1-1 By: Greenberg (Senate Sponsor - Sibley) H.B. No. 3009
1-2 (In the Senate - Received from the House May 12, 1999;
1-3 May 12, 1999, read first time and referred to Committee on State
1-4 Affairs; May 14, 1999, reported favorably by the following vote:
1-5 Yeas 8, Nays 0; May 14, 1999, sent to printer.)
1-6 A BILL TO BE ENTITLED
1-7 AN ACT
1-8 relating to investments and audits under the Public Funds
1-9 Investment Act.
1-10 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-11 SECTION 1. Section 2256.002(10), Government Code, is amended
1-12 to read as follows:
1-13 (10) "Qualified representative" means a person who
1-14 holds a position with a business organization, who is authorized to
1-15 act on behalf of the business organization, and who is one of the
1-16 following:
1-17 (A) for a business organization doing business
1-18 that is regulated by or registered with a securities commission, a
1-19 person who is registered under the rules of the National
1-20 Association of Securities Dealers;
1-21 (B) for a state or federal bank, a savings bank,
1-22 or a state or federal credit union, a member of the loan committee
1-23 for the bank or branch of the bank or a person authorized by
1-24 corporate resolution to act on behalf of and bind the banking
1-25 institution; [or]
1-26 (C) for an investment pool, the person
1-27 authorized by the elected official or board with authority to
1-28 administer the activities of the investment pool to sign the
1-29 written instrument on behalf of the investment pool; or
1-30 (D) for an investment management firm registered
1-31 under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1
1-32 et seq.) or, if not subject to registration under that Act,
1-33 registered with the State Securities Board, a person who is an
1-34 officer or principal of the investment management firm.
1-35 SECTION 2. Section 2256.003, Government Code, is amended to
1-36 read as follows:
1-37 Sec. 2256.003. AUTHORITY TO INVEST FUNDS; ENTITIES SUBJECT
1-38 TO THIS CHAPTER. (a) Each governing body of the following
1-39 entities may purchase, sell, and invest its funds and funds under
1-40 its control in investments authorized under this subchapter in
1-41 compliance with investment policies approved by the governing body
1-42 and according to the standard of care prescribed by Section
1-43 2256.006:
1-44 (1) a local government;
1-45 (2) a state agency;
1-46 (3) a nonprofit corporation acting on behalf of a
1-47 local government or a state agency; or
1-48 (4) an investment pool acting on behalf of two or more
1-49 local governments, state agencies, or a combination of those
1-50 entities.
1-51 (b) In the exercise of its powers under Subsection (a), the
1-52 governing body of an investing entity may contract with an
1-53 investment management firm registered under the Investment Advisers
1-54 Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or with the State
1-55 Securities Board to provide for the investment and management of
1-56 its public funds or other funds under its control. A contract made
1-57 under authority of this subsection may not be for a term longer
1-58 than two years. A renewal or extension of the contract must be
1-59 made by the governing body of the investing entity by order,
1-60 ordinance, or resolution.
1-61 SECTION 3. Section 2256.004, Government Code, as amended by
1-62 Chapters 505 and 1421, Acts of the 75th Legislature, Regular
1-63 Session, 1997, is amended to read as follows:
1-64 Sec. 2256.004. APPLICABILITY. (a) This subchapter does not
2-1 apply to:
2-2 (1) a public retirement system as defined by Section
2-3 802.001;
2-4 (2) state funds invested as authorized by Section
2-5 404.024;
2-6 (3) an institution of higher education having total
2-7 endowments of at least $95 million in book value on May 1, 1995;
2-8 (4) funds invested by the Veterans' Land Board as
2-9 authorized by Chapter 161, 162, or 164, Natural Resources Code;
2-10 [or]
2-11 (5) registry funds deposited with the county or
2-12 district clerk under Chapter 117, Local Government Code; or[.]
2-13 (6) [(5)] a deferred compensation plan that qualifies
2-14 under either Section 401(k) or 457 of the Internal Revenue Code of
2-15 1986 (26 U.S.C. Section 1 et seq.), as amended.
2-16 (b) This subchapter does not apply to an investment donated
2-17 to an investing entity for a particular purpose or under terms of
2-18 use specified by the donor.
2-19 SECTION 4. Section 2256.005, Government Code, is amended by
2-20 amending Subsections (f), (k), and (m) and adding Subsections (n)
2-21 and (o) to read as follows:
2-22 (f) Each investing entity shall designate, by rule, order,
2-23 ordinance, or resolution, as appropriate, one or more officers or
2-24 employees of the state agency, local government, or investment pool
2-25 as investment officer or contract with an investment management
2-26 firm under Section 2256.003(b) to be responsible for the investment
2-27 of its funds consistent with the investment policy adopted by the
2-28 entity. If the governing body of an investing entity has
2-29 contracted with another investing entity to invest its funds, the
2-30 investment officer of the other investing entity is considered to
2-31 be the investment officer of the first investing entity for
2-32 purposes of this chapter. Authority granted to a fiduciary
2-33 [person] to invest an entity's funds is effective until rescinded
2-34 by the investing entity, [or] until the expiration of the officer's
2-35 term or the termination of the person's employment by the investing
2-36 entity, or if an investment management firm, until the expiration
2-37 of the contract with the investing entity. In the administration
2-38 of the duties of an investment officer, the fiduciary [person]
2-39 designated as investment officer shall exercise the judgment and
2-40 care, under prevailing circumstances, that a prudent person would
2-41 exercise in the management of the person's own affairs, but the
2-42 governing body of the investing entity retains ultimate
2-43 responsibility as fiduciaries of the assets of the entity. Unless
2-44 authorized by law, a person may not deposit, withdraw, transfer, or
2-45 manage in any other manner the funds of the investing entity.
2-46 (k) A written copy of the investment policy shall be
2-47 presented to any person offering to engage in an investment
2-48 transaction with an investing entity or to an investment management
2-49 firm under contract with an investing entity to invest or manage
2-50 the entity's investment portfolio. For purposes of this
2-51 subsection, a business organization includes investment pools and
2-52 an investment management firm under contract with an investing
2-53 entity to invest or manage the entity's investment portfolio.
2-54 Nothing in this subsection relieves the investing entity of the
2-55 responsibility for monitoring the investments made by the investing
2-56 entity to determine that they are in compliance with the investment
2-57 policy. The qualified representative of the business organization
2-58 offering to engage in an investment transaction with an investing
2-59 entity shall execute a written instrument in a form acceptable to
2-60 the investing entity and the business organization substantially to
2-61 the effect that the business organization has:
2-62 (1) received and reviewed the investment policy of the
2-63 entity; and
2-64 (2) acknowledged that the business organization has
2-65 implemented reasonable procedures and controls in an effort to
2-66 preclude investment transactions conducted between the entity and
2-67 the organization that are not authorized by the entity's investment
2-68 policy, except to the extent that this authorization is dependent
2-69 on an analysis of the makeup of the entity's entire portfolio or
3-1 requires an interpretation of subjective investment standards.
3-2 (m) An investing entity other than a state agency, in
3-3 conjunction with its annual financial audit, shall perform a
3-4 compliance audit of management controls on investments and
3-5 adherence to the entity's established investment policies. [State
3-6 agencies shall report the results of the audit performed under this
3-7 subsection to the state auditor. The state auditor shall compile
3-8 the results of reports received under this subsection and annually
3-9 report those results to the legislative audit committee.]
3-10 (n) Except as provided by Subsection (o), at least once
3-11 every two years a state agency shall arrange for a compliance audit
3-12 of management controls on investments and adherence to the agency's
3-13 established investment policies. The compliance audit shall be
3-14 performed by the agency's internal auditor or by a private auditor
3-15 employed in the manner provided by Section 321.020. Not later than
3-16 January 1 of each even-numbered year, a state agency shall report
3-17 the results of the most recent audit performed under this
3-18 subsection to the state auditor. A state agency also shall report
3-19 to the state auditor other information the state auditor determines
3-20 necessary to assess compliance with laws and policies applicable to
3-21 state agency investments. A report under this subsection shall be
3-22 prepared in a manner the state auditor prescribes.
3-23 (o) The audit requirements of Subsection (n) do not apply to
3-24 assets of a state agency that are invested by the comptroller under
3-25 Section 404.024.
3-26 SECTION 5. Section 2256.007(c), Government Code, is amended
3-27 to read as follows:
3-28 (c) Training under this section must include education in
3-29 investment controls, security risks, strategy risks, market risks,
3-30 diversification of investment portfolio, and compliance with this
3-31 chapter.
3-32 SECTION 6. Section 2256.008, Government Code, is amended to
3-33 read as follows:
3-34 Sec. 2256.008. INVESTMENT TRAINING; LOCAL GOVERNMENTS. (a)
3-35 Except as provided by Subsection (b), the [The] treasurer, the
3-36 chief financial officer if the treasurer is not the chief financial
3-37 officer, and the investment officer of a local government shall:
3-38 (1) attend at least one training session under a
3-39 curriculum approved by the state auditor and containing at least 10
3-40 hours of instruction relating to the treasurer's or officer's
3-41 responsibilities under this subchapter within 12 months after
3-42 taking office or assuming duties; and
3-43 (2) except as provided by Subsection (b), attend an
3-44 investment training session not less than once in a two-year period
3-45 and receive not less than 10 hours of instruction relating to
3-46 investment responsibilities under this subchapter under a
3-47 curriculum approved by the state auditor and [from an independent
3-48 source] approved by the governing body of the local government or a
3-49 designated investment committee advising the investment officer as
3-50 provided for in the investment policy of the local government.
3-51 (b) An investing entity created under authority of Section
3-52 52(b), Article III, or Section 59, Article XVI, Texas Constitution,
3-53 that has contracted with an investment management firm under
3-54 Section 2256.003(b) and has fewer than five full-time employees or
3-55 an investing entity that has contracted with another investing
3-56 entity to invest the entity's funds may satisfy the training
3-57 requirement provided by Subsection (a)(2) by having an officer of
3-58 the governing body attend four hours of appropriate instruction in
3-59 a two-year period.
3-60 (c) Training under this section must include education in
3-61 investment controls, security risks, strategy risks, market risks,
3-62 diversification of investment portfolio, and compliance with this
3-63 chapter.
3-64 SECTION 7. Section 2256.009(a), Government Code, is amended
3-65 to read as follows:
3-66 (a) Except as provided by Subsection (b), the following are
3-67 authorized investments under this subchapter:
3-68 (1) obligations of the United States or its agencies
3-69 and instrumentalities;
4-1 (2) direct obligations of this state or its agencies
4-2 and instrumentalities;
4-3 (3) collateralized mortgage obligations directly
4-4 issued by a federal agency or instrumentality of the United States,
4-5 the underlying security for which is guaranteed by an agency or
4-6 instrumentality of the United States;
4-7 (4) other obligations, the principal and interest of
4-8 which are unconditionally guaranteed or insured by, or backed by
4-9 the full faith and credit of, this state or the United States or
4-10 their respective agencies and instrumentalities; [and]
4-11 (5) obligations of states, agencies, counties, cities,
4-12 and other political subdivisions of any state rated as to
4-13 investment quality by a nationally recognized investment rating
4-14 firm not less than A or its equivalent; and
4-15 (6) bonds issued, assumed, or guaranteed by the State
4-16 of Israel.
4-17 SECTION 8. Section 2256.014(c), Government Code, is amended
4-18 to read as follows:
4-19 (c) An entity is not authorized by this section to:
4-20 (1) invest in the aggregate more than 15 [80] percent
4-21 of its monthly average fund balance, excluding bond proceeds and
4-22 reserves and other funds held for debt service, in [money market
4-23 mutual funds described in Subsection (a) or] mutual funds described
4-24 in Subsection (b)[, either separately or collectively];
4-25 (2) [invest in the aggregate more than 15 percent of
4-26 its monthly average fund balance, excluding bond proceeds and
4-27 reserves and other funds held for debt service, in mutual funds
4-28 described in Subsection (b);]
4-29 [(3)] invest any portion of bond proceeds, reserves
4-30 and funds held for debt service, in mutual funds described in
4-31 Subsection (b); or
4-32 (3) [(4)] invest its funds or funds under its control,
4-33 including bond proceeds and reserves and other funds held for debt
4-34 service, in any one mutual fund described in Subsection (a) or (b)
4-35 in an amount that exceeds 10 percent of the total assets of the
4-36 mutual fund.
4-37 SECTION 9. The heading for Section 2256.015, Government
4-38 Code, is amended to read as follows:
4-39 Sec. 2256.015. AUTHORIZED INVESTMENTS [FOR STATE AGENCIES]:
4-40 GUARANTEED INVESTMENT CONTRACTS.
4-41 SECTION 10. Section 2256.015(a), Government Code, is amended
4-42 to read as follows:
4-43 (a) A guaranteed investment contract is an authorized
4-44 investment [for state agencies] for bond proceeds under this
4-45 subchapter if the guaranteed investment contract:
4-46 (1) has a defined termination date;
4-47 (2) is secured by obligations described by Section
4-48 2256.009(a)(1), excluding those obligations described by Section
4-49 2256.009(b), in an amount at least equal to the amount of bond
4-50 proceeds invested under the contract; and
4-51 (3) is pledged to the entity and deposited with the
4-52 entity or with a third party selected and approved by the entity.
4-53 SECTION 11. This Act takes effect September 1, 1999.
4-54 SECTION 12. The importance of this legislation and the
4-55 crowded condition of the calendars in both houses create an
4-56 emergency and an imperative public necessity that the
4-57 constitutional rule requiring bills to be read on three several
4-58 days in each house be suspended, and this rule is hereby suspended.
4-59 * * * * *