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.