88R7616 JCG/KBB-F
By: Bonnen H.B. No. 3495
A BILL TO BE ENTITLED
AN ACT
relating to the investment authority of certain state agencies and
the confidentiality of certain information related to those
investments.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 404.024, Government Code, is amended by
amending Subsections (b) and (c) and adding Subsections (c-1) and
(c-2) to read as follows:
(b) Subject to Chapter 2270, state funds not deposited in
state depositories shall be invested by the comptroller in:
(1) direct security repurchase agreements;
(2) reverse security repurchase agreements;
(3) direct obligations of or obligations the principal
and interest of which are guaranteed by the United States;
(4) direct obligations of or obligations guaranteed by
agencies or instrumentalities of the United States government;
(5) bankers' acceptances that:
(A) are eligible for purchase by the Federal
Reserve System;
(B) do not exceed 270 days to maturity; and
(C) are issued by a bank whose other comparable
short-term obligations are rated in the highest short-term rating
category, within which there may be subcategories or gradations
indicating relative standing, including such subcategories or
gradations as "rating category" or "rated," by a nationally
recognized statistical rating organization, as defined by 15 U.S.C.
Section 78c;
(6) commercial paper that:
(A) does not exceed 365 [270] days to maturity;
and
(B) except as provided by Subsection (i), is
issued by an entity whose other comparable short-term obligations
are rated in the highest short-term rating category by a nationally
recognized statistical rating organization;
(7) contracts written by the treasury in which the
treasury grants the purchaser the right to purchase securities in
the treasury's marketable securities portfolio at a specified price
over a specified period and for which the treasury is paid a fee and
specifically prohibits naked-option or uncovered option trading;
(8) direct obligations of or obligations guaranteed by
the Inter-American Development Bank, the International Bank for
Reconstruction and Development (the World Bank), the African
Development Bank, the Asian Development Bank, and the International
Finance Corporation that have received the highest long-term rating
categories for debt obligations by a nationally recognized
statistical rating organization;
(9) bonds issued, assumed, or guaranteed by the State
of Israel;
(10) obligations of a state or an agency, county,
city, or other political subdivision of a state;
(11) mutual funds secured by obligations that are
described by Subdivisions (1) through (6) or by obligations
consistent with Rule 2a-7 (17 C.F.R. Section 270.2a-7), promulgated
by the Securities and Exchange Commission, including pooled funds:
(A) established by the Texas Treasury
Safekeeping Trust Company;
(B) operated like a mutual fund; and
(C) with portfolios consisting only of
dollar-denominated securities;
(12) foreign currency for the sole purpose of
facilitating investment by state agencies that have the authority
to invest in foreign securities;
(13) asset-backed securities, as defined by the
Securities and Exchange Commission in Rule 2a-7 (17 C.F.R. Section
270.2a-7), that are rated at least A or its equivalent by a
nationally recognized statistical rating organization and that
have a weighted-average maturity of five years or less; and
(14) corporate debt obligations that are rated at
least A or its equivalent by a nationally recognized statistical
rating organization and mature in five years or less from the date
on which the obligations were "acquired," as defined by the
Securities and Exchange Commission in Rule 2a-7 (17 C.F.R. Section
270.2a-7).
(c) Investments in direct security repurchase agreements
and reverse security repurchase agreements may be:
(1) placed through [made with] state or national banks
doing business in this state or with primary dealers as approved by
the Federal Reserve System; or
(2) made directly with a state agency with the
authority to invest in repurchase agreements.
(c-1) For purposes of Subsection (c), "state agency" means:
(1) an office, department, commission, board, or
agency that is part of any branch of state government;
(2) an institution of higher education as defined by
Section 61.003, Education Code; or
(3) a nonprofit corporation acting on behalf of an
entity described by Subdivision (1) or (2).
(c-2) Notwithstanding any other law, the term of any reverse
security repurchase agreement made by the comptroller may not
exceed 90 days after the date the reverse security repurchase
agreement is delivered. Money received by the comptroller under
the terms of a reverse security repurchase agreement may be used to
acquire additional authorized investments, but the term of the
authorized investments acquired must mature not later than the
expiration date stated in the reverse security repurchase
agreement.
SECTION 2. Section 825.103(d), Government Code, is amended
to read as follows:
(d) Notwithstanding any other law, the retirement system
has exclusive authority over the purchase of goods and services
using money other than money appropriated from the general revenue
fund, including specifically money from trusts under the
administration of the retirement system, and Subtitles [Subtitle] D
and F, Title 10, do [does] not apply to the retirement system with
respect to that money. The retirement system shall acquire goods or
services by procurement methods approved by the board of trustees
or the board's designee. For purposes of this subsection, goods and
services include all professional and consulting services and
utilities as well as supplies, materials, equipment, skilled or
unskilled labor, and insurance. The comptroller shall procure
goods or services for the retirement system at the request of the
retirement system, and the retirement system may use the services
of the comptroller in procuring goods or services.
SECTION 3. Section 825.301(a), Government Code, is amended
to read as follows:
(a) The board of trustees shall invest and reinvest assets
of the retirement system without distinction as to their source in
accordance with Section 67, Article XVI, Texas Constitution. For
purposes of the investment authority of the board of trustees under
Section 67, Article XVI, Texas Constitution, "securities" includes
any investment instrument within the meaning of the term as defined
by Section 4001.068, 15 U.S.C. Section 77b(a)(1), or 15 U.S.C.
Section 78c(a)(10), any derivative instrument, and any other
instrument commonly used by institutional investors to manage
institutional investment portfolios. An interest in a limited
partnership or investment contract is considered a security without
regard to the number of investors or the control, access to
information, or rights granted to or retained by the retirement
system. Any instrument or contract intended to manage transaction
or currency exchange risk in purchasing, selling, or holding
securities is considered to be a security. Subject to Section
825.3013, an interest in a title-holding entity is considered a
security. Investment decisions are subject to the standard provided
in the Texas Trust Code by Section 117.004(b), Property Code.
SECTION 4. Section 825.3012(b), Government Code, is amended
to read as follows:
(b) Notwithstanding any provision of Section 825.301, the
board of trustees shall determine the maximum percentage [not more
than 10 percent] of the value of the total investment portfolio of
the retirement system that may be invested in hedge funds.
SECTION 5. Subchapter D, Chapter 825, Government Code, is
amended by adding Sections 825.3013 and 825.3014 to read as
follows:
Sec. 825.3013. TITLE-HOLDING ENTITIES; INVESTMENTS IN REAL
PROPERTY. (a) The retirement system may form a title-holding
entity for the purpose of investing the retirement system's assets
in real property. The title-holding entity must be:
(1) wholly owned and controlled by the system; and
(2) exempt from taxation under Section 501(a),
Internal Revenue Code of 1986, as an organization described by
Section 501(c) of that code.
(b) Subject to Subsection (a)(2), a title-holding entity
formed under this section may hold title to real property jointly
with another person.
(c) The board of trustees shall adopt policies for the
governance, management, and reporting for a title-holding entity
formed under this section.
(d) The following persons may not be employed by, receive
compensation from, be a party to a contract with or a direct or
indirect financial beneficiary of a contract with, or hold a direct
or indirect interest in a title-holding entity formed by the
retirement system under this section:
(1) a trustee or employee of the system; or
(2) a relative of a trustee or employee of the system
within the second degree of consanguinity or affinity, as
determined under Chapter 573.
(e) Chapter 551 and Subtitles D and F, Title 10, do not apply
to a title-holding entity formed under this section.
Sec. 825.3014. CONFIDENTIALITY OF RECORDS RELATED TO
TITLE-HOLDING ENTITIES. (a) Notwithstanding any other law other
than this section, all information that relates to a title-holding
entity formed under Section 825.3013 is confidential and excepted
from disclosure under Section 552.021, including information
relating to:
(1) a pre-due diligence or post-due diligence review,
audit, or investigation;
(2) the formation of a title-holding entity under
Section 825.3013; or
(3) a potential purchase of real property by a
title-holding entity, regardless of whether the purchase is
completed.
(b) The following information as it relates to a
title-holding entity formed under Section 825.3013 is public
information under Chapter 552:
(1) the title-holding entity's certificate of
formation or comparable instrument issued by a foreign
jurisdiction;
(2) the date or dates on which the title-holding
entity purchased or sold an interest in real property;
(3) information relating to the title-holding entity's
qualification for the federal income tax exemption required under
Section 825.3013(a)(2);
(4) the name and location, including the physical
address, city, state, and country, of any real property in which the
title-holding entity has an interest;
(5) as shown in the meeting minutes of the board of
trustees, each recusal by a member of the board in connection with a
deliberation or action relating to the title-holding entity, any
real property in which the entity has an ownership interest, or a
lease or contract with the title-holding entity;
(6) the name of each employer or business entity owned
wholly or partly by the relative of a member of the board of
trustees or a retirement system employee, within the second degree
of consanguinity or affinity under Chapter 573, that is a
prospective party to a transaction or contract with the
title-holding entity, including a contract that is:
(A) a real property purchase and sale agreement;
(B) for goods or services; or
(C) a lease agreement, including a ground lease
agreement;
(7) the name of the business entity or employer
described by Subdivision (6) as stated in the business entity's or
employer's certificate of formation or comparable instrument;
(8) copies of income tax returns filed by the
title-holding entity, except information in the returns relating to
indebtedness, tax basis, and gains or losses realized on the sale or
other disposition of real property by the title-holding entity;
(9) if the system or a state agency is a tenant of real
property owned by the title-holding entity:
(A) the name of that tenant;
(B) the name and address of the property; and
(C) the financial returns to the system from
investing in the property; and
(10) if applicable, the name of any joint owner of real
property a title-holding entity has an ownership interest in and
the percentage of the property owned by a joint owner.
(c) Except as provided by this subsection, this section
applies to information regardless of whether the title-holding
entity disposes of the entity's interest in real property or an
asset if the information is inextricably intertwined with another
interest in real property or other assets owned by the
title-holding entity. The final sale documentation of the disposed
real property or other asset is public information under Chapter
552.
(d) This section does not prohibit the retirement system or
any person from asserting that any information described by this
section is confidential or exempt from disclosure under Section
552.021 or other law. Notwithstanding any other law, if the
retirement system discloses information described by Subsection
(a) to a person, the disclosure does not:
(1) waive or affect the confidentiality of information
relating to any other title-holding entity; or
(2) waive the retirement system's right to assert
exceptions to disclosure of the information in the future.
SECTION 6. Section 2270.0004, Government Code, is amended
to read as follows:
Sec. 2270.0004. INAPPLICABILITY OF CERTAIN REQUIREMENTS
INCONSISTENT WITH OTHER LAW OR FIDUCIARY RESPONSIBILITIES AND
RELATED DUTIES. An investing entity described by Section
2270.0001(7)(B) or (C) is not subject to a requirement of this
chapter:
(1) if applicable, to the extent prescribed by Section
825.103(d); or
(2) if the entity determines that the requirement
would be inconsistent with the entity's fiduciary responsibility
with respect to the investment of entity assets or other duties
imposed by law relating to the investment of entity assets,
including the duty of care established under Section 67, Article
XVI, Texas Constitution.
SECTION 7. 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, 2023.