| 1 | 1 | | 89R2090 MP-D |
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| 2 | 2 | | By: Middleton S.B. No. 404 |
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| 3 | 3 | | |
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| 4 | 4 | | |
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| 5 | 5 | | |
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| 6 | 6 | | |
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| 7 | 7 | | A BILL TO BE ENTITLED |
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| 8 | 8 | | AN ACT |
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| 9 | 9 | | relating to the investment of public funds by a local government in |
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| 10 | 10 | | investment pools. |
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| 11 | 11 | | BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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| 12 | 12 | | SECTION 1. Section 2256.016, Government Code, is amended by |
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| 13 | 13 | | amending Subsection (a) and adding Subsection (l) to read as |
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| 14 | 14 | | follows: |
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| 15 | 15 | | (a) Except as provided by Subsection (l), an [An] entity may |
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| 16 | 16 | | invest its funds and funds under its control through an eligible |
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| 17 | 17 | | investment pool if the governing body of the entity by rule, order, |
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| 18 | 18 | | ordinance, or resolution, as appropriate, authorizes investment in |
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| 19 | 19 | | the particular pool. An investment pool shall invest the funds it |
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| 20 | 20 | | receives from entities in authorized investments permitted by this |
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| 21 | 21 | | subchapter. An investment pool may invest its funds in money market |
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| 22 | 22 | | mutual funds to the extent permitted by and consistent with this |
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| 23 | 23 | | subchapter and the investment policies and objectives adopted by |
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| 24 | 24 | | the investment pool. |
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| 25 | 25 | | (l) A local government may invest funds in an investment |
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| 26 | 26 | | pool only if the investment pool is managed by the comptroller or |
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| 27 | 27 | | the Texas Treasury Safekeeping Trust Company. |
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| 28 | 28 | | SECTION 2. Subchapter A, Chapter 2256, Government Code, is |
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| 29 | 29 | | amended by adding Section 2256.0175 to read as follows: |
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| 30 | 30 | | Sec. 2256.0175. DIVESTMENT OF CERTAIN FUNDS BY LOCAL |
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| 31 | 31 | | GOVERNMENTS. (a) In this section, "restricted investment pool" |
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| 32 | 32 | | means an investment pool that is not managed by the comptroller or |
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| 33 | 33 | | the Texas Treasury Safekeeping Trust Company. |
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| 34 | 34 | | (b) Notwithstanding Section 2256.017, a local government |
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| 35 | 35 | | shall sell, redeem, divest, or withdraw all of its funds and funds |
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| 36 | 36 | | under its control that are invested in a restricted investment pool |
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| 37 | 37 | | in compliance with the following schedule: |
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| 38 | 38 | | (1) at least 50 percent of those funds must be removed |
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| 39 | 39 | | from a restricted investment pool not later than the 180th day after |
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| 40 | 40 | | the date the local government discovers that the funds are invested |
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| 41 | 41 | | in a restricted investment pool, unless the local government |
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| 42 | 42 | | determines, based on a good faith exercise of its fiduciary |
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| 43 | 43 | | discretion and subject to Subdivision (2), that a later date is more |
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| 44 | 44 | | prudent; and |
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| 45 | 45 | | (2) 100 percent of those funds must be removed from the |
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| 46 | 46 | | restricted investment pool not later than the 360th day after the |
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| 47 | 47 | | date the local government discovers that the funds are invested in a |
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| 48 | 48 | | restricted investment pool. |
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| 49 | 49 | | (c) Except as provided by Subsection (b), a local government |
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| 50 | 50 | | may delay the schedule for divestment under that subsection or |
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| 51 | 51 | | otherwise cease divesting from a restricted investment pool only to |
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| 52 | 52 | | the extent that the local government determines, in the local |
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| 53 | 53 | | government's good faith judgment, and consistent with the local |
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| 54 | 54 | | government's fiduciary duty, that divestment from the restricted |
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| 55 | 55 | | investment pool will likely result in a loss in value or a benchmark |
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| 56 | 56 | | deviation described by Subsection (d). If a local government |
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| 57 | 57 | | delays the schedule for divestment or otherwise ceases to divest, |
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| 58 | 58 | | the local government shall submit a report to the presiding officer |
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| 59 | 59 | | of each house of the legislature, the attorney general, and the |
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| 60 | 60 | | comptroller stating the reasons and justification, supported by |
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| 61 | 61 | | clear and convincing evidence, for the local government's delay in |
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| 62 | 62 | | divestment from the restricted investment pool. The report must |
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| 63 | 63 | | include documentation supporting the local government's |
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| 64 | 64 | | determination that the divestment would result in a loss in value or |
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| 65 | 65 | | a benchmark deviation described by Subsection (d), including |
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| 66 | 66 | | objective numerical estimates. The local government shall update |
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| 67 | 67 | | the report every six months. |
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| 68 | 68 | | (d) A local government may delay the schedule of divestment |
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| 69 | 69 | | under Subsection (b) or otherwise cease divesting from one or more |
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| 70 | 70 | | restricted investment pools under Subsection (c) only if clear and |
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| 71 | 71 | | convincing evidence shows that divesting from the restricted |
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| 72 | 72 | | investment pool will likely result in: |
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| 73 | 73 | | (1) the local government suffering a loss in the |
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| 74 | 74 | | hypothetical value of all funds under management by the local |
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| 75 | 75 | | government as a result of having to divest from restricted |
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| 76 | 76 | | investment pools under this section; or |
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| 77 | 77 | | (2) an individual portfolio that uses a |
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| 78 | 78 | | benchmark-aware strategy being subject to an aggregate expected |
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| 79 | 79 | | deviation from its benchmark as a result of having to divest from |
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| 80 | 80 | | restricted investment pools under this section. |
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| 81 | 81 | | SECTION 3. The changes in law made by this Act apply only to |
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| 82 | 82 | | a contract entered into on or after the effective date of this Act. |
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| 83 | 83 | | A contract entered into before that date is governed by the law in |
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| 84 | 84 | | effect on the date the contract was entered into, and the former law |
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| 85 | 85 | | is continued in effect for that purpose. |
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| 86 | 86 | | SECTION 4. This Act takes effect September 1, 2025. |
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