)  is pledged to the entity and deposited with a
    9-4  third party selected and <or> approved by the entity; and
    9-5              (4)  is placed through a primary government securities
    9-6  dealer, as defined by the Federal Reserve, or a bank domiciled in
    9-7  this state.
    9-8        (b)  In this section, "repurchase agreement" means a
    9-9  simultaneous agreement to buy, hold for a specified time, and sell
   9-10  back at a future date obligations described by Section 2256.006(1),
   9-11  the principal and interest of which are guaranteed by the United
   9-12  States in market value of not less than the principal amount of the
   9-13  funds disbursed.  The term includes a direct security repurchase
   9-14  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 the greater of:
   9-17              (1)  the stated maturity date of the securities
   9-18  delivered by the entity under the reverse security repurchase
   9-19  agreement; or
   9-20              (2)  six months after the date of the reverse security
   9-21  repurchase agreement.
   9-22        (d)  Moneys received by an entity under the terms of a
   9-23  reverse security repurchase agreement shall be used to acquire
   9-24  additional authorized investments, but the term of the authorized
   9-25  investment acquired must mature not later than the expiration date
   9-26  stated in the reverse security repurchase agreement.
   9-27        Sec. 2256.009.  Authorized Investments:  Bankers'
   10-1  Acceptances.  A bankers' acceptance is an authorized investment
   10-2  under this subchapter if the bankers' acceptance:
   10-3              (1)  has a stated maturity of 270 days or fewer from
   10-4  the date of its issuance;
   10-5              (2)  will be, in accordance with its terms, liquidated
   10-6  in full at maturity;
   10-7              (3)  is eligible for collateral for borrowing from a
   10-8  Federal Reserve Bank; and
   10-9              (4)  is accepted by a bank organized and existing under
  10-10  the laws of the United States or any state, if the short-term
  10-11  obligations of the bank, or of a bank holding company of which the
  10-12  bank is the largest subsidiary, are rated not less than A-1 or P-1
  10-13  or an equivalent rating by at least one nationally recognized
  10-14  credit rating agency.
  10-15        Sec. 2256.010.  Authorized Investments:  Commercial Paper.
  10-16  Commercial paper is an authorized investment under this subchapter
  10-17  if the commercial paper:
  10-18              (1)  has a stated maturity of 270 days or fewer from
  10-19  the date of its issuance; and
  10-20              (2)  is rated not less than A-1 or P-1 or an equivalent
  10-21  rating by at least:
  10-22                    (A)  two nationally recognized credit rating
  10-23  agencies; or
  10-24                    (B)  one nationally recognized credit rating
  10-25  agency and is fully secured by an irrevocable letter of credit
  10-26  issued by a bank organized and existing under the laws of the
  10-27  United States or any state.
   11-1        Sec. 2256.011.  Authorized Investments:  Mutual Funds.
   11-2  (a)  A no-load money market mutual fund is an authorized investment
   11-3  under this subchapter if the mutual fund:
   11-4              (1)  is regulated by <registered with> the Securities
   11-5  and Exchange Commission;
   11-6              (2)  has a dollar-weighted average stated <portfolio>
   11-7  maturity of 90 <120> days or fewer;
   11-8              (3)  is continuously rated as to investment quality by
   11-9  at least two nationally recognized investment rating firms of not
  11-10  less than AA or its equivalent <is invested exclusively in
  11-11  obligations described by Sections 2256.006 through 2256.010>; and
  11-12              (4)  includes in its investment objectives the
  11-13  maintenance of a stable net asset value of $1 for each share.
  11-14        (b)  In addition to a no-load money market mutual fund
  11-15  permitted as an authorized investment by Subsection (a), a no-load
  11-16  mutual fund is an authorized investment under this subchapter if
  11-17  the mutual fund:
  11-18              (1)  is registered with the Securities and Exchange
  11-19  Commission;
  11-20              (2)  has an average weighted maturity of less than two
  11-21  years;
  11-22              (3)  is invested exclusively in obligations described
  11-23  by Sections 2256.006(a)(1) and (4) and Section 2256.008; and
  11-24              (4)  is continuously rated as to investment quality by
  11-25  at least two nationally recognized investment rating firms of not
  11-26  less than AA or its equivalent.
  11-27        (c)  An entity is not authorized by this section to:
   12-1              (1)  invest in the aggregate more than 80 percent of
   12-2  its monthly average fund balance, excluding bond proceeds and
   12-3  reserves and other funds held for debt service, in money market
   12-4  mutual funds described in Subsection (a) or mutual funds described
   12-5  in Subsection (b), either separately or collectively; or
   12-6              (2)  invest its funds or funds under its control,
   12-7  excluding bond proceeds and reserves and other funds held for debt
   12-8  service, in any one <money market> mutual fund described in
   12-9  Subsection (a) or Subsection (b) in an amount that exceeds 10
  12-10  percent of the total assets of the <money market> mutual fund.
  12-11        Sec. 2256.012.  Authorized Investments:  Guaranteed
  12-12  Investment Contracts.  (a)  A guaranteed investment contract is an
  12-13  authorized investment for bond proceeds under this subchapter if
  12-14  the guaranteed investment contract:
  12-15              (1)  has a defined termination date;
  12-16              (2)  is secured by obligations described by Section
  12-17  2256.006(a)(1), excluding those obligations described by Section
  12-18  2256.006(b), in an amount at least equal to the amount of bond
  12-19  proceeds invested under the contract;
  12-20              (3)  is pledged to the entity and deposited with a
  12-21  third party selected and approved by the entity; and
  12-22              (4)  is placed through a primary government securities
  12-23  dealer, as defined by the Federal Reserve, a bank domiciled in this
  12-24  state, or a provider that is continuously rated as to investment
  12-25  quality by at least two nationally recognized investment rating
  12-26  firms of not less than AA or its equivalent.
  12-27        (b)  Bond proceeds, other than bond proceeds representing
   13-1  reserves and funds maintained for debt service purposes, may not be
   13-2  invested in a guaranteed investment contract with a term of longer
   13-3  than five years from the date of issuance of the bonds.
   13-4        (c)  To be eligible as an authorized investment:
   13-5              (1)  the governing body of the entity must specifically
   13-6  authorize guaranteed investment contracts as an eligible investment
   13-7  in the order, ordinance, or resolution authorizing the issuance of
   13-8  bonds;
   13-9              (2)  the entity must receive bids from at least three
  13-10  separate providers with no material financial interest in the bonds
  13-11  from which proceeds were received;
  13-12              (3)  the entity must purchase the highest yielding
  13-13  guaranteed investment contract for which a qualifying bid is
  13-14  received;
  13-15              (4)  the price of the guaranteed investment contract
  13-16  must take into account the reasonably expected drawdown schedule
  13-17  for the bond proceeds to be invested; and
  13-18              (5)  the provider must certify the administrative costs
  13-19  reasonably expected to be paid to third parties in connection with
  13-20  the guaranteed investment contract. <AUTHORIZED INVESTMENTS:
  13-21  COMMON TRUST FUNDS.  (a)  A qualified common trust fund is an
  13-22  authorized investment for the local funds of an institution of
  13-23  higher education and for the bond proceeds and reserves and other
  13-24  funds held for debt service of a municipality, county, school
  13-25  district, or navigation district if the common trust fund:>
  13-26              <(1)  is owned or administered by a bank domiciled in
  13-27  this state;>
   14-1              <(2)  consists exclusively of assets that are
   14-2  obligations described by Sections 2256.006 through 2256.010;>
   14-3              <(3)  complies with the Internal Revenue Code of 1986
   14-4  and applicable federal regulations governing the investment of bond
   14-5  proceeds and reserves and other funds held for debt service; and>
   14-6              <(4)  meets the cash flow requirements and the
   14-7  investment needs of the political subdivision or institution.>
   14-8        <(b)  In this section, "common trust fund" includes a
   14-9  comparable investment device.>
  14-10        Sec. 2256.013.  AUTHORIZED INVESTMENTS:  INVESTMENT POOLS.
  14-11  (a)  An entity may invest its funds and funds under its control in
  14-12  an eligible investment pool if the governing body of the entity by
  14-13  rule, order, ordinance, or resolution, as appropriate, authorizes
  14-14  investment in the particular pool.  An investment pool may invest
  14-15  the funds it receives from entities in authorized investments
  14-16  permitted by this subchapter.  An investment pool shall establish
  14-17  an advisory board composed of participants in the pool and other
  14-18  persons.
  14-19        (b)  To be eligible to receive funds from and invest funds on
  14-20  behalf of an entity under this chapter, an investment pool must
  14-21  furnish to the investment officer or other authorized
  14-22  representative of the entity an offering circular or other similar
  14-23  disclosure instrument that contains, at a minimum, the following
  14-24  information:
  14-25              (1)  the types of investments in which money is allowed
  14-26  to be invested;
  14-27              (2)  the maximum average dollar-weighted maturity
   15-1  allowed, based on the stated maturity date, of the pool;
   15-2              (3)  the maximum stated maturity date any investment
   15-3  security within the portfolio has;
   15-4              (4)  the objectives of the pool;
   15-5              (5)  the size of the pool;
   15-6              (6)  the names of the members of the advisory board of
   15-7  the pool and the dates their terms expire;
   15-8              (7)  the custodian bank that will safekeep the pool's
   15-9  assets;
  15-10              (8)  whether the intent of the pool is to maintain a
  15-11  net asset value of one dollar and the risk of market price
  15-12  fluctuation;
  15-13              (9)  whether the only source of payment is the assets
  15-14  of the pool at market value or whether there is a secondary source
  15-15  of payment, such as insurance or guarantees, and a description of
  15-16  the secondary source of payment;
  15-17              (10)  the name and address of the independent auditor
  15-18  of the pool;
  15-19              (11)  the requirements to be satisfied for an entity to
  15-20  deposit funds in and withdraw funds from the pool and any deadlines
  15-21  or other operating policies required for the entity to invest funds
  15-22  in and withdraw funds from the pool; and
  15-23              (12)  the performance history of the pool, including
  15-24  yield, average dollar-weighted maturities, and expense ratios.
  15-25        (c)  To maintain eligibility to receive funds from and invest
  15-26  funds on behalf of an entity under this chapter, an investment pool
  15-27  must furnish to the investment officer or other authorized
   16-1  representative of the entity:
   16-2              (1)  investment transaction confirmations; and
   16-3              (2)  a monthly report that contains, at a minimum, the
   16-4  following information:
   16-5                    (A)  the types and percentage breakdown of
   16-6  securities in which the pool is invested;
   16-7                    (B)  the current average dollar-weighted
   16-8  maturity, based on the stated maturity date, of the pool;
   16-9                    (C)  the current percentage of the pool's
  16-10  portfolio in investments that have stated maturities of more than
  16-11  one year;
  16-12                    (D)  the carrying value versus the market value
  16-13  of the pool's portfolio, using amortized cost valuation;
  16-14                    (E)  the size of the pool;
  16-15                    (F)  the number of participants in the pool;
  16-16                    (G)  the custodian bank that is safekeeping the
  16-17  assets of the pool;
  16-18                    (H)  a listing of daily transaction activity of
  16-19  the entity participating in the pool;
  16-20                    (I)  the yield and expense ratio of the pool;
  16-21                    (J)  the portfolio managers of the pool; and
  16-22                    (K)  any changes or addenda to the offering
  16-23  circular.
  16-24        (d)  An entity by contract may delegate to an investment pool
  16-25  the authority to hold legal title as custodian of investments
  16-26  purchased with its local funds.
  16-27        (e)  In this section, "yield" shall be calculated in
   17-1  accordance with regulations governing the registration of open-end
   17-2  management investment companies under the Investment Company Act of
   17-3  1940, as promulgated from time to time by the federal Securities
   17-4  and Exchange Commission.  <BIDS FOR COMMON TRUST FUND INVESTMENTS.
   17-5  (a)  An institution of higher education or a municipality, county,
   17-6  school district, or navigation district may invest in a common
   17-7  trust fund under Section 2256.012 only after soliciting orally or
   17-8  in another manner competitive bids from at least three banks.>
   17-9        <(b)  The solicitations for bids required by Subsection (a)
  17-10  for a county shall be made only to banks located in the county
  17-11  unless there are fewer than three banks available for the
  17-12  investment located in the county; in which case, the solicitations
  17-13  shall be made to each bank in the county and, as necessary to
  17-14  complete the solicitations, to banks located in this state.>
  17-15        <(c)  The solicitations for bids required by Subsection (a)
  17-16  for a municipality or a school district shall be made only to banks
  17-17  located in the municipality or school district unless there are
  17-18  fewer than three banks available for the investments located in the
  17-19  municipality or school district; in which case, the solicitations
  17-20  shall be made to each bank in the municipality or school district
  17-21  and, as necessary to complete the solicitations, to banks in a
  17-22  county in which the municipality or school district is located.  If
  17-23  there are fewer than three banks available for investments in the
  17-24  municipality or school district and in the counties in which the
  17-25  municipality or school district is located, the solicitations shall
  17-26  be made to each bank in the municipality or school district and in
  17-27  the counties in which the municipality or school district is
   18-1  located, and, as necessary to complete the solicitations, to banks
   18-2  located in this state.>
   18-3        <(d)  This section applies to a nonprofit corporation acting
   18-4  on behalf of a municipality, county, or school district as it
   18-5  applies to the municipality, county, or school district.>
   18-6        Sec. 2256.014.  AUTHORIZED INVESTMENTS:  INSTITUTIONS OF
   18-7  HIGHER EDUCATION.  In addition to the authorized investments
   18-8  permitted by this subchapter, an institution of higher education
   18-9  may purchase, sell, and invest its funds and funds under its
  18-10  control in the following:
  18-11              (1)  cash management and fixed income funds sponsored
  18-12  by organizations exempt from federal income taxation under Section
  18-13  501(f), Internal Revenue Code of 1986 (26 U.S.C. Section 501(f));
  18-14              (2)  negotiable certificates of deposit issued by a
  18-15  bank that has a certificate of deposit rating of at least 1 or the
  18-16  equivalent by a nationally recognized credit rating agency or that
  18-17  is associated with a holding company having a commercial paper
  18-18  rating of at least A-1, P-1, or the equivalent by a nationally
  18-19  recognized credit rating agency; and
  18-20              (3)  corporate bonds, debentures, or similar debt
  18-21  obligations rated by a nationally recognized investment rating firm
  18-22  in one of the two highest long-term rating categories, without
  18-23  regard to gradations within those categories.  <BANK UNWILLING TO
  18-24  BID; PRESUMPTION.  A governmental entity or nonprofit corporation
  18-25  that is notified by a bank that the bank is unable or unwilling to
  18-26  bid for investments under Section 2256.012 may presume that the
  18-27  bank continues to be unable or unwilling to bid for investments
   19-1  until the bank in writing notifies the entity otherwise.>
   19-2        Sec. 2256.015.  INTERNAL MANAGEMENT REPORTS.  (a)  At least
   19-3  monthly, the investment officer shall prepare and submit to the
   19-4  governing body of the entity a written report of the entity's local
   19-5  funds investment transactions for the preceding reporting period.
   19-6        (b)  The report must:
   19-7              (1)  describe in detail the investment position of the
   19-8  entity on the date of the report;
   19-9              (2)  be prepared jointly by all investment officers of
  19-10  the entity;
  19-11              (3)  be signed by each investment officer of the
  19-12  entity;
  19-13              (4)  state the carrying value of each individual
  19-14  investment as of the date of the report;
  19-15              (5)  state the market value of each individual
  19-16  investment as of the date of the report;
  19-17              (6)  state the maturity date of each individual
  19-18  investment;
  19-19              (7)  state the account or fund in the state agency or
  19-20  political subdivision for which each individual investment was
  19-21  acquired;
  19-22              (8)  state the compliance of the investment portfolio
  19-23  of the state agency or political subdivision as it relates to the
  19-24  investment strategy expressed in the agency's or political
  19-25  subdivision's investment policy; and
  19-26              (9)  state the name or names of the persons from whom
  19-27  each individual investment was acquired.
   20-1        (c)  The report shall be delivered to the governing body and
   20-2  the chief executive officer of the entity.
   20-3        Sec. 2256.016.  SUBCHAPTER CUMULATIVE.  The authority granted
   20-4  by this subchapter is in addition to that granted by other law.
   20-5  This subchapter does not:
   20-6              (1)  prohibit an investment specifically authorized by
   20-7  other law; or
   20-8              (2)  authorize an investment specifically prohibited by
   20-9  other law.
  20-10        Sec. 2256.017 <2256.016>.  SUBCHAPTER NOT APPLICABLE TO
  20-11  RETIREMENT SYSTEMS.  This subchapter does not apply to a public
  20-12  retirement system as defined by Section 802.001.
  20-13                SUBCHAPTER B.  MISCELLANEOUS PROVISIONS
  20-14                      <INVESTMENT OF LOCAL FUNDS>
  20-15        Sec. 2256.051.  PRIVATE AUDITOR.  Notwithstanding any other
  20-16  law, a state agency shall employ a private auditor if authorized by
  20-17  the legislative audit committee on the committee's initiative or on
  20-18  request of the governing body of the agency.
  20-19        Sec. 2256.052.  PAYMENT FOR SECURITIES PURCHASED BY STATE.
  20-20  The comptroller, the state treasurer, or the disbursing officer of
  20-21  an agency that has the power to invest assets directly may pay for
  20-22  authorized securities purchased from or through a member in good
  20-23  standing of the National Association of Securities Dealers or from
  20-24  or through a national or state bank on receiving an invoice from
  20-25  the seller of the securities showing that the securities have been
  20-26  purchased by the board or agency and that the amount to be paid for
  20-27  the securities is just, due, and unpaid.
   21-1        Sec. 2256.053.  DELIVERY OF SECURITIES PURCHASED BY STATE.  A
   21-2  security purchased under this chapter may be delivered to the state
   21-3  treasurer, a bank, or the board or agency investing its funds.  The
   21-4  delivery shall be made under normal and recognized practices in the
   21-5  securities and banking industries, including the book entry
   21-6  procedure of the Federal Reserve Bank.
   21-7        Sec. 2256.054.  DEPOSIT OF SECURITIES PURCHASED BY STATE.  At
   21-8  the direction of the state treasurer or the agency, a security
   21-9  purchased under this chapter may be deposited in trust with a bank
  21-10  or federal reserve bank or branch designated by the treasurer,
  21-11  whether in or outside the state.  The deposit shall be evidenced by
  21-12  a trust receipt of the bank with which the securities are
  21-13  deposited.
  21-14        Sec. 2256.055.  ELECTRONIC FUNDS TRANSFER.  Any local
  21-15  government may use electronic means to transfer or invest ad
  21-16  valorem taxes collected on behalf of the local government, as well
  21-17  as pursuant to a contract with other local governments.
  21-18        <Sec. 2256.051.  ><Definitions><.  In this subchapter:>
  21-19              <(1)  "Investment pool" means an entity created under
  21-20  Chapter 791 to invest public funds of two or more local
  21-21  governments.>
  21-22              <(2)  "Local funds" means public funds in the custody
  21-23  of a state agency or political subdivision that:>
  21-24                    <(A)  are not required by law to be deposited in
  21-25  the state treasury; and>
  21-26                    <(B)  the agency or subdivision has authority to
  21-27  invest.>
   22-1              <(3)  "Political subdivision" means a county,
   22-2  municipality, or special purpose district.>
   22-3              <(4)  "State agency" means an office, department,
   22-4  commission, board, other agency, institution of higher education,
   22-5  or river authority that is part of any branch of state government.>
   22-6        <Sec. 2256.052.  ><Rules Governing Investment><.  Each state
   22-7  agency or political subdivision shall adopt rules governing the
   22-8  investment of its local funds, including rules specifying the scope
   22-9  of authority of officers and employees designated to invest local
  22-10  funds.>
  22-11        <Sec. 2256.053.  ><Investment Rate of Return><.  A state agency,
  22-12  political subdivision, or investment pool shall invest its local
  22-13  funds in investments that:>
  22-14              <(1)  yield the highest possible rate of return;>
  22-15              <(2)  protect the principal; and>
  22-16              <(3)  are consistent with the operating requirements of
  22-17  the agency, subdivision, or pool as determined by the governing
  22-18  body.>
  22-19        <Sec. 2256.054.  ><Designation of Investment Officer><.
  22-20  (a)  Each state agency or political subdivision shall designate, by
  22-21  rule, order, ordinance, or resolution, one or more officers or
  22-22  employees of the agency, subdivision, or investment pool to be
  22-23  responsible for the investment of its local funds.>
  22-24        <(b)  Subsection (a) does not apply if an officer of the
  22-25  agency or subdivision is assigned by law the function of investing
  22-26  its local funds.>
  22-27        <(c)  An officer or employee of a commission created under
   23-1  Chapter 391, Local Government Code, is ineligible to be designated
   23-2  as an investment officer under Subsection (a).>
   23-3        <Sec. 2256.055.  ><Express Authority Required><.  A person may
   23-4  not deposit, withdraw, invest, transfer, or manage in any other
   23-5  manner local funds of a state agency or political subdivision
   23-6  without express written authority of the governing body or chief
   23-7  executive officer of the agency or subdivision.>
   23-8        <Sec. 2256.056.  ><Legal Title in Investment Pool><.  A political
   23-9  subdivision by contract may delegate to an investment pool the
  23-10  authority to hold legal title as custodian of investments purchased
  23-11  with its local funds.>
  23-12        <Sec. 2256.057.  ><Internal Management Reports><.  (a)  At least
  23-13  annually, the investment officer of a state agency or political
  23-14  subdivision shall prepare a written report of the agency's or
  23-15  subdivision's local funds investment transactions for the preceding
  23-16  year.>
  23-17        <(b)  The report must:>
  23-18              <(1)  describe in detail the investment position of the
  23-19  agency or subdivision on the date of the report;>
  23-20              <(2)  be prepared jointly by all investment officers of
  23-21  the agency or subdivision; and>
  23-22              <(3)  be signed by each investment officer of the
  23-23  agency or subdivision.>
  23-24        <(c)  The report shall be delivered to the governing body and
  23-25  the chief executive officer of the agency or subdivision.>
  23-26        <Sec. 2256.058.  ><Private Auditor><.  Notwithstanding any other
  23-27  law, a state agency shall employ a private auditor if authorized by
   24-1  the legislative audit committee on the committee's initiative or on
   24-2  request of the governing body of the agency.>
   24-3        <Sec. 2256.059.  ><Effect of Other Law><.  This subchapter does
   24-4  not:>
   24-5              <(1)  prohibit an investment specifically authorized by
   24-6  other law; or>
   24-7              <(2)  authorize an investment specifically prohibited
   24-8  by other law.>
   24-9         <SUBCHAPTER C.  PAYMENT FOR AND DELIVERY AND DEPOSIT
  24-10                   OF SECURITIES PURCHASED BY STATE>
  24-11        <Sec. 2256.101.  ><Authorized Investments; Application of
  24-12  Income><.  (a)  A board or agency of the state that may direct the
  24-13  investment of funds of the board or agency may invest those funds
  24-14  in:>
  24-15              <(1)  direct obligations of the United States;>
  24-16              <(2)  obligations the principal and interest of which
  24-17  are guaranteed by the United States;>
  24-18              <(3)  direct obligations of or participation
  24-19  certificates guaranteed by:>
  24-20                    <(A)  a farm credit bank;>
  24-21                    <(B)  the Federal National Mortgage Association;>
  24-22                    <(C)  a federal home loan bank; or>
  24-23                    <(D)  a bank for cooperatives;>
  24-24              <(4)  certificates of deposit of a bank or trust
  24-25  company, the deposits of which are fully secured by a pledge of
  24-26  securities described by Subdivisions (1) through (3);>
  24-27              <(5)  other securities made eligible for investment by
   25-1  other law or the constitution; or>
   25-2              <(6)  a combination of securities described by
   25-3  Subdivisions (1) through (5).>
   25-4        <(b)  The board or agency shall direct the application of
   25-5  income from investments under this section.>
   25-6        <Sec. 2256.102.  ><Payment for Securities Purchased by State><.
   25-7  The comptroller, the state treasurer, or the disbursing officer of
   25-8  an agency that has the power to invest assets directly may pay for
   25-9  authorized securities purchased from or through a member in good
  25-10  standing of the National Association of Securities Dealers or from
  25-11  or through a national or state bank on receiving an invoice from
  25-12  the seller of the securities showing that the securities have been
  25-13  purchased by the board or agency and that the amount to be paid for
  25-14  the securities is just, due, and unpaid.>
  25-15        <Sec. 2256.103.  ><Delivery of Securities Purchased by State><.
  25-16  A security purchased under Section 2256.102 may be delivered to the
  25-17  state treasurer, a bank, or the board or agency investing its
  25-18  funds.  The delivery shall be made under normal and recognized
  25-19  practices in the securities and banking industries, including the
  25-20  book entry procedure of the Federal Reserve Bank.>
  25-21        <Sec. 2256.104.  ><Deposit of Securities Purchased by State><.
  25-22  At the direction of the state treasurer or the agency, a security
  25-23  purchased under Section 2256.102 may be deposited in trust with a
  25-24  bank or federal reserve bank or branch designated by the treasurer,
  25-25  whether in or outside the state.  The deposit shall be evidenced by
  25-26  a trust receipt of the bank with which the securities are
  25-27  deposited.>
   26-1        SECTION 2.  Section 1, Chapter 181; Section 1, Chapter 858;
   26-2  and Section 1, Chapter 946, Acts of the 73rd Legislature, Regular
   26-3  Session, 1993, are repealed.
   26-4        SECTION 3.  This Act takes effect September 1, 1995.
   26-5        SECTION 4.  An entity that acquired authorized investment
   26-6  securities under Chapter 2256, Government Code, before the
   26-7  effective date of this Act that are no longer authorized investment
   26-8  securities under that chapter as amended by this Act is not
   26-9  required by this Act to liquidate those securities before the final
  26-10  stated maturity of the investment.
  26-11        SECTION 5.  The importance of this legislation and the
  26-12  crowded condition of the calendars in both houses create an
  26-13  emergency and an imperative public necessity that the
  26-14  constitutional rule requiring bills to be read on three several
  26-15  days in each house be suspended, and this rule is hereby suspended.