By: Curry H.B. No. 5270
A BILL TO BE ENTITLED
AN ACT
relating to authorized investments by governmental entities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 2256.002, Government Code, is amended by
adding Subdivision (9-a) to read as follows:
(9-a) "Qualified manager" means:
(A) an investment management firm registered:
(i) under the Investment Advisers Act of
1940 (15 U.S.C. Section 80b-1 et seq.); or
(ii) with the State Securities Board;
(B) a bank, as defined by Section 3, Federal
Deposit Insurance Act (12 U.S.C. Section 1813); or
(C) a bank holding company, as defined by Section
2(a), Bank Holding Company Act of 1956 (12 U.S.C. Section 1841(a)).
SECTION 2. Section 2256.003(b), Government Code, is amended
to read as follows:
(b) In the exercise of its powers under Subsection (a), the
governing body of an investing entity may contract with a qualified
manager [an investment management firm registered under the
Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or
with the State Securities Board] to provide for the investment and
management of its public funds or other funds under its control. A
contract made under authority of this subsection may not be for a
term longer than two years. A renewal or extension of the contract
must be made by the governing body of the investing entity by order,
ordinance, or resolution.
SECTION 3. Section 2256.016, Government Code, is amended to
read as follows:
Sec. 2256.016. AUTHORIZED INVESTMENTS: INVESTMENT POOLS.
(a) An entity may invest its funds and funds under its control
through an eligible investment pool if the governing body of the
entity by rule, order, ordinance, or resolution, as appropriate,
authorizes investment in the particular pool. An investment pool
shall invest the funds it receives from entities in authorized
investments permitted by this subchapter. An investment pool may
invest its funds in money market mutual funds to the extent
permitted by and consistent with this subchapter and the investment
policies and objectives adopted by the investment pool.
(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;
(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; and
(14) written confirmation in readily visible font and
positioning on the disclosure that there is no sponsorship
agreement or royalty paid to any association or organization from
funds or interest income of the pool.
(c) To maintain eligibility 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:
(1) investment transaction confirmations; and
(2) a monthly report that contains, at a minimum, the
following information:
(A) the types and percentage breakdown of
securities in which the pool is invested;
(B) the current average dollar-weighted
maturity, based on the stated maturity date, of the pool;
(C) the current percentage of the pool's
portfolio in investments that have stated maturities of more than
one year;
(D) the book value versus the market value of the
pool's portfolio, using amortized cost valuation;
(E) the size of the pool;
(F) the number of participants in the pool;
(G) the custodian bank that is safekeeping the
assets of the pool;
(H) a listing of daily transaction activity of
the entity participating in the pool;
(I) the yield and expense ratio of the pool,
including a statement regarding how yield is calculated;
(J) the portfolio managers of the pool; [and]
(K) any changes or addenda to the offering
circular; and
(L) written confirmation in readily visible font
and positioning on the disclosure that there is no sponsorship
agreement or royalty paid to any association or organization from
funds or interest income of the pool.
(d) An entity by contract may delegate to an investment pool
the authority to hold legal title as custodian of investments
purchased with its local funds.
(e) In this section, for purposes of an investment pool for
which a $1.00 net asset value is maintained, "yield" shall be
calculated in accordance with regulations governing the
registration of open-end management investment companies under the
Investment Company Act of 1940, as promulgated from time to time by
the federal Securities and Exchange Commission.
(f) To be eligible to receive funds from and invest funds on
behalf of an entity under this chapter:
(1) a public funds investment pool that uses amortized
cost or fair value accounting must mark its portfolio to market
daily; [and]
(2) if the investment pool uses amortized cost:
(A) the investment pool must, to the extent
reasonably possible, stabilize at a $1.00 net asset value, when
rounded and expressed to two decimal places;
(B) the governing body of the investment pool
must, 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, 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 to maintain the ratio between 0.995 and 1.005;
and
(C) the investment pool must, in addition to the
requirements of its investment policy and any other forms of
reporting, report yield to its investors in accordance with
regulations of the federal Securities and Exchange Commission
applicable to reporting by money market funds; and
(3) an investment pool must invest at least 35 percent
of the pool’s funds with an authorized investment described by
Sections 2256.009(a)(7) or (8) or 2256.010 in a bank located in this
state.
(g) To be eligible to receive funds from and invest funds on
behalf of an entity under this chapter, a public funds investment
pool must have an advisory board composed:
(1) equally of participants in the pool and other
persons who do not have a business relationship with the pool and
are qualified to advise the pool, for a public funds investment pool
created under Chapter 791 and managed by a state agency; or
(2) of participants in the pool and other persons who
do not have a business relationship with the pool and are qualified
to advise the pool, for other investment pools.
(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 AAA or AAA-m or at an
equivalent rating by at least one nationally recognized rating
service.
(i) If the investment pool operates an Internet website, the
information in a disclosure instrument or report described in
Subsections (b), (c)(2), and (f) must be posted on the website.
(j) To maintain eligibility to receive funds from and invest
funds on behalf of an entity under this chapter, an investment pool
must make available to the entity an annual audited financial
statement of the investment pool in which the entity has funds
invested.
(k) If an investment pool offers fee breakpoints based on
fund balances invested, the investment pool in advertising
investment rates must include either all levels of return based on
the breakpoints provided or state the lowest possible level of
return based on the smallest level of funds invested.
(l) The annual audit under Section 2256.016(j) shall be
posted on the publicly accessible internet website of the
investment pool and on the comptroller’s internet website.
(m) To be eligible to receive funds from and invest funds on
behalf of an entity under this chapter, a public funds investment
pool is prohibited from:
(1) entering into a royalty or sponsorship agreement
with an association or organization; and
(2) paying a royalty or sponsorship from funds or
interest income available to the pool.
SECTION 4. This Act takes effect September 1, 2026.