By Marchant H.B. No. 2799
75R8566 SKB-D
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 that is stated on a
1-17 written instrument, who is authorized by the business organization
1-18 to execute the written instrument on behalf of the business
1-19 organization, and who is one of the following:
1-20 (A) for a business organization doing business
1-21 that is regulated by or registered with a securities commission, a
1-22 dealer representative who is registered under the rules of the
1-23 National Association of Securities Dealers;
1-24 (B) for a state or federal bank, a savings bank,
2-1 or a state or federal credit union, a member of the loan committee
2-2 for the bank or branch of the bank or a person authorized by
2-3 corporate resolution to act on behalf of and bind the banking
2-4 institution; or
2-5 (C) for an investment pool, the person
2-6 authorized by the elected official or board with authority to
2-7 administer the activities of the investment pool to sign the
2-8 written instrument on behalf of the investment pool.
2-9 (11) "School district" means a public school district.
2-10 (12) [(11)] "Separately invested asset" means an
2-11 account or fund of a state agency or local government that is not
2-12 invested in a pooled fund group.
2-13 (13) [(12)] "State agency" means an office,
2-14 department, commission, board, or other agency that is part of any
2-15 branch of state government, an institution of higher education, and
2-16 any nonprofit corporation acting on behalf of any of those
2-17 entities.
2-18 SECTION 2. Section 2256.004, Government Code, is amended to
2-19 read as follows:
2-20 Sec. 2256.004. APPLICABILITY. This subchapter does not
2-21 apply to:
2-22 (1) a public retirement system as defined by Section
2-23 802.001;
2-24 (2) state funds invested as authorized by Section
2-25 404.024;
2-26 (3) an institution of higher education having total
2-27 endowments of at least $95 million in book value on May 1, 1995;
3-1 [or]
3-2 (4) funds invested by the Veterans' Land Board as
3-3 authorized by Chapter 161, 162, or 164, Natural Resources Code; or
3-4 (5) a deferred compensation plan that qualifies under
3-5 either Section 401(k) or 457 of the Internal Revenue Code of 1986
3-6 (26 U.S.C. Section 1 et seq.), as amended.
3-7 SECTION 3. Section 2256.005, Government Code, is amended to
3-8 read as follows:
3-9 Sec. 2256.005. INVESTMENT POLICIES; INVESTMENT STRATEGIES;
3-10 INVESTMENT OFFICER. (a) The governing body of an investing entity
3-11 shall adopt by rule, order, ordinance, or resolution, as
3-12 appropriate, a written investment policy regarding the investment
3-13 of its funds and funds under its control.
3-14 (b) The investment policies must:
3-15 (1) be written;
3-16 (2) primarily emphasize safety of principal and
3-17 liquidity;
3-18 (3) address investment diversification, yield, and
3-19 maturity and the quality and capability of investment management;
3-20 and
3-21 (4) include:
3-22 (A) a list of the types of authorized
3-23 investments in which the investing entity's funds may be invested;
3-24 (B) the maximum allowable stated maturity of any
3-25 individual investment owned by the entity; [and]
3-26 (C) for pooled fund groups, the maximum
3-27 [average] dollar-weighted average maturity allowed based on the
4-1 stated maturity date for the portfolio;
4-2 (D) a requirement for comparative review of
4-3 alternative investments to ensure that a fair market price is
4-4 received on the purchase or sale of any security; and
4-5 (E) a requirement for settlement of all
4-6 transactions, except investment pool funds and mutual funds, on a
4-7 delivery versus payment basis.
4-8 (c) The investment policies may provide that bids for
4-9 certificates of deposit be solicited:
4-10 (1) orally;
4-11 (2) in writing;
4-12 (3) electronically; or
4-13 (4) in any combination of those methods.
4-14 (d) As an integral part of an investment policy, the
4-15 governing body shall adopt a separate written investment strategy
4-16 for each of the funds or group of funds under its control. Each
4-17 investment strategy must describe the investment objectives for the
4-18 particular fund using the following priorities in order of
4-19 importance:
4-20 (1) understanding of the suitability of the investment
4-21 to the financial requirements of the entity;
4-22 (2) preservation and safety of principal;
4-23 (3) liquidity;
4-24 (4) marketability of the investment if the need arises
4-25 to liquidate the investment before maturity;
4-26 (5) diversification of the investment portfolio; and
4-27 (6) yield.
5-1 (e) The governing body of an investing entity shall review
5-2 its investment policy and investment strategies not less than
5-3 annually. The governing body shall adopt a written instrument by
5-4 rule, order, ordinance, or resolution stating that it has reviewed
5-5 the investment policy and investment strategies and that the
5-6 written instrument so adopted shall record any changes made to
5-7 either the investment policy or investment strategies.
5-8 (f) An investing entity may not invest its operating funds
5-9 in authorized investments unless the investments comply with the
5-10 specific conditions related to that authorized investment and have
5-11 a final stated maturity within three years after the date of
5-12 purchase. An investing entity may not invest its funds for debt
5-13 service in authorized investments unless the investments comply
5-14 with the specific conditions related to that authorized investment
5-15 and the final stated maturities of the investments do not exceed
5-16 the dates on which the funds must be available for debt service.
5-17 An investing entity may not invest its funds from bond proceeds and
5-18 related reserve funds in authorized investments unless the
5-19 investments comply with the specific conditions related to that
5-20 authorized investment and the investments are consistent with a
5-21 letter of advice from bond counsel, the investing entity's No
5-22 Arbitrage Certificate, and the investing entity's stated investment
5-23 policy.
5-24 (g) Each investing entity shall designate, by rule, order,
5-25 ordinance, or resolution, as appropriate, one or more officers or
5-26 employees of the state agency, local government, or investment pool
5-27 as investment officer to be responsible for the investment of its
6-1 funds[. Unless otherwise authorized by law, a person may not
6-2 deposit, withdraw, invest, transfer, or manage in any other manner
6-3 funds of a state agency, local government, or investment pool
6-4 without express written authority of the governing body, chief
6-5 executive officer, or chief financial officer of the state agency,
6-6 local government, or investment pool,] consistent with the
6-7 investment policy adopted by the entity. Authority granted to a
6-8 person to [deposit, withdraw,] invest[, transfer, or manage] an
6-9 entity's funds is effective until rescinded by the investing entity
6-10 or until termination of the person's employment by the investing
6-11 entity. In the administration of the duties of an investment
6-12 officer, the person designated as investment officer shall exercise
6-13 the judgment and care, under prevailing circumstances, that a
6-14 prudent person would exercise in the management of the person's own
6-15 affairs. Unless authorized by law, a person may not deposit,
6-16 withdraw, transfer, or manage in any other manner the funds of the
6-17 county.
6-18 (h) [(g)] Subsection (g) [(f)] does not apply to a state
6-19 agency, local government, or investment pool for which an officer
6-20 of the entity is assigned by law the function of investing its
6-21 funds.
6-22 (i) [(h)] An officer or employee of a commission created
6-23 under Chapter 391, Local Government Code, is ineligible to be
6-24 designated as an investment officer under Subsection (g) for any
6-25 investing entity other than for that commission [(f)].
6-26 (j) [(i)] An investment officer of an entity who has a
6-27 personal business relationship with a business organization
7-1 offering to engage in an investment transaction with [an entity
7-2 seeking to sell an investment to] the entity shall file a statement
7-3 disclosing that personal business interest. An investment officer
7-4 who is related within the second degree by affinity or
7-5 consanguinity, as determined under Chapter 573, to an individual
7-6 seeking to sell an investment to the investment officer's entity
7-7 shall file a statement disclosing that relationship. A statement
7-8 required under this subsection must be filed with the Texas Ethics
7-9 Commission and the governing body of the entity. For purposes of
7-10 this subsection, an investment officer has a personal business
7-11 relationship with a business organization if:
7-12 (1) the investment officer owns 10 percent or more of
7-13 the voting stock or shares of the business organization or owns
7-14 $5,000 or more of the fair market value of the business
7-15 organization;
7-16 (2) funds received by the investment officer from the
7-17 business organization exceed 10 percent of the investment officer's
7-18 gross income for the previous year; or
7-19 (3) the investment officer has acquired from the
7-20 business organization during the previous year investments with a
7-21 book value of $2,500 or more for the personal account of the
7-22 investment officer.
7-23 (k) [(j)] The governing body of an investing entity may
7-24 specify in its investment policy that any investment authorized by
7-25 this chapter is not suitable.
7-26 (l) [(k)] A written copy of the investment policy shall be
7-27 presented to any person offering to engage in an investment
8-1 transaction with an investing entity [seeking to sell to the entity
8-2 an authorized investment]. For purposes of this subsection, a
8-3 business organization includes investment pools. Nothing in this
8-4 subsection relieves the investing entity of the responsibility for
8-5 monitoring the investments made by the investing entity to
8-6 determine that they are in compliance with the investment policy.
8-7 The qualified representative [registered principal] of the business
8-8 organization offering to engage in an investment transaction with
8-9 an investing entity [seeking to sell an authorized investment]
8-10 shall execute a written instrument in a form acceptable to the
8-11 investing entity and the business organization substantially to the
8-12 effect that the business organization [registered principal] has:
8-13 (1) received and [thoroughly] reviewed the investment
8-14 policy of the entity; and
8-15 (2) acknowledged that the business organization has
8-16 implemented reasonable procedures and controls in an effort to
8-17 preclude [imprudent investment activities arising out of]
8-18 investment transactions conducted between the entity and the
8-19 organization that are not authorized by the entity's investment
8-20 policy, except to the extent that this authorization is dependent
8-21 on the portfolio over which the business organization has no
8-22 control or knowledge.
8-23 (m) [(l)] The investment officer of an entity may not
8-24 acquire or otherwise obtain any authorized investment described in
8-25 the investment policy of the investing entity [buy any securities]
8-26 from a person who has not delivered to the entity the [an]
8-27 instrument required [in substantially the form provided] by
9-1 Subsection (l) [(k)].
9-2 (n) [(m)] An investing entity, in conjunction with its
9-3 annual financial audit, shall perform a compliance audit of
9-4 management controls on investments and adherence to the entity's
9-5 established investment policies. State agencies shall report the
9-6 results of the audit performed under this subsection to the state
9-7 auditor. The state auditor shall compile the results of reports
9-8 received under this subsection and annually report those results to
9-9 the legislative audit committee.
9-10 SECTION 4. Section 2256.007, Government Code, is amended by
9-11 adding Subsection (d) to read as follows:
9-12 (d) An investment officer shall attend a training session
9-13 not less than once in a two-year period and may receive training
9-14 from any independent source approved by the governing body of the
9-15 state agency. The investment officer shall prepare a report on
9-16 this subchapter and deliver the report to the governing body of the
9-17 state agency not later than the 180th day after the last day of
9-18 each regular session of the legislature.
9-19 SECTION 5. Section 2256.008(a), Government Code, is amended
9-20 to read as follows:
9-21 (a) The treasurer, the chief financial officer if the
9-22 treasurer is not the chief financial officer, and the investment
9-23 officer of a local government shall:
9-24 (1) attend at least one training session relating to
9-25 the treasurer's or officer's responsibilities under this subchapter
9-26 [chapter] within 12 months after taking office or assuming duties;
9-27 and
10-1 (2) attend an investment training session not less
10-2 than once in a two-year period and receive not less than 10 hours
10-3 of instruction relating to investment responsibilities under this
10-4 subchapter from an independent source approved by the governing
10-5 body of the local government.
10-6 SECTION 6. Section 2256.010, Government Code, is amended to
10-7 read as follows:
10-8 Sec. 2256.010. AUTHORIZED INVESTMENTS: CERTIFICATES OF
10-9 DEPOSIT AND SHARE CERTIFICATES. A certificate of deposit is an
10-10 authorized investment under this subchapter if the certificate is
10-11 issued by a state or national bank domiciled in this state, a
10-12 savings bank [and loan association] domiciled in this state, or a
10-13 state or federal credit union domiciled in this state and is:
10-14 (1) guaranteed or insured by the Federal Deposit
10-15 Insurance Corporation or its successor or the National Credit Union
10-16 Share Insurance Fund or its successor;
10-17 (2) secured by obligations that are described by
10-18 Section 2256.009(a), including mortgage backed securities directly
10-19 issued by a federal agency or instrumentality that have a market
10-20 value of not less than the principal amount of the certificates,
10-21 but excluding those mortgage backed securities of the nature
10-22 described by Section 2256.009(b); or
10-23 (3) secured in any other manner and amount provided by
10-24 law for deposits of the investing entity.
10-25 SECTION 7. Section 2256.014(a), Government Code, is amended
10-26 to read as follows:
10-27 (a) A no-load money market mutual fund is an authorized
11-1 investment under this subchapter if the mutual fund:
11-2 (1) is registered with and regulated by the Securities
11-3 and Exchange Commission;
11-4 (2) provides the investing entity with a prospectus
11-5 and other information required by the Securities Exchange Act of
11-6 1934 (15 U.S.C. Section 78a et seq.) or the Investment Company Act
11-7 of 1940 (15 U.S.C. Section 80a-1 et seq.);
11-8 (3) has a dollar-weighted average stated maturity of
11-9 90 days or fewer; and
11-10 (4) [(3)] includes in its investment objectives the
11-11 maintenance of a stable net asset value of $1 for each share.
11-12 SECTION 8. The heading to Section 2256.015, Government Code,
11-13 is amended to read as follows:
11-14 Sec. 2256.015. AUTHORIZED INVESTMENTS FOR STATE AGENCIES:
11-15 GUARANTEED INVESTMENT CONTRACTS.
11-16 SECTION 9. Section 2256.016, Government Code, is amended by
11-17 adding Subsections (f), (g), and (h) to read as follows:
11-18 (f) To be eligible to receive funds from and invest funds on
11-19 behalf of an entity under this chapter, a public funds investment
11-20 pool created to function as a money market mutual fund must mark
11-21 its portfolio to market daily, and to the extent reasonably
11-22 possible, stabilize at a $1 net asset value. If the ratio of the
11-23 market value of the portfolio divided by the book value of the
11-24 portfolio is less than 0.995 or greater than 1.005, portfolio
11-25 holdings shall be sold as necessary to maintain the ratio between
11-26 0.995 and 1.005.
11-27 (g) To be eligible to receive funds from and invest funds on
12-1 behalf of an entity under this chapter, a public funds investment
12-2 pool must have an advisory board composed:
12-3 (1) equally of participants in the pool and other
12-4 persons who do not have a business relationship with the pool and
12-5 are qualified to advise the pool, for a public funds investment
12-6 pool created under Chapter 791 and managed by a state agency; or
12-7 (2) of participants in the pool and other persons who
12-8 do not have a business relationship with the pool and are qualified
12-9 to advise the pool, for other investment pools.
12-10 (h) To maintain eligibility to receive funds from and invest
12-11 funds on behalf of an entity under this chapter, an investment pool
12-12 must be continuously rated no lower than AAA or AAA-m or at an
12-13 equivalent rating by at least one nationally recognized rating
12-14 service.
12-15 SECTION 10. Section 2256.017, Government Code, is amended to
12-16 read as follows:
12-17 Sec. 2256.017. EXISTING INVESTMENTS [PORTFOLIO OF CERTAIN
12-18 INVESTMENT POOLS]. An entity is not required to liquidate
12-19 investments that were authorized investments at the time of
12-20 purchase [A public funds investment pool created to function as a
12-21 money market mutual fund must mark its portfolio to market daily
12-22 and, to the extent reasonably possible, stabilize at a $1 net asset
12-23 value. If the ratio of the market value of the portfolio divided
12-24 by the book value of the portfolio is less than 0.995 or greater
12-25 than 1.005, portfolio holdings shall be sold as necessary to
12-26 maintain the ratio between 0.995 and 1.005].
12-27 SECTION 11. Section 2256.023, Government Code, is amended by
13-1 amending Subsection (b) and adding Subsection (d) to read as
13-2 follows:
13-3 (b) The report must:
13-4 (1) describe in detail the investment position of the
13-5 entity on the date of the report;
13-6 (2) be prepared jointly by all investment officers of
13-7 the entity;
13-8 (3) be signed by each investment officer of the
13-9 entity;
13-10 (4) contain a summary statement, prepared in
13-11 compliance with generally accepted accounting principles, of each
13-12 pooled fund group that states the fully accrued income for the
13-13 reporting period:
13-14 (A) beginning market value for the reporting
13-15 period;
13-16 (B) additions and changes to the market value
13-17 during the period; and
13-18 (C) ending market value for the period;
13-19 (5) state the book value and market value of each
13-20 separately invested asset at the beginning and end of the reporting
13-21 period by the type of asset and fund type invested;
13-22 (6) state the maturity date of each separately
13-23 invested asset that has a maturity date;
13-24 (7) state the account or fund or pooled group fund in
13-25 the state agency or local government for which each individual
13-26 investment was acquired; and
13-27 (8) state the compliance of the investment portfolio
14-1 of the state agency or local government as it relates to:
14-2 (A) the investment strategy expressed in the
14-3 agency's or local government's investment policy; and
14-4 (B) relevant provisions of this chapter.
14-5 (d) If an entity invests in other than money market mutual
14-6 funds, investment pools or accounts offered by its depository bank
14-7 in the form of certificates of deposit, or money market accounts or
14-8 similar accounts, the reports prepared by the investment officers
14-9 under this subsection shall be formally reviewed at least annually
14-10 by an independent auditor, and the result of the review shall be
14-11 reported to the governing body by that auditor.
14-12 SECTION 12. Subchapter A, Chapter 2256, Government Code, is
14-13 amended by adding Sections 2256.025-2256.027 to read as follows:
14-14 Sec. 2256.025. SELECTION OF AUTHORIZED BROKERS. The
14-15 governing body of an entity subject to this subchapter or the
14-16 designated investment committee of the entity shall, at least
14-17 annually, review, revise, and adopt a list of qualified brokers
14-18 that are authorized to engage in investment transactions with the
14-19 entity.
14-20 Sec. 2256.026. COLLATERALIZATION OF DEPOSITORY ACCOUNTS.
14-21 Collateral pledged by an entity's depository bank to secure the
14-22 public funds of an entity that have been deposited in the bank must
14-23 qualify as an authorized investment for that type of entity unless
14-24 the governing body of that entity authorizes the use of other
14-25 assets as collateral by order, rule, ordinance, or resolution.
14-26 Sec. 2256.027. STATUTORY COMPLIANCE. All investments made
14-27 by entities must comply with this subchapter and all federal,
15-1 state, and local statutes, rules, or regulations.
15-2 SECTION 13. Sections 2256.018 and 2256.019, Government Code,
15-3 are repealed.
15-4 SECTION 14. This Act takes effect September 1, 1997, and
15-5 applies only to investment activities of a governmental entity
15-6 subject to Chapter 2256, Government Code, that occur on or after
15-7 that date.
15-8 SECTION 15. The importance of this legislation and the
15-9 crowded condition of the calendars in both houses create an
15-10 emergency and an imperative public necessity that the
15-11 constitutional rule requiring bills to be read on three several
15-12 days in each house be suspended, and this rule is hereby suspended.