85R1969 KLA-F
 
  By: Capriglione H.B. No. 1003
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to investment of public funds.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 2256.009(a), Government Code, is amended
  to read as follows:
         (a)  Except as provided by Subsection (b), the following are
  authorized investments under this subchapter:
               (1)  obligations, including letters of credit, of the
  United States or its agencies and instrumentalities;
               (2)  direct obligations of this state or its agencies
  and instrumentalities;
               (3)  collateralized mortgage obligations directly
  issued by a federal agency or instrumentality of the United States,
  the underlying security for which is guaranteed by an agency or
  instrumentality of the United States;
               (4)  other obligations, the principal and interest of
  which are unconditionally guaranteed or insured by, or backed by
  the full faith and credit of, this state or the United States or
  their respective agencies and instrumentalities, including
  obligations that are fully guaranteed or insured by the Federal
  Deposit Insurance Corporation or by the explicit full faith and
  credit of the United States;
               (5)  obligations of states, agencies, counties,
  cities, and other political subdivisions of any state rated as to
  investment quality by a nationally recognized investment rating
  firm not less than A or its equivalent; [and]
               (6)  bonds issued, assumed, or guaranteed by the State
  of Israel; and
               (7)  interest-bearing banking deposits that are
  guaranteed or insured by:
                     (A)  the Federal Deposit Insurance Corporation or
  its successor; or
                     (B)  the National Credit Union Share Insurance
  Fund or its successor.
         SECTION 2.  Section 2256.010, Government Code, is amended by
  adding Subsection (c) to read as follows:
         (c)  An investment in negotiable certificates of deposit
  issued by a bank that has a certificate of deposit rating of at
  least 1 or the equivalent by a nationally recognized credit rating
  agency, or that is associated with a holding company having a
  commercial paper rating of at least A-1, P-1, or the equivalent by a
  nationally recognized credit rating agency, is an authorized
  investment under this subchapter.
         SECTION 3.  Section 2256.011, Government Code, is amended by
  adding Subsection (e) to read as follows:
         (e)  Section 1371.059(c) applies to the execution of a
  repurchase agreement by an investing entity.
         SECTION 4.  Section 2256.014(a), Government Code, is amended
  to read as follows:
         (a)  A no-load money market mutual fund is an authorized
  investment under this subchapter if the mutual fund:
               (1)  is registered with and regulated by the Securities
  and Exchange Commission;
               (2)  provides the investing entity with a prospectus
  and other information required by the Securities Exchange Act of
  1934 (15 U.S.C. Section 78a et seq.) or the Investment Company Act
  of 1940 (15 U.S.C. Section 80a-1 et seq.); and
               (3)  complies with federal Securities and Exchange
  Commission Rule 2a-7 (17 C.F.R. Section 270.2a-7), promulgated
  under the Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et
  seq.) [has a dollar-weighted average stated maturity of 90 days or
  fewer; and
               [(4)     includes in its investment objectives the
  maintenance of a stable net asset value of $1 for each share].
         SECTION 5.  Section 2256.014(b), Government Code, is amended
  to read as follows:
         (b)  In addition to a no-load money market mutual fund
  permitted as an authorized investment in Subsection (a), a no-load
  mutual fund is an authorized investment under this subchapter if
  the mutual fund:
               (1)  is registered with the Securities and Exchange
  Commission;
               (2)  has an average weighted maturity of less than two
  years;
               (3)  is invested exclusively in obligations approved by
  this subchapter;
               (4)  is continuously rated as to investment quality by
  at least one nationally recognized investment rating firm of not
  less than the highest liquidity rating given to United States
  Treasury obligations [AAA or its equivalent]; and
               (5)  conforms to the requirements set forth in Sections
  2256.016(b) and (c) relating to the eligibility of investment pools
  to receive and invest funds of investing entities.
         SECTION 6.  Section 2256.015, Government Code, is amended by
  adding Subsection (d) to read as follows:
         (d)  Section 1371.059(c) applies to the execution of a
  guaranteed investment contract by an investing entity.
         SECTION 7.  Sections 2256.016(b), (f), and (h), Government
  Code, are amended to read as follows:
         (b)  To be eligible to receive funds from and invest funds on
  behalf of an entity under this chapter, an investment pool must
  furnish to the investment officer or other authorized
  representative of the entity an offering circular or other similar
  disclosure instrument that contains, at a minimum, the following
  information:
               (1)  the types of investments in which money is allowed
  to be invested;
               (2)  the maximum average dollar-weighted maturity
  allowed, based on the stated maturity date, of the pool;
               (3)  the maximum stated maturity date any investment
  security within the portfolio has;
               (4)  the objectives of the pool;
               (5)  the size of the pool;
               (6)  the names of the members of the advisory board of
  the pool and the dates their terms expire;
               (7)  the custodian bank that will safekeep the pool's
  assets;
               (8)  whether the intent of the pool is to maintain a net
  asset value of one dollar and the risk of market price fluctuation;
               (9)  whether the only source of payment is the assets of
  the pool at market value or whether there is a secondary source of
  payment, such as insurance or guarantees, and a description of the
  secondary source of payment;
               (10)  the name and address of the independent auditor
  of the pool;
               (11)  the requirements to be satisfied for an entity to
  deposit funds in and withdraw funds from the pool and any deadlines
  or other operating policies required for the entity to invest funds
  in and withdraw funds from the pool; [and]
               (12)  the performance history of the pool, including
  yield, average dollar-weighted maturities, and expense ratios; and
               (13)  the pool's policy regarding holding deposits in
  cash.
         (f)  To be eligible to receive funds from and invest funds on
  behalf of an entity under this chapter, a public funds investment
  pool created to function as a money market mutual fund must mark its
  portfolio to market daily, and, to the extent reasonably possible,
  stabilize at a $1 net asset value.  If the ratio of the market value
  of the portfolio divided by the book value of the portfolio is less
  than 0.995 or greater than 1.005, the governing body of the public
  funds investment pool shall take action as the body determines
  necessary to eliminate or reduce to the extent reasonably
  practicable any dilution or unfair result to existing participants,
  including a sale of portfolio holdings to attempt [shall be sold as
  necessary] to maintain the ratio between 0.995 and 1.005.  In
  addition to the requirements of its investment policy and any other
  forms of reporting, a public funds investment pool created to
  function as a money market mutual fund shall report yield to its
  investors in accordance with regulations of the federal Securities
  and Exchange Commission applicable to reporting by money market
  funds.
         (h)  To maintain eligibility to receive funds from and invest
  funds on behalf of an entity under this chapter, an investment pool
  must be continuously rated no lower than the highest liquidity
  rating given to United States Treasury obligations [AAA or AAA-m or
  at an equivalent rating] by at least one nationally recognized
  rating service.
         SECTION 8.  Section 2256.019, Government Code, is amended to
  read as follows:
         Sec. 2256.019.  RATING OF CERTAIN INVESTMENT POOLS. A
  public funds investment pool must be continuously rated no lower
  than the highest liquidity rating given to United States Treasury
  obligations [AAA or AAA-m or at an equivalent rating] by at least
  one nationally recognized rating service.
         SECTION 9.  Subchapter A, Chapter 2256, Government Code, is
  amended by adding Section 2256.0206 to read as follows:
         Sec. 2256.0206.  AUTHORIZED INVESTMENTS: HEDGING
  TRANSACTIONS. (a)  In this section:
               (1)  "Eligible entity" means a state agency or
  political subdivision that is an issuer as defined by Section
  1371.001.
               (2)  "Hedging" means acting to protect against economic
  loss due to price fluctuation of an investment, debt obligation, or
  commodity by entering into an offsetting position in a related
  security or by using a financial agreement or producer price
  agreement.
         (b)  This section prevails to the extent of any conflict
  between this section and an eligible entity's municipal charter, if
  applicable.
         (c)  The governing body of an eligible entity shall establish
  its policy regarding hedging transactions.
         (d)  An eligible entity may enter into hedging contracts and
  related security and insurance agreements related to commodities
  used in the general operations of an eligible entity or used in
  connection with the acquisition or construction of a capital
  project by the eligible entity. A hedging transaction must comply
  with the regulations of the federal Commodity Futures Trading
  Commission and the federal Securities and Exchange Commission.
         (e)  An eligible entity may credit any amount the entity
  receives under a hedging contract or agreement against expenses
  associated with a commodity purchase.
         (f)  An eligible entity's payment under a hedging contract or
  agreement may be considered:
               (1)  an operation and maintenance expense of the
  eligible entity;
               (2)  an acquisition expense of the eligible entity; or
               (3)  a construction expense of the eligible entity.
         SECTION 10.  The changes in law made by this Act apply only
  to authorized investments of public funds governed by Chapter 2256,
  Government Code, as amended by this Act, that are made on or after
  the effective date of this Act. An authorized investment of public
  funds made before the effective date of this Act is governed by the
  law in effect immediately before that date, and that law is
  continued in effect for that purpose.
         SECTION 11.  This Act takes effect immediately if it
  receives a vote of two-thirds of all the members elected to each
  house, as provided by Section 39, Article III, Texas Constitution.  
  If this Act does not receive the vote necessary for immediate
  effect, this Act takes effect September 1, 2017.