1-1           By:  Armbrister                                  S.B. No. 701

 1-2           (In the Senate - Filed February 21, 1997; February 25, 1997,

 1-3     read first time and referred to Committee on Finance;

 1-4     March 10, 1997, reported adversely, with favorable Committee

 1-5     Substitute by the following vote:  Yeas 10, Nays 0; March 10, 1997,

 1-6     sent to printer.)

 1-7     COMMITTEE SUBSTITUTE FOR S.B. No. 701               By:  Armbrister

 1-8                                   AN ACT

 1-9     relating to certain responsibilities of the comptroller relating to

1-10     investment and management of funds.

1-11           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

1-12           SECTION 1.  Section 66.02, Education Code, is amended to read

1-13     as follows:

1-14           Sec. 66.02.  AVAILABLE UNIVERSITY FUND.  The dividends,

1-15     interest, and other income from the permanent university fund,

1-16     including the net income attributable to the surface of permanent

1-17     university fund land, but excluding administrative expenses, shall

1-18     constitute the available university fund.  All interest, dividends,

1-19     and other income accruing and earned from the investments of

1-20     [derived from] the permanent university fund shall be deposited in

1-21     the State Treasury to the credit of the available university fund

1-22     at least once a month by the board of regents of The University of

1-23     Texas System or by the custodian or custodians of the permanent

1-24     university fund's securities [within five days after receipt by any

1-25     state officer, agent, or employee].  The University of Texas System

1-26     shall provide the information necessary for the comptroller to

1-27     accurately account for income from the permanent university fund

1-28     and to protect state revenues.  The system shall provide the

1-29     information using the method, format, and frequency required by the

1-30     comptroller.

1-31           SECTION 2.  Subchapter A, Chapter 66, Education Code, is

1-32     amended by adding Section 66.07 to read as follows:

1-33           Sec. 66.07.  CUSTODY AND INVESTMENT OF ASSETS PENDING

1-34     TRANSACTIONS.  With the approval of the comptroller, the board of

1-35     regents of The University of Texas System may appoint one or more

1-36     commercial banks, depository trust companies, or other entities, in

1-37     or outside this state, to serve as a custodian or custodians of the

1-38     permanent university fund's securities with authority to hold the

1-39     money realized from those securities pending completion of an

1-40     investment transaction if the money held is reinvested within one

1-41     business day of receipt in investments determined by the board of

1-42     regents.  Money not reinvested within one business day of receipt

1-43     shall be deposited in the state treasury not later than the fifth

1-44     day after the date of receipt.

1-45           SECTION 3.  Subsections (a), (b), (f), (g), (h), and (i),

1-46     Section 404.024, Government Code, are amended to read as follows:

1-47           (a)  The board may determine and designate the amount of

1-48     state funds to be deposited in time deposits in state depositories.

1-49     The comptroller [treasurer] shall recommend to the board a maximum

1-50     limit for state funds deposited by the comptroller  [treasurer] at

1-51     approved state depositories.  The percentage of state funds to be

1-52     deposited in state depositories shall be based on the interest

1-53     rates available in competing investments, the demand for funds from

1-54     Texas banks, and the state's liquidity requirements.  The

1-55     comptroller [treasurer] shall provide periodic investment reports

1-56     to the board.

1-57           (b)  State funds not deposited in state depositories shall be

1-58     invested by the comptroller [treasurer] in:

1-59                 (1)  direct security repurchase agreements;

1-60                 (2)  reverse security repurchase agreements;

1-61                 (3)  direct obligations of or obligations the principal

1-62     and interest of which are guaranteed by the United States;

1-63                 (4)  direct obligations of or obligations guaranteed by

1-64     agencies or instrumentalities of the United States government;

 2-1                 (5)  bankers' acceptances that:

 2-2                       (A)  are eligible for purchase by the Federal

 2-3     Reserve System;

 2-4                       (B)  do not exceed 270 days to maturity; and

 2-5                       (C)  are issued by a bank that has received the

 2-6     highest short-term credit rating by a nationally recognized

 2-7     investment rating firm;

 2-8                 (6)  commercial paper that:

 2-9                       (A)  does not exceed 270 days to maturity; and

2-10                       (B)  except as provided by Subsection (i), has

2-11     received the highest short-term credit rating by a nationally

2-12     recognized investment rating firm;

2-13                 (7)  contracts written by the treasury in which the

2-14     treasury grants the purchaser the right to purchase securities in

2-15     the treasury's marketable securities portfolio at a specified price

2-16     over a specified period and for which the treasury is paid a fee

2-17     and specifically prohibits naked-option or uncovered option

2-18     trading;

2-19                 (8)  direct obligations of or obligations guaranteed by

2-20     the Inter-American Development Bank, the International Bank for

2-21     Reconstruction and Development (the World Bank), the African

2-22     Development Bank, the Asian Development Bank, and the International

2-23     Finance Corporation that have received the highest credit rating by

2-24     a nationally recognized investment rating firm;

2-25                 (9)  bonds issued, assumed, or guaranteed by the State

2-26     of Israel;

2-27                 (10)  obligations of a state or an agency, county,

2-28     city, or other political subdivision of a state; [and]

2-29                 (11)  mutual funds secured by obligations that are

2-30     described by Subdivisions (1) through (6); and

2-31                 (12)  foreign currency for the sole purpose of

2-32     facilitating investment by state agencies that have the authority

2-33     to invest in foreign securities.

2-34           (f)  The comptroller [treasurer] by rule may define

2-35     derivative investments other than those described by Subsection

2-36     (e).  The treasury may not purchase investments defined by rule

2-37     adopted under this subsection in an amount that at the time of

2-38     purchase will cause the aggregate value of the investments to

2-39     exceed five percent of the treasury's total investments.

2-40           (g)  To the extent practicable, the comptroller [treasurer]

2-41     shall give first consideration to Texas banks when investing in

2-42     direct security repurchase agreements.

2-43           (h)  The comptroller [treasurer] may not use state funds to

2-44     invest in or purchase obligations of a private corporation or other

2-45     private business entity doing business in Northern Ireland unless

2-46     the corporation or other entity:

2-47                 (1)  adheres to fair employment practices; and

2-48                 (2)  does not discriminate on the basis of race, color,

2-49     religion, sex, national origin, or disability.

2-50           (i)  Notwithstanding Subsection (b)(6)(B), the comptroller

2-51     [treasurer] may purchase commercial paper with a rating lower than

2-52     the rating required by that paragraph to provide liquidity for

2-53     commercial paper issued by the comptroller [treasurer] or an agency

2-54     of the state.

2-55           SECTION 4.  Section 404.094, Government Code, is amended by

2-56     adding Subsection (d) to read as follows:

2-57           (d)  A state agency that receives funds from the sale of

2-58     securities under applicable law, including Chapter 815 or 825,

2-59     Government Code, and Chapter 43, Education Code, with the

2-60     comptroller's approval may, as an alternative to the deposit of the

2-61     funds as provided by Subsection (a), net sales and purchases of

2-62     securities occurring within one business day.  Any proceeds

2-63     received and available for reinvestment that are not reinvested

2-64     within one business day of receipt shall be deposited in the state

2-65     treasury as provided by Subsection (a).  An agency authorized to

2-66     net sales and purchases of securities under this section is subject

2-67     to the accounting and reporting procedures established by the

2-68     comptroller.

2-69           SECTION 5.  Subsection (b), Section 404.103, Government Code,

 3-1     is amended to read as follows:

 3-2           (b)  The trust company may enter into contracts and trust

 3-3     agreements or other fiduciary instruments with the comptroller

 3-4     [treasurer], the Federal Reserve System, a depository trust

 3-5     company, and other third parties.  The trust company shall be

 3-6     liable under those contracts in accordance with the terms contained

 3-7     in the contracts. Notwithstanding any other statute to the

 3-8     contrary, to the extent permitted by the Texas Constitution and the

 3-9     contracts, trust agreements, or other fiduciary instruments between

3-10     the trust company, [and] the Federal Reserve System, and a

3-11     depository trust company, the trust company's obligations shall be

3-12     guaranteed by the state, and the state expressly waives all

3-13     defenses of governmental immunity by and on behalf of the trust

3-14     company, the comptroller [treasurer], and the state and expressly

3-15     consents to sue and be sued in federal court or in any court of

3-16     competent jurisdiction.   However, this provision does not alter or

3-17     affect the immunity accorded to state officials and employees under

3-18     state law.  The trust company may enter into contracts with the

3-19     comptroller [treasurer] and the Federal Reserve System to provide

3-20     any services that the Federal Reserve System makes available,

3-21     including:

3-22                 (1)  safekeeping book-entry United States Treasury and

3-23     agency securities owned by the state and its agencies;

3-24                 (2)  using the federal reserve wire transfer system to

3-25     transfer money and book-entry securities and to settle securities

3-26     transactions involving book-entry United States Treasury and agency

3-27     securities owned by the state and its agencies;

3-28                 (3)  collecting, through the Federal Reserve System,

3-29     checks deposited with the treasury;

3-30                 (4)  receiving payments from and making payments to the

3-31     federal government on behalf of the state and its agencies;

3-32                 (5)  originating automated clearinghouse transactions

3-33     or other electronic transfers to make payments on behalf of the

3-34     state and its agencies, collecting revenues due the state and its

3-35     agencies, and transferring money between state depositories;

3-36                 (6)  paying warrants drawn on the treasury and

3-37     presented through the Federal Reserve System for payment; and

3-38                 (7)  safekeeping collateral pledged to secure deposits

3-39     of public funds.

3-40           SECTION 6.  Subsection (b), Section 2.07, Article 5.76-2,

3-41     Insurance Code, is amended to read as follows:

3-42           (b)  The facility shall invest its funds only in investments

3-43     authorized by law for the investment of state funds as provided in

3-44     Chapter 404, Government Code.  The governing committee shall

3-45     develop an investment policy and submit the policy to the

3-46     commissioner [state treasurer] for review and approval.

3-47           SECTION 7.  Subsection (d), Section 13, Article 5.76-3,

3-48     Insurance Code, is amended to read as follows:

3-49           (d)  Money in the fund shall be invested, subject to a policy

3-50     developed by the board and approved by the commissioner [state

3-51     treasurer], in the types of investments authorized by law for an

3-52     insurer authorized to write workers' compensation insurance

3-53     coverage in this state.

3-54           SECTION 8.  This Act takes effect September 1, 1997.

3-55           SECTION 9.  The importance of this legislation and the

3-56     crowded condition of the calendars in both houses create an

3-57     emergency and an imperative public necessity that the

3-58     constitutional rule requiring bills to be read on three several

3-59     days in each house be suspended, and this rule is hereby suspended.

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