89R2090 MP-D
By: Middleton S.B. No. 404
A BILL TO BE ENTITLED
AN ACT
relating to the investment of public funds by a local government in
investment pools.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 2256.016, Government Code, is amended by
amending Subsection (a) and adding Subsection (l) to read as
follows:
(a) Except as provided by Subsection (l), an [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.
(l) A local government may invest funds in an investment
pool only if the investment pool is managed by the comptroller or
the Texas Treasury Safekeeping Trust Company.
SECTION 2. Subchapter A, Chapter 2256, Government Code, is
amended by adding Section 2256.0175 to read as follows:
Sec. 2256.0175. DIVESTMENT OF CERTAIN FUNDS BY LOCAL
GOVERNMENTS. (a) In this section, "restricted investment pool"
means an investment pool that is not managed by the comptroller or
the Texas Treasury Safekeeping Trust Company.
(b) Notwithstanding Section 2256.017, a local government
shall sell, redeem, divest, or withdraw all of its funds and funds
under its control that are invested in a restricted investment pool
in compliance with the following schedule:
(1) at least 50 percent of those funds must be removed
from a restricted investment pool not later than the 180th day after
the date the local government discovers that the funds are invested
in a restricted investment pool, unless the local government
determines, based on a good faith exercise of its fiduciary
discretion and subject to Subdivision (2), that a later date is more
prudent; and
(2) 100 percent of those funds must be removed from the
restricted investment pool not later than the 360th day after the
date the local government discovers that the funds are invested in a
restricted investment pool.
(c) Except as provided by Subsection (b), a local government
may delay the schedule for divestment under that subsection or
otherwise cease divesting from a restricted investment pool only to
the extent that the local government determines, in the local
government's good faith judgment, and consistent with the local
government's fiduciary duty, that divestment from the restricted
investment pool will likely result in a loss in value or a benchmark
deviation described by Subsection (d). If a local government
delays the schedule for divestment or otherwise ceases to divest,
the local government shall submit a report to the presiding officer
of each house of the legislature, the attorney general, and the
comptroller stating the reasons and justification, supported by
clear and convincing evidence, for the local government's delay in
divestment from the restricted investment pool. The report must
include documentation supporting the local government's
determination that the divestment would result in a loss in value or
a benchmark deviation described by Subsection (d), including
objective numerical estimates. The local government shall update
the report every six months.
(d) A local government may delay the schedule of divestment
under Subsection (b) or otherwise cease divesting from one or more
restricted investment pools under Subsection (c) only if clear and
convincing evidence shows that divesting from the restricted
investment pool will likely result in:
(1) the local government suffering a loss in the
hypothetical value of all funds under management by the local
government as a result of having to divest from restricted
investment pools under this section; or
(2) an individual portfolio that uses a
benchmark-aware strategy being subject to an aggregate expected
deviation from its benchmark as a result of having to divest from
restricted investment pools under this section.
SECTION 3. The changes in law made by this Act apply only to
a contract entered into on or after the effective date of this Act.
A contract entered into before that date is governed by the law in
effect on the date the contract was entered into, and the former law
is continued in effect for that purpose.
SECTION 4. This Act takes effect September 1, 2025.