By Ellis                                              S.B. No. 1085
       74R7743 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, a hospital district,
   2-14  and any political subdivision, authority, public corporation, body
   2-15  politic, or instrumentality of the State of Texas, and any
   2-16  nonprofit corporation acting on behalf of any of those entities.
   2-17              (7)  "Market value" means the face or par value of an
   2-18  investment multiplied by the dollar price of the security.
   2-19              (8) <(2)>  "School district" means a public school
   2-20  district.
   2-21              (9)  "Investing entity" and "entity" mean an entity
   2-22  subject to this chapter and described by Section 2256.003.
   2-23              (10)  "State agency" means an office, department,
   2-24  commission, board, or other agency that is part of any branch of
   2-25  state government, an institution of higher education, and any
   2-26  nonprofit corporation acting on behalf of any of those entities.
   2-27        Sec. 2256.003.  Authority to Invest Funds; Entities Subject
    3-1  to This Chapter.  Each governing body of the following entities may
    3-2  purchase, sell, and invest its funds and funds under its control in
    3-3  investments authorized under this subchapter in compliance with
    3-4  investment policies approved by the governing body and according to
    3-5  the standard of care prescribed by Section 2256.006 <2256.005>:
    3-6              (1)  a local government <municipality>;
    3-7              (2)  a state agency <a county;>
    3-8              <(3)  a school district;>
    3-9              <(4)  a district or authority created under:>
   3-10                    <(A)  Article III, Section 52(b)(1) or (2), of
   3-11  the Texas Constitution; or>
   3-12                    <(B)  Article XVI, Section 59, of the Texas
   3-13  Constitution;>
   3-14              <(5)  an institution of higher education;>
   3-15              <(6)  a hospital district>;
   3-16              (3) <(7)>  a nonprofit corporation acting on behalf of
   3-17  a local government or a state agency <an entity listed in
   3-18  Subdivisions (1) through (6)>; or
   3-19              (4)  an investment pool acting on behalf of two or more
   3-20  local governments, state agencies, or a combination of those
   3-21  entities <(8)  a public funds investment pool created under Chapter
   3-22  791 acting on behalf of a combination of entities listed in
   3-23  Subdivisions (1) through (6)>.
   3-24        Sec. 2256.004.  SUBCHAPTER NOT APPLICABLE TO PUBLIC
   3-25  RETIREMENT SYSTEMS.  This subchapter does not apply to a public
   3-26  retirement system as defined by Section 802.001.
   3-27        Sec. 2256.005.  INVESTMENT POLICIES; INVESTMENT OFFICER.
    4-1  (a)  The governing body of an investing entity shall adopt by rule,
    4-2  order, ordinance, or resolution, as appropriate, a written
    4-3  investment policy regarding the investment of its funds and funds
    4-4  under its control.
    4-5        (b)  The investment policies must:
    4-6              (1)  be written;
    4-7              (2)  primarily emphasize safety of principal and
    4-8  liquidity; and
    4-9              (3)  address investment diversification, yield, and
   4-10  maturity and the quality and capability of investment management.
   4-11        (c) <(b)>  The investment policies may provide that bids for
   4-12  certificates of deposit be solicited:
   4-13              (1)  orally;
   4-14              (2)  in writing;
   4-15              (3)  electronically; or
   4-16              (4)  in any combination of those methods.
   4-17        (d)  As an integral part of an investment policy, the
   4-18  governing body shall adopt a separate written investment strategy
   4-19  for each of the funds under its control.  Each investment strategy
   4-20  must describe the investment objectives for the particular fund
   4-21  using the following priorities in order of importance:
   4-22              (1)  suitability of the investment to the financial
   4-23  requirements of the entity;
   4-24              (2)  safety of principal;
   4-25              (3)  liquidity;
   4-26              (4)  marketability of the investment if the need arises
   4-27  to liquidate the investment before maturity;
    5-1              (5)  diversification of the investment portfolio; and
    5-2              (6)  yield.
    5-3        (e)  The governing body of an investing entity shall annually
    5-4  review its investment policy and investment strategies.
    5-5        (f)  Each investing entity shall designate, by rule, order,
    5-6  ordinance, or resolution, as appropriate, one or more officers or
    5-7  employees of the state agency, local government, or investment pool
    5-8  to be responsible for the investment of its funds.  A person may
    5-9  not deposit, withdraw, invest, transfer, or manage in any other
   5-10  manner funds of a state agency, local government, or investment
   5-11  pool without express written authority of the governing body or
   5-12  chief executive officer of the state agency, local government, or
   5-13  investment pool, consistent with the investment policy adopted by
   5-14  the entity.
   5-15        (g)  The investing officer of an entity who has a personal
   5-16  interest in a person or a substantial interest in a business
   5-17  entity, as described by Section 572.005, seeking to sell an
   5-18  investment to the entity shall file a statement with the Texas
   5-19  Ethics Commission and the governing body of the entity disclosing
   5-20  that personal or business interest.
   5-21        (h)  Subsection (f) does not apply to a state agency, local
   5-22  government, or investment pool for which an officer of the entity
   5-23  is assigned by law the function of investing its funds.
   5-24        (i)  An officer or employee of a commission created under
   5-25  Chapter 391, Local Government Code, is ineligible to be designated
   5-26  as an investment officer under Subsection (f).
   5-27        (j)  The governing body of an investing entity may specify in
    6-1  its investment policy that any investment authorized by this
    6-2  chapter is not suitable.
    6-3        (k)  A written copy of the investment policy shall be
    6-4  presented to any person seeking to sell to the entity an authorized
    6-5  investment.  The person, either in an individual capacity or on
    6-6  behalf of the employer of the person, seeking to sell an authorized
    6-7  investment shall execute a written instrument substantially to the
    6-8  effect that the person has:
    6-9              (1)  received and thoroughly reviewed the investment
   6-10  policy of the entity; and
   6-11              (2)  certified that reasonable procedures and controls
   6-12  have been implemented in an effort to preclude imprudent investment
   6-13  activities arising out of investment transactions conducted between
   6-14  the entity and the person, either in an individual capacity or on
   6-15  behalf of the employer of the person.
   6-16        (l)  The investment officer of an entity may not buy any
   6-17  securities from a person who does not execute and deliver to the
   6-18  entity an instrument in substantially the form provided by
   6-19  Subsection (k).
   6-20        (m)  An investing entity, in conjunction with its annual
   6-21  financial audit, shall perform a compliance audit of management
   6-22  controls on investments and adherence to the entity's established
   6-23  investment policies.  The entity shall report the results of the
   6-24  audit performed under this subsection to the state auditor.  The
   6-25  state auditor shall compile the results of reports received under
   6-26  this subsection and report those results to each regular session of
   6-27  the legislature.
    7-1        Sec. 2256.006 <2256.005>.  Standard of Care.  (a)
    7-2  Investments shall be made with judgment and care, under prevailing
    7-3  circumstances, that a person of prudence, discretion, and
    7-4  intelligence would exercise in the management of the person's own
    7-5  affairs, not for speculation, but for investment, considering the
    7-6  probable safety of capital and the probable income to be derived.
    7-7  Investment of funds shall be governed by the following investment
    7-8  objectives, in order of priority:
    7-9              (1)  preservation and safety of principal;
   7-10              (2)  liquidity; and
   7-11              (3)  yield.
   7-12        (b)  In determining whether an investment officer has
   7-13  exercised prudence with respect to an investment decision, the
   7-14  determination shall be made taking into consideration:
   7-15              (1)  the investment of all funds, or funds under the
   7-16  entity's control, over which the officer had responsibility rather
   7-17  than a consideration as to the prudence of a single investment; and
   7-18              (2)  whether the investment decision was consistent
   7-19  with the written investment policy of the entity.
   7-20        Sec. 2256.007.  INVESTMENT TRAINING; STATE AGENCY BOARD
   7-21  MEMBERS AND OFFICERS.  (a)  Each member of the governing board of a
   7-22  state agency and its investing officer shall attend at least one
   7-23  training session relating to the person's responsibilities under
   7-24  this chapter within six months after taking office or assuming
   7-25  duties.
   7-26        (b)  The governor's office shall provide training under this
   7-27  section for members and officers other than members and officers of
    8-1  an institution of higher education.  The Texas Higher Education
    8-2  Coordinating Board shall provide the training for members and
    8-3  officers of institutions of higher education.
    8-4        (c)  Training under this section must include education in
    8-5  investment controls, associated risks, potential personal liability
    8-6  in investing public funds, and compliance with this chapter.
    8-7        Sec. 2256.008.  INVESTMENT TRAINING; LOCAL GOVERNMENTS.  (a)
    8-8  The treasurer, and the chief financial officer if the treasurer is
    8-9  not the chief financial officer, shall attend training relating to
   8-10  the treasurer's or officer's responsibilities under this chapter
   8-11  within 12 months after taking office or assuming duties.
   8-12        (b)  Training under this section must include education in
   8-13  investment controls, associated risks, potential personal liability
   8-14  in investing public funds, and compliance with this chapter.
   8-15        Sec. 2256.009 <2256.006>.  Authorized Investments:
   8-16  Obligations of, or Guaranteed by, Governmental Entities.  (a)
   8-17  Except as provided by Subsection (b), the <The> following are
   8-18  authorized investments under this subchapter:
   8-19              (1)  obligations of the United States or its agencies
   8-20  and instrumentalities;
   8-21              (2)  direct obligations of this state or its agencies;
   8-22              (3)  collateralized mortgage obligations directly
   8-23  issued by a federal agency or instrumentality of the United States,
   8-24  the underlying security for which is guaranteed by an agency or
   8-25  instrumentality of the United States;
   8-26              (4)  other obligations, the principal and interest of
   8-27  which are unconditionally guaranteed or insured by, or backed by
    9-1  the full faith and credit of, this state or the United States or
    9-2  its instrumentalities, including bonds issued, assumed, or
    9-3  guaranteed by the State of Israel; and
    9-4              (5)  obligations of states, agencies, counties, cities
    9-5  and other political subdivisions of any state rated as to
    9-6  investment quality by a nationally recognized investment rating
    9-7  firm not less than A or its equivalent.
    9-8        (b)  The following are not authorized investments under this
    9-9  section:
   9-10              (1)  obligations whose payment represents the coupon
   9-11  payments on the outstanding principal balance of the underlying
   9-12  mortgage-backed security collateral and pays no principal;
   9-13              (2)  obligations whose payment represents the principal
   9-14  stream of cash flow from the underlying mortgage-backed security
   9-15  collateral and bears no interest;
   9-16              (3)  collateralized mortgage obligations that have a
   9-17  stated final maturity date of greater than 10 years; and
   9-18              (4)  collateralized mortgage obligations the interest
   9-19  rate of which is determined by an index that adjusts opposite to
   9-20  the changes in a market index.
   9-21        Sec. 2256.010 <2256.007>.  Authorized Investments:
   9-22  Certificates of Deposit.  A certificate of deposit is an authorized
   9-23  investment under this subchapter if the certificate of deposit is
   9-24  issued by a state or national bank domiciled in this state or a
   9-25  savings and loan association domiciled in this state and is:
   9-26              (1)  guaranteed or insured by the Federal Deposit
   9-27  Insurance Corporation or its successor;
   10-1              (2)  secured by obligations that are described by
   10-2  Section 2256.009(a) <2256.006>, including mortgage backed
   10-3  securities directly issued by a federal agency or instrumentality
   10-4  that have a market value of not less than the principal amount of
   10-5  the certificates, but excluding those mortgage backed securities of
   10-6  the nature described by Section 2256.009(b); or
   10-7              (3)  secured in any other manner and amount provided by
   10-8  law for deposits of the investing entity.
   10-9        Sec. 2256.011 <2256.008>.  Authorized Investments:
  10-10  Repurchase Agreements.  (a)  A fully collateralized repurchase
  10-11  agreement is an authorized investment under this subchapter if the
  10-12  repurchase agreement:
  10-13              (1)  has a defined termination date;
  10-14              (2)  is secured by obligations described by Section
  10-15  2256.009(a)(1) <2256.006(1)>;
  10-16              (3)  is pledged to the entity and deposited with a
  10-17  third party selected and <or> approved by the entity; and
  10-18              (4)  is placed through a primary government securities
  10-19  dealer, as defined by the Federal Reserve, or a bank domiciled in
  10-20  this state.
  10-21        (b)  In this section, "repurchase agreement" means a
  10-22  simultaneous agreement to buy, hold for a specified time, and sell
  10-23  back at a future date obligations described by Section
  10-24  2256.009(a)(1) <2256.006(1)>, the principal and interest of which
  10-25  are guaranteed by the United States in market value of not less
  10-26  than the principal amount of the funds disbursed.  The term
  10-27  includes a direct security repurchase agreement and a reverse
   11-1  security repurchase agreement.
   11-2        (c)  Notwithstanding any other law, the term of any reverse
   11-3  security repurchase agreement may not exceed the greater of:
   11-4              (1)  the stated maturity date of the securities
   11-5  delivered by the entity under the reverse security repurchase
   11-6  agreement; or
   11-7              (2)  six months after the date of the reverse security
   11-8  repurchase agreement.
   11-9        (d)  Moneys received by an entity under the terms of a
  11-10  reverse security repurchase agreement shall be used to acquire
  11-11  additional authorized investments, but the term of the authorized
  11-12  investment acquired must mature not later than the expiration date
  11-13  stated in the reverse security repurchase agreement.
  11-14        Sec. 2256.012 <2256.009>.  Authorized Investments:  Bankers'
  11-15  Acceptances.  A bankers' acceptance is an authorized investment
  11-16  under this subchapter if the bankers' acceptance:
  11-17              (1)  has a stated maturity of 270 days or fewer from
  11-18  the date of its issuance;
  11-19              (2)  will be, in accordance with its terms, liquidated
  11-20  in full at maturity;
  11-21              (3)  is eligible for collateral for borrowing from a
  11-22  Federal Reserve Bank; and
  11-23              (4)  is accepted by a bank organized and existing under
  11-24  the laws of the United States or any state, if the short-term
  11-25  obligations of the bank, or of a bank holding company of which the
  11-26  bank is the largest subsidiary, are rated not less than A-1 or P-1
  11-27  or an equivalent rating by at least one nationally recognized
   12-1  credit rating agency.
   12-2        Sec. 2256.013 <2256.010>.  Authorized Investments:
   12-3  Commercial Paper.  Commercial paper is an authorized investment
   12-4  under this subchapter if the commercial paper:
   12-5              (1)  has a stated maturity of 270 days or fewer from
   12-6  the date of its issuance; and
   12-7              (2)  is rated not less than A-1 or P-1 or an equivalent
   12-8  rating by at least:
   12-9                    (A)  two nationally recognized credit rating
  12-10  agencies; or
  12-11                    (B)  one nationally recognized credit rating
  12-12  agency and is fully secured by an irrevocable letter of credit
  12-13  issued by a bank organized and existing under the laws of the
  12-14  United States or any state.
  12-15        Sec. 2256.014 <2256.011>.  Authorized Investments:  Mutual
  12-16  Funds.  (a)  A no-load money market mutual fund is an authorized
  12-17  investment under this subchapter if the mutual fund:
  12-18              (1)  is regulated by <registered with> the Securities
  12-19  and Exchange Commission;
  12-20              (2)  has a dollar-weighted average stated <portfolio>
  12-21  maturity of 90 <120> days or fewer;
  12-22              (3)  is continuously rated as to investment quality by
  12-23  at least two nationally recognized investment rating firms of not
  12-24  less than AA or its equivalent <is invested exclusively in
  12-25  obligations described by Sections 2256.006 through 2256.010>; and
  12-26              (4)  includes in its investment objectives the
  12-27  maintenance of a stable net asset value of $1 for each share.
   13-1        (b)  An entity is not authorized by this section to:
   13-2              (1)  invest in the aggregate more than 80 percent of
   13-3  its monthly average fund balance, excluding bond proceeds and
   13-4  reserves and other funds held for debt service, in money market
   13-5  mutual funds described in Subsection (a); or
   13-6              (2)  invest its funds or funds under its control,
   13-7  excluding bond proceeds and reserves and other funds held for debt
   13-8  service, in any one <money market> mutual fund described in
   13-9  Subsection (a) in an amount that exceeds 10 percent of the total
  13-10  assets of the <money market> mutual fund.
  13-11        <Sec. 2256.012.  AUTHORIZED INVESTMENTS:  COMMON TRUST FUNDS.
  13-12  (a)  A qualified common trust fund is an authorized investment for
  13-13  the local funds of an institution of higher education and for the
  13-14  bond proceeds and reserves and other funds held for debt service of
  13-15  a municipality, county, school district, or navigation district if
  13-16  the common trust fund:>
  13-17              <(1)  is owned or administered by a bank domiciled in
  13-18  this state;>
  13-19              <(2)  consists exclusively of assets that are
  13-20  obligations described by Sections 2256.006 through 2256.010;>
  13-21              <(3)  complies with the Internal Revenue Code of 1986
  13-22  and applicable federal regulations governing the investment of bond
  13-23  proceeds and reserves and other funds held for debt service; and>
  13-24              <(4)  meets the cash flow requirements and the
  13-25  investment needs of the political subdivision or institution.>
  13-26        <(b)  In this section, "common trust fund" includes a
  13-27  comparable investment device.>
   14-1        Sec. 2256.015 <2256.013>.  AUTHORIZED INVESTMENTS:
   14-2  INVESTMENT POOLS.  (a)  An entity may invest its funds and funds
   14-3  under its control in an eligible investment pool if the governing
   14-4  body of the entity by rule, order, ordinance, or resolution, as
   14-5  appropriate, authorizes investment in the particular pool.  An
   14-6  investment pool may invest the funds it receives from entities in
   14-7  authorized investments permitted by this subchapter.  An investment
   14-8  pool shall establish an advisory board composed of participants in
   14-9  the pool and other persons.
  14-10        (b)  To be eligible to receive funds from and invest funds on
  14-11  behalf of an entity under this chapter, an investment pool must
  14-12  furnish to the investment officer or other authorized
  14-13  representative of the entity an offering circular or other similar
  14-14  disclosure instrument that contains, at a minimum, the following
  14-15  information:
  14-16              (1)  the types of investments in which money is allowed
  14-17  to be invested;
  14-18              (2)  the maximum average dollar-weighted maturity
  14-19  allowed, based on the stated maturity date, of the pool;
  14-20              (3)  the maximum stated maturity date any investment
  14-21  security within the portfolio has;
  14-22              (4)  the objectives of the pool;
  14-23              (5)  the size of the pool;
  14-24              (6)  the names of the members of the advisory board of
  14-25  the pool and the dates their terms expire;
  14-26              (7)  the custodian bank that will safekeep the pool's
  14-27  assets;
   15-1              (8)  whether the intent of the pool is to maintain a
   15-2  net asset value of one dollar and the risk of market price
   15-3  fluctuation;
   15-4              (9)  whether the only source of payment is the assets
   15-5  of the pool at market value or whether there is a secondary source
   15-6  of payment, such as insurance or guarantees, and a description of
   15-7  the secondary source of payment;
   15-8              (10)  the name and address of the independent auditor
   15-9  of the pool;
  15-10              (11)  the requirements to be satisfied for an entity to
  15-11  deposit funds in and withdraw funds from the pool and any deadlines
  15-12  or other operating policies required for the entity to invest funds
  15-13  in and withdraw funds from the pool; and
  15-14              (12)  the performance history of the pool, including
  15-15  yield, average dollar-weighted maturities, and expense ratios.
  15-16        (c)  To maintain eligibility to receive funds from and invest
  15-17  funds on behalf of an entity under this chapter, an investment pool
  15-18  must furnish to the investment officer or other authorized
  15-19  representative of the entity:
  15-20              (1)  investment transaction confirmations; and
  15-21              (2)  a monthly report that contains, at a minimum, the
  15-22  following information:
  15-23                    (A)  the types and percentage breakdown of
  15-24  securities in which the pool is invested;
  15-25                    (B)  the current average dollar-weighted
  15-26  maturity, based on the stated maturity date, of the pool;
  15-27                    (C)  the current percentage of the pool's
   16-1  portfolio in investments that have stated maturities of more than
   16-2  one year;
   16-3                    (D)  the carrying value versus the market value
   16-4  of the pool's portfolio, using amortized cost valuation;
   16-5                    (E)  the size of the pool;
   16-6                    (F)  the number of participants in the pool;
   16-7                    (G)  the custodian bank that is safekeeping the
   16-8  assets of the pool;
   16-9                    (H)  a listing of daily transaction activity of
  16-10  the entity participating in the pool;
  16-11                    (I)  the yield and expense ratio of the pool;
  16-12                    (J)  the portfolio managers of the pool; and
  16-13                    (K)  any changes or addenda to the offering
  16-14  circular.
  16-15        (d)  An entity by contract may delegate to an investment pool
  16-16  the authority to hold legal title as custodian of investments
  16-17  purchased with its local funds.
  16-18        (e)  In this section, "yield" shall be calculated in
  16-19  accordance with regulations governing the registration of open-end
  16-20  management investment companies under the Investment Company Act of
  16-21  1940, as promulgated from time to time by the federal Securities
  16-22  and Exchange Commission.  <BIDS FOR COMMON TRUST FUND INVESTMENTS.
  16-23  (a)  An institution of higher education or a municipality, county,
  16-24  school district, or navigation district may invest in a common
  16-25  trust fund under Section 2256.012 only after soliciting orally or
  16-26  in another manner competitive bids from at least three banks.>
  16-27        <(b)  The solicitations for bids required by Subsection (a)
   17-1  for a county shall be made only to banks located in the county
   17-2  unless there are fewer than three banks available for the
   17-3  investment located in the county; in which case, the solicitations
   17-4  shall be made to each bank in the county and, as necessary to
   17-5  complete the solicitations, to banks located in this state.>
   17-6        <(c)  The solicitations for bids required by Subsection (a)
   17-7  for a municipality or a school district shall be made only to banks
   17-8  located in the municipality or school district unless there are
   17-9  fewer than three banks available for the investments located in the
  17-10  municipality or school district; in which case, the solicitations
  17-11  shall be made to each bank in the municipality or school district
  17-12  and, as necessary to complete the solicitations, to banks in a
  17-13  county in which the municipality or school district is located.  If
  17-14  there are fewer than three banks available for investments in the
  17-15  municipality or school district and in the counties in which the
  17-16  municipality or school district is located, the solicitations shall
  17-17  be made to each bank in the municipality or school district and in
  17-18  the counties in which the municipality or school district is
  17-19  located, and, as necessary to complete the solicitations, to banks
  17-20  located in this state.>
  17-21        <(d)  This section applies to a nonprofit corporation acting
  17-22  on behalf of a municipality, county, or school district as it
  17-23  applies to the municipality, county, or school district.>
  17-24        Sec. 2256.016 <2256.014>.  AUTHORIZED INVESTMENTS:
  17-25  INSTITUTIONS OF HIGHER EDUCATION.  In addition to the authorized
  17-26  investments permitted by this subchapter, an institution of higher
  17-27  education may purchase, sell, and invest its funds and funds under
   18-1  its control in the following:
   18-2              (1)  cash management and fixed income funds sponsored
   18-3  by organizations exempt from federal income taxation under Section
   18-4  501(f), Internal Revenue Code of 1986 (26 U.S.C. Section 501(f));
   18-5              (2)  negotiable certificates of deposit issued by a
   18-6  bank that has a certificate of deposit rating of at least 1 or the
   18-7  equivalent by a nationally recognized credit rating agency or that
   18-8  is associated with a holding company having a commercial paper
   18-9  rating of at least A-1, P-1, or the equivalent by a nationally
  18-10  recognized credit rating agency; and
  18-11              (3)  corporate bonds, debentures, or similar debt
  18-12  obligations rated by a nationally recognized investment rating firm
  18-13  in one of the two highest long-term rating categories, without
  18-14  regard to gradations within those categories.  <BANK UNWILLING TO
  18-15  BID; PRESUMPTION.  A governmental entity or nonprofit corporation
  18-16  that is notified by a bank that the bank is unable or unwilling to
  18-17  bid for investments under Section 2256.012 may presume that the
  18-18  bank continues to be unable or unwilling to bid for investments
  18-19  until the bank in writing notifies the entity otherwise.>
  18-20        Sec. 2256.017.  INTERNAL MANAGEMENT REPORTS.  (a)  At least
  18-21  quarterly, the investment officer shall prepare and submit to the
  18-22  governing body of the entity a written report of the entity's local
  18-23  funds investment transactions for the preceding reporting period.
  18-24        (b)  The report must:
  18-25              (1)  describe in detail the investment position of the
  18-26  entity on the date of the report;
  18-27              (2)  be prepared jointly by all investment officers of
   19-1  the entity;
   19-2              (3)  be signed by each investment officer of the
   19-3  entity;
   19-4              (4)  state the carrying value of each individual
   19-5  investment as of the date of the report;
   19-6              (5)  state the market value of each individual
   19-7  investment as of the date of the report;
   19-8              (6)  state the maturity date of each individual
   19-9  investment;
  19-10              (7)  state the account or fund in the state agency or
  19-11  political subdivision for which each individual investment was
  19-12  acquired;
  19-13              (8)  state the compliance of the investment portfolio
  19-14  of the state agency or political subdivision as it relates to the
  19-15  investment strategy expressed in the agency's or political
  19-16  subdivision's investment policy; and
  19-17              (9)  state the name or names of the persons from whom
  19-18  each individual investment was acquired.
  19-19        (c)  The report shall be delivered to the governing body and
  19-20  the chief executive officer of the entity.
  19-21        Sec. 2256.018 <2256.015>.  SUBCHAPTER CUMULATIVE.  The
  19-22  authority granted by this subchapter is in addition to that granted
  19-23  by other law.  This subchapter does not:
  19-24              (1)  prohibit an investment specifically authorized by
  19-25  other law; or
  19-26              (2)  authorize an investment specifically prohibited by
  19-27  other law.
   20-1        <Sec. 2256.016.  SUBCHAPTER NOT APPLICABLE TO RETIREMENT
   20-2  SYSTEMS.  This subchapter does not apply to a public retirement
   20-3  system as defined by Section 802.001.>
   20-4                SUBCHAPTER B.  MISCELLANEOUS PROVISIONS
   20-5                      <INVESTMENT OF LOCAL FUNDS>
   20-6        Sec. 2256.051.  ELECTRONIC FUNDS TRANSFER.  Any local
   20-7  government may use electronic means to transfer or invest ad
   20-8  valorem taxes collected on behalf of the local government, as well
   20-9  as pursuant to a contract with other local governments.
  20-10        <Sec. 2256.051.  ><Definitions><.  In this subchapter:>
  20-11              <(1)  "Investment pool" means an entity created under
  20-12  Chapter 791 to invest public funds of two or more local
  20-13  governments.>
  20-14              <(2)  "Local funds" means public funds in the custody
  20-15  of a state agency or political subdivision that:>
  20-16                    <(A)  are not required by law to be deposited in
  20-17  the state treasury; and>
  20-18                    <(B)  the agency or subdivision has authority to
  20-19  invest.>
  20-20              <(3)  "Political subdivision" means a county,
  20-21  municipality, or special purpose district.>
  20-22              <(4)  "State agency" means an office, department,
  20-23  commission, board, other agency, institution of higher education,
  20-24  or river authority that is part of any branch of state government.>
  20-25        <Sec. 2256.052.  ><Rules Governing Investment><.  Each state
  20-26  agency or political subdivision shall adopt rules governing the
  20-27  investment of its local funds, including rules specifying the scope
   21-1  of authority of officers and employees designated to invest local
   21-2  funds.>
   21-3        <Sec. 2256.053.  ><Investment Rate of Return><.  A state agency,
   21-4  political subdivision, or investment pool shall invest its local
   21-5  funds in investments that:>
   21-6              <(1)  yield the highest possible rate of return;>
   21-7              <(2)  protect the principal; and>
   21-8              <(3)  are consistent with the operating requirements of
   21-9  the agency, subdivision, or pool as determined by the governing
  21-10  body.>
  21-11        <Sec. 2256.054.  ><Designation of Investment Officer><.
  21-12  (a)  Each state agency or political subdivision shall designate, by
  21-13  rule, order, ordinance, or resolution, one or more officers or
  21-14  employees of the agency, subdivision, or investment pool to be
  21-15  responsible for the investment of its local funds.>
  21-16        <(b)  Subsection (a) does not apply if an officer of the
  21-17  agency or subdivision is assigned by law the function of investing
  21-18  its local funds.>
  21-19        <(c)  An officer or employee of a commission created under
  21-20  Chapter 391, Local Government Code, is ineligible to be designated
  21-21  as an investment officer under Subsection (a).>
  21-22        <Sec. 2256.055.  ><Express Authority Required><.  A person may
  21-23  not deposit, withdraw, invest, transfer, or manage in any other
  21-24  manner local funds of a state agency or political subdivision
  21-25  without express written authority of the governing body or chief
  21-26  executive officer of the agency or subdivision.>
  21-27        <Sec. 2256.056.  ><Legal Title in Investment Pool><.  A political
   22-1  subdivision by contract may delegate to an investment pool the
   22-2  authority to hold legal title as custodian of investments purchased
   22-3  with its local funds.>
   22-4        <Sec. 2256.057.  ><Internal Management Reports><.  (a)  At least
   22-5  annually, the investment officer of a state agency or political
   22-6  subdivision shall prepare a written report of the agency's or
   22-7  subdivision's local funds investment transactions for the preceding
   22-8  year.>
   22-9        <(b)  The report must:>
  22-10              <(1)  describe in detail the investment position of the
  22-11  agency or subdivision on the date of the report;>
  22-12              <(2)  be prepared jointly by all investment officers of
  22-13  the agency or subdivision; and>
  22-14              <(3)  be signed by each investment officer of the
  22-15  agency or subdivision.>
  22-16        <(c)  The report shall be delivered to the governing body and
  22-17  the chief executive officer of the agency or subdivision.>
  22-18        Sec. 2256.052 <2256.058>.  PRIVATE AUDITOR.  Notwithstanding
  22-19  any other law, a state agency shall employ a private auditor if
  22-20  authorized by the legislative audit committee on the committee's
  22-21  initiative or on request of the governing body of the agency.
  22-22        <Sec. 2256.059.  ><Effect of Other Law><.  This subchapter does
  22-23  not:>
  22-24              <(1)  prohibit an investment specifically authorized by
  22-25  other law; or>
  22-26              <(2)  authorize an investment specifically prohibited
  22-27  by other law.>
   23-1         <SUBCHAPTER C.  PAYMENT FOR AND DELIVERY AND DEPOSIT
   23-2                   OF SECURITIES PURCHASED BY STATE>
   23-3        <Sec. 2256.101.  ><Authorized Investments; Application of
   23-4  Income><.  (a)  A board or agency of the state that may direct the
   23-5  investment of funds of the board or agency may invest those funds
   23-6  in:>
   23-7              <(1)  direct obligations of the United States;>
   23-8              <(2)  obligations the principal and interest of which
   23-9  are guaranteed by the United States;>
  23-10              <(3)  direct obligations of or participation
  23-11  certificates guaranteed by:>
  23-12                    <(A)  a farm credit bank;>
  23-13                    <(B)  the Federal National Mortgage Association;>
  23-14                    <(C)  a federal home loan bank; or>
  23-15                    <(D)  a bank for cooperatives;>
  23-16              <(4)  certificates of deposit of a bank or trust
  23-17  company, the deposits of which are fully secured by a pledge of
  23-18  securities described by Subdivisions (1) through (3);>
  23-19              <(5)  other securities made eligible for investment by
  23-20  other law or the constitution; or>
  23-21              <(6)  a combination of securities described by
  23-22  Subdivisions (1) through (5).>
  23-23        <(b)  The board or agency shall direct the application of
  23-24  income from investments under this section.>
  23-25        Sec. 2256.053 <2256.102>.  PAYMENT FOR SECURITIES PURCHASED
  23-26  BY STATE.  The comptroller, the state treasurer, or the disbursing
  23-27  officer of an agency that has the power to invest assets directly
   24-1  may pay for authorized securities purchased from or through a
   24-2  member in good standing of the National Association of Securities
   24-3  Dealers or from or through a national or state bank on receiving an
   24-4  invoice from the seller of the securities showing that the
   24-5  securities have been purchased by the board or agency and that the
   24-6  amount to be paid for the securities is just, due, and unpaid.
   24-7        Sec. 2256.054 <2256.103>.  DELIVERY OF SECURITIES PURCHASED
   24-8  BY STATE.  A security purchased under Section 2256.053 <2256.102>
   24-9  may be delivered to the state treasurer, a bank, or the board or
  24-10  agency investing its funds.  The delivery shall be made under
  24-11  normal and recognized practices in the securities and banking
  24-12  industries, including the book entry procedure of the Federal
  24-13  Reserve Bank.
  24-14        Sec. 2256.055 <2256.104>.  DEPOSIT OF SECURITIES PURCHASED BY
  24-15  STATE.  At the direction of the state treasurer or the agency, a
  24-16  security purchased under Section 2256.053 <2256.102> may be
  24-17  deposited in trust with a bank or federal reserve bank or branch
  24-18  designated by the treasurer, whether in or outside the state.  The
  24-19  deposit shall be evidenced by a trust receipt of the bank with
  24-20  which the securities are deposited.
  24-21        SECTION 2.  Section 1, Chapter 181; Section 1, Chapter 858;
  24-22  and Section 1, Chapter 946, Acts of the 73rd Legislature, Regular
  24-23  Session, 1993, are repealed.
  24-24        SECTION 3.  This Act takes effect September 1, 1995.
  24-25        SECTION 4.  An entity that acquired authorized investment
  24-26  securities under Chapter 2256, Government Code, before the
  24-27  effective date of this Act that are no longer authorized investment
   25-1  securities under that chapter as amended by this Act is not
   25-2  required by this Act to liquidate those securities before the final
   25-3  stated maturity of the investment.
   25-4        SECTION 5.  The importance of this legislation and the
   25-5  crowded condition of the calendars in both houses create an
   25-6  emergency and an imperative public necessity that the
   25-7  constitutional rule requiring bills to be read on three several
   25-8  days in each house be suspended, and this rule is hereby suspended.