By Marchant H.B. No. 2799
Substitute the following for H.B. No. 2799:
By Telford C.S.H.B. No. 2799
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to investment practices of governmental entities.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Section 2256.002, Government Code, is amended by
1-5 amending Subdivisions (2) and (8), adding a new Subdivision (10),
1-6 and renumbering existing Subdivisions (10)-(12) as Subdivisions
1-7 (11)-(13) to read as follows:
1-8 (2) "Book value" means the original acquisition cost
1-9 [face or par value] of an investment plus [accrued interest] or
1-10 minus the accrued amortization or accretion.
1-11 (8) "Market value" means the current face or par value
1-12 of an investment multiplied by the net selling price of the
1-13 security as quoted by a recognized market pricing source [premium
1-14 or discount] quoted on the valuation date.
1-15 (10) "Qualified representative" means a person who
1-16 holds a position with a business organization, who is authorized to
1-17 act on behalf of the business organization, and who is one of the
1-18 following:
1-19 (A) for a business organization doing business
1-20 that is regulated by or registered with a securities commission, a
1-21 person who is registered under the rules of the National
1-22 Association of Securities Dealers;
1-23 (B) for a state or federal bank, a savings bank,
1-24 or a state or federal credit union, a member of the loan committee
2-1 for the bank or branch of the bank or a person authorized by
2-2 corporate resolution to act on behalf of and bind the banking
2-3 institution; or
2-4 (C) for an investment pool, the person
2-5 authorized by the elected official or board with authority to
2-6 administer the activities of the investment pool to sign the
2-7 written instrument on behalf of the investment pool.
2-8 (11) "School district" means a public school district.
2-9 (12) [(11)] "Separately invested asset" means an
2-10 account or fund of a state agency or local government that is not
2-11 invested in a pooled fund group.
2-12 (13) [(12)] "State agency" means an office,
2-13 department, commission, board, or other agency that is part of any
2-14 branch of state government, an institution of higher education, and
2-15 any nonprofit corporation acting on behalf of any of those
2-16 entities.
2-17 SECTION 2. Section 2256.004, Government Code, is amended to
2-18 read as follows:
2-19 Sec. 2256.004. APPLICABILITY. This subchapter does not
2-20 apply to:
2-21 (1) a public retirement system as defined by Section
2-22 802.001;
2-23 (2) state funds invested as authorized by Section
2-24 404.024;
2-25 (3) an institution of higher education having total
2-26 endowments of at least $95 million in book value on May 1, 1995;
2-27 [or]
3-1 (4) funds invested by the Veterans' Land Board as
3-2 authorized by Chapter 161, 162, or 164, Natural Resources Code; or
3-3 (5) a deferred compensation plan that qualifies under
3-4 either Section 401(k) or 457 of the Internal Revenue Code of 1986
3-5 (26 U.S.C. Section 1 et seq.), as amended.
3-6 SECTION 3. Section 2256.005, Government Code, is amended to
3-7 read as follows:
3-8 Sec. 2256.005. INVESTMENT POLICIES; INVESTMENT STRATEGIES;
3-9 INVESTMENT OFFICER. (a) The governing body of an investing entity
3-10 shall adopt by rule, order, ordinance, or resolution, as
3-11 appropriate, a written investment policy regarding the investment
3-12 of its funds and funds under its control.
3-13 (b) The investment policies must:
3-14 (1) be written;
3-15 (2) primarily emphasize safety of principal and
3-16 liquidity;
3-17 (3) address investment diversification, yield, and
3-18 maturity and the quality and capability of investment management;
3-19 and
3-20 (4) include:
3-21 (A) a list of the types of authorized
3-22 investments in which the investing entity's funds may be invested;
3-23 (B) the maximum allowable stated maturity of any
3-24 individual investment owned by the entity; [and]
3-25 (C) for pooled fund groups, the maximum
3-26 [average] dollar-weighted average maturity allowed based on the
3-27 stated maturity date for the portfolio;
4-1 (D) methods to monitor the market price of
4-2 investments acquired with public funds; and
4-3 (E) a requirement for settlement of all
4-4 transactions, except investment pool funds and mutual funds, on a
4-5 delivery versus payment basis.
4-6 (c) The investment policies may provide that bids for
4-7 certificates of deposit be solicited:
4-8 (1) orally;
4-9 (2) in writing;
4-10 (3) electronically; or
4-11 (4) in any combination of those methods.
4-12 (d) As an integral part of an investment policy, the
4-13 governing body shall adopt a separate written investment strategy
4-14 for each of the funds or group of funds under its control. Each
4-15 investment strategy must describe the investment objectives for the
4-16 particular fund using the following priorities in order of
4-17 importance:
4-18 (1) understanding of the suitability of the investment
4-19 to the financial requirements of the entity;
4-20 (2) preservation and safety of principal;
4-21 (3) liquidity;
4-22 (4) marketability of the investment if the need arises
4-23 to liquidate the investment before maturity;
4-24 (5) diversification of the investment portfolio; and
4-25 (6) yield.
4-26 (e) The governing body of an investing entity shall review
4-27 its investment policy and investment strategies not less than
5-1 annually. The governing body shall adopt a written instrument by
5-2 rule, order, ordinance, or resolution stating that it has reviewed
5-3 the investment policy and investment strategies and that the
5-4 written instrument so adopted shall record any changes made to
5-5 either the investment policy or investment strategies.
5-6 (f) Each investing entity shall designate, by rule, order,
5-7 ordinance, or resolution, as appropriate, one or more officers or
5-8 employees of the state agency, local government, or investment pool
5-9 as investment officer to be responsible for the investment of its
5-10 funds[. Unless otherwise authorized by law, a person may not
5-11 deposit, withdraw, invest, transfer, or manage in any other manner
5-12 funds of a state agency, local government, or investment pool
5-13 without express written authority of the governing body, chief
5-14 executive officer, or chief financial officer of the state agency,
5-15 local government, or investment pool,] consistent with the
5-16 investment policy adopted by the entity. Authority granted to a
5-17 person to [deposit, withdraw,] invest[, transfer, or manage] an
5-18 entity's funds is effective until rescinded by the investing entity
5-19 or until termination of the person's employment by the investing
5-20 entity. In the administration of the duties of an investment
5-21 officer, the person designated as investment officer shall exercise
5-22 the judgment and care, under prevailing circumstances, that a
5-23 prudent person would exercise in the management of the person's own
5-24 affairs. Unless authorized by law, a person may not deposit,
5-25 withdraw, transfer, or manage in any other manner the funds of the
5-26 investing entity.
5-27 (g) Subsection (f) does not apply to a state agency, local
6-1 government, or investment pool for which an officer of the entity
6-2 is assigned by law the function of investing its funds.
6-3 (h) An officer or employee of a commission created under
6-4 Chapter 391, Local Government Code, is ineligible to be designated
6-5 as an investment officer under Subsection (f) for any investing
6-6 entity other than for that commission.
6-7 (i) An investment officer of an entity who has a personal
6-8 business relationship with a business organization offering to
6-9 engage in an investment transaction with [an entity seeking to sell
6-10 an investment to] the entity shall file a statement disclosing that
6-11 personal business interest. An investment officer who is related
6-12 within the second degree by affinity or consanguinity, as
6-13 determined under Chapter 573, to an individual seeking to sell an
6-14 investment to the investment officer's entity shall file a
6-15 statement disclosing that relationship. A statement required under
6-16 this subsection must be filed with the Texas Ethics Commission and
6-17 the governing body of the entity. For purposes of this subsection,
6-18 an investment officer has a personal business relationship with a
6-19 business organization if:
6-20 (1) the investment officer owns 10 percent or more of
6-21 the voting stock or shares of the business organization or owns
6-22 $5,000 or more of the fair market value of the business
6-23 organization;
6-24 (2) funds received by the investment officer from the
6-25 business organization exceed 10 percent of the investment officer's
6-26 gross income for the previous year; or
6-27 (3) the investment officer has acquired from the
7-1 business organization during the previous year investments with a
7-2 book value of $2,500 or more for the personal account of the
7-3 investment officer.
7-4 (j) The governing body of an investing entity may specify in
7-5 its investment policy that any investment authorized by this
7-6 chapter is not suitable.
7-7 (k) A written copy of the investment policy shall be
7-8 presented to any person offering to engage in an investment
7-9 transaction with an investing entity [seeking to sell to the entity
7-10 an authorized investment]. For purposes of this subsection, a
7-11 business organization includes investment pools. Nothing in this
7-12 subsection relieves the investing entity of the responsibility for
7-13 monitoring the investments made by the investing entity to
7-14 determine that they are in compliance with the investment policy.
7-15 The qualified representative [registered principal] of the business
7-16 organization offering to engage in an investment transaction with
7-17 an investing entity [seeking to sell an authorized investment]
7-18 shall execute a written instrument in a form acceptable to the
7-19 investing entity and the business organization substantially to the
7-20 effect that the business organization [registered principal] has:
7-21 (1) received and [thoroughly] reviewed the investment
7-22 policy of the entity; and
7-23 (2) acknowledged that the business organization has
7-24 implemented reasonable procedures and controls in an effort to
7-25 preclude [imprudent investment activities arising out of]
7-26 investment transactions conducted between the entity and the
7-27 organization that are not authorized by the entity's investment
8-1 policy, except to the extent that this authorization is dependent
8-2 on an analysis of the makeup of the entity's entire portfolio or
8-3 requires an interpretation of subjective investment standards.
8-4 (l) The investment officer of an entity may not acquire or
8-5 otherwise obtain any authorized investment described in the
8-6 investment policy of the investing entity [buy any securities] from
8-7 a person who has not delivered to the entity the [an] instrument
8-8 required [in substantially the form provided] by Subsection (k).
8-9 (m) An investing entity, in conjunction with its annual
8-10 financial audit, shall perform a compliance audit of management
8-11 controls on investments and adherence to the entity's established
8-12 investment policies. State agencies shall report the results of
8-13 the audit performed under this subsection to the state auditor.
8-14 The state auditor shall compile the results of reports received
8-15 under this subsection and annually report those results to the
8-16 legislative audit committee.
8-17 SECTION 4. Section 2256.007, Government Code, is amended by
8-18 adding Subsection (d) to read as follows:
8-19 (d) An investment officer shall attend a training session
8-20 not less than once in a two-year period and may receive training
8-21 from any independent source approved by the governing body of the
8-22 state agency. The investment officer shall prepare a report on
8-23 this subchapter and deliver the report to the governing body of the
8-24 state agency not later than the 180th day after the last day of
8-25 each regular session of the legislature.
8-26 SECTION 5. Section 2256.008(a), Government Code, is amended
8-27 to read as follows:
9-1 (a) The treasurer, the chief financial officer if the
9-2 treasurer is not the chief financial officer, and the investment
9-3 officer of a local government shall:
9-4 (1) attend at least one training session relating to
9-5 the treasurer's or officer's responsibilities under this subchapter
9-6 [chapter] within 12 months after taking office or assuming duties;
9-7 and
9-8 (2) attend an investment training session not less
9-9 than once in a two-year period and receive not less than 10 hours
9-10 of instruction relating to investment responsibilities under this
9-11 subchapter from an independent source approved by the governing
9-12 body of the local government or a designated investment committee
9-13 advising the investment officer as provided for in the investment
9-14 policy of the local government.
9-15 SECTION 6. Section 2256.010, Government Code, is amended to
9-16 read as follows:
9-17 Sec. 2256.010. AUTHORIZED INVESTMENTS: CERTIFICATES OF
9-18 DEPOSIT AND SHARE CERTIFICATES. A certificate of deposit is an
9-19 authorized investment under this subchapter if the certificate is
9-20 issued by a state or national bank domiciled in this state, a
9-21 savings bank [and loan association] domiciled in this state, or a
9-22 state or federal credit union domiciled in this state and is:
9-23 (1) guaranteed or insured by the Federal Deposit
9-24 Insurance Corporation or its successor or the National Credit Union
9-25 Share Insurance Fund or its successor;
9-26 (2) secured by obligations that are described by
9-27 Section 2256.009(a), including mortgage backed securities directly
10-1 issued by a federal agency or instrumentality that have a market
10-2 value of not less than the principal amount of the certificates,
10-3 but excluding those mortgage backed securities of the nature
10-4 described by Section 2256.009(b); or
10-5 (3) secured in any other manner and amount provided by
10-6 law for deposits of the investing entity.
10-7 SECTION 7. Section 2256.014(a), Government Code, is amended
10-8 to read as follows:
10-9 (a) A no-load money market mutual fund is an authorized
10-10 investment under this subchapter if the mutual fund:
10-11 (1) is registered with and regulated by the Securities
10-12 and Exchange Commission;
10-13 (2) provides the investing entity with a prospectus
10-14 and other information required by the Securities Exchange Act of
10-15 1934 (15 U.S.C. Section 78a et seq.) or the Investment Company Act
10-16 of 1940 (15 U.S.C. Section 80a-1 et seq.);
10-17 (3) has a dollar-weighted average stated maturity of
10-18 90 days or fewer; and
10-19 (4) [(3)] includes in its investment objectives the
10-20 maintenance of a stable net asset value of $1 for each share.
10-21 SECTION 8. The heading to Section 2256.015, Government Code,
10-22 is amended to read as follows:
10-23 Sec. 2256.015. AUTHORIZED INVESTMENTS FOR STATE AGENCIES:
10-24 GUARANTEED INVESTMENT CONTRACTS.
10-25 SECTION 9. Section 2256.016, Government Code, is amended by
10-26 adding Subsections (f), (g), and (h) to read as follows:
10-27 (f) To be eligible to receive funds from and invest funds on
11-1 behalf of an entity under this chapter, a public funds investment
11-2 pool created to function as a money market mutual fund must mark
11-3 its portfolio to market daily, and, to the extent reasonably
11-4 possible, stabilize at a $1 net asset value. If the ratio of the
11-5 market value of the portfolio divided by the book value of the
11-6 portfolio is less than 0.995 or greater than 1.005, portfolio
11-7 holdings shall be sold as necessary to maintain the ratio between
11-8 0.995 and 1.005.
11-9 (g) To be eligible to receive funds from and invest funds on
11-10 behalf of an entity under this chapter, a public funds investment
11-11 pool must have an advisory board composed:
11-12 (1) equally of participants in the pool and other
11-13 persons who do not have a business relationship with the pool and
11-14 are qualified to advise the pool, for a public funds investment
11-15 pool created under Chapter 791 and managed by a state agency; or
11-16 (2) of participants in the pool and other persons who
11-17 do not have a business relationship with the pool and are qualified
11-18 to advise the pool, for other investment pools.
11-19 (h) To maintain eligibility to receive funds from and invest
11-20 funds on behalf of an entity under this chapter, an investment pool
11-21 must be continuously rated no lower than AAA or AAA-m or at an
11-22 equivalent rating by at least one nationally recognized rating
11-23 service.
11-24 SECTION 10. Section 2256.017, Government Code, is amended to
11-25 read as follows:
11-26 Sec. 2256.017. EXISTING INVESTMENTS [PORTFOLIO OF CERTAIN
11-27 INVESTMENT POOLS]. An entity is not required to liquidate
12-1 investments that were authorized investments at the time of
12-2 purchase. [A public funds investment pool created to function as a
12-3 money market mutual fund must mark its portfolio to market daily
12-4 and, to the extent reasonably possible, stabilize at a $1 net asset
12-5 value. If the ratio of the market value of the portfolio divided
12-6 by the book value of the portfolio is less than 0.995 or greater
12-7 than 1.005, portfolio holdings shall be sold as necessary to
12-8 maintain the ratio between 0.995 and 1.005.]
12-9 SECTION 11. Section 2256.023, Government Code, is amended by
12-10 amending Subsection (b) and adding Subsection (d) to read as
12-11 follows:
12-12 (b) The report must:
12-13 (1) describe in detail the investment position of the
12-14 entity on the date of the report;
12-15 (2) be prepared jointly by all investment officers of
12-16 the entity;
12-17 (3) be signed by each investment officer of the
12-18 entity;
12-19 (4) contain a summary statement, prepared in
12-20 compliance with generally accepted accounting principles, of each
12-21 pooled fund group that states the:
12-22 (A) beginning market value for the reporting
12-23 period;
12-24 (B) additions and changes to the market value
12-25 during the period; [and]
12-26 (C) ending market value for the period; and
12-27 (D) fully accrued interest for the reporting
13-1 period;
13-2 (5) state the book value and market value of each
13-3 separately invested asset at the beginning and end of the reporting
13-4 period by the type of asset and fund type invested;
13-5 (6) state the maturity date of each separately
13-6 invested asset that has a maturity date;
13-7 (7) state the account or fund or pooled group fund in
13-8 the state agency or local government for which each individual
13-9 investment was acquired; and
13-10 (8) state the compliance of the investment portfolio
13-11 of the state agency or local government as it relates to:
13-12 (A) the investment strategy expressed in the
13-13 agency's or local government's investment policy; and
13-14 (B) relevant provisions of this chapter.
13-15 (d) If an entity invests in other than money market mutual
13-16 funds, investment pools or accounts offered by its depository bank
13-17 in the form of certificates of deposit, or money market accounts or
13-18 similar accounts, the reports prepared by the investment officers
13-19 under this section shall be formally reviewed at least annually by
13-20 an independent auditor, and the result of the review shall be
13-21 reported to the governing body by that auditor.
13-22 SECTION 12. Subchapter A, Chapter 2256, Government Code, is
13-23 amended by adding Sections 2256.025-2256.027 to read as follows:
13-24 Sec. 2256.025. SELECTION OF AUTHORIZED BROKERS. The
13-25 governing body of an entity subject to this subchapter or the
13-26 designated investment committee of the entity shall, at least
13-27 annually, review, revise, and adopt a list of qualified brokers
14-1 that are authorized to engage in investment transactions with the
14-2 entity.
14-3 Sec. 2256.027. STATUTORY COMPLIANCE. All investments made
14-4 by entities must comply with this subchapter and all federal,
14-5 state, and local statutes, rules, or regulations.
14-6 SECTION 13. Sections 2256.018 and 2256.019, Government Code,
14-7 are repealed.
14-8 SECTION 14. This Act takes effect September 1, 1997, and
14-9 applies only to investment activities of a governmental entity
14-10 subject to Chapter 2256, Government Code, that occur on or after
14-11 that date.
14-12 SECTION 15. The importance of this legislation and the
14-13 crowded condition of the calendars in both houses create an
14-14 emergency and an imperative public necessity that the
14-15 constitutional rule requiring bills to be read on three several
14-16 days in each house be suspended, and this rule is hereby suspended.