76R13749 GCH-D
By Greenberg H.B. No. 3009
Substitute the following for H.B. No. 3009:
By Greenberg C.S.H.B. No. 3009
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to investments, accounting standards, and audits under the
1-3 Public Funds 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 advisory 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 advisory 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 advisory 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 advisory firm
4-6 under Section 2256.003(b) to be responsible for the investment of
4-7 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 a management firm to perform duties as the staff of
4-10 the investing entity, an employee of the management firm may be
4-11 considered an employee of the investing entity for the purpose of
4-12 being designated the investment officer. Authority granted to a
4-13 fiduciary [person] to invest an entity's funds is effective until
4-14 rescinded by the investing entity, [or] until the expiration of the
4-15 officer's term or the termination of the person's employment by the
4-16 investing entity, or if an investment advisory firm, until the
4-17 expiration of the contract with the investing entity. In the
4-18 administration of the duties of an investment officer, the
4-19 fiduciary [person] designated as investment officer shall exercise
4-20 the judgment and care, under prevailing circumstances, that a
4-21 prudent person would exercise in the management of the person's own
4-22 affairs, but the governing body of the investing entity retains
4-23 ultimate responsibility as fiduciaries of the assets of the entity.
4-24 Unless authorized by law, a person may not deposit, withdraw,
4-25 transfer, or manage in any other manner the funds of the investing
4-26 entity.
4-27 (k) A written copy of the investment policy shall be
5-1 presented to any person offering to engage in an investment
5-2 transaction with an investing entity or to an investment advisory
5-3 firm under contract to invest or manage the investing entity's
5-4 investment portfolio. For purposes of this subsection, a business
5-5 organization includes investment pools and an investment advisory
5-6 firm under contract to invest or manage the investing entity's
5-7 investment portfolio. Nothing in this subsection relieves the
5-8 investing entity of the responsibility for monitoring the
5-9 investments made by the investing entity to determine that they are
5-10 in compliance with the investment policy. The qualified
5-11 representative of the business organization offering to engage in
5-12 an investment transaction with an investing entity shall execute a
5-13 written instrument in a form acceptable to the investing entity and
5-14 the business organization substantially to the effect that the
5-15 business organization has:
5-16 (1) received and reviewed the investment policy of the
5-17 entity; and
5-18 (2) acknowledged that the business organization has
5-19 implemented reasonable procedures and controls in an effort to
5-20 preclude investment transactions conducted between the entity and
5-21 the organization that are not authorized by the entity's investment
5-22 policy, except to the extent that this authorization is dependent
5-23 on an analysis of the makeup of the entity's entire portfolio or
5-24 requires an interpretation of subjective investment standards.
5-25 (m) An investing entity other than a state agency, in
5-26 conjunction with its annual financial audit, shall perform a
5-27 compliance audit of management controls on investments and
6-1 adherence to the entity's established investment policies. [State
6-2 agencies shall report the results of the audit performed under this
6-3 subsection to the state auditor. The state auditor shall compile
6-4 the results of reports received under this subsection and annually
6-5 report those results to the legislative audit committee.]
6-6 (n) Except as provided by Subsection (o), at least once
6-7 every two years a state agency shall arrange for a compliance audit
6-8 of management controls on investments and adherence to the agency's
6-9 established investment policies. The compliance audit shall be
6-10 performed by the agency's internal auditor or by a private auditor
6-11 employed in the manner provided by Section 321.020. Not later than
6-12 January 1 of each even-numbered year, a state agency shall report
6-13 the results of the most recent audit performed under this
6-14 subsection to the state auditor. A state agency also shall report
6-15 to the state auditor other information the state auditor determines
6-16 necessary to assess compliance with laws and policies applicable to
6-17 state agency investments. A report under this subsection shall be
6-18 prepared in a manner the state auditor prescribes.
6-19 (o) The audit requirements of Subsection (n) do not apply to
6-20 assets of a state agency that are invested by the comptroller under
6-21 Section 404.024.
6-22 SECTION 5. Section 2256.008, Government Code, is amended to
6-23 read as follows:
6-24 Sec. 2256.008. INVESTMENT TRAINING; LOCAL GOVERNMENTS. (a)
6-25 The treasurer, the chief financial officer if the treasurer is not
6-26 the chief financial officer, and the investment officer of a local
6-27 government shall:
7-1 (1) attend at least one training session conducted by
7-2 an independent source and containing at least eight hours of
7-3 instruction relating to the treasurer's or officer's
7-4 responsibilities under this subchapter within 12 months after
7-5 taking office or assuming duties; and
7-6 (2) except as provided by Subsection (b), attend an
7-7 investment training session not less than once in a two-year period
7-8 and receive not less than eight [10] hours of instruction relating
7-9 to investment responsibilities under this subchapter from an
7-10 independent source approved by the governing body of the local
7-11 government or a designated investment committee advising the
7-12 investment officer as provided for in the investment policy of the
7-13 local government.
7-14 (b) The treasurer, the chief financial officer if the
7-15 treasurer is not the chief financial officer, and the investment
7-16 officer of a local government that has investments of less than $2
7-17 million on any day in the local government's fiscal year and
7-18 invests only in investments described by Section 2256.009(a)(1),
7-19 2256.009(a)(2), or 2256.010 or in a local government investment
7-20 pool organized under Chapter 791 and this Act and administered
7-21 under Subchapter G, Chapter 404, may satisfy the training
7-22 requirement provided by Subsection (a)(2) with four hours of
7-23 appropriate instruction in a two-year period.
7-24 (c) For purposes of this section, an individual or business
7-25 organization that offers to sell investments to an investing entity
7-26 is not an independent source.
7-27 (d) Training under this section must include education in
8-1 investment controls, security risks, strategy risks, market risks,
8-2 and compliance with this chapter.
8-3 SECTION 6. Section 2256.009(a), Government Code, is amended
8-4 to read as follows:
8-5 (a) Except as provided by Subsection (b), the following are
8-6 authorized investments under this subchapter:
8-7 (1) obligations of the United States or its agencies
8-8 and instrumentalities;
8-9 (2) direct obligations of this state or its agencies
8-10 and instrumentalities;
8-11 (3) collateralized mortgage obligations directly
8-12 issued by a federal agency or instrumentality of the United States,
8-13 the underlying security for which is guaranteed by an agency or
8-14 instrumentality of the United States;
8-15 (4) other obligations, the principal and interest of
8-16 which are unconditionally guaranteed or insured by, or backed by
8-17 the full faith and credit of, this state or the United States or
8-18 their respective agencies and instrumentalities; [and]
8-19 (5) obligations of states, agencies, counties, cities,
8-20 and other political subdivisions of any state rated as to
8-21 investment quality by a nationally recognized investment rating
8-22 firm not less than A or its equivalent; and
8-23 (6) bonds issued, assumed, or guaranteed by the State
8-24 of Israel.
8-25 SECTION 7. Section 2256.014(c), Government Code, is amended
8-26 to read as follows:
8-27 (c) An entity is not authorized by this section to:
9-1 (1) invest in the aggregate more than 15 [80] percent
9-2 of its monthly average fund balance, excluding bond proceeds and
9-3 reserves and other funds held for debt service, in [money market
9-4 mutual funds described in Subsection (a) or] mutual funds described
9-5 in Subsection (b)[, either separately or collectively];
9-6 (2) [invest in the aggregate more than 15 percent of
9-7 its monthly average fund balance, excluding bond proceeds and
9-8 reserves and other funds held for debt service, in mutual funds
9-9 described in Subsection (b);]
9-10 [(3)] invest any portion of bond proceeds, reserves
9-11 and funds held for debt service, in mutual funds described in
9-12 Subsection (b); or
9-13 (3) [(4)] invest its funds or funds under its control,
9-14 including bond proceeds and reserves and other funds held for debt
9-15 service, in any one mutual fund described in Subsection (a) or (b)
9-16 in an amount that exceeds 10 percent of the total assets of the
9-17 mutual fund.
9-18 SECTION 8. The heading for Section 2256.015, Government
9-19 Code, is amended to read as follows:
9-20 Sec. 2256.015. AUTHORIZED INVESTMENTS [FOR STATE AGENCIES]:
9-21 GUARANTEED INVESTMENT CONTRACTS.
9-22 SECTION 9. Section 2256.015(a), Government Code, is amended
9-23 to read as follows:
9-24 (a) A guaranteed investment contract is an authorized
9-25 investment [for state agencies] for bond proceeds under this
9-26 subchapter if the guaranteed investment contract:
9-27 (1) has a defined termination date;
10-1 (2) is secured by obligations described by Section
10-2 2256.009(a)(1), excluding those obligations described by Section
10-3 2256.009(b), in an amount at least equal to the amount of bond
10-4 proceeds invested under the contract; and
10-5 (3) is pledged to the entity and deposited with the
10-6 entity or with a third party selected and approved by the entity.
10-7 SECTION 10. This Act takes effect September 1, 1999.
10-8 SECTION 11. The importance of this legislation and the
10-9 crowded condition of the calendars in both houses create an
10-10 emergency and an imperative public necessity that the
10-11 constitutional rule requiring bills to be read on three several
10-12 days in each house be suspended, and this rule is hereby suspended.