CHAPTER 2256. PUBLIC FUNDS INVESTMENT
GOVERNMENT CODE
TITLE 10. GENERAL GOVERNMENT
SUBTITLE F. STATE AND LOCAL CONTRACTS AND FUND MANAGEMENT
CHAPTER 2256. PUBLIC FUNDS INVESTMENT
SUBCHAPTER A. AUTHORIZED INVESTMENTS FOR GOVERNMENTAL ENTITIES
Sec. 2256.001. SHORT TITLE. This chapter may be cited as the
Public Funds Investment Act.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995.
Sec. 2256.002. DEFINITIONS. In this chapter:
(1) "Bond proceeds" means the proceeds from the sale of bonds,
notes, and other obligations issued by an entity, and reserves
and funds maintained by an entity for debt service purposes.
(2) "Book value" means the original acquisition cost of an
investment plus or minus the accrued amortization or accretion.
(3) "Funds" means public funds in the custody of a state agency
or local government that:
(A) are not required by law to be deposited in the state
treasury; and
(B) the investing entity has authority to invest.
(4) "Institution of higher education" has the meaning assigned
by Section 61.003, Education Code.
(5) "Investing entity" and "entity" mean an entity subject to
this chapter and described by Section 2256.003.
(6) "Investment pool" means an entity created under this code to
invest public funds jointly on behalf of the entities that
participate in the pool and whose investment objectives in order
of priority are:
(A) preservation and safety of principal;
(B) liquidity; and
(C) yield.
(7) "Local government" means a municipality, a county, a school
district, a district or authority created under Section 52(b)(1)
or (2), Article III, or Section 59, Article XVI, Texas
Constitution, a fresh water supply district, a hospital district,
and any political subdivision, authority, public corporation,
body politic, or instrumentality of the State of Texas, and any
nonprofit corporation acting on behalf of any of those entities.
(8) "Market value" means the current face or par value of an
investment multiplied by the net selling price of the security as
quoted by a recognized market pricing source quoted on the
valuation date.
(9) "Pooled fund group" means an internally created fund of an
investing entity in which one or more institutional accounts of
the investing entity are invested.
(10) "Qualified representative" means a person who holds a
position with a business organization, who is authorized to act
on behalf of the business organization, and who is one of the
following:
(A) for a business organization doing business that is regulated
by or registered with a securities commission, a person who is
registered under the rules of the National Association of
Securities Dealers;
(B) for a state or federal bank, a savings bank, or a state or
federal credit union, a member of the loan committee for the bank
or branch of the bank or a person authorized by corporate
resolution to act on behalf of and bind the banking institution;
(C) for an investment pool, the person authorized by the elected
official or board with authority to administer the activities of
the investment pool to sign the written instrument on behalf of
the investment pool; or
(D) for an investment management firm registered under the
Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.)
or, if not subject to registration under that Act, registered
with the State Securities Board, a person who is an officer or
principal of the investment management firm.
(11) "School district" means a public school district.
(12) "Separately invested asset" means an account or fund of a
state agency or local government that is not invested in a pooled
fund group.
(13) "State agency" means an office, department, commission,
board, or other agency that is part of any branch of state
government, an institution of higher education, and any nonprofit
corporation acting on behalf of any of those entities.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995; Acts 1997, 75th Leg., ch. 1421, Sec. 1, eff. Sept. 1, 1997;
Acts 1999, 76th Leg., ch. 1454, Sec. 1, eff. Sept. 1, 1999.
Sec. 2256.003. AUTHORITY TO INVEST FUNDS; ENTITIES SUBJECT TO
THIS CHAPTER. (a) Each governing body of the following entities
may purchase, sell, and invest its funds and funds under its
control in investments authorized under this subchapter in
compliance with investment policies approved by the governing
body and according to the standard of care prescribed by Section
2256.006:
(1) a local government;
(2) a state agency;
(3) a nonprofit corporation acting on behalf of a local
government or a state agency; or
(4) an investment pool acting on behalf of two or more local
governments, state agencies, or a combination of those entities.
(b) In the exercise of its powers under Subsection (a), the
governing body of an investing entity may contract with 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.
(c) This chapter does not prohibit an investing entity or
investment officer from using the entity's employees or the
services of a contractor of the entity to aid the investment
officer in the execution of the officer's duties under this
chapter.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995; Acts 1999, 76th Leg., ch. 1454, Sec. 2, eff. Sept. 1, 1999.
Sec. 2256.004. APPLICABILITY. (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 $95 million in book value on 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.
(b) This subchapter does not apply to an investment donated to
an investing entity for a particular purpose or under terms of
use specified by the donor.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995; Acts 1997, 75th Leg., ch. 505, Sec. 24, eff. Sept. 1, 1997;
Acts 1997, 75th Leg., ch. 1421, Sec. 2, eff. Sept. 1, 1997; Acts
1999, 76th Leg., ch. 62, Sec. 8.21, eff. Sept. 1, 1999; Acts
1999, 76th Leg., ch. 1454, Sec. 3, eff. Sept. 1, 1999.
Sec. 2256.005. INVESTMENT POLICIES; INVESTMENT STRATEGIES;
INVESTMENT OFFICER. (a) The governing body of an investing
entity shall adopt by rule, order, ordinance, or resolution, as
appropriate, a written investment policy regarding the investment
of its funds and funds under its control.
(b) The investment policies must:
(1) be written;
(2) primarily emphasize safety of principal and liquidity;
(3) address investment diversification, yield, and maturity and
the quality and capability of investment management; and
(4) include:
(A) a list of the types of authorized investments in which the
investing entity's funds may be invested;
(B) the maximum allowable stated maturity of any individual
investment owned by the entity;
(C) for pooled fund groups, the maximum dollar-weighted average
maturity allowed based on the stated maturity date for the
portfolio;
(D) methods to monitor the market price of investments acquired
with public funds; and
(E) a requirement for settlement of all transactions, except
investment pool funds and mutual funds, on a delivery versus
payment basis.
(c) The investment policies may provide that bids for
certificates of deposit be solicited:
(1) orally;
(2) in writing;
(3) electronically; or
(4) in any combination of those methods.
(d) As an integral part of an investment policy, the governing
body shall adopt a separate written investment strategy for each
of the funds or group of funds under its control. Each investment
strategy must describe the investment objectives for the
particular fund using the following priorities in order of
importance:
(1) understanding of the suitability of the investment to the
financial requirements of the entity;
(2) preservation and safety of principal;
(3) liquidity;
(4) marketability of the investment if the need arises to
liquidate the investment before maturity;
(5) diversification of the investment portfolio; and
(6) yield.
(e) The governing body of an investing entity shall review its
investment policy and investment strategies not less than
annually. The governing body shall adopt a written instrument by
rule, order, ordinance, or resolution stating that it has
reviewed the investment policy and investment strategies and that
the written instrument so adopted shall record any changes made
to either the investment policy or investment strategies.
(f) Each investing entity shall designate, by rule, order,
ordinance, or resolution, as appropriate, one or more officers or
employees of the state agency, local government, or investment
pool as investment officer to be responsible for the investment
of its funds consistent with the investment policy adopted by the
entity. If the governing body of an investing entity has
contracted with another investing entity to invest its funds, the
investment officer of the other investing entity is considered to
be the investment officer of the first investing entity for
purposes of this chapter. Authority granted to a person to invest
an entity's funds is effective until rescinded by the investing
entity, until the expiration of the officer's term or the
termination of the person's employment by the investing entity,
or if an investment management firm, until the expiration of the
contract with the investing entity. In the administration of the
duties of an investment officer, the person designated as
investment officer shall exercise the judgment and care, under
prevailing circumstances, that a prudent person would exercise in
the management of the person's own affairs, but the governing
body of the investing entity retains ultimate responsibility as
fiduciaries of the assets of the entity. Unless authorized by
law, a person may not deposit, withdraw, transfer, or manage in
any other manner the funds of the investing entity.
(g) Subsection (f) does not apply to a state agency, local
government, or investment pool for which an officer of the entity
is assigned by law the function of investing its funds.
Text of subsec. (h) as amended by Acts 1997, 75th Leg., ch. 685,
Sec. 1
(h) An officer or employee of a commission created under Chapter
391, Local Government Code, is ineligible to be an investment
officer for the commission under Subsection (f) if the officer or
employee is an investment officer designated under Subsection (f)
for another local government.
Text of subsec. (h) as amended by Acts 1997, 75th Leg., ch. 1421,
Sec. 3
(h) An officer or employee of a commission created under Chapter
391, Local Government Code, is ineligible to be designated as an
investment officer under Subsection (f) for any investing entity
other than for that commission.
(i) An investment officer of an entity who has a personal
business relationship with a business organization offering to
engage in an investment transaction with the entity shall file a
statement disclosing that personal business interest. An
investment officer who is related within the second degree by
affinity or consanguinity, as determined under Chapter 573, to an
individual seeking to sell an investment to the investment
officer's entity shall file a statement disclosing that
relationship. A statement required under this subsection must be
filed with the Texas Ethics Commission and the governing body of
the entity. For purposes of this subsection, an investment
officer has a personal business relationship with a business
organization if:
(1) the investment officer owns 10 percent or more of the voting
stock or shares of the business organization or owns $5,000 or
more of the fair market value of the business organization;
(2) funds received by the investment officer from the business
organization exceed 10 percent of the investment officer's gross
income for the previous year; or
(3) the investment officer has acquired from the business
organization during the previous year investments with a book
value of $2,500 or more for the personal account of the
investment officer.
(j) The governing body of an investing entity may specify in its
investment policy that any investment authorized by this chapter
is not suitable.
(k) A written copy of the investment policy shall be presented
to any person offering to engage in an investment transaction
with an investing entity or to an investment management firm
under contract with an investing entity to invest or manage the
entity's investment portfolio. For purposes of this subsection, a
business organization includes investment pools and an investment
management firm under contract with an investing entity to invest
or manage the entity's investment portfolio. Nothing in this
subsection relieves the investing entity of the responsibility
for monitoring the investments made by the investing entity to
determine that they are in compliance with the investment policy.
The qualified representative of the business organization
offering to engage in an investment transaction with an investing
entity shall execute a written instrument in a form acceptable to
the investing entity and the business organization substantially
to the effect that the business organization has:
(1) received and reviewed the investment policy of the entity;
and
(2) acknowledged that the business organization has implemented
reasonable procedures and controls in an effort to preclude
investment transactions conducted between the entity and the
organization that are not authorized by the entity's investment
policy, except to the extent that this authorization is dependent
on an analysis of the makeup of the entity's entire portfolio or
requires an interpretation of subjective investment standards.
(l) The investment officer of an entity may not acquire or
otherwise obtain any authorized investment described in the
investment policy of the investing entity from a person who has
not delivered to the entity the instrument required by Subsection
(k).
(m) An investing entity other than a state agency, in
conjunction with its annual financial audit, shall perform a
compliance audit of management controls on investments and
adherence to the entity's established investment policies.
(n) Except as provided by Subsection (o), at least once every
two years a state agency shall arrange for a compliance audit of
management controls on investments and adherence to the agency's
established investment policies. The compliance audit shall be
performed by the agency's internal auditor or by a private
auditor employed in the manner provided by Section 321.020. Not
later than January 1 of each even-numbered year a state agency
shall report the results of the most recent audit performed under
this subsection to the state auditor. Subject to a risk
assessment and to the legislative audit committee's approval of
including a review by the state auditor in the audit plan under
Section 321.013, the state auditor may review information
provided under this section. If review by the state auditor is
approved by the legislative audit committee, the state auditor
may, based on its review, require a state agency to also report
to the state auditor other information the state auditor
determines necessary to assess compliance with laws and policies
applicable to state agency investments. A report under this
subsection shall be prepared in a manner the state auditor
prescribes.
(o) The audit requirements of Subsection (n) do not apply to
assets of a state agency that are invested by the comptroller
under Section 404.024.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995; Acts 1997, 75th Leg., ch. 685, Sec. 1, eff. Sept. 1, 1997;
Acts 1997, 75th Leg., ch. 1421, Sec. 3, eff. Sept. 1, 1997; Acts
1999, 76th Leg., ch. 1454, Sec. 4, eff. Sept. 1, 1999; Acts 2003,
78th Leg., ch. 785, Sec. 41, eff. Sept. 1, 2003.
Sec. 2256.006. STANDARD OF CARE. (a) Investments shall be made
with judgment and care, under prevailing circumstances, that a
person of prudence, discretion, and intelligence would exercise
in the management of the person's own affairs, not for
speculation, but for investment, considering the probable safety
of capital and the probable income to be derived. Investment of
funds shall be governed by the following investment objectives,
in order of priority:
(1) preservation and safety of principal;
(2) liquidity; and
(3) yield.
(b) In determining whether an investment officer has exercised
prudence with respect to an investment decision, the
determination shall be made taking into consideration:
(1) the investment of all funds, or funds under the entity's
control, over which the officer had responsibility rather than a
consideration as to the prudence of a single investment; and
(2) whether the investment decision was consistent with the
written investment policy of the entity.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995.
Sec. 2256.007. INVESTMENT TRAINING; STATE AGENCY BOARD MEMBERS
AND OFFICERS. (a) Each member of the governing board of a state
agency and its investment officer shall attend at least one
training session relating to the person's responsibilities under
this chapter within six months after taking office or assuming
duties.
(b) The Texas Higher Education Coordinating Board shall provide
the training under this section.
(c) Training under this section must include education in
investment controls, security risks, strategy risks, market
risks, diversification of investment portfolio, and compliance
with this chapter.
(d) An investment officer shall attend a training session not
less than once in a two-year period and may receive training from
any independent source approved by the governing body of the
state agency. The investment officer shall prepare a report on
this subchapter and deliver the report to the governing body of
the state agency not later than the 180th day after the last day
of each regular session of the legislature.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995; Acts 1997, 75th Leg., ch. 73, Sec. 1, eff. May 9, 1997;
Acts 1997, 75th Leg., ch. 1421, Sec. 4, eff. Sept. 1, 1997; Acts
1999, 76th Leg., ch. 1454, Sec. 5, eff. Sept. 1, 1999.
Sec. 2256.008. INVESTMENT TRAINING; LOCAL GOVERNMENTS. (a)
Except as provided by Subsections (b) and (e), the treasurer, the
chief financial officer if the treasurer is not the chief
financial officer, and the investment officer of a local
government shall:
(1) attend at least one training session from an independent
source approved by the governing body of the local government or
a designated investment committee advising the investment officer
as provided for in the investment policy of the local government
and containing at least 10 hours of instruction relating to the
treasurer's or officer's responsibilities under this subchapter
within 12 months after taking office or assuming duties; and
(2) except as provided by Subsections (b) and (e), attend an
investment training session not less than once in a two-year
period and receive not less than 10 hours of instruction relating
to investment responsibilities under this subchapter from an
independent source approved by the governing body of the local
government or a designated investment committee advising the
investment officer as provided for in the investment policy of
the local government.
(b) An investing entity created under authority of Section
52(b), Article III, or Section 59, Article XVI, Texas
Constitution, that has contracted with an investment management
firm under Section 2256.003(b) and has fewer than five full-time
employees or an investing entity that has contracted with another
investing entity to invest the entity's funds may satisfy the
training requirement provided by Subsection (a)(2) by having an
officer of the governing body attend four hours of appropriate
instruction in a two-year period. The treasurer or chief
financial officer of an investing entity created under authority
of Section 52(b), Article III, or Section 59, Article XVI, Texas
Constitution, and that has fewer than five full-time employees is
not required to attend training required by this section unless
the person is also the investment officer of the entity.
(c) Training under this section must include education in
investment controls, security risks, strategy risks, market
risks, diversification of investment portfolio, and compliance
with this chapter.
(d) Not later than December 31 each year, each individual,
association, business, organization, governmental entity, or
other person that provides training under this section shall
report to the comptroller a list of the governmental entities for
which the person provided required training under this section
during that calendar year. An individual's reporting requirements
under this subsection are satisfied by a report of the
individual's employer or the sponsoring or organizing entity of a
training program or seminar.
(e) This section does not apply to a district governed by
Chapter 36 or 49, Water Code.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995; Acts 1997, 75th Leg., ch. 1421, Sec. 5, eff. Sept. 1, 1997;
Acts 1999, 76th Leg., ch. 1454, Sec. 6, eff. Sept. 1, 1999; Acts
2001, 77th Leg., ch. 69, Sec. 4, eff. May 14, 2001.
Sec. 2256.009. AUTHORIZED INVESTMENTS: OBLIGATIONS OF, OR
GUARANTEED BY GOVERNMENTAL ENTITIES. (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;
(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.
(b) The following are not authorized investments under this
section:
(1) obligations whose payment represents the coupon payments on
the outstanding principal balance of the underlying
mortgage-backed security collateral and pays no principal;
(2) obligations whose payment represents the principal stream of
cash flow from the underlying mortgage-backed security collateral
and bears no interest;
(3) collateralized mortgage obligations that have a stated final
maturity date of greater than 10 years; and
(4) collateralized mortgage obligations the interest rate of
which is determined by an index that adjusts opposite to the
changes in a market index.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995; Acts 1999, 76th Leg., ch. 1454, Sec. 7, eff. Sept. 1, 1999;
Acts 2001, 77th Leg., ch. 558, Sec. 1, eff. Sept. 1, 2001.
Sec. 2256.010. AUTHORIZED INVESTMENTS: CERTIFICATES OF DEPOSIT
AND SHARE CERTIFICATES. (a) A certificate of deposit or share
certificate is an authorized investment under this subchapter if
the certificate is issued by a depository institution that has
its main office or a branch office in this state and is:
(1) guaranteed or insured by the Federal Deposit Insurance
Corporation or its successor or the National Credit Union Share
Insurance Fund or its successor;
(2) secured by obligations that are described by Section
2256.009(a), including mortgage backed securities directly issued
by a federal agency or instrumentality that have a market value
of not less than the principal amount of the certificates, but
excluding those mortgage backed securities of the nature
described by Section 2256.009(b); or
(3) secured in any other manner and amount provided by law for
deposits of the investing entity.
(b) In addition to the authority to invest funds in certificates
of deposit under Subsection (a), an investment in certificates of
deposit made in accordance with the following conditions is an
authorized investment under this subchapter:
(1) the funds are invested by an investing entity through a
depository institution that has its main office or a branch
office in this state and that is selected by the investing
entity;
(2) the depository institution selected by the investing entity
under Subdivision (1) arranges for the deposit of the funds in
certificates of deposit in one or more federally insured
depository institutions, wherever located, for the account of the
investing entity;
(3) the full amount of the principal and accrued interest of
each of the certificates of deposit is insured by the United
States or an instrumentality of the United States;
(4) the depository institution selected by the investing entity
under Subdivision (1) acts as custodian for the investing entity
with respect to the certificates of deposit issued for the
account of the investing entity; and
(5) at the same time that the funds are deposited and the
certificates of deposit are issued for the account of the
investing entity, the depository institution selected by the
investing entity under Subdivision (1) receives an amount of
deposits from customers of other federally insured depository
institutions, wherever located, that is equal to or greater than
the amount of the funds invested by the investing entity through
the depository institution selected under Subdivision (1).
Amended by Acts 1995, 74th Leg., ch. 32, Sec. 1, eff. April 28,
1995; Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1, 1995;
Acts 1997, 75th Leg., ch. 1421, Sec. 6, eff. Sept. 1, 1997.
Amended by:
Acts 2005, 79th Leg., Ch.
128, Sec. 1, eff. September 1, 2005.
Sec. 2256.011. AUTHORIZED INVESTMENTS: REPURCHASE AGREEMENTS.
(a) A fully collateralized repurchase agreement is an authorized
investment under this subchapter if the repurchase agreement:
(1) has a defined termination date;
(2) is secured by obligations described by Section
2256.009(a)(1); and
(3) requires the securities being purchased by the entity to be
pledged to the entity, held in the entity's name, and deposited
at the time the investment is made with the entity or with a
third party selected and approved by the entity; and
(4) is placed through a primary government securities dealer, as
defined by the Federal Reserve, or a financial institution doing
business in this state.
(b) In this section, "repurchase agreement" means a simultaneous
agreement to buy, hold for a specified time, and sell back at a
future date obligations described by Section 2256.009(a)(1), at a
market value at the time the funds are disbursed of not less than
the principal amount of the funds disbursed. The term includes a
direct security repurchase agreement and a reverse security
repurchase agreement.
(c) Notwithstanding any other law, the term of any reverse
security repurchase agreement may not exceed 90 days after the
date the reverse security repurchase agreement is delivered.
(d) Money received by an entity under the terms of a reverse
security repurchase agreement shall 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.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995.
Sec. 2256.0115. AUTHORIZED INVESTMENTS: SECURITIES LENDING
PROGRAM. (a) A securities lending program is an authorized
investment under this subchapter if it meets the conditions
provided by this section.
(b) To qualify as an authorized investment under this
subchapter:
(1) the value of securities loaned under the program must be not
less than 100 percent collateralized, including accrued income;
(2) a loan made under the program must allow for termination at
any time;
(3) a loan made under the program must be secured by:
(A) pledged securities described by Section 2256.009;
(B) pledged irrevocable letters of credit issued by a bank that
is:
(i) organized and existing under the laws of the United States
or any other state; and
(ii) continuously rated by at least one nationally recognized
investment rating firm at not less than A or its equivalent; or
(C) cash invested in accordance with Section:
(i) 2256.009;
(ii) 2256.013;
(iii) 2256.014; or
(iv) 2256.016;
(4) the terms of a loan made under the program must require that
the securities being held as collateral be:
(A) pledged to the investing entity;
(B) held in the investing entity's name; and
(C) deposited at the time the investment is made with the entity
or with a third party selected by or approved by the investing
entity;
(5) a loan made under the program must be placed through:
(A) a primary government securities dealer, as defined by 5
C.F.R. Section 6801.102(f), as that regulation existed on
September 1, 2003; or
(B) a financial institution doing business in this state; and
(6) an agreement to lend securities that is executed under this
section must have a term of one year or less.
Added by Acts 2003, 78th Leg., ch. 1227, Sec. 1, eff. Sept. 1,
2003.
Sec. 2256.012. AUTHORIZED INVESTMENTS: BANKER'S ACCEPTANCES. A
bankers' acceptance is an authorized investment under this
subchapter if the bankers' acceptance:
(1) has a stated maturity of 270 days or fewer from the date of
its issuance;
(2) will be, in accordance with its terms, liquidated in full at
maturity;
(3) is eligible for collateral for borrowing from a Federal
Reserve Bank; and
(4) is accepted by a bank organized and existing under the laws
of the United States or any state, if the short-term obligations
of the bank, or of a bank holding company of which the bank is
the largest subsidiary, are rated not less than A-1 or P-1 or an
equivalent rating by at least one nationally recognized credit
rating agency.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995.
Sec. 2256.013. AUTHORIZED INVESTMENTS: COMMERCIAL PAPER.
Commercial paper is an authorized investment under this
subchapter if the commercial paper:
(1) has a stated maturity of 270 days or fewer from the date of
its issuance; and
(2) is rated not less than A-1 or P-1 or an equivalent rating by
at least:
(A) two nationally recognized credit rating agencies; or
(B) one nationally recognized credit rating agency and is fully
secured by an irrevocable letter of credit issued by a bank
organized and existing under the laws of the United States or any
state.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995.
Sec. 2256.014. AUTHORIZED INVESTMENTS: MUTUAL FUNDS. (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.);
(3) 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;
(3) is invested exclusively in obligations approved by this
subchapter;
(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.
(c) An entity is not authorized by this section to:
(1) invest in the aggregate more than 15 percent of its monthly
average fund balance, excluding bond proceeds and reserves and
other funds held for debt service, in mutual funds described in
Subsection (b);
(2) invest any portion of bond proceeds, reserves and funds held
for debt service, in mutual funds described in Subsection (b); or
(3) invest its funds or funds under its control, including bond
proceeds and reserves and other funds held for debt service, in
any one mutual fund described in Subsection (a) or (b) in an
amount that exceeds 10 percent of the total assets of the mutual
fund.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995; Acts 1997, 75th Leg., ch. 1421, Sec. 7, eff. Sept. 1, 1997;
Acts 1999, 76th Leg., ch. 1454, Sec. 8, eff. Sept. 1, 1999.
Sec. 2256.015. AUTHORIZED INVESTMENTS: GUARANTEED INVESTMENT
CONTRACTS. (a) A guaranteed investment contract is an
authorized investment for bond proceeds under this subchapter if
the guaranteed investment contract:
(1) has a defined termination date;
(2) is secured by obligations described by Section
2256.009(a)(1), excluding those obligations described by Section
2256.009(b), in an amount at least equal to the amount of bond
proceeds invested under the contract; and
(3) is pledged to the entity and deposited with the entity or
with a third party selected and approved by the entity.
(b) Bond proceeds, other than bond proceeds representing
reserves and funds maintained for debt service purposes, may not
be invested under this subchapter in a guaranteed investment
contract with a term of longer than five years from the date of
issuance of the bonds.
(c) To be eligible as an authorized investment:
(1) the governing body of the entity must specifically authorize
guaranteed investment contracts as an eligible investment in the
order, ordinance, or resolution authorizing the issuance of
bonds;
(2) the entity must receive bids from at least three separate
providers with no material financial interest in the bonds from
which proceeds were received;
(3) the entity must purchase the highest yielding guaranteed
investment contract for which a qualifying bid is received;
(4) the price of the guaranteed investment contract must take
into account the reasonably expected drawdown schedule for the
bond proceeds to be invested; and
(5) the provider must certify the administrative costs
reasonably expected to be paid to third parties in connection
with the guaranteed investment contract.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995; Acts 1997, 75th Leg., ch. 1421, Sec. 8, eff. Sept. 1, 1997;
Acts 1999, 76th Leg., ch. 1454, Sec. 9, 10, eff. Sept. 1, 1999.
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.
(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.
(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;
(J) the portfolio managers of the pool; and
(K) any changes or addenda to the offering circular.
(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, "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, a public funds investment
pool 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 net asset value. 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, portfolio
holdings shall be sold as necessary to maintain the ratio between
0.995 and 1.005.
(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.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995; Acts 1997, 75th Leg., ch. 1421, Sec. 9, eff. Sept. 1, 1997.
Sec. 2256.017. EXISTING INVESTMENTS. An entity is not required
to liquidate investments that were authorized investments at the
time of purchase.
Added by Acts 1995, 74th Leg., ch. 76, Sec. 5.46(a), eff. Sept.
1, 1995; Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995. Amended by Acts 1997, 75th Leg., ch. 1421, Sec. 10, eff.
Sept. 1, 1997.
Sec. 2256.019. RATING OF CERTAIN INVESTMENT POOLS. A public
funds 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 or no lower than investment
grade by at least one nationally recognized rating service with a
weighted average maturity no greater than 90 days.
Added by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995. Amended by Acts 1997, 75th Leg., ch. 1421, Sec. 11, eff.
Sept. 1, 1997.
Sec. 2256.020. AUTHORIZED INVESTMENTS: INSTITUTIONS OF HIGHER
EDUCATION. In addition to the authorized investments permitted
by this subchapter, an institution of higher education may
purchase, sell, and invest its funds and funds under its control
in the following:
(1) cash management and fixed income funds sponsored by
organizations exempt from federal income taxation under Section
501(f), Internal Revenue Code of 1986 (26 U.S.C. Section 501(f));
(2) negotiable certificates of deposit issued by a bank that has
a certificate of deposit rating of at least 1 or the equivalent
by a nationally recognized credit rating agency or that is
associated with a holding company having a commercial paper
rating of at least A-1, P-1, or the equivalent by a nationally
recognized credit rating agency; and
(3) corporate bonds, debentures, or similar debt obligations
rated by a nationally recognized investment rating firm in one of
the two highest long-term rating categories, without regard to
gradations within those categories.
Added by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995.
Sec. 2256.0201. AUTHORIZED INVESTMENTS; MUNICIPAL UTILITY. (a)
A municipality that owns a municipal electric utility that is
engaged in the distribution and sale of electric energy or
natural gas to the public may enter into a hedging contract and
related security and insurance agreements in relation to fuel
oil, natural gas, coal, nuclear fuel, and electric energy to
protect against loss due to price fluctuations. A hedging
transaction must comply with the regulations of the Commodity
Futures Trading Commission and the Securities and Exchange
Commission. If there is a conflict between the municipal charter
of the municipality and this chapter, this chapter prevails.
(b) A payment by a municipally owned electric or gas utility
under a hedging contract or related agreement in relation to fuel
supplies or fuel reserves is a fuel expense, and the utility may
credit any amounts it receives under the contract or agreement
against fuel expenses.
(c) The governing body of a municipally owned electric or gas
utility or the body vested with power to manage and operate the
municipally owned electric or gas utility may set policy
regarding hedging transactions.
(d) In this section, "hedging" means the buying and selling of
fuel oil, natural gas, coal, nuclear fuel, and electric energy
futures or options or similar contracts on those commodities and
related transportation costs as a protection against loss due to
price fluctuation.
Added by Acts 1999, 76th Leg., ch. 405, Sec. 48, eff. Sept. 1,
1999.
Amended by:
Acts 2007, 80th Leg., R.S., Ch.
7, Sec. 1, eff. April 13, 2007.
Sec. 2256.0202. AUTHORIZED INVESTMENTS: MUNICIPAL FUNDS FROM
MANAGEMENT AND DEVELOPMENT OF MINERAL RIGHTS. (a) In addition
to other investments authorized under this subchapter, a
municipality may invest funds received by the municipality from a
lease or contract for the management and development of land
owned by the municipality and leased for oil, gas, or other
mineral development in any investment authorized to be made by a
trustee under Subtitle B, Title 9, Property Code (Texas Trust
Code).
(b) Funds invested by a municipality under this section shall be
segregated and accounted for separately from other funds of the
municipality.
Added by Acts 2009, 81st Leg., R.S., Ch.
1371, Sec. 1, eff. September 1, 2009.
Sec. 2256.0205. AUTHORIZED INVESTMENTS; DECOMMISSIONING TRUST.
(a) In this section:
(1) "Decommissioning trust" means a trust created to provide the
Nuclear Regulatory Commission assurance that funds will be
available for decommissioning purposes as required under 10
C.F.R. Part 50 or other similar regulation.
(2) "Funds" includes any money held in a decommissioning trust
regardless of whether the money is considered to be public funds
under this subchapter.
(b) In addition to other investments authorized under this
subchapter, a municipality that owns a municipal electric utility
that is engaged in the distribution and sale of electric energy
or natural gas to the public may invest funds held in a
decommissioning trust in any investment authorized by Subtitle B,
Title 9, Property Code.
Added by Acts 2005, 79th Leg., Ch.
121, Sec. 1, eff. September 1, 2005.
Sec. 2256.021. EFFECT OF LOSS OF REQUIRED RATING. An investment
that requires a minimum rating under this subchapter does not
qualify as an authorized investment during the period the
investment does not have the minimum rating. An entity shall take
all prudent measures that are consistent with its investment
policy to liquidate an investment that does not have the minimum
rating.
Added by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995.
Sec. 2256.022. EXPANSION OF INVESTMENT AUTHORITY. Expansion of
investment authority granted by this chapter shall require a risk
assessment by the state auditor or performed at the direction of
the state auditor, subject to the legislative audit committee's
approval of including the review in the audit plan under Section
321.013.
Added by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995. Amended by Acts 2003, 78th Leg., ch. 785, Sec. 42, eff.
Sept. 1, 2003.
Sec. 2256.023. INTERNAL MANAGEMENT REPORTS. (a) Not less than
quarterly, the investment officer shall prepare and submit to the
governing body of the entity a written report of investment
transactions for all funds covered by this chapter for the
preceding reporting period.
(b) The report must:
(1) describe in detail the investment position of the entity on
the date of the report;
(2) be prepared jointly by all investment officers of the
entity;
(3) be signed by each investment officer of the entity;
(4) contain a summary statement, prepared in compliance with
generally accepted accounting principles, of each pooled fund
group that states the:
(A) beginning market value for the reporting period;
(B) additions and changes to the market value during the period;
(C) ending market value for the period; and
(D) fully accrued interest for the reporting period;
(5) state the book value and market value of each separately
invested asset at the beginning and end of the reporting period
by the type of asset and fund type invested;
(6) state the maturity date of each separately invested asset
that has a maturity date;
(7) state the account or fund or pooled group fund in the state
agency or local government for which each individual investment
was acquired; and
(8) state the compliance of the investment portfolio of the
state agency or local government as it relates to:
(A) the investment strategy expressed in the agency's or local
government's investment policy; and
(B) relevant provisions of this chapter.
(c) The report shall be presented not less than quarterly to the
governing body and the chief executive officer of the entity
within a reasonable time after the end of the period.
(d) If an entity invests in other than money market mutual
funds, investment pools or accounts offered by its depository
bank in the form of certificates of deposit, or money market
accounts or similar accounts, the reports prepared by the
investment officers under this section shall be formally reviewed
at least annually by an independent auditor, and the result of
the review shall be reported to the governing body by that
auditor.
Added by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995. Amended by Acts 1997, 75th Leg., ch. 1421, Sec. 12, eff.
Sept. 1, 1997.
Sec. 2256.024. SUBCHAPTER CUMULATIVE. (a) The authority
granted by this subchapter is in addition to that granted by
other law. Except as provided by Subsection (b), this subchapter
does not:
(1) prohibit an investment specifically authorized by other law;
or
(2) authorize an investment specifically prohibited by other
law.
(b) Except with respect to those investing entities described in
Subsection (c), a security described in Section 2256.009(b) is
not an authorized investment for a state agency, a local
government, or another investing entity, notwithstanding any
other provision of this chapter or other law to the contrary.
(c) Mortgage pass-through certificates and individual mortgage
loans that may constitute an investment described in Section
2256.009(b) are authorized investments with respect to the
housing bond programs operated by:
(1) the Texas Department of Housing and Community Affairs or a
nonprofit corporation created to act on its behalf;
(2) an entity created under Chapter 392, Local Government Code;
or
(3) an entity created under Chapter 394, Local Government Code.
Added by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995.
Sec. 2256.025. SELECTION OF AUTHORIZED BROKERS. The governing
body of an entity subject to this subchapter or the designated
investment committee of the entity shall, at least annually,
review, revise, and adopt a list of qualified brokers that are
authorized to engage in investment transactions with the entity.
Added by Acts 1997, 75th Leg., ch. 1421, Sec. 13, eff. Sept. 1,
1997.
Sec. 2256.026. STATUTORY COMPLIANCE. All investments made by
entities must comply with this subchapter and all federal, state,
and local statutes, rules, or regulations.
Added by Acts 1997, 75th Leg., ch. 1421, Sec. 13, eff. Sept. 1,
1997.
SUBCHAPTER B. MISCELLANEOUS PROVISIONS
Sec. 2256.051. ELECTRONIC FUNDS TRANSFER. Any local government
may use electronic means to transfer or invest all funds
collected or controlled by the local government.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995.
Sec. 2256.052. PRIVATE AUDITOR. Notwithstanding any other law,
a state agency shall employ a private auditor if authorized by
the legislative audit committee either on the committee's
initiative or on request of the governing body of the agency.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995.
Sec. 2256.053. PAYMENT FOR SECURITIES PURCHASED BY STATE. The
comptroller or the disbursing officer of an agency that has the
power to invest assets directly may pay for authorized securities
purchased from or through a member in good standing of the
National Association of Securities Dealers or from or through a
national or state bank on receiving an invoice from the seller of
the securities showing that the securities have been purchased by
the board or agency and that the amount to be paid for the
securities is just, due, and unpaid. A purchase of securities may
not be made at a price that exceeds the existing market value of
the securities.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995; Acts 1997, 75th Leg., ch. 1423, Sec. 8.67, eff. Sept. 1,
1997.
Sec. 2256.054. DELIVERY OF SECURITIES PURCHASED BY STATE. A
security purchased under this chapter may be delivered to the
comptroller, a bank, or the board or agency investing its funds.
The delivery shall be made under normal and recognized practices
in the securities and banking industries, including the book
entry procedure of the Federal Reserve Bank.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995; Acts 1997, 75th Leg., ch. 1423, Sec. 8.68, eff. Sept. 1,
1997.
Sec. 2256.055. DEPOSIT OF SECURITIES PURCHASED BY STATE. At the
direction of the comptroller or the agency, a security purchased
under this chapter may be deposited in trust with a bank or
federal reserve bank or branch designated by the comptroller,
whether in or outside the state. The deposit shall be held in the
entity's name as evidenced by a trust receipt of the bank with
which the securities are deposited.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. 1, eff. Sept. 1,
1995; Acts 1997, 75th Leg., ch. 1423, Sec. 8.69, eff. Sept. 1,
1997.