80R4881 JRD-D

By: Christian H.B. No. 3004

A BILL TO BE ENTITLED

AN ACT

relating to the investment of public funds, including making investments in ways that benefit the state and local economies, and to the selection of local financial institutions for the deposit of public funds.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subchapter B, Chapter 2256, Government Code, is amended by adding Sections 2256.056 and 2256.057 to read as follows:

Sec. 2256.056. INVESTMENTS TO BENEFIT STATE OR LOCAL ECONOMY. (a) To the extent allowed under the constitution of this state, each investing entity and each person investing funds on behalf of an investing entity shall determine, for each investment of funds, whether it is reasonably possible to make an investment that will probably provide a benefit to the state economy and that is an equally prudent investment, under the standard of care applicable to the investment decision, in comparison to alternative investments that would probably provide no benefit or insignificant benefits to the state economy. If the person making the investment decision determines that it is reasonably possible to make the equally prudent investment that will probably provide a benefit to the state economy, the person shall invest the funds in that manner.

(b) Each investing entity that is a local government and each person investing funds on behalf of the local government shall also determine, for each investment of funds and to the extent allowed under the constitution of this state, whether it is reasonably possible to make an investment that will probably provide a benefit to the local economy and that is an equally prudent investment, under the standard of care applicable to the investment decision, in comparison to alternative investments that would probably provide no benefit or insignificant benefits to the local economy. If the person making the investment decision determines that it is reasonably possible to make the equally prudent investment that will probably provide a benefit to the local economy, the person shall invest the funds in that manner.

Sec. 2256.057. ACHIEVING HIGHER YIELD WHEN LIQUIDITY NEEDS ALLOW; APPLICABILITY OF SUBCHAPTER A TO EXEMPT ENTITIES IN CERTAIN CIRCUMSTANCES. (a) In this section, "state or local governmental entity" includes a district or county clerk responsible for registry funds and other state or local governmental entities that hold funds in trust for the benefit of another person.

(b) The comptroller by rule shall establish liquidity requirements applying to funds held by state and local governmental entities and adapted to the different types, sizes, and missions of those entities.

(c) To the extent a state or local governmental entity holds funds in amounts that exceed the amounts needed to satisfy applicable liquidity requirements, the state or local governmental entity shall invest the excess funds in a manner designed to achieve a higher yield than depository interest.

(d) When the entity needs greater liquidity than provided under applicable liquidity requirements, a state or local governmental entity may hold funds in a depository, for a defined period, in amounts that exceed the applicable liquidity requirement established under Subsection (b). The entity must state in writing the reason the entity needs greater liquidity during the defined period.

(e) The state or local governmental entity shall invest the amount of funds that exceed liquidity requirements in investments that the entity is authorized to make:

(1) under Subchapter A or other law; and

(2) under the investment standard of care applicable to the entity.

(f) If the state or local governmental entity is not authorized by other law to invest any of its funds in a manner other than to deposit the funds in a depository or in the state treasury, the entity shall invest the funds in an investment authorized by Subchapter A under the standard of care prescribed by Section 2256.006, without regard to whether the entity is otherwise authorized to invest funds under Subchapter A or is specifically exempted from the application of Subchapter A.

SECTION 2. Section 404.024, Government Code, is amended by adding Subsection (m) to read as follows:

(m) In making investments under Subsection (b), the comptroller shall determine, for each investment of state funds, whether it is reasonably possible to make an investment that will probably provide a benefit to the state economy and that is an equally prudent investment in comparison to alternative investments allowed under Subsection (b) that would probably provide no benefit or insignificant benefits to the state economy. If the comptroller determines that it is reasonably possible to make such an equally prudent investment that will probably provide a benefit to the state economy, the comptroller shall invest the state funds in that manner.

SECTION 3. Subchapter Z, Chapter 131, Local Government Code, is amended by adding Section 131.904 to read as follows:

Sec. 131.904. LOCAL FINANCIAL INSTITUTIONS. Each political subdivision, including a county, municipality, school district, or other district, shall adopt procedures to ensure that local financial institutions that are eligible to be selected as a depository for funds under the political subdivision's control:

(1) have:

(A) a reasonable opportunity to learn before the selection decision is made that the political subdivision will be selecting a depository; and

(B) sufficient time after learning of the selection process to prepare and file a valid application for selection as a depository; and

(2) can obtain timely, correct information from the political subdivision about any requirements for making the application.

SECTION 4. This Act takes effect September 1, 2007.