1-1 By: Marchant, Junell (Senate Sponsor - Ellis) H.B. No. 2459
1-2 Greenberg
1-3 (In the Senate - Received from the House May 4, 1995;
1-4 May 5, 1995, read first time and referred to Committee on Finance;
1-5 May 11, 1995, reported adversely, with favorable Committee
1-6 Substitute by the following vote: Yeas 9, Nays 0; May 11, 1995,
1-7 sent to printer.)
1-8 COMMITTEE SUBSTITUTE FOR H.B. No. 2459 By: Ellis
1-9 A BILL TO BE ENTITLED
1-10 AN ACT
1-11 relating to public funds investment.
1-12 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-13 SECTION 1. Chapter 2256, Government Code, is amended to
1-14 conform to Section 1, Chapter 181, Section 1, Chapter 858, and
1-15 Section 1, Chapter 946, Acts of the 73rd Legislature, Regular
1-16 Session, 1993, and amended to read as follows:
1-17 CHAPTER 2256. PUBLIC FUNDS INVESTMENT
1-18 SUBCHAPTER A. AUTHORIZED INVESTMENTS FOR GOVERNMENTAL ENTITIES
1-19 Sec. 2256.001. Short Title. This chapter <subchapter> may
1-20 be cited as the Public Funds Investment Act.
1-21 Sec. 2256.002. Definitions. In this chapter <subchapter>:
1-22 (1) "Bond proceeds" means the proceeds from the sale
1-23 of bonds, notes, and other obligations issued by an entity, and
1-24 reserves and funds maintained by an entity for debt service
1-25 purposes.
1-26 (2) "Book value" means the face or par value of an
1-27 investment plus accrued interest or minus amortization or
1-28 accretion.
1-29 (3) "Funds" means public funds in the custody of a
1-30 state agency or local government that:
1-31 (A) are not required by law to be deposited in
1-32 the state treasury; and
1-33 (B) the investing entity has authority to
1-34 invest.
1-35 (4) "Institution of higher education" has the meaning
1-36 assigned by Section 61.003, Education Code.
1-37 (5) "Investing entity" and "entity" mean an entity
1-38 subject to this chapter and described by Section 2256.003.
1-39 (6) "Investment pool" means an entity created under
1-40 this code to invest public funds jointly on behalf of the entities
1-41 that participate in the pool and whose investment objectives in
1-42 order of priority are:
1-43 (A) preservation and safety of principal;
1-44 (B) liquidity; and
1-45 (C) yield.
1-46 (7) "Local government" means a municipality, a county,
1-47 a school district, a district or authority created under Section
1-48 52(b)(1) or (2), Article III, or Section 59, Article XVI, Texas
1-49 Constitution, a fresh water supply district, a hospital district,
1-50 and any political subdivision, authority, public corporation, body
1-51 politic, or instrumentality of the State of Texas, and any
1-52 nonprofit corporation acting on behalf of any of those entities.
1-53 (8) "Market value" means the face or par value of an
1-54 investment multiplied by the premium or discount quoted on the
1-55 valuation date.
1-56 (9) "Pooled fund group" means an internally created
1-57 fund of an investing entity in which one or more institutional
1-58 accounts of the investing entity are invested.
1-59 (10) <(2)> "School district" means a public school
1-60 district.
1-61 (11) "Separately invested asset" means an account or
1-62 fund of a state agency or local government that is not invested in
1-63 a pooled fund group.
1-64 (12) "State agency" means an office, department,
1-65 commission, board, or other agency that is part of any branch of
1-66 state government, an institution of higher education, and any
1-67 nonprofit corporation acting on behalf of any of those entities.
1-68 Sec. 2256.003. Authority to Invest Funds; Entities Subject
2-1 to This Chapter. Each governing body of the following entities may
2-2 purchase, sell, and invest its funds and funds under its control in
2-3 investments authorized under this subchapter in compliance with
2-4 investment policies approved by the governing body and according to
2-5 the standard of care prescribed by Section 2256.006 <2256.005>:
2-6 (1) a local government <municipality>;
2-7 (2) a state agency <a county;>
2-8 <(3) a school district;>
2-9 <(4) a district or authority created under:>
2-10 <(A) Article III, Section 52(b)(1) or (2), of
2-11 the Texas Constitution; or>
2-12 <(B) Article XVI, Section 59, of the Texas
2-13 Constitution;>
2-14 <(5) an institution of higher education;>
2-15 <(6) a hospital district>;
2-16 (3) <(7)> a nonprofit corporation acting on behalf of
2-17 a local government or a state agency <an entity listed in
2-18 Subdivisions (1) through (6)>; or
2-19 (4) an investment pool acting on behalf of two or more
2-20 local governments, state agencies, or a combination of those
2-21 entities <(8) a public funds investment pool created under Chapter
2-22 791 acting on behalf of a combination of entities listed in
2-23 Subdivisions (1) through (6)>.
2-24 Sec. 2256.004. APPLICABILITY. This subchapter does not
2-25 apply to:
2-26 (1) a public retirement system as defined by Section
2-27 802.001;
2-28 (2) state funds invested as authorized by Section
2-29 404.024;
2-30 (3) an institution of higher education having total
2-31 endowments of at least $95 million in book value on May 1, 1995; or
2-32 (4) funds invested by the Veterans' Land Board as
2-33 authorized by Chapter 161, 162, or 164, Natural Resources Code.
2-34 Sec. 2256.005. INVESTMENT POLICIES; INVESTMENT STRATEGIES;
2-35 INVESTMENT OFFICER. (a) The governing body of an investing entity
2-36 shall adopt by rule, order, ordinance, or resolution, as
2-37 appropriate, a written investment policy regarding the investment
2-38 of its funds and funds under its control.
2-39 (b) The investment policies must:
2-40 (1) be written;
2-41 (2) primarily emphasize safety of principal and
2-42 liquidity; <and>
2-43 (3) address investment diversification, yield, and
2-44 maturity and the quality and capability of investment management;
2-45 and
2-46 (4) include:
2-47 (A) a list of the types of authorized
2-48 investments in which the investing entity's funds may be invested;
2-49 (B) the maximum allowable stated maturity of any
2-50 individual investment owned by the entity; and
2-51 (C) for pooled fund groups, the maximum average
2-52 dollar-weighted maturity allowed based on the stated maturity date
2-53 for the portfolio.
2-54 (c) <(b)> The investment policies may provide that bids for
2-55 certificates of deposit be solicited:
2-56 (1) orally;
2-57 (2) in writing;
2-58 (3) electronically; or
2-59 (4) in any combination of those methods.
2-60 (d) As an integral part of an investment policy, the
2-61 governing body shall adopt a separate written investment strategy
2-62 for each of the funds under its control. Each investment strategy
2-63 must describe the investment objectives for the particular fund
2-64 using the following priorities in order of importance:
2-65 (1) understanding of the suitability of the investment
2-66 to the financial requirements of the entity;
2-67 (2) preservation and safety of principal;
2-68 (3) liquidity;
2-69 (4) marketability of the investment if the need arises
2-70 to liquidate the investment before maturity;
3-1 (5) diversification of the investment portfolio; and
3-2 (6) yield.
3-3 (e) The governing body of an investing entity shall review
3-4 its investment policy and investment strategies not less than
3-5 annually.
3-6 (f) Each investing entity shall designate, by rule, order,
3-7 ordinance, or resolution, as appropriate, one or more officers or
3-8 employees of the state agency, local government, or investment pool
3-9 as investment officer to be responsible for the investment of its
3-10 funds. Unless otherwise authorized by law, a person may not
3-11 deposit, withdraw, invest, transfer, or manage in any other manner
3-12 funds of a state agency, local government, or investment pool
3-13 without express written authority of the governing body, chief
3-14 executive officer, or chief financial officer of the state agency,
3-15 local government, or investment pool, consistent with the
3-16 investment policy adopted by the entity. Authority granted to a
3-17 person to deposit, withdraw, invest, transfer, or manage an
3-18 entity's funds is effective until rescinded by the investing entity
3-19 or until termination of the person's employment by the investing
3-20 entity.
3-21 (g) Subsection (f) does not apply to a state agency, local
3-22 government, or investment pool for which an officer of the entity
3-23 is assigned by law the function of investing its funds.
3-24 (h) An officer or employee of a commission created under
3-25 Chapter 391, Local Government Code, is ineligible to be designated
3-26 as an investment officer under Subsection (f).
3-27 (i) An investment officer of an entity who has a personal
3-28 business relationship with an entity seeking to sell an investment
3-29 to the entity shall file a statement disclosing that personal
3-30 business interest. An investment officer who is related within the
3-31 second degree by affinity or consanguinity, as determined under
3-32 Chapter 573, to an individual seeking to sell an investment to the
3-33 investment officer's entity shall file a statement disclosing that
3-34 relationship. A statement required under this subsection must be
3-35 filed with the Texas Ethics Commission and the governing body of
3-36 the entity.
3-37 (j) The governing body of an investing entity may specify in
3-38 its investment policy that any investment authorized by this
3-39 chapter is not suitable.
3-40 (k) A written copy of the investment policy shall be
3-41 presented to any person seeking to sell to the entity an authorized
3-42 investment. The registered principal of the business organization
3-43 seeking to sell an authorized investment shall execute a written
3-44 instrument substantially to the effect that the registered
3-45 principal has:
3-46 (1) received and thoroughly reviewed the investment
3-47 policy of the entity; and
3-48 (2) acknowledged that the organization has implemented
3-49 reasonable procedures and controls in an effort to preclude
3-50 imprudent investment activities arising out of investment
3-51 transactions conducted between the entity and the organization.
3-52 (l) The investment officer of an entity may not buy any
3-53 securities from a person who has not delivered to the entity an
3-54 instrument in substantially the form provided by Subsection (k).
3-55 (m) An investing entity, in conjunction with its annual
3-56 financial audit, shall perform a compliance audit of management
3-57 controls on investments and adherence to the entity's established
3-58 investment policies. State agencies shall report the results of
3-59 the audit performed under this subsection to the state auditor.
3-60 The state auditor shall compile the results of reports received
3-61 under this subsection and annually report those results to the
3-62 legislative audit committee.
3-63 Sec. 2256.006 <2256.005>. Standard of Care.
3-64 (a) Investments shall be made with judgment and care, under
3-65 prevailing circumstances, that a person of prudence, discretion,
3-66 and intelligence would exercise in the management of the person's
3-67 own affairs, not for speculation, but for investment, considering
3-68 the probable safety of capital and the probable income to be
3-69 derived. Investment of funds shall be governed by the following
3-70 investment objectives, in order of priority:
4-1 (1) preservation and safety of principal;
4-2 (2) liquidity; and
4-3 (3) yield.
4-4 (b) In determining whether an investment officer has
4-5 exercised prudence with respect to an investment decision, the
4-6 determination shall be made taking into consideration:
4-7 (1) the investment of all funds, or funds under the
4-8 entity's control, over which the officer had responsibility rather
4-9 than a consideration as to the prudence of a single investment; and
4-10 (2) whether the investment decision was consistent
4-11 with the written investment policy of the entity.
4-12 Sec. 2256.007. INVESTMENT TRAINING; STATE AGENCY BOARD
4-13 MEMBERS AND OFFICERS. (a) Each member of the governing board of a
4-14 state agency and its investment officer shall attend at least one
4-15 training session relating to the person's responsibilities under
4-16 this chapter within six months after taking office or assuming
4-17 duties.
4-18 (b) The governor's office shall provide training under this
4-19 section for members and officers other than members and officers of
4-20 an institution of higher education. The Texas Higher Education
4-21 Coordinating Board shall provide the training for members and
4-22 officers of institutions of higher education.
4-23 (c) Training under this section must include education in
4-24 investment controls, security risks, strategy risks, market risks,
4-25 and compliance with this chapter.
4-26 Sec. 2256.008. INVESTMENT TRAINING; LOCAL GOVERNMENTS.
4-27 (a) The treasurer, the chief financial officer if the treasurer is
4-28 not the chief financial officer, and the investment officer of a
4-29 local government shall attend at least one training session
4-30 relating to the treasurer's or officer's responsibilities under
4-31 this chapter within 12 months after taking office or assuming
4-32 duties.
4-33 (b) Training under this section must include education in
4-34 investment controls, security risks, strategy risks, market risks,
4-35 and compliance with this chapter.
4-36 Sec. 2256.009 <2256.006>. Authorized Investments:
4-37 Obligations of, or Guaranteed by, Governmental Entities.
4-38 (a) Except as provided by Subsection (b), the <The> following are
4-39 authorized investments under this subchapter:
4-40 (1) obligations of the United States or its agencies
4-41 and instrumentalities;
4-42 (2) direct obligations of this state or its agencies
4-43 and instrumentalities;
4-44 (3) collateralized mortgage obligations directly
4-45 issued by a federal agency or instrumentality of the United States,
4-46 the underlying security for which is guaranteed by an agency or
4-47 instrumentality of the United States;
4-48 (4) other obligations, the principal and interest of
4-49 which are unconditionally guaranteed or insured by, or backed by
4-50 the full faith and credit of, this state or the United States or
4-51 their respective agencies and <its> instrumentalities; and
4-52 (5) obligations of states, agencies, counties, cities,
4-53 and other political subdivisions of any state rated as to
4-54 investment quality by a nationally recognized investment rating
4-55 firm not less than A or its equivalent.
4-56 (b) The following are not authorized investments under this
4-57 section:
4-58 (1) obligations whose payment represents the coupon
4-59 payments on the outstanding principal balance of the underlying
4-60 mortgage-backed security collateral and pays no principal;
4-61 (2) obligations whose payment represents the principal
4-62 stream of cash flow from the underlying mortgage-backed security
4-63 collateral and bears no interest;
4-64 (3) collateralized mortgage obligations that have a
4-65 stated final maturity date of greater than 10 years; and
4-66 (4) collateralized mortgage obligations the interest
4-67 rate of which is determined by an index that adjusts opposite to
4-68 the changes in a market index.
4-69 Sec. 2256.010 <2256.007>. Authorized Investments:
4-70 Certificates of Deposit. A certificate of deposit is an authorized
5-1 investment under this subchapter if the certificate of deposit is
5-2 issued by a state or national bank domiciled in this state or a
5-3 savings and loan association domiciled in this state and is:
5-4 (1) guaranteed or insured by the Federal Deposit
5-5 Insurance Corporation or its successor;
5-6 (2) secured by obligations that are described by
5-7 Section 2256.009(a) <2256.006>, including mortgage backed
5-8 securities directly issued by a federal agency or instrumentality
5-9 that have a market value of not less than the principal amount of
5-10 the certificates, but excluding those mortgage backed securities of
5-11 the nature described by Section 2256.009(b); or
5-12 (3) secured in any other manner and amount provided by
5-13 law for deposits of the investing entity.
5-14 Sec. 2256.011 <2256.008>. Authorized Investments:
5-15 Repurchase Agreements. (a) A fully collateralized repurchase
5-16 agreement is an authorized investment under this subchapter if the
5-17 repurchase agreement:
5-18 (1) has a defined termination date;
5-19 (2) is secured by obligations described by Section
5-20 2256.009(a)(1) <2256.006(1)>; and
5-21 (3) requires the securities being purchased by the
5-22 entity to be <is> pledged to the entity, held in the entity's name,
5-23 and deposited at the time the investment is made with the entity or
5-24 with a third party selected and <or> approved by the entity<; and>
5-25 <(4) is placed through a primary government securities
5-26 dealer, as defined by the Federal Reserve, or a bank domiciled in
5-27 this state>.
5-28 (b) In this section, "repurchase agreement" means a
5-29 simultaneous agreement to buy, hold for a specified time, and sell
5-30 back at a future date obligations described by Section
5-31 2256.009(a)(1) <2256.006(1)>, at a <the principal and interest of
5-32 which are guaranteed by the United States in> market value at the
5-33 time the funds are disbursed of not less than the principal amount
5-34 of the funds disbursed. The term includes a direct security
5-35 repurchase agreement and a reverse security repurchase agreement.
5-36 (c) Notwithstanding any other law, the term of any reverse
5-37 security repurchase agreement may not exceed 90 days after the date
5-38 the reverse security repurchase agreement is delivered.
5-39 (d) Money received by an entity under the terms of a reverse
5-40 security repurchase agreement shall be used to acquire additional
5-41 authorized investments, but the term of the authorized investments
5-42 acquired must mature not later than the expiration date stated in
5-43 the reverse security repurchase agreement.
5-44 Sec. 2256.012 <2256.009>. Authorized Investments: Bankers'
5-45 Acceptances. A bankers' acceptance is an authorized investment
5-46 under this subchapter if the bankers' acceptance:
5-47 (1) has a stated maturity of 270 days or fewer from
5-48 the date of its issuance;
5-49 (2) will be, in accordance with its terms, liquidated
5-50 in full at maturity;
5-51 (3) is eligible for collateral for borrowing from a
5-52 Federal Reserve Bank; and
5-53 (4) is accepted by a bank organized and existing under
5-54 the laws of the United States or any state, if the short-term
5-55 obligations of the bank, or of a bank holding company of which the
5-56 bank is the largest subsidiary, are rated not less than A-1 or P-1
5-57 or an equivalent rating by at least one nationally recognized
5-58 credit rating agency.
5-59 Sec. 2256.013 <2256.010>. Authorized Investments:
5-60 Commercial Paper. Commercial paper is an authorized investment
5-61 under this subchapter if the commercial paper:
5-62 (1) has a stated maturity of 270 days or fewer from
5-63 the date of its issuance; and
5-64 (2) is rated not less than A-1 or P-1 or an equivalent
5-65 rating by at least:
5-66 (A) two nationally recognized credit rating
5-67 agencies; or
5-68 (B) one nationally recognized credit rating
5-69 agency and is fully secured by an irrevocable letter of credit
5-70 issued by a bank organized and existing under the laws of the
6-1 United States or any state.
6-2 Sec. 2256.014 <2256.011>. AUTHORIZED INVESTMENTS: MUTUAL
6-3 FUNDS. (a) A no-load money market mutual fund is an authorized
6-4 investment under this subchapter if the mutual fund:
6-5 (1) is regulated by <registered with> the Securities
6-6 and Exchange Commission;
6-7 (2) has a dollar-weighted average stated <portfolio>
6-8 maturity of 90 <120> days or fewer; and
6-9 <(3) is invested exclusively in obligations described
6-10 by Sections 2256.006 through 2256.010; and>
6-11 (3) <(4)> includes in its investment objectives the
6-12 maintenance of a stable net asset value of $1 for each share.
6-13 (b) In addition to a no-load money market mutual fund
6-14 permitted as an authorized investment in Subsection (a), a no-load
6-15 mutual fund is an authorized investment under this subchapter if
6-16 the mutual fund:
6-17 (1) is registered with the Securities and Exchange
6-18 Commission;
6-19 (2) has an average weighted maturity of less than two
6-20 years;
6-21 (3) is invested exclusively in obligations approved by
6-22 this subchapter;
6-23 (4) is continuously rated as to investment quality by
6-24 at least one nationally recognized investment rating firm of not
6-25 less than AAA or its equivalent; and
6-26 (5) conforms to the requirements set forth in Sections
6-27 2256.016(b) and (c) relating to the eligibility of investment pools
6-28 to receive and invest funds of investing entities.
6-29 (c) An entity is not authorized by this section to:
6-30 (1) invest in the aggregate more than 80 percent of
6-31 its monthly average fund balance, excluding bond proceeds and
6-32 reserves and other funds held for debt service, in money market
6-33 mutual funds described in Subsection (a) or mutual funds described
6-34 in Subsection (b), either separately or collectively;
6-35 (2) invest in the aggregate more than 15 percent of
6-36 its monthly average fund balance, excluding bond proceeds and
6-37 reserves and other funds held for debt service, in mutual funds
6-38 described in Subsection (b); or
6-39 (3) <(2)> invest its funds or funds under its control,
6-40 including <excluding> bond proceeds and reserves and other funds
6-41 held for debt service, in any one <money market> mutual fund
6-42 described in Subsection (a) or (b) in an amount that exceeds 10
6-43 percent of the total assets of the <money market> mutual fund.
6-44 Sec. 2256.015. AUTHORIZED INVESTMENTS: GUARANTEED
6-45 INVESTMENT CONTRACTS. (a) A guaranteed investment contract is an
6-46 authorized investment for state agencies for bond proceeds under
6-47 this subchapter if the guaranteed investment contract:
6-48 (1) has a defined termination date;
6-49 (2) is secured by obligations described by Section
6-50 2256.009(a)(1), excluding those obligations described by Section
6-51 2256.009(b), in an amount at least equal to the amount of bond
6-52 proceeds invested under the contract; and
6-53 (3) is pledged to the entity and deposited with the
6-54 entity or with a third party selected and approved by the entity.
6-55 (b) Bond proceeds, other than bond proceeds representing
6-56 reserves and funds maintained for debt service purposes, may not be
6-57 invested under this subchapter in a guaranteed investment contract
6-58 with a term of longer than five years from the date of issuance of
6-59 the bonds.
6-60 (c) To be eligible as an authorized investment:
6-61 (1) the governing body of the entity must specifically
6-62 authorize guaranteed investment contracts as an eligible investment
6-63 in the order, ordinance, or resolution authorizing the issuance of
6-64 bonds;
6-65 (2) the entity must receive bids from at least three
6-66 separate providers with no material financial interest in the bonds
6-67 from which proceeds were received;
6-68 (3) the entity must purchase the highest yielding
6-69 guaranteed investment contract for which a qualifying bid is
6-70 received;
7-1 (4) the price of the guaranteed investment contract
7-2 must take into account the reasonably expected drawdown schedule
7-3 for the bond proceeds to be invested; and
7-4 (5) the provider must certify the administrative costs
7-5 reasonably expected to be paid to third parties in connection with
7-6 the guaranteed investment contract.
7-7 <Sec. 2256.012. AUTHORIZED INVESTMENTS: COMMON TRUST FUNDS.
7-8 (a) A qualified common trust fund is an authorized investment for
7-9 the local funds of an institution of higher education and for the
7-10 bond proceeds and reserves and other funds held for debt service of
7-11 a municipality, county, school district, or navigation district if
7-12 the common trust fund:>
7-13 <(1) is owned or administered by a bank domiciled in
7-14 this state;>
7-15 <(2) consists exclusively of assets that are
7-16 obligations described by Sections 2256.006 through 2256.010;>
7-17 <(3) complies with the Internal Revenue Code of 1986
7-18 and applicable federal regulations governing the investment of bond
7-19 proceeds and reserves and other funds held for debt service; and>
7-20 <(4) meets the cash flow requirements and the
7-21 investment needs of the political subdivision or institution.>
7-22 <(b) In this section, "common trust fund" includes a
7-23 comparable investment device.>
7-24 Sec. 2256.016 <2256.013>. AUTHORIZED INVESTMENTS: INVESTMENT
7-25 POOLS. (a) An entity may invest its funds and funds under its
7-26 control through an eligible investment pool if the governing body
7-27 of the entity by rule, order, ordinance, or resolution, as
7-28 appropriate, authorizes investment in the particular pool. An
7-29 investment pool shall invest the funds it receives from entities in
7-30 authorized investments permitted by this subchapter.
7-31 (b) To be eligible to receive funds from and invest funds on
7-32 behalf of an entity under this chapter, an investment pool must
7-33 furnish to the investment officer or other authorized
7-34 representative of the entity an offering circular or other similar
7-35 disclosure instrument that contains, at a minimum, the following
7-36 information:
7-37 (1) the types of investments in which money is allowed
7-38 to be invested;
7-39 (2) the maximum average dollar-weighted maturity
7-40 allowed, based on the stated maturity date, of the pool;
7-41 (3) the maximum stated maturity date any investment
7-42 security within the portfolio has;
7-43 (4) the objectives of the pool;
7-44 (5) the size of the pool;
7-45 (6) the names of the members of the advisory board of
7-46 the pool and the dates their terms expire;
7-47 (7) the custodian bank that will safekeep the pool's
7-48 assets;
7-49 (8) whether the intent of the pool is to maintain a
7-50 net asset value of one dollar and the risk of market price
7-51 fluctuation;
7-52 (9) whether the only source of payment is the assets
7-53 of the pool at market value or whether there is a secondary source
7-54 of payment, such as insurance or guarantees, and a description of
7-55 the secondary source of payment;
7-56 (10) the name and address of the independent auditor
7-57 of the pool;
7-58 (11) the requirements to be satisfied for an entity to
7-59 deposit funds in and withdraw funds from the pool and any deadlines
7-60 or other operating policies required for the entity to invest funds
7-61 in and withdraw funds from the pool; and
7-62 (12) the performance history of the pool, including
7-63 yield, average dollar-weighted maturities, and expense ratios.
7-64 (c) To maintain eligibility to receive funds from and invest
7-65 funds on behalf of an entity under this chapter, an investment pool
7-66 must furnish to the investment officer or other authorized
7-67 representative of the entity:
7-68 (1) investment transaction confirmations; and
7-69 (2) a monthly report that contains, at a minimum, the
7-70 following information:
8-1 (A) the types and percentage breakdown of
8-2 securities in which the pool is invested;
8-3 (B) the current average dollar-weighted
8-4 maturity, based on the stated maturity date, of the pool;
8-5 (C) the current percentage of the pool's
8-6 portfolio in investments that have stated maturities of more than
8-7 one year;
8-8 (D) the book value versus the market value of
8-9 the pool's portfolio, using amortized cost valuation;
8-10 (E) the size of the pool;
8-11 (F) the number of participants in the pool;
8-12 (G) the custodian bank that is safekeeping the
8-13 assets of the pool;
8-14 (H) a listing of daily transaction activity of
8-15 the entity participating in the pool;
8-16 (I) the yield and expense ratio of the pool;
8-17 (J) the portfolio managers of the pool; and
8-18 (K) any changes or addenda to the offering
8-19 circular.
8-20 (d) An entity by contract may delegate to an investment pool
8-21 the authority to hold legal title as custodian of investments
8-22 purchased with its local funds.
8-23 (e) In this section, "yield" shall be calculated in
8-24 accordance with regulations governing the registration of open-end
8-25 management investment companies under the Investment Company Act of
8-26 1940, as promulgated from time to time by the federal Securities
8-27 and Exchange Commission.
8-28 Sec. 2256.017. PORTFOLIO OF CERTAIN INVESTMENT POOLS. A
8-29 public funds investment pool created to function as a money market
8-30 mutual fund must mark its portfolio to market daily and, to the
8-31 extent reasonably possible, stabilize at a $1 net asset value. If
8-32 the ratio of the market value of the portfolio divided by the book
8-33 value of the portfolio is less than 0.995 or greater than 1.005,
8-34 portfolio holdings shall be sold as necessary to maintain the ratio
8-35 between 0.995 and 1.005.
8-36 Sec. 2256.018. ADVISORY BOARD OF INVESTMENT POOLS. (a) An
8-37 investment pool other than a pool described by Subsection (b) shall
8-38 establish an advisory board composed of participants in the pool
8-39 and other persons.
8-40 (b) A public funds investment pool created under Chapter 791
8-41 and managed by a state agency shall establish an advisory board
8-42 composed equally of participants in the pool and other persons who
8-43 do not have a business relationship with the pool. A board member
8-44 must be qualified to advise the pool.
8-45 Sec. 2256.019. RATING OF CERTAIN INVESTMENT POOLS. A public
8-46 funds investment pool must be continuously rated no lower than AAA
8-47 or AAA-m or at an equivalent rating by at least one nationally
8-48 recognized rating service. <BIDS FOR COMMON TRUST FUND
8-49 INVESTMENTS. (a) An institution of higher education or a
8-50 municipality, county, school district, or navigation district may
8-51 invest in a common trust fund under Section 2256.012 only after
8-52 soliciting orally or in another manner competitive bids from at
8-53 least three banks.>
8-54 <(b) The solicitations for bids required by Subsection (a)
8-55 for a county shall be made only to banks located in the county
8-56 unless there are fewer than three banks available for the
8-57 investment located in the county; in which case, the solicitations
8-58 shall be made to each bank in the county and, as necessary to
8-59 complete the solicitations, to banks located in this state.>
8-60 <(c) The solicitations for bids required by Subsection (a)
8-61 for a municipality or a school district shall be made only to banks
8-62 located in the municipality or school district unless there are
8-63 fewer than three banks available for the investments located in the
8-64 municipality or school district; in which case, the solicitations
8-65 shall be made to each bank in the municipality or school district
8-66 and, as necessary to complete the solicitations, to banks in a
8-67 county in which the municipality or school district is located. If
8-68 there are fewer than three banks available for investments in the
8-69 municipality or school district and in the counties in which the
8-70 municipality or school district is located, the solicitations shall
9-1 be made to each bank in the municipality or school district and in
9-2 the counties in which the municipality or school district is
9-3 located, and, as necessary to complete the solicitations, to banks
9-4 located in this state.>
9-5 <(d) This section applies to a nonprofit corporation acting
9-6 on behalf of a municipality, county, or school district as it
9-7 applies to the municipality, county, or school district.>
9-8 Sec. 2256.020 <2256.014>. AUTHORIZED INVESTMENTS:
9-9 INSTITUTIONS OF HIGHER EDUCATION. In addition to the authorized
9-10 investments permitted by this subchapter, an institution of higher
9-11 education may purchase, sell, and invest its funds and funds under
9-12 its control in the following:
9-13 (1) cash management and fixed income funds sponsored
9-14 by organizations exempt from federal income taxation under Section
9-15 501(f), Internal Revenue Code of 1986 (26 U.S.C. Section 501(f));
9-16 (2) negotiable certificates of deposit issued by a
9-17 bank that has a certificate of deposit rating of at least 1 or the
9-18 equivalent by a nationally recognized credit rating agency or that
9-19 is associated with a holding company having a commercial paper
9-20 rating of at least A-1, P-1, or the equivalent by a nationally
9-21 recognized credit rating agency; and
9-22 (3) corporate bonds, debentures, or similar debt
9-23 obligations rated by a nationally recognized investment rating firm
9-24 in one of the two highest long-term rating categories, without
9-25 regard to gradations within those categories.
9-26 Sec. 2256.021. EFFECT OF LOSS OF REQUIRED RATING. An
9-27 investment that requires a minimum rating under this subchapter
9-28 does not qualify as an authorized investment during the period the
9-29 investment does not have the minimum rating. An entity shall take
9-30 all prudent measures that are consistent with its investment policy
9-31 to liquidate an investment that does not have the minimum rating.
9-32 Sec. 2256.022. EXPANSION OF INVESTMENT AUTHORITY. Expansion
9-33 of investment authority granted by this chapter shall require a
9-34 risk assessment by the state auditor or performed at the direction
9-35 of the state auditor.
9-36 Sec. 2256.023. INTERNAL MANAGEMENT REPORTS. (a) Not less
9-37 than quarterly, the investment officer shall prepare and submit to
9-38 the governing body of the entity a written report of investment
9-39 transactions for all funds covered by this chapter for the
9-40 preceding reporting period.
9-41 (b) The report must:
9-42 (1) describe in detail the investment position of the
9-43 entity on the date of the report;
9-44 (2) be prepared jointly by all investment officers of
9-45 the entity;
9-46 (3) be signed by each investment officer of the
9-47 entity;
9-48 (4) contain a summary statement of each pooled fund
9-49 group that states the:
9-50 (A) beginning market value for the reporting
9-51 period;
9-52 (B) additions and changes to the market value
9-53 during the period; and
9-54 (C) ending market value for the period;
9-55 (5) state the book value and market value of each
9-56 separately invested asset at the beginning and end of the reporting
9-57 period by the type of asset and fund type invested;
9-58 (6) state the maturity date of each separately
9-59 invested asset that has a maturity date;
9-60 (7) state the account or fund or pooled group fund in
9-61 the state agency or local government for which each individual
9-62 investment was acquired; and
9-63 (8) state the compliance of the investment portfolio
9-64 of the state agency or local government as it relates to:
9-65 (A) the investment strategy expressed in the
9-66 agency's or local government's investment policy; and
9-67 (B) relevant provisions of this chapter.
9-68 (c) The report shall be presented not less than quarterly to
9-69 the governing body and the chief executive officer of the entity
9-70 within a reasonable time after the end of the period. <BANK
10-1 UNWILLING TO BID; PRESUMPTION. A governmental entity or nonprofit
10-2 corporation that is notified by a bank that the bank is unable or
10-3 unwilling to bid for investments under Section 2256.012 may presume
10-4 that the bank continues to be unable or unwilling to bid for
10-5 investments until the bank in writing notifies the entity
10-6 otherwise.>
10-7 Sec. 2256.024 <2256.015>. SUBCHAPTER CUMULATIVE. (a) The
10-8 authority granted by this subchapter is in addition to that granted
10-9 by other law. Except as provided by Subsection (b), this
10-10 subchapter does not:
10-11 (1) prohibit an investment specifically authorized by
10-12 other law; or
10-13 (2) authorize an investment specifically prohibited by
10-14 other law.
10-15 (b) Except with respect to those investing entities
10-16 described in Subsection (c), a security described in Section
10-17 2256.009(b) is not an authorized investment for a state agency, a
10-18 local government, or another investing entity, notwithstanding any
10-19 other provision of this chapter or other law to the contrary.
10-20 (c) Mortgage pass-through certificates and individual
10-21 mortgage loans that may constitute an investment described in
10-22 Section 2256.009(b) are authorized investments with respect to the
10-23 housing bond programs operated by:
10-24 (1) the Texas Department of Housing and Community
10-25 Affairs or a nonprofit corporation created to act on its behalf;
10-26 (2) an entity created under Chapter 392, Local
10-27 Government Code; or
10-28 (3) an entity created under Chapter 394, Local
10-29 Government Code.
10-30 <Sec. 2256.016. SUBCHAPTER NOT APPLICABLE TO RETIREMENT
10-31 SYSTEMS. This subchapter does not apply to a public retirement
10-32 system as defined by Section 802.001.>
10-33 (Sections 2256.025 <2256.017>-2256.050 reserved for expansion)
10-34 SUBCHAPTER B. MISCELLANEOUS PROVISIONS
10-35 <INVESTMENT OF LOCAL FUNDS>
10-36 Sec. 2256.051. ELECTRONIC FUNDS TRANSFER. Any local
10-37 government may use electronic means to transfer or invest all funds
10-38 collected or controlled by the local government. <DEFINITIONS. In
10-39 this subchapter:>
10-40 <(1) "Investment pool" means an entity created under
10-41 Chapter 791 to invest public funds of two or more local
10-42 governments.>
10-43 <(2) "Local funds" means public funds in the custody
10-44 of a state agency or political subdivision that:>
10-45 <(A) are not required by law to be deposited in
10-46 the state treasury; and>
10-47 <(B) the agency or subdivision has authority to
10-48 invest.>
10-49 <(3) "Political subdivision" means a county,
10-50 municipality, or special purpose district.>
10-51 <(4) "State agency" means an office, department,
10-52 commission, board, other agency, institution of higher education,
10-53 or river authority that is part of any branch of state government.>
10-54 <Sec. 2256.052. ><Rules Governing Investment><. Each state
10-55 agency or political subdivision shall adopt rules governing the
10-56 investment of its local funds, including rules specifying the scope
10-57 of authority of officers and employees designated to invest local
10-58 funds.>
10-59 <Sec. 2256.053. ><Investment Rate of Return><. A state agency,
10-60 political subdivision, or investment pool shall invest its local
10-61 funds in investments that:>
10-62 <(1) yield the highest possible rate of return;>
10-63 <(2) protect the principal; and>
10-64 <(3) are consistent with the operating requirements of
10-65 the agency, subdivision, or pool as determined by the governing
10-66 body.>
10-67 <Sec. 2256.054. ><Designation of Investment Officer><.
10-68 (a) Each state agency or political subdivision shall designate, by
10-69 rule, order, ordinance, or resolution, one or more officers or
10-70 employees of the agency, subdivision, or investment pool to be
11-1 responsible for the investment of its local funds.>
11-2 <(b) Subsection (a) does not apply if an officer of the
11-3 agency or subdivision is assigned by law the function of investing
11-4 its local funds.>
11-5 <(c) An officer or employee of a commission created under
11-6 Chapter 391, Local Government Code, is ineligible to be designated
11-7 as an investment officer under Subsection (a).>
11-8 <Sec. 2256.055. ><Express Authority Required><. A person may
11-9 not deposit, withdraw, invest, transfer, or manage in any other
11-10 manner local funds of a state agency or political subdivision
11-11 without express written authority of the governing body or chief
11-12 executive officer of the agency or subdivision.>
11-13 <Sec. 2256.056. ><Legal Title in Investment Pool><. A political
11-14 subdivision by contract may delegate to an investment pool the
11-15 authority to hold legal title as custodian of investments purchased
11-16 with its local funds.>
11-17 <Sec. 2256.057. ><Internal Management Reports><. (a) At least
11-18 annually, the investment officer of a state agency or political
11-19 subdivision shall prepare a written report of the agency's or
11-20 subdivision's local funds investment transactions for the preceding
11-21 year.>
11-22 <(b) The report must:>
11-23 <(1) describe in detail the investment position of the
11-24 agency or subdivision on the date of the report;>
11-25 <(2) be prepared jointly by all investment officers of
11-26 the agency or subdivision; and>
11-27 <(3) be signed by each investment officer of the
11-28 agency or subdivision.>
11-29 <(c) The report shall be delivered to the governing body and
11-30 the chief executive officer of the agency or subdivision.>
11-31 Sec. 2256.052 <2256.058>. PRIVATE AUDITOR. Notwithstanding
11-32 any other law, a state agency shall employ a private auditor if
11-33 authorized by the legislative audit committee either on the
11-34 committee's initiative or on request of the governing body of the
11-35 agency.
11-36 <Sec. 2256.059. ><Effect of Other Law><. This subchapter does
11-37 not:>
11-38 <(1) prohibit an investment specifically authorized by
11-39 other law; or>
11-40 <(2) authorize an investment specifically prohibited
11-41 by other law.>
11-42 <Sections 2256.060-2256.100 reserved for expansion>
11-43 <SUBCHAPTER C. PAYMENT FOR AND DELIVERY AND DEPOSIT
11-44 OF SECURITIES PURCHASED BY STATE>
11-45 <Sec. 2256.101. ><Authorized Investments; Application of
11-46 Income><. (a) A board or agency of the state that may direct the
11-47 investment of funds of the board or agency may invest those funds
11-48 in:>
11-49 <(1) direct obligations of the United States;>
11-50 <(2) obligations the principal and interest of which
11-51 are guaranteed by the United States;>
11-52 <(3) direct obligations of or participation
11-53 certificates guaranteed by:>
11-54 <(A) a farm credit bank;>
11-55 <(B) the Federal National Mortgage Association;>
11-56 <(C) a federal home loan bank; or>
11-57 <(D) a bank for cooperatives;>
11-58 <(4) certificates of deposit of a bank or trust
11-59 company, the deposits of which are fully secured by a pledge of
11-60 securities described by Subdivisions (1) through (3);>
11-61 <(5) other securities made eligible for investment by
11-62 other law or the constitution; or>
11-63 <(6) a combination of securities described by
11-64 Subdivisions (1) through (5).>
11-65 <(b) The board or agency shall direct the application of
11-66 income from investments under this section.>
11-67 Sec. 2256.053 <2256.102>. PAYMENT FOR SECURITIES PURCHASED
11-68 BY STATE. The comptroller, the state treasurer, or the disbursing
11-69 officer of an agency that has the power to invest assets directly
11-70 may pay for authorized securities purchased from or through a
12-1 member in good standing of the National Association of Securities
12-2 Dealers or from or through a national or state bank on receiving an
12-3 invoice from the seller of the securities showing that the
12-4 securities have been purchased by the board or agency and that the
12-5 amount to be paid for the securities is just, due, and unpaid. A
12-6 purchase of securities may not be made at a price that exceeds the
12-7 existing market value of the securities.
12-8 Sec. 2256.054 <2256.103>. DELIVERY OF SECURITIES PURCHASED
12-9 BY STATE. A security purchased under this chapter <Section
12-10 2256.102> may be delivered to the state treasurer, a bank, or the
12-11 board or agency investing its funds. The delivery shall be made
12-12 under normal and recognized practices in the securities and banking
12-13 industries, including the book entry procedure of the Federal
12-14 Reserve Bank.
12-15 Sec. 2256.055 <2256.104>. DEPOSIT OF SECURITIES PURCHASED BY
12-16 STATE. At the direction of the state treasurer or the agency, a
12-17 security purchased under this chapter <Section 2256.102> may be
12-18 deposited in trust with a bank or federal reserve bank or branch
12-19 designated by the treasurer, whether in or outside the state. The
12-20 deposit shall be held in the entity's name as evidenced by a trust
12-21 receipt of the bank with which the securities are deposited.
12-22 SECTION 2. Section 51.003(b), Education Code, is amended to
12-23 read as follows:
12-24 (b) The funds shall either be deposited in the depository
12-25 bank or banks or invested as authorized by Chapter 2256, Government
12-26 Code (<the> Public Funds Investment Act) <of 1987>. Funds that are
12-27 to be deposited in the depository bank or banks must be deposited
12-28 within seven days from the date of collection.
12-29 SECTION 3. Section 51.0031(a), Education Code, is amended to
12-30 read as follows:
12-31 (a) A governing board may deposit funds under its control as
12-32 provided in Section 51.003 of this code, may invest funds under its
12-33 control in accordance with Chapter 2256, Government Code <financial
12-34 instruments eligible for investment of funds in the state treasury>
12-35 and, with regard to donations, gifts, and trusts, may establish
12-36 endowment funds that operate as trusts and are managed under
12-37 prudent person standards.
12-38 SECTION 4. Subchapter A, Chapter 51, Education Code, is
12-39 amended by adding Section 51.0032 to read as follows:
12-40 Sec. 51.0032. INVESTMENT REPORTS AND POLICIES. (a) A
12-41 governing board shall adopt by rule or resolution a written
12-42 investment policy for the investment of its institutional funds.
12-43 (b) Not less than quarterly, an institution of higher
12-44 education shall prepare and submit to the governing board of the
12-45 institution a written report of the institution's institutional
12-46 funds investment transactions for the preceding reporting period.
12-47 (c) In addition to other information that may be required by
12-48 the governing board, the report must contain:
12-49 (1) a summary statement of each pooled fund group that
12-50 states the beginning market value for the reporting period,
12-51 additions and changes to the market value during the period, and
12-52 the ending market value for the period; and
12-53 (2) the book value and market value of each separately
12-54 invested asset at the beginning and end of the reporting period by
12-55 type of asset and fund type invested.
12-56 (d) In this section:
12-57 (1) "Governing board" means a governing board
12-58 described in Section 51.0031(c).
12-59 (2) "Institution of higher education" means an
12-60 institution of higher education under the governance of a governing
12-61 board to which this section applies.
12-62 (3) "Pooled fund group" means an internally created
12-63 fund of an institution of higher education in which one or more
12-64 institutional accounts are invested.
12-65 (4) "Separately invested asset" means an account of an
12-66 institution of higher education that is not invested in a pooled
12-67 fund group.
12-68 SECTION 5. Section 1, Chapter 181; Section 1, Chapter 858;
12-69 and Section 1, Chapter 946, Acts of the 73rd Legislature, Regular
12-70 Session, 1993, are repealed.
13-1 SECTION 6. As provided by Section 1.02, Senate Bill No. 959,
13-2 Acts of the 74th Legislature, Regular Session, 1995, this Act
13-3 controls over Senate Bill No. 959 to the extent of any conflict.
13-4 SECTION 7. Each member of a governing board and each
13-5 investment officer who is in office or who has assumed duties on
13-6 September 1, 1995, and who would be required by Section
13-7 2256.007(a), Government Code, as amended by this Act, to attend
13-8 investment training within six months after taking office or
13-9 assuming duties shall attend at least one training session relating
13-10 to the person's responsibilities under Chapter 2256, Government
13-11 Code, that meets the requirements of that section not later than
13-12 March 1, 1996.
13-13 SECTION 8. Each treasurer, chief financial officer, and
13-14 investment officer who is in office or who has assumed duties on
13-15 September 1, 1995, and who would be required by Section
13-16 2256.008(a), Government Code, as amended by this Act, to attend
13-17 investment training within 12 months after taking office or
13-18 assuming duties shall attend at least one training session relating
13-19 to the person's responsibilities under Chapter 2256, Government
13-20 Code, that meets the requirements of that section not later than
13-21 September 1, 1997.
13-22 SECTION 9. The state auditor shall conduct, or shall hire an
13-23 independent evaluator to conduct, an assessment of the risks and
13-24 benefits associated with authorizing entities subject to this
13-25 chapter to invest in mutual funds other than money market mutual
13-26 funds, investment pools other than investment pools that function
13-27 as money market mutual funds, and guaranteed investment contracts.
13-28 The state auditor shall report these findings to the legislature
13-29 not later than September 1, 1996. This section expires on
13-30 September 2, 1996.
13-31 SECTION 10. This Act takes effect September 1, 1995.
13-32 SECTION 11. An entity that acquired authorized investment
13-33 securities under Chapter 2256, Government Code, before the
13-34 effective date of this Act that are no longer authorized investment
13-35 securities under that chapter as amended by this Act is not
13-36 required by this Act to liquidate those securities before the final
13-37 stated maturity of the investment.
13-38 SECTION 12. The importance of this legislation and the
13-39 crowded condition of the calendars in both houses create an
13-40 emergency and an imperative public necessity that the
13-41 constitutional rule requiring bills to be read on three several
13-42 days in each house be suspended, and this rule is hereby suspended.
13-43 * * * * *