2010-002 RES AFFIRMING COP HAS COMPLIED WITH REQUIREMENTS OF PUBLIC FUNDS INVESTMENT ACTRESOLUTION NO. 2010-002
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PARIS, TEXAS,
AFFIRMING THAT THE CITY OF PARIS HAS COMPLIED WITH THE
REQUIREMENTS OF THE PUBLIC FUNDS INVESTMENT ACT; AMENDING
THE CITY'S INVESTMENT POLICY; MAKING OTHER FINDINGS AND
PROVISIONS RELATED TO THE SUBJECT; AND PROVIDING AN
EFFECTIVE DATE.
WHEREAS, Chapter 2256 of the Texas Government Code, commonly known as the
"Public Funds Investment Act," requires the chief financial officer of the City to attend
investment training; and,
WHEREAS, the City of Paris approves of the investment training course sponsored
by the Texas Municipal League or any other independent source; and,
WHEREAS, the chief financial officer of the City of Paris has attended an investment
training course sponsored by the Texas Municipal League or other independent source, as
required by the Public Funds Investment Act; and,
WHEREAS, the Public Funds Investment Act requires the City to adopt an
investment policy by rule, order, ordinance, or resolution; and,
WHEREAS, the City Council of the City of Paris did heretofore, on the 12th day of
February, 1990, in Resolution IVo. 90-009, adopt an investment policy, which was amended
on the 13th day of November, 1995, by Resolution No. 95-122; the 9th day of March, 1998,
by Resolution No. 98-036; the 11th day of January, 1999, by Resolution No. 99-003; the
12th day of February 2001, by Resolution No. 2001-010; the 14th day of January, 2002, by
Resolution No. 2002-021; the 13th day of January, 2003, by Resolution No. 2003-005; the
12th day of January, 2004, by resolution No. 2004-001; the 10th day of January, 2005, by
Resolution No. 2005-003; the 9t" day of January, 2006 by Resolution No. 2006-003; the 8tn
day of January, 2007, by Resolution No. 2007-004; the 28th day of January, 2008, by
Resolution 2008-005; the 12th day of January, 2009, by Resolution 2009-001, and it is
deemed appropriate that such policy be further amended; and,
WHEREAS, the investment policy and incorporated revisions attached hereto and
incorporated herein as Exhibit "A" complies with the Public Funds Investment Act and
authorizes the investment of City funds in safe and prudent investments;
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
PARIS, TEXAS:
Section 1. That the findings set out in the preamble to this resolution are hereby
in all things approved.
Section 2. That the City of Paris has complied with the requirements of the Public
Funds Investment Act.
Section 3. That the Investment Policy of the City of Paris, as amended, be and the
same is hereby approved and adopted as set forth in Exhibit "A" attached hereto and
incorporated herein for all purposes.
Section 4. That this resolution shall be effective from and after its date of passage.
PASSED AND APPROVED this 11th day of January, 2010.
ATTEST:
nice Ellis, City Clerk
APPROVED AS TO FORM:
W. Kent Mc a, ' Attorney
P ~
sse _
Ja s Freelen, Mayor
INVESTMENT POLICY
January 2010
1.0 POLICY AND INVESTMENT STRATEGY
It is the policy of the City of Paris to invest public funds in a manner which will provide the highest
investment return with the maximum security while meeting the daily cash flow demands of the entity and
conforming to all state and local statutes governing the investment of public funds.
Investment strategies for operating funds have as their primary objective to assure that anticipated flows are
matched with adequate investment liquidity. The secondary objective is to create a portfolio structure which
will experience minimal volatility during economic cycles. This may be accomplished by purchasing high
quality, short to medium securities which will complement each other in a laddered maturity structure. The
dollar weighted average maturity target will be two years or less.
Investment strategies for debt service funds shall have as the primary objective the assurance of investment
liquidity adequate to cover the debt service obligation on the required payment date. Securities purchased
shall not have a stated final maturity which exceeds the debt service payment date.
Investment strategies for debt service reserve funds shall have as the primary objective the ability to
generate a dependable revenue stream to the appropriate debt service fund from securities with a low degree
of volatility. Securities should be of high quality and consistent with bond ordinance requirements. Short to
medium maturities generally meet these requirements.
Investment strategies for special projects or special purpose funds will have as their primary objective to
assure that anticipated cash flows are matched with adequate investment liquidity. The stated final maturity
dates of securities held should not exceed the estimated project or purpose completion date.
2.0 SCOPE
This investment policy applies to the funds listed below. These funds are accounted for in the City's
Comprehensive Annual Financial Report.
2.1 Consolidated Cash Funds
2.1.01 General Fund
2.1.10 Water and Sewer Fund
2.1.11 Capital Projects Fund
2.1.12 WW/SS Revenue Bond 2000 Construction Fund
2.1.13 Equipment Replacement Fund
2.1.20 Special Revenue
2.1.21 Child Safety Fund
2.1.22 Health Department
2.1.25 Grant Fund
2,1,27 Water Contract Fund
2.1.41 Tax & Revenue CO 2000 Construction
2.1.42 CO Series 2002 Construction Fund
2.1.50 Consolidated Payroll
2.1.58 2003 GO Refunding Bonds I& S
2.1.72 Library Memorial Fund
2.1.79 Library Expendable Fund
2.1.80 Library Permanent Fund
2.2 Non-Consolidated Cash Funds
2.1.02 Economic Development Fund EX HIB IT _L
2.1.30 Community Development Grant Fund
2.1.50 Revenue Bonds Sinking Fund
2.1.55 Tax & Revenue CO 2000 I& S Fund
2.1.56 Tax & Revenue CO 2002 I& S Fund
2.1.00 All Other Funds
3.PRUDENCE
Investments shall be made with judgment and care--under circumstances then prevailing--which
persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for
speculation, but for investment, considering the probable safety of their capital as well as the probable
income to be derived.
3.1 The standard of prudence to be used by investment officials shall be the "prudent person"
standard and shall be applied in the context of managing an overall portfolio. Investment officers
acting in accordance with written procedures and the investment policy and exercising due diligence
shall be relieved of personal responsibility for an individual security's credit risk or market price
changes, provided deviations from expectations are reported in a timely fashion and appropriate action
is taken to control adverse developments.
4.0 OBJECTIVE
The primary objectives, in priority order, of the City's investment activities shall be:
4.1 SAFETY: Safety of principal is the foremost objective of the investment program. Investments
of the City shall be undertaken in a manner that seeks to insure the preservation of capital in the overall
portfolio. To attain this objective, diversifcation is required in order that potential losses on individual
securities do not exceed the income generated from the remainder of the portfolio.
4.2 LIQUIDITY: The City's investment portfolio will remain sufficiently liquid to enable the City of
meet all operating requirements which might be reasonably anticipated.
4.3 RETURN ON INVESTMENTS: The City's investment portfolio will be designed with the
objective of attaining a rate of return throughout budgetary and economic cycles, commensurate with
the City's investment risk constraints and the cash flow characteristics of the portfolio.
5.0 DELEGATION OF AUTHORITY AND TRAINING
Authority to manage the City's investment program is derived from the City's charter and reconfirmed
by adoption of this policy by the City Council. Management responsibility for the investment program
is hereby delegated to the Director of Finance who shall be responsible for all transactions undertaken.
The Finance Director may utilize appropriate staff personnel to assist in this area when necessary.
Procedures and controls to regulate the details of the investment program may be developed by the
Finance Director as needed. The investment officer shall attend at least one training session relating to
the officer's responsibility under the Act within 12 months of assuming duties and complete at least 10
hours of training every two years thereafter. Such training shall be provided by any independent
source outside the City such as the Texas Municipal League or the Government Finance Officers
Association.
6.0 CONFLICTS
Officers and employees involved in the investment process shall refrain from personal business activity
that could conflict with proper execution of the investment program, or which could impair their ability
to make impartial investment decisions. Employees and investment officials shall disclose to the City
Manager any material financial interests in financial institutions that conduct business within this
Jurisdiction, and they shall further disclose any large personal financiaVinvestment positions that could
be related to the performance of the City, particularly with regard to the time of purchases and sales.
7.0 AUTHORIZED FINANCIAL DEALERS AND INSTITUTIONS
The Finance Director will maintain a list of financial institutions authorized to provide investment
services. In addition, a list will also be maintained of approved security broker/dealers who are
authorized to provide investment services in the State of Texas. These may include primary dealers or
regional dealers that quality under Securities & Exchange Commission Rule 15C3-1 (uniform net
capital rule). No public deposit shall be made except in a qualified public depository as established by
state law. All financial institutions and broker/dealers who desire to become qualified bidders for
investment transactions must supply the Finance Director with the following: audited financial
statement, proof of National Association of Security Dealers certification, trading resolution, proof of
state registration, completed broker/dealer questionnaire if requested, and certification of having read
entity's investment policy.
An annual review of the financial condition and registrations of qualified bidders will be conducted by
the Finance Director.
A current audited t"inancial statement is required to be on fle for each financial institution and
broker/dealer in which the City of Paris invests.
8.0 AUTHORIZED/SUITABLE INVESTMENTS
The City of Paris is empowered by statue to invest in the Types of securities authorized by Chapter 2256
of the Government Code. A copy is attached as exhibit A. Even if allowed by the Public Funds
Investment Act, the City of Paris will not invest in securities known as "collateralized debt obligations"
which are pools of debt that include sub-prime mortgages.
9.0 COLLATERALIZATION
Collateralization will be required on two types of investments: certificates of deposit and repurchase
(and reverse) agreements. In order to anticipate market changes and provide a level of security for all
funds, the collateralization level will be 100% of market value of principal and accrued interest.
The City of Paris chooses to limit collateral to the extent it is limited by Article 105 Revised Civil Statues
of Texas. Collateral will always be held by an independent third party with whom the entity has a
current custodial agreement. A clearly marked evidence of ownership (safekeeping receipt) must be
supplied to the entity and retained. The right of collateral subsNtution is granted.
10.0 SAFEKEEPING AND CUSTODY
All security transactions, including collateral for repurchase agreements, entered into by the City of
Paris shall be conducted on a delivery-versus-payment (DVP) basis. Securities will be held by a third
party custodian designated by the Finance Director and evidenced by safekeeping receipts.
11.0 DIVERSIFICATION
The City of Paris will diversify its investments by security type and institution. With the exception of
obligations of the United States or its agencies and authorized pools, no more than 50% of the City of
Paris total investment portfolio will be invested in a single financial institution with the exception of its
local depository.
12.0 MAXIMUM MATURITIES
To the extent possible, the City of Paris will attempt to match its investments with anticipated cash flow
requirements. Unless matched to a specific cash flow, the City of Paris will not directly invest in rom
Paris
the
the
may securities maturing uchase a e meentsf us ng longer-da ed ►nv st Ient enot,to e ceed 15 years t
collaterahze its rep gr
maturity.
Reserve funds may be invested in securities exceeding 10 years if the maturity of such investments is
made to coincide as nearly as practicable with the expected use of the funds.
13.0 INTERNAL CONTROL
The Finance Director shall establish an annual process of independent review by an external auditor.
This review will provide internal control by assuring compliance with policies and procedures.
14.0 PERFORMANCE STANDARDS
The investment portfolio shall be designed with the objective of obtaining a rate of return throughout
budgetary and economic cycles, commensurate with the investment risk constraints and the cash flow
needs.
14.1 MARKET YIELD (BENCAMARK): The City of Paris investment strategy is active. Given this
strategy, the basis used by the Finance Director to determine whether market yields are being achieved
shall be the six-month U.S. Treasury Bill and the Average Fed Funds rate.
15.0 REPORTING
The Finance Director is charged with the responsibility of including a market report on investment
activity and returns in the City of Paris' Financial Report. Reports must include all information
required by Section 2256.023 of the statute.
16.0 The market price of acquired investments shall be monitored by using information found in the
Wall Street Journal and/or through Bloomberg Information Services, and/or through a securities
dealer's trading desk.
17A INVESTMENT POLICY ADOPTION
The City of Paris investment policy shall be adopted by resolution of the City Council. The policy shall
be reviewed and re-adopted annually by the City Council and any modifications made thereto must be
approved by the City Council.
GOVERNMENT CODE 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 pYOCeeds" means the proceeds from the sale
of bonds, notes, and other obligations issued by an entity, and
reserves and funds maintained by an entity foY 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 treasuYy; 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.
"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,
1
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, authoYity, 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.
(g) "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 SecuYities 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; oY
(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
2
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. l,
1995; Acts 1997, 75th Leg., ch. 1421, Sec. 1, eff. Sept. l, 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 5ecurities 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
3
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. l, 1999.
Sec. 2256.004. APPLICABILITY. (a) This subchapter does
not apply to:
(1) a public retirement system as def ined 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. l, eff. Sept. l,
1995; Acts 1997, 75th Leg., ch. 505, Sec. 24, eff. Sept. 1, 1997;
Acts 1997, 75th Leg., ch. 1421, Sec. 2, eff. Sept. l, 1997; Acts
1999, 76th Leg., ch. 62, Sec. 8.21, eff. Sept. l, 1999; Acts 1999,
76th Leg., ch. 1454, Sec. 3, eff. Sept. 1, 1999.
INVESTMENT
Sec. 2256.005. INVESTMENT POLICIES;
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;
(Z) primarily emphasize safety of principal and
liquidity;
4
(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
5
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
6
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 off icer or employee of a commission created under
Chapter 391, Local Government Code, is ineligible to be designated
as an investment off icer 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
off icer'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 officeY 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 acquiYed 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
7
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.
(1) The investment officer of an entity may not acquire or
otherwise obtain any authorized investment descYibed 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
8
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 perfoYmed 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 detexmines 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. l,
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. l, 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
9
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 goveYning 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 off ice 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. l,
1995; Acts 1997, 75th Leg., ch. 73, Sec. l, 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
10
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 subchapteY from
an independent source approved by the goveYning body of the local
government or a designated investment committee advising the
investment officeY 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,
11
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. l, eff. Sept. l,
1995; Acts 1997, 75th Leg., ch. 1421, Sec. 5, eff. Sept. l, 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, o£ the
United States or its agencies and instrumentalities;
(2) direct obligations of this state oY its agencies
and instrumentalities;
(3) collatesalized 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.
12
(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. l,
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 authoTity 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:
13
(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. l, 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
14
(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 goveYnment securities
dealer, as def ined 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. l,
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:
15
(A) pledged securities described by Section
2256.009;
by a bank that is :
(B) pledged irrevocable letters of credit issued
(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;
16
(2) will be, in accordance with its teYms, 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. l, eff. Sept. l,
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. l, 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
17
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
mutualfund.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. l, eff. Sept. 1,
1995; Acts 1997, 75th Leg., ch. 1421, Sec. 7, eff. Sept. l, 1997;
Acts 1999, 76th Leg., ch. 1454, Sec. 8, eff. Sept. 1, 1999.
18
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 authoYizing 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, 5ec. 1, eff. Sept. 1,
1995; Acts 1997, 75th Leg., ch. 1421, Sec. 8, eff. Sept. l, 1997;
Acts 1999, 76th Leg., ch. 1454, Sec. 9, 10, eff. Sept. 1, 1999.
19
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 secondaYy 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
20
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 conf irmations; and
(2) a monthly Yeport 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 localfunds.
(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.
21
(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. l, 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 t ime of pur chase .
Added by Acts 1995, 74th Leg., ch. 76, Sec. 5.46(a), eff. Sept. l,
1995; Acts 1995, 74th Leg., ch. 402, Sec. l, 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
22
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. l,
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-l, 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 ratingfirm
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. l, 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
23
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. 2256.0205. 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.
24
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. l, eff. Sept. 1, 1995.
Amended by Acts 2003, 78th Leg., ch. 785, Sec. 42, eff. Sept. l,
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;
entity;
(3) be signed by each investment officer of the
(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
25
during the period;
(C) ending market valuefor 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 repozting
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
26
(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
27
collected or controlled by the local government.
Amended by Acts 1995, 74th Leg., ch. 402, Sec. l, eff. Sept.
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. l, eff. Sept. l,
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. l, eff. Sept. l,
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
28
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. l, eff. Sept. l,
1995; Acts 1997, 75th Leg., ch. 1423, Sec. 8.69, eff. 5ept. 1,
1997.
29