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  By: Capriglione, Parker, Simmons, Button, H.B. No. 1003
      Fallon
 
 
 
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 2256.004(a), Government Code, is amended
  to read as follows:
         (a)  This subchapter does not apply to:
               (1)  a public retirement system as defined by Section
  802.001;
               (2)  state funds invested as authorized by Section
  404.024;
               (3)  an institution of higher education having total
  endowments of at least $150 [$95] million in book value on September
  1, 2017 [May 1, 1995];
               (4)  funds invested by the Veterans' Land Board as
  authorized by Chapter 161, 162, or 164, Natural Resources Code;
               (5)  registry funds deposited with the county or
  district clerk under Chapter 117, Local Government Code; or
               (6)  a deferred compensation plan that qualifies under
  either Section 401(k) or 457 of the Internal Revenue Code of 1986
  (26 U.S.C. Section 1 et seq.), as amended.
         SECTION 2.  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 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.  Sections 2256.014(a) and (b), Government Code,
  are 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].
         (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; and
               (3)  either:
                     (A)  has a duration of one year or more and is
  invested exclusively in obligations approved by this subchapter; or
                     (B)  has a duration of less than one year and the
  investment portfolio is limited to investment grade securities,
  excluding asset-backed securities
               [(4)     is continuously rated as to investment quality by
  at least one nationally recognized investment rating firm of not
  less than 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 5.  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 6.  Sections 2256.016(b) and (f), 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 that uses amortized cost or fair value accounting [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 $1.00 [$1] net asset value, when rounded and expressed to two
  decimal places.  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 that uses amortized cost 
  [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.
         SECTION 7.  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)  "Eligible project" has the meaning assigned by
  Section 1371.001.
               (3)  "Hedging" means acting to protect against economic
  loss due to price fluctuation of a commodity or related investment
  by entering into an offsetting position or using a financial
  agreement or producer price agreement in a correlated security,
  index, or other commodity.
         (b)  This section prevails to the extent of any conflict
  between this section and:
               (1)  another law; or
               (2)  an eligible entity's municipal charter, if
  applicable.
         (c)  The governing body of an eligible entity shall establish
  the entity's policy regarding hedging transactions.
         (d)  An eligible entity may enter into hedging transactions,
  including hedging contracts, and related security, credit, and
  insurance agreements in connection with commodities used by an
  eligible entity in the entity's general operations, with the
  acquisition or construction of a capital project, or with an
  eligible project. 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 pledge as security for and to the
  payment of a security, credit, or insurance agreement related to a
  hedging contract any revenue the entity is authorized by law or an
  agreement to pledge to the payment of any other obligation.
         (f)  Section 1371.059(c) applies to the execution by an
  eligible entity of a hedging contract and any related security,
  credit, or insurance agreement.
         (g)  An eligible entity may credit any amount the entity
  receives under a hedging contract against expenses associated with
  a commodity purchase.
         (h)  An eligible entity's cost of or 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;
               (3)  a project cost of an eligible project; or
               (4)  a construction expense of the eligible entity.
         SECTION 8.  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 9.  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.