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 (c) This chapter does not prohibit an investing entity or
3-5 investment officer from using the entity's employees or the
3-6 services of a contractor of the entity to aid the investment
3-7 officer in the execution of the officer's duties under this
3-8 chapter.
3-9 SECTION 3. Section 2256.004, Government Code, as amended by
3-10 Chapters 505 and 1421, Acts of the 75th Legislature, Regular
3-11 Session, 1997, is amended to read as follows:
3-12 Sec. 2256.004. APPLICABILITY. (a) This subchapter does not
3-13 apply to:
3-14 (1) a public retirement system as defined by Section
3-15 802.001;
3-16 (2) state funds invested as authorized by Section
3-17 404.024;
3-18 (3) an institution of higher education having total
3-19 endowments of at least $95 million in book value on May 1, 1995;
3-20 (4) funds invested by the Veterans' Land Board as
3-21 authorized by Chapter 161, 162, or 164, Natural Resources Code;
3-22 [or]
3-23 (5) registry funds deposited with the county or
3-24 district clerk under Chapter 117, Local Government Code; or[.]
3-25 (6) [(5)] a deferred compensation plan that qualifies
3-26 under either Section 401(k) or 457 of the Internal Revenue Code of
3-27 1986 (26 U.S.C. Section 1 et seq.), as amended.
4-1 (b) This subchapter does not apply to an investment donated
4-2 to an investing entity for a particular purpose or under terms of
4-3 use specified by the donor.
4-4 SECTION 4. Section 2256.005, Government Code, is amended by
4-5 amending Subsections (f), (k), and (m) and adding Subsections (n)
4-6 and (o) to read as follows:
4-7 (f) Each investing entity shall designate, by rule, order,
4-8 ordinance, or resolution, as appropriate, one or more officers or
4-9 employees of the state agency, local government, or investment pool
4-10 as investment officer to be responsible for the investment of its
4-11 funds consistent with the investment policy adopted by the entity.
4-12 If the governing body of an investing entity has contracted with
4-13 another investing entity to invest its funds, the investment
4-14 officer of the other investing entity is considered to be the
4-15 investment officer of the first investing entity for purposes of
4-16 this chapter. Authority granted to a person to invest an entity's
4-17 funds is effective until rescinded by the investing entity, [or]
4-18 until the expiration of the officer's term or the termination of
4-19 the person's employment by the investing entity, or if an
4-20 investment management firm, until the expiration of the contract
4-21 with the investing entity. In the administration of the duties of
4-22 an investment officer, the person designated as investment officer
4-23 shall exercise the judgment and care, under prevailing
4-24 circumstances, that a prudent person would exercise in the
4-25 management of the person's own affairs, but the governing body of
4-26 the investing entity retains ultimate responsibility as fiduciaries
4-27 of the assets of the entity. Unless authorized by law, a person
5-1 may not deposit, withdraw, transfer, or manage in any other manner
5-2 the funds of the investing entity.
5-3 (k) A written copy of the investment policy shall be
5-4 presented to any person offering to engage in an investment
5-5 transaction with an investing entity or to an investment management
5-6 firm under contract with an investing entity to invest or manage
5-7 the entity's investment portfolio. For purposes of this
5-8 subsection, a business organization includes investment pools and
5-9 an investment management firm under contract with an investing
5-10 entity to invest or manage the entity's investment portfolio.
5-11 Nothing in this subsection relieves the investing entity of the
5-12 responsibility for monitoring the investments made by the investing
5-13 entity to determine that they are in compliance with the investment
5-14 policy. The qualified representative of the business organization
5-15 offering to engage in an investment transaction with an investing
5-16 entity shall execute a written instrument in a form acceptable to
5-17 the investing entity and the business organization substantially to
5-18 the effect that the business organization has:
5-19 (1) received and reviewed the investment policy of the
5-20 entity; and
5-21 (2) acknowledged that the business organization has
5-22 implemented reasonable procedures and controls in an effort to
5-23 preclude investment transactions conducted between the entity and
5-24 the organization that are not authorized by the entity's investment
5-25 policy, except to the extent that this authorization is dependent
5-26 on an analysis of the makeup of the entity's entire portfolio or
5-27 requires an interpretation of subjective investment standards.
6-1 (m) An investing entity other than a state agency, in
6-2 conjunction with its annual financial audit, shall perform a
6-3 compliance audit of management controls on investments and
6-4 adherence to the entity's established investment policies. [State
6-5 agencies shall report the results of the audit performed under this
6-6 subsection to the state auditor. The state auditor shall compile
6-7 the results of reports received under this subsection and annually
6-8 report those results to the legislative audit committee.]
6-9 (n) Except as provided by Subsection (o), at least once
6-10 every two years a state agency shall arrange for a compliance audit
6-11 of management controls on investments and adherence to the agency's
6-12 established investment policies. The compliance audit shall be
6-13 performed by the agency's internal auditor or by a private auditor
6-14 employed in the manner provided by Section 321.020. Not later than
6-15 January 1 of each even-numbered year, a state agency shall report
6-16 the results of the most recent audit performed under this
6-17 subsection to the state auditor. A state agency also shall report
6-18 to the state auditor other information the state auditor determines
6-19 necessary to assess compliance with laws and policies applicable to
6-20 state agency investments. A report under this subsection shall be
6-21 prepared in a manner the state auditor prescribes.
6-22 (o) The audit requirements of Subsection (n) do not apply to
6-23 assets of a state agency that are invested by the comptroller under
6-24 Section 404.024.
6-25 SECTION 5. Section 2256.007(c), Government Code, is amended
6-26 to read as follows:
6-27 (c) Training under this section must include education in
7-1 investment controls, security risks, strategy risks, market risks,
7-2 diversification of investment portfolio, and compliance with this
7-3 chapter.
7-4 SECTION 6. Section 2256.008, Government Code, is amended to
7-5 read as follows:
7-6 Sec. 2256.008. INVESTMENT TRAINING; LOCAL GOVERNMENTS. (a)
7-7 Except as provided by Subsection (b), the [The] treasurer, the
7-8 chief financial officer if the treasurer is not the chief financial
7-9 officer, and the investment officer of a local government shall:
7-10 (1) attend at least one training session from an
7-11 independent source approved by the governing body of the local
7-12 government or a designated investment committee advising the
7-13 investment officer as provided for in the investment policy of the
7-14 local government and containing at least 10 hours of instruction
7-15 relating to the treasurer's or officer's responsibilities under
7-16 this subchapter within 12 months after taking office or assuming
7-17 duties; and
7-18 (2) except as provided by Subsection (b), attend an
7-19 investment training session not less than once in a two-year period
7-20 and receive not less than 10 hours of instruction relating to
7-21 investment responsibilities under this subchapter from an
7-22 independent source approved by the governing body of the local
7-23 government or a designated investment committee advising the
7-24 investment officer as provided for in the investment policy of the
7-25 local government.
7-26 (b) An investing entity created under authority of Section
7-27 52(b), Article III, or Section 59, Article XVI, Texas Constitution,
8-1 that has contracted with an investment management firm under
8-2 Section 2256.003(b) and has fewer than five full-time employees or
8-3 an investing entity that has contracted with another investing
8-4 entity to invest the entity's funds may satisfy the training
8-5 requirement provided by Subsection (a)(2) by having an officer of
8-6 the governing body attend four hours of appropriate instruction in
8-7 a two-year period. The treasurer or chief financial officer of an
8-8 investing entity created under authority of Section 52(b), Article
8-9 III, or Section 59, Article XVI, Texas Constitution, and that has
8-10 fewer than five full-time employees is not required to attend
8-11 training required by this section unless the person is also the
8-12 investment officer of the entity.
8-13 (c) Training under this section must include education in
8-14 investment controls, security risks, strategy risks, market risks,
8-15 diversification of investment portfolio, and compliance with this
8-16 chapter.
8-17 (d) Not later than December 31 each year, each individual,
8-18 association, business, organization, governmental entity, or other
8-19 person that provides training under this section shall report to
8-20 the comptroller a list of the governmental entities for which the
8-21 person provided required training under this section during that
8-22 calendar year. An individual's reporting requirements under this
8-23 subsection are satisfied by a report of the individual's employer
8-24 or the sponsoring or organizing entity of a training program or
8-25 seminar.
8-26 SECTION 7. Section 2256.009(a), Government Code, is amended
8-27 to read as follows:
9-1 (a) Except as provided by Subsection (b), the following are
9-2 authorized investments under this subchapter:
9-3 (1) obligations of the United States or its agencies
9-4 and instrumentalities;
9-5 (2) direct obligations of this state or its agencies
9-6 and instrumentalities;
9-7 (3) collateralized mortgage obligations directly
9-8 issued by a federal agency or instrumentality of the United States,
9-9 the underlying security for which is guaranteed by an agency or
9-10 instrumentality of the United States;
9-11 (4) other obligations, the principal and interest of
9-12 which are unconditionally guaranteed or insured by, or backed by
9-13 the full faith and credit of, this state or the United States or
9-14 their respective agencies and instrumentalities; [and]
9-15 (5) obligations of states, agencies, counties, cities,
9-16 and other political subdivisions of any state rated as to
9-17 investment quality by a nationally recognized investment rating
9-18 firm not less than A or its equivalent; and
9-19 (6) bonds issued, assumed, or guaranteed by the State
9-20 of Israel.
9-21 SECTION 8. Section 2256.014(c), Government Code, is amended
9-22 to read as follows:
9-23 (c) An entity is not authorized by this section to:
9-24 (1) invest in the aggregate more than 15 [80] percent
9-25 of its monthly average fund balance, excluding bond proceeds and
9-26 reserves and other funds held for debt service, in [money market
9-27 mutual funds described in Subsection (a) or] mutual funds described
10-1 in Subsection (b)[, either separately or collectively];
10-2 (2) [invest in the aggregate more than 15 percent of
10-3 its monthly average fund balance, excluding bond proceeds and
10-4 reserves and other funds held for debt service, in mutual funds
10-5 described in Subsection (b);]
10-6 [(3)] invest any portion of bond proceeds, reserves
10-7 and funds held for debt service, in mutual funds described in
10-8 Subsection (b); or
10-9 (3) [(4)] invest its funds or funds under its control,
10-10 including bond proceeds and reserves and other funds held for debt
10-11 service, in any one mutual fund described in Subsection (a) or (b)
10-12 in an amount that exceeds 10 percent of the total assets of the
10-13 mutual fund.
10-14 SECTION 9. The heading for Section 2256.015, Government
10-15 Code, is amended to read as follows:
10-16 Sec. 2256.015. AUTHORIZED INVESTMENTS [FOR STATE AGENCIES]:
10-17 GUARANTEED INVESTMENT CONTRACTS.
10-18 SECTION 10. Section 2256.015(a), Government Code, is amended
10-19 to read as follows:
10-20 (a) A guaranteed investment contract is an authorized
10-21 investment [for state agencies] for bond proceeds under this
10-22 subchapter if the guaranteed investment contract:
10-23 (1) has a defined termination date;
10-24 (2) is secured by obligations described by Section
10-25 2256.009(a)(1), excluding those obligations described by Section
10-26 2256.009(b), in an amount at least equal to the amount of bond
10-27 proceeds invested under the contract; and
11-1 (3) is pledged to the entity and deposited with the
11-2 entity or with a third party selected and approved by the entity.
11-3 SECTION 11. This Act takes effect September 1, 1999.
11-4 SECTION 12. The importance of this legislation and the
11-5 crowded condition of the calendars in both houses create an
11-6 emergency and an imperative public necessity that the
11-7 constitutional rule requiring bills to be read on three several
11-8 days in each house be suspended, and this rule is hereby suspended.
_______________________________ _______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 3009 was passed by the House on May
11, 1999, by a non-record vote; and that the House concurred in
Senate amendments to H.B. No. 3009 on May 28, 1999, by a non-record
vote.
_______________________________
Chief Clerk of the House
I certify that H.B. No. 3009 was passed by the Senate, with
amendments, on May 26, 1999, by a viva-voce vote.
_______________________________
Secretary of the Senate
APPROVED: _____________________
Date
_____________________
Governor