1-1 By: Marchant (Senate Sponsor - Ellis) H.B. No. 2799
1-2 (In the Senate - Received from the House May 7, 1997;
1-3 May 8, 1997, read first time and referred to Committee on Finance;
1-4 May 17, 1997, reported favorably, as amended, by the following
1-5 vote: Yeas 10, Nays 1; May 17, 1997, sent to printer.)
1-6 COMMITTEE AMENDMENT NO. 1 By: Barrientos
1-7 Amend H.B. No. 2799 by adding the following appropriately
1-8 numbered SECTION and renumbering the remaining SECTIONS of the bill
1-9 accordingly:
1-10 SECTION ____. Subchapter B, Chapter 2256, Government Code,
1-11 is amended by adding Section 2256.056 to read as follows:
1-12 Sec. 2256.056. COMPLIANCE WITH OTHER LAWS. Notwithstanding
1-13 any other law, a local government may not issue for any purpose or
1-14 cause to be issued in its behalf any installment sale obligation or
1-15 lease-purchase obligation having the principal amount of $1 million
1-16 or more without complying with the provisions of Section 3.002,
1-17 Chapter 53, Acts of the 70th Legislature, 2nd Called Session, 1987
1-18 (Article 717k-8, Vernon's Texas Civil Statutes), regardless of
1-19 whether the obligation was issued individually or in a series of
1-20 related transactions, or whether the obligation was issued with no
1-21 recourse to the local government.
1-22 A BILL TO BE ENTITLED
1-23 AN ACT
1-24 relating to investment practices of governmental entities.
1-25 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-26 SECTION 1. Section 2256.002, Government Code, is amended by
1-27 amending Subdivisions (2) and (8), adding a new Subdivision (10),
1-28 and renumbering existing Subdivisions (10)-(12) as Subdivisions
1-29 (11)-(13) to read as follows:
1-30 (2) "Book value" means the original acquisition cost
1-31 [face or par value] of an investment plus [accrued interest] or
1-32 minus the accrued amortization or accretion.
1-33 (8) "Market value" means the current face or par value
1-34 of an investment multiplied by the net selling price of the
1-35 security as quoted by a recognized market pricing source [premium
1-36 or discount] quoted on the valuation date.
1-37 (10) "Qualified representative" means a person who
1-38 holds a position with a business organization, who is authorized to
1-39 act on behalf of the business organization, and who is one of the
1-40 following:
1-41 (A) for a business organization doing business
1-42 that is regulated by or registered with a securities commission, a
1-43 person who is registered under the rules of the National
1-44 Association of Securities Dealers;
1-45 (B) for a state or federal bank, a savings bank,
1-46 or a state or federal credit union, a member of the loan committee
1-47 for the bank or branch of the bank or a person authorized by
1-48 corporate resolution to act on behalf of and bind the banking
1-49 institution; or
1-50 (C) for an investment pool, the person
1-51 authorized by the elected official or board with authority to
1-52 administer the activities of the investment pool to sign the
1-53 written instrument on behalf of the investment pool.
1-54 (11) "School district" means a public school district.
1-55 (12) [(11)] "Separately invested asset" means an
1-56 account or fund of a state agency or local government that is not
1-57 invested in a pooled fund group.
1-58 (13) [(12)] "State agency" means an office,
1-59 department, commission, board, or other agency that is part of any
1-60 branch of state government, an institution of higher education, and
1-61 any nonprofit corporation acting on behalf of any of those
1-62 entities.
1-63 SECTION 2. Section 2256.004, Government Code, is amended to
1-64 read as follows:
2-1 Sec. 2256.004. APPLICABILITY. This subchapter does not
2-2 apply to:
2-3 (1) a public retirement system as defined by Section
2-4 802.001;
2-5 (2) state funds invested as authorized by Section
2-6 404.024;
2-7 (3) an institution of higher education having total
2-8 endowments of at least $95 million in book value on May 1, 1995;
2-9 [or]
2-10 (4) funds invested by the Veterans' Land Board as
2-11 authorized by Chapter 161, 162, or 164, Natural Resources Code; or
2-12 (5) a deferred compensation plan that qualifies under
2-13 either Section 401(k) or 457 of the Internal Revenue Code of 1986
2-14 (26 U.S.C. Section 1 et seq.), as amended.
2-15 SECTION 3. Section 2256.005, Government Code, is amended to
2-16 read as follows:
2-17 Sec. 2256.005. INVESTMENT POLICIES; INVESTMENT STRATEGIES;
2-18 INVESTMENT OFFICER. (a) The governing body of an investing entity
2-19 shall adopt by rule, order, ordinance, or resolution, as
2-20 appropriate, a written investment policy regarding the investment
2-21 of its funds and funds under its control.
2-22 (b) The investment policies must:
2-23 (1) be written;
2-24 (2) primarily emphasize safety of principal and
2-25 liquidity;
2-26 (3) address investment diversification, yield, and
2-27 maturity and the quality and capability of investment management;
2-28 and
2-29 (4) include:
2-30 (A) a list of the types of authorized
2-31 investments in which the investing entity's funds may be invested;
2-32 (B) the maximum allowable stated maturity of any
2-33 individual investment owned by the entity; [and]
2-34 (C) for pooled fund groups, the maximum
2-35 [average] dollar-weighted average maturity allowed based on the
2-36 stated maturity date for the portfolio;
2-37 (D) methods to monitor the market price of
2-38 investments acquired with public funds; and
2-39 (E) a requirement for settlement of all
2-40 transactions, except investment pool funds and mutual funds, on a
2-41 delivery versus payment basis.
2-42 (c) The investment policies may provide that bids for
2-43 certificates of deposit be solicited:
2-44 (1) orally;
2-45 (2) in writing;
2-46 (3) electronically; or
2-47 (4) in any combination of those methods.
2-48 (d) As an integral part of an investment policy, the
2-49 governing body shall adopt a separate written investment strategy
2-50 for each of the funds or group of funds under its control. Each
2-51 investment strategy must describe the investment objectives for the
2-52 particular fund using the following priorities in order of
2-53 importance:
2-54 (1) understanding of the suitability of the investment
2-55 to the financial requirements of the entity;
2-56 (2) preservation and safety of principal;
2-57 (3) liquidity;
2-58 (4) marketability of the investment if the need arises
2-59 to liquidate the investment before maturity;
2-60 (5) diversification of the investment portfolio; and
2-61 (6) yield.
2-62 (e) The governing body of an investing entity shall review
2-63 its investment policy and investment strategies not less than
2-64 annually. The governing body shall adopt a written instrument by
2-65 rule, order, ordinance, or resolution stating that it has reviewed
2-66 the investment policy and investment strategies and that the
2-67 written instrument so adopted shall record any changes made to
2-68 either the investment policy or investment strategies.
2-69 (f) Each investing entity shall designate, by rule, order,
3-1 ordinance, or resolution, as appropriate, one or more officers or
3-2 employees of the state agency, local government, or investment pool
3-3 as investment officer to be responsible for the investment of its
3-4 funds[. Unless otherwise authorized by law, a person may not
3-5 deposit, withdraw, invest, transfer, or manage in any other manner
3-6 funds of a state agency, local government, or investment pool
3-7 without express written authority of the governing body, chief
3-8 executive officer, or chief financial officer of the state agency,
3-9 local government, or investment pool,] consistent with the
3-10 investment policy adopted by the entity. Authority granted to a
3-11 person to [deposit, withdraw,] invest[, transfer, or manage] an
3-12 entity's funds is effective until rescinded by the investing entity
3-13 or until termination of the person's employment by the investing
3-14 entity. In the administration of the duties of an investment
3-15 officer, the person designated as investment officer shall exercise
3-16 the judgment and care, under prevailing circumstances, that a
3-17 prudent person would exercise in the management of the person's own
3-18 affairs. Unless authorized by law, a person may not deposit,
3-19 withdraw, transfer, or manage in any other manner the funds of the
3-20 investing 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) for any investing
3-27 entity other than for that commission.
3-28 (i) An investment officer of an entity who has a personal
3-29 business relationship with a business organization offering to
3-30 engage in an investment transaction with [an entity seeking to sell
3-31 an investment to] the entity shall file a statement disclosing that
3-32 personal business interest. An investment officer who is related
3-33 within the second degree by affinity or consanguinity, as
3-34 determined under Chapter 573, to an individual seeking to sell an
3-35 investment to the investment officer's entity shall file a
3-36 statement disclosing that relationship. A statement required under
3-37 this subsection must be filed with the Texas Ethics Commission and
3-38 the governing body of the entity. For purposes of this subsection,
3-39 an investment officer has a personal business relationship with a
3-40 business organization if:
3-41 (1) the investment officer owns 10 percent or more of
3-42 the voting stock or shares of the business organization or owns
3-43 $5,000 or more of the fair market value of the business
3-44 organization;
3-45 (2) funds received by the investment officer from the
3-46 business organization exceed 10 percent of the investment officer's
3-47 gross income for the previous year; or
3-48 (3) the investment officer has acquired from the
3-49 business organization during the previous year investments with a
3-50 book value of $2,500 or more for the personal account of the
3-51 investment officer.
3-52 (j) The governing body of an investing entity may specify in
3-53 its investment policy that any investment authorized by this
3-54 chapter is not suitable.
3-55 (k) A written copy of the investment policy shall be
3-56 presented to any person offering to engage in an investment
3-57 transaction with an investing entity [seeking to sell to the entity
3-58 an authorized investment]. For purposes of this subsection, a
3-59 business organization includes investment pools. Nothing in this
3-60 subsection relieves the investing entity of the responsibility for
3-61 monitoring the investments made by the investing entity to
3-62 determine that they are in compliance with the investment policy.
3-63 The qualified representative [registered principal] of the business
3-64 organization offering to engage in an investment transaction with
3-65 an investing entity [seeking to sell an authorized investment]
3-66 shall execute a written instrument in a form acceptable to the
3-67 investing entity and the business organization substantially to the
3-68 effect that the business organization [registered principal] has:
3-69 (1) received and [thoroughly] reviewed the investment
4-1 policy of the entity; and
4-2 (2) acknowledged that the business organization has
4-3 implemented reasonable procedures and controls in an effort to
4-4 preclude [imprudent investment activities arising out of]
4-5 investment transactions conducted between the entity and the
4-6 organization that are not authorized by the entity's investment
4-7 policy, except to the extent that this authorization is dependent
4-8 on an analysis of the makeup of the entity's entire portfolio or
4-9 requires an interpretation of subjective investment standards.
4-10 (l) The investment officer of an entity may not acquire or
4-11 otherwise obtain any authorized investment described in the
4-12 investment policy of the investing entity [buy any securities] from
4-13 a person who has not delivered to the entity the [an] instrument
4-14 required [in substantially the form provided] by Subsection (k).
4-15 (m) An investing entity, in conjunction with its annual
4-16 financial audit, shall perform a compliance audit of management
4-17 controls on investments and adherence to the entity's established
4-18 investment policies. State agencies shall report the results of
4-19 the audit performed under this subsection to the state auditor.
4-20 The state auditor shall compile the results of reports received
4-21 under this subsection and annually report those results to the
4-22 legislative audit committee.
4-23 SECTION 4. Section 2256.007, Government Code, is amended by
4-24 adding Subsection (d) to read as follows:
4-25 (d) An investment officer shall attend a training session
4-26 not less than once in a two-year period and may receive training
4-27 from any independent source approved by the governing body of the
4-28 state agency. The investment officer shall prepare a report on
4-29 this subchapter and deliver the report to the governing body of the
4-30 state agency not later than the 180th day after the last day of
4-31 each regular session of the legislature.
4-32 SECTION 5. Section 2256.008(a), Government Code, is amended
4-33 to read as follows:
4-34 (a) The treasurer, the chief financial officer if the
4-35 treasurer is not the chief financial officer, and the investment
4-36 officer of a local government shall:
4-37 (1) attend at least one training session relating to
4-38 the treasurer's or officer's responsibilities under this subchapter
4-39 [chapter] within 12 months after taking office or assuming duties;
4-40 and
4-41 (2) attend an investment training session not less
4-42 than once in a two-year period and receive not less than 10 hours
4-43 of instruction relating to investment responsibilities under this
4-44 subchapter from an independent source approved by the governing
4-45 body of the local government or a designated investment committee
4-46 advising the investment officer as provided for in the investment
4-47 policy of the local government.
4-48 SECTION 6. Section 2256.010, Government Code, is amended to
4-49 read as follows:
4-50 Sec. 2256.010. AUTHORIZED INVESTMENTS: CERTIFICATES OF
4-51 DEPOSIT AND SHARE CERTIFICATES. A certificate of deposit is an
4-52 authorized investment under this subchapter if the certificate is
4-53 issued by a state or national bank domiciled in this state, a
4-54 savings bank [and loan association] domiciled in this state, or a
4-55 state or federal credit union domiciled in this state and is:
4-56 (1) guaranteed or insured by the Federal Deposit
4-57 Insurance Corporation or its successor or the National Credit Union
4-58 Share Insurance Fund or its successor;
4-59 (2) secured by obligations that are described by
4-60 Section 2256.009(a), including mortgage backed securities directly
4-61 issued by a federal agency or instrumentality that have a market
4-62 value of not less than the principal amount of the certificates,
4-63 but excluding those mortgage backed securities of the nature
4-64 described by Section 2256.009(b); or
4-65 (3) secured in any other manner and amount provided by
4-66 law for deposits of the investing entity.
4-67 SECTION 7. Section 2256.014(a), Government Code, is amended
4-68 to read as follows:
4-69 (a) A no-load money market mutual fund is an authorized
5-1 investment under this subchapter if the mutual fund:
5-2 (1) is registered with and regulated by the Securities
5-3 and Exchange Commission;
5-4 (2) provides the investing entity with a prospectus
5-5 and other information required by the Securities Exchange Act of
5-6 1934 (15 U.S.C. Section 78a et seq.) or the Investment Company Act
5-7 of 1940 (15 U.S.C. Section 80a-1 et seq.);
5-8 (3) has a dollar-weighted average stated maturity of
5-9 90 days or fewer; and
5-10 (4) [(3)] includes in its investment objectives the
5-11 maintenance of a stable net asset value of $1 for each share.
5-12 SECTION 8. The heading to Section 2256.015, Government Code,
5-13 is amended to read as follows:
5-14 Sec. 2256.015. AUTHORIZED INVESTMENTS FOR STATE AGENCIES:
5-15 GUARANTEED INVESTMENT CONTRACTS.
5-16 SECTION 9. Section 2256.016, Government Code, is amended by
5-17 adding Subsections (f), (g), and (h) to read as follows:
5-18 (f) To be eligible to receive funds from and invest funds on
5-19 behalf of an entity under this chapter, a public funds investment
5-20 pool created to function as a money market mutual fund must mark
5-21 its portfolio to market daily, and, to the extent reasonably
5-22 possible, stabilize at a $1 net asset value. If the ratio of the
5-23 market value of the portfolio divided by the book value of the
5-24 portfolio is less than 0.995 or greater than 1.005, portfolio
5-25 holdings shall be sold as necessary to maintain the ratio between
5-26 0.995 and 1.005.
5-27 (g) To be eligible to receive funds from and invest funds on
5-28 behalf of an entity under this chapter, a public funds investment
5-29 pool must have an advisory board composed:
5-30 (1) equally of participants in the pool and other
5-31 persons who do not have a business relationship with the pool and
5-32 are qualified to advise the pool, for a public funds investment
5-33 pool created under Chapter 791 and managed by a state agency; or
5-34 (2) of participants in the pool and other persons who
5-35 do not have a business relationship with the pool and are qualified
5-36 to advise the pool, for other investment pools.
5-37 (h) To maintain eligibility to receive funds from and invest
5-38 funds on behalf of an entity under this chapter, an investment pool
5-39 must be continuously rated no lower than AAA or AAA-m or at an
5-40 equivalent rating by at least one nationally recognized rating
5-41 service.
5-42 SECTION 10. Section 2256.017, Government Code, is amended to
5-43 read as follows:
5-44 Sec. 2256.017. EXISTING INVESTMENTS [PORTFOLIO OF CERTAIN
5-45 INVESTMENT POOLS]. An entity is not required to liquidate
5-46 investments that were authorized investments at the time of
5-47 purchase. [A public funds investment pool created to function as a
5-48 money market mutual fund must mark its portfolio to market daily
5-49 and, to the extent reasonably possible, stabilize at a $1 net asset
5-50 value. If the ratio of the market value of the portfolio divided
5-51 by the book value of the portfolio is less than 0.995 or greater
5-52 than 1.005, portfolio holdings shall be sold as necessary to
5-53 maintain the ratio between 0.995 and 1.005.]
5-54 SECTION 11. Section 2256.019, Government Code, is amended to
5-55 read as follows:
5-56 Sec. 2256.019. Rating of Certain Investment Pools. A public
5-57 funds investment pool must be continuously rated no lower than AAA
5-58 or AAA-m or at an equivalent rating by at least one nationally
5-59 recognized rating service or no lower than investment grade by at
5-60 least one nationally recognized rating service with a weighted
5-61 average maturity no greater than 90 days.
5-62 SECTION 12. Section 2256.023, Government Code, is amended by
5-63 amending Subsection (b) and adding Subsection (d) to read as
5-64 follows:
5-65 (b) The report must:
5-66 (1) describe in detail the investment position of the
5-67 entity on the date of the report;
5-68 (2) be prepared jointly by all investment officers of
5-69 the entity;
6-1 (3) be signed by each investment officer of the
6-2 entity;
6-3 (4) contain a summary statement, prepared in
6-4 compliance with generally accepted accounting principles, of each
6-5 pooled fund group that states the:
6-6 (A) beginning market value for the reporting
6-7 period;
6-8 (B) additions and changes to the market value
6-9 during the period; [and]
6-10 (C) ending market value for the period; and
6-11 (D) fully accrued interest for the reporting
6-12 period;
6-13 (5) state the book value and market value of each
6-14 separately invested asset at the beginning and end of the reporting
6-15 period by the type of asset and fund type invested;
6-16 (6) state the maturity date of each separately
6-17 invested asset that has a maturity date;
6-18 (7) state the account or fund or pooled group fund in
6-19 the state agency or local government for which each individual
6-20 investment was acquired; and
6-21 (8) state the compliance of the investment portfolio
6-22 of the state agency or local government as it relates to:
6-23 (A) the investment strategy expressed in the
6-24 agency's or local government's investment policy; and
6-25 (B) relevant provisions of this chapter.
6-26 (d) If an entity invests in other than money market mutual
6-27 funds, investment pools or accounts offered by its depository bank
6-28 in the form of certificates of deposit, or money market accounts or
6-29 similar accounts, the reports prepared by the investment officers
6-30 under this section shall be formally reviewed at least annually by
6-31 an independent auditor, and the result of the review shall be
6-32 reported to the governing body by that auditor.
6-33 SECTION 13. Subchapter A, Chapter 2256, Government Code, is
6-34 amended by adding Sections 2256.025 and 2256.026 to read as
6-35 follows:
6-36 Sec. 2256.025. SELECTION OF AUTHORIZED BROKERS. The
6-37 governing body of an entity subject to this subchapter or the
6-38 designated investment committee of the entity shall, at least
6-39 annually, review, revise, and adopt a list of qualified brokers
6-40 that are authorized to engage in investment transactions with the
6-41 entity.
6-42 Sec. 2256.026. STATUTORY COMPLIANCE. All investments made
6-43 by entities must comply with this subchapter and all federal,
6-44 state, and local statutes, rules, or regulations.
6-45 SECTION 14. Section 2256.018, Government Code, is repealed.
6-46 SECTION 15. This Act takes effect September 1, 1997, and
6-47 applies only to investment activities of a governmental entity
6-48 subject to Chapter 2256, Government Code, that occur on or after
6-49 that date.
6-50 SECTION 16. The importance of this legislation and the
6-51 crowded condition of the calendars in both houses create an
6-52 emergency and an imperative public necessity that the
6-53 constitutional rule requiring bills to be read on three several
6-54 days in each house be suspended, and this rule is hereby suspended.
6-55 * * * * *