By Greenberg H.B. No. 3009
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to investments and audits under the Public Funds
1-3 Investment Act.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 2256.002(10), Government Code, is amended
1-6 to read as follows:
1-7 (10) "Qualified representative" means a person who
1-8 holds a position with a business organization, who is authorized to
1-9 act on behalf of the business organization, and who is one of the
1-10 following:
1-11 (A) for a business organization doing business
1-12 that is regulated by or registered with a securities commission, a
1-13 person who is registered under the rules of the National
1-14 Association of Securities Dealers;
1-15 (B) for a state or federal bank, a savings bank,
1-16 or a state or federal credit union, a member of the loan committee
1-17 for the bank or branch of the bank or a person authorized by
1-18 corporate resolution to act on behalf of and bind the banking
1-19 institution; [or]
1-20 (C) for an investment pool, the person
1-21 authorized by the elected official or board with authority to
1-22 administer the activities of the investment pool to sign the
1-23 written instrument on behalf of the investment pool; or
1-24 (D) for an investment management firm registered
2-1 under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1
2-2 et seq.) or, if not subject to registration under that Act,
2-3 registered with the State Securities Board, a person who is an
2-4 officer or principal of the investment management firm.
2-5 SECTION 2. Section 2256.003, Government Code, is amended to
2-6 read as follows:
2-7 Sec. 2256.003. AUTHORITY TO INVEST FUNDS; ENTITIES SUBJECT
2-8 TO THIS CHAPTER. (a) Each governing body of the following
2-9 entities may purchase, sell, and invest its funds and funds under
2-10 its control in investments authorized under this subchapter in
2-11 compliance with investment policies approved by the governing body
2-12 and according to the standard of care prescribed by Section
2-13 2256.006:
2-14 (1) a local government;
2-15 (2) a state agency;
2-16 (3) a nonprofit corporation acting on behalf of a
2-17 local government or a state agency; or
2-18 (4) an investment pool acting on behalf of two or more
2-19 local governments, state agencies, or a combination of those
2-20 entities.
2-21 (b) In the exercise of its powers under Subsection (a), the
2-22 governing body of an investing entity may contract with an
2-23 investment management firm registered under the Investment Advisers
2-24 Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State
2-25 Securities Board to provide for the investment and management of
2-26 its public funds or other funds under its control. A contract made
2-27 under authority of this subsection may not be for a term longer
3-1 than two years. A renewal or extension of the contract must be
3-2 made by the governing body of the investing entity by order,
3-3 ordinance, or resolution.
3-4 SECTION 3. Section 2256.004, Government Code, as amended by
3-5 Chapters 505 and 1421, Acts of the 75th Legislature, Regular
3-6 Session, 1997, is amended to read as follows:
3-7 Sec. 2256.004. APPLICABILITY. (a) This subchapter does not
3-8 apply to:
3-9 (1) a public retirement system as defined by Section
3-10 802.001;
3-11 (2) state funds invested as authorized by Section
3-12 404.024;
3-13 (3) an institution of higher education having total
3-14 endowments of at least $95 million in book value on May 1, 1995;
3-15 (4) funds invested by the Veterans' Land Board as
3-16 authorized by Chapter 161, 162, or 164, Natural Resources Code;
3-17 [or]
3-18 (5) registry funds deposited with the county or
3-19 district clerk under Chapter 117, Local Government Code; or[.]
3-20 (6) [(5)] a deferred compensation plan that qualifies
3-21 under either Section 401(k) or 457 of the Internal Revenue Code of
3-22 1986 (26 U.S.C. Section 1 et seq.), as amended.
3-23 (b) This subchapter does not apply to an investment donated
3-24 to an investing entity for a particular purpose or under terms of
3-25 use specified by the donor.
3-26 SECTION 4. Section 2256.005, Government Code, is amended by
3-27 amending Subsections (f), (k), and (m) and adding Subsections (n)
4-1 and (o) to read as follows:
4-2 (f) Each investing entity shall designate, by rule, order,
4-3 ordinance, or resolution, as appropriate, one or more officers or
4-4 employees of the state agency, local government, or investment pool
4-5 as investment officer or contract with an investment management
4-6 firm under Section 2256.003(b) to be responsible for the investment
4-7 of its funds consistent with the investment policy adopted by the
4-8 entity. If the governing body of an investing entity has
4-9 contracted with another investing entity to invest its funds, the
4-10 investment officer of the other investing entity is considered to
4-11 be the investment officer of the first investing entity for
4-12 purposes of this chapter. Authority granted to a fiduciary
4-13 [person] to invest an entity's funds is effective until rescinded
4-14 by the investing entity, [or] until the expiration of the officer's
4-15 term or the termination of the person's employment by the investing
4-16 entity, or if an investment management firm, until the expiration
4-17 of the contract with the investing entity. In the administration
4-18 of the duties of an investment officer, the fiduciary [person]
4-19 designated as investment officer shall exercise the judgment and
4-20 care, under prevailing circumstances, that a prudent person would
4-21 exercise in the management of the person's own affairs, but the
4-22 governing body of the investing entity retains ultimate
4-23 responsibility as fiduciaries of the assets of the entity. Unless
4-24 authorized by law, a person may not deposit, withdraw, transfer, or
4-25 manage in any other manner the funds of the investing entity.
4-26 (k) A written copy of the investment policy shall be
4-27 presented to any person offering to engage in an investment
5-1 transaction with an investing entity or to an investment management
5-2 firm under contract with an investing entity to invest or manage
5-3 the entity's investment portfolio. For purposes of this
5-4 subsection, a business organization includes investment pools and
5-5 an investment management firm under contract with an investing
5-6 entity to invest or manage the entity's investment portfolio.
5-7 Nothing in this subsection relieves the investing entity of the
5-8 responsibility for monitoring the investments made by the investing
5-9 entity to determine that they are in compliance with the investment
5-10 policy. The qualified representative of the business organization
5-11 offering to engage in an investment transaction with an investing
5-12 entity shall execute a written instrument in a form acceptable to
5-13 the investing entity and the business organization substantially to
5-14 the effect that the business organization has:
5-15 (1) received and reviewed the investment policy of the
5-16 entity; and
5-17 (2) acknowledged that the business organization has
5-18 implemented reasonable procedures and controls in an effort to
5-19 preclude investment transactions conducted between the entity and
5-20 the organization that are not authorized by the entity's investment
5-21 policy, except to the extent that this authorization is dependent
5-22 on an analysis of the makeup of the entity's entire portfolio or
5-23 requires an interpretation of subjective investment standards.
5-24 (m) An investing entity other than a state agency, in
5-25 conjunction with its annual financial audit, shall perform a
5-26 compliance audit of management controls on investments and
5-27 adherence to the entity's established investment policies. [State
6-1 agencies shall report the results of the audit performed under this
6-2 subsection to the state auditor. The state auditor shall compile
6-3 the results of reports received under this subsection and annually
6-4 report those results to the legislative audit committee.]
6-5 (n) Except as provided by Subsection (o), at least once
6-6 every two years a state agency shall arrange for a compliance audit
6-7 of management controls on investments and adherence to the agency's
6-8 established investment policies. The compliance audit shall be
6-9 performed by the agency's internal auditor or by a private auditor
6-10 employed in the manner provided by Section 321.020. Not later than
6-11 January 1 of each even-numbered year, a state agency shall report
6-12 the results of the most recent audit performed under this
6-13 subsection to the state auditor. A state agency also shall report
6-14 to the state auditor other information the state auditor determines
6-15 necessary to assess compliance with laws and policies applicable to
6-16 state agency investments. A report under this subsection shall be
6-17 prepared in a manner the state auditor prescribes.
6-18 (o) The audit requirements of Subsection (n) do not apply to
6-19 assets of a state agency that are invested by the comptroller under
6-20 Section 404.024.
6-21 SECTION 5. Section 2256.007(c), Government Code, is amended
6-22 to read as follows:
6-23 (c) Training under this section must include education in
6-24 investment controls, security risks, strategy risks, market risks,
6-25 diversification of investment portfolio, and compliance with this
6-26 chapter.
6-27 SECTION 6. Section 2256.008, Government Code, is amended to
7-1 read as follows:
7-2 Sec. 2256.008. INVESTMENT TRAINING; LOCAL GOVERNMENTS. (a)
7-3 Except as provided by Subsection (b), the [The] treasurer, the
7-4 chief financial officer if the treasurer is not the chief financial
7-5 officer, and the investment officer of a local government shall:
7-6 (1) attend at least one training session under a
7-7 curriculum approved by the state auditor and containing at least 10
7-8 hours of instruction relating to the treasurer's or officer's
7-9 responsibilities under this subchapter within 12 months after
7-10 taking office or assuming duties; and
7-11 (2) except as provided by Subsection (b), attend an
7-12 investment training session not less than once in a two-year period
7-13 and receive not less than 10 hours of instruction relating to
7-14 investment responsibilities under this subchapter under a
7-15 curriculum approved by the state auditor and [from an independent
7-16 source] approved by the governing body of the local government or a
7-17 designated investment committee advising the investment officer as
7-18 provided for in the investment policy of the local government.
7-19 (b) An investing entity created under authority of Section
7-20 52(b), Article III, or Section 59, Article XVI, Texas Constitution,
7-21 that has contracted with an investment management firm under
7-22 Section 2256.003(b) and has fewer than five full-time employees or
7-23 an investing entity that has contracted with another investing
7-24 entity to invest the entity's funds may satisfy the training
7-25 requirement provided by Subsection (a)(2) by having an officer of
7-26 the governing body attend four hours of appropriate instruction in
7-27 a two-year period.
8-1 (c) Training under this section must include education in
8-2 investment controls, security risks, strategy risks, market risks,
8-3 diversification of investment portfolio, and compliance with this
8-4 chapter.
8-5 SECTION 7. Section 2256.009(a), Government Code, is amended
8-6 to read as follows:
8-7 (a) Except as provided by Subsection (b), the following are
8-8 authorized investments under this subchapter:
8-9 (1) obligations of the United States or its agencies
8-10 and instrumentalities;
8-11 (2) direct obligations of this state or its agencies
8-12 and instrumentalities;
8-13 (3) collateralized mortgage obligations directly
8-14 issued by a federal agency or instrumentality of the United States,
8-15 the underlying security for which is guaranteed by an agency or
8-16 instrumentality of the United States;
8-17 (4) other obligations, the principal and interest of
8-18 which are unconditionally guaranteed or insured by, or backed by
8-19 the full faith and credit of, this state or the United States or
8-20 their respective agencies and instrumentalities; [and]
8-21 (5) obligations of states, agencies, counties, cities,
8-22 and other political subdivisions of any state rated as to
8-23 investment quality by a nationally recognized investment rating
8-24 firm not less than A or its equivalent; and
8-25 (6) bonds issued, assumed, or guaranteed by the State
8-26 of Israel.
8-27 SECTION 8. Section 2256.014(c), Government Code, is amended
9-1 to read as follows:
9-2 (c) An entity is not authorized by this section to:
9-3 (1) invest in the aggregate more than 15 [80] percent
9-4 of its monthly average fund balance, excluding bond proceeds and
9-5 reserves and other funds held for debt service, in [money market
9-6 mutual funds described in Subsection (a) or] mutual funds described
9-7 in Subsection (b)[, either separately or collectively];
9-8 (2) [invest in the aggregate more than 15 percent of
9-9 its monthly average fund balance, excluding bond proceeds and
9-10 reserves and other funds held for debt service, in mutual funds
9-11 described in Subsection (b);]
9-12 [(3)] invest any portion of bond proceeds, reserves
9-13 and funds held for debt service, in mutual funds described in
9-14 Subsection (b); or
9-15 (3) [(4)] invest its funds or funds under its control,
9-16 including bond proceeds and reserves and other funds held for debt
9-17 service, in any one mutual fund described in Subsection (a) or (b)
9-18 in an amount that exceeds 10 percent of the total assets of the
9-19 mutual fund.
9-20 SECTION 9. The heading for Section 2256.015, Government
9-21 Code, is amended to read as follows:
9-22 Sec. 2256.015. AUTHORIZED INVESTMENTS [FOR STATE AGENCIES]:
9-23 GUARANTEED INVESTMENT CONTRACTS.
9-24 SECTION 10. Section 2256.015(a), Government Code, is amended
9-25 to read as follows:
9-26 (a) A guaranteed investment contract is an authorized
9-27 investment [for state agencies] for bond proceeds under this
10-1 subchapter if the guaranteed investment contract:
10-2 (1) has a defined termination date;
10-3 (2) is secured by obligations described by Section
10-4 2256.009(a)(1), excluding those obligations described by Section
10-5 2256.009(b), in an amount at least equal to the amount of bond
10-6 proceeds invested under the contract; and
10-7 (3) is pledged to the entity and deposited with the
10-8 entity or with a third party selected and approved by the entity.
10-9 SECTION 11. This Act takes effect September 1, 1999.
10-10 SECTION 12. The importance of this legislation and the
10-11 crowded condition of the calendars in both houses create an
10-12 emergency and an imperative public necessity that the
10-13 constitutional rule requiring bills to be read on three several
10-14 days in each house be suspended, and this rule is hereby suspended.