HBA-SEB H.B. 3009 76(R)BILL ANALYSIS Office of House Bill AnalysisH.B. 3009 By: Greenberg Pensions and Investments 7/20/1999 Enrolled BACKGROUND AND PURPOSE H.B. 3009 authorizes the governing body of an investing entity, such as a local government, state agency, or nonprofit corporation acting on behalf of a local government or state agency, to contract with a registered investment management firm to provide for the investment and management of its public funds or other funds under its control. This bill further modifies investment options for governmental entities. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 2256.002(10), Government Code, to redefine "qualified representative" to include a person who is an officer or principal of an investment advisory firm. SECTION 2. Amends Section 2256.003, Government Code, to authorize the governing body of an investing entity, such as a local government, state agency, or nonprofit corporation acting on behalf of a local government or state agency, to contract with a registered investment advisory firm to provide for the investment and management of its public funds or other funds under its control. Prohibits a contract from being for a term longer than two years. Provides that a renewal or extension of the contract must be made by the governing body of the investing entity by ordinance, order, or resolution. Establishes that 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. SECTION 3. Amends Section 2256.004, Government Code, as amended by Chapters 505 and 1421, Acts of the 75th Legislature, Regular Session, 1997, to provide that this subchapter (Authorized Investments for Governmental Entities) does not apply to an investment donated to an investing entity for a particular purpose or under terms of use specified by the donor. Redesignates Subsection (a)(5) to (a)(6). Makes conforming changes. SECTION 4. Amends Section 2256.005, Government Code, by amending Subsections (f), (k), and (m) and adding Subsections (n) and (o), as follows: (f) Provides that 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. Provides that authority granted to a fiduciary, rather than 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, or until the expiration of the contract with the investing entity if an investment advisory firm. Provides that the governing body of the investing entity retains ultimate responsibility as fiduciaries of the assets of the entity. Makes conforming changes. (k) Requires a written copy of the investment policy to be presented to an investment management firm under contract with an investing entity to invest or manage the entity's investment portfolio. Provides that a business organization includes an investment management firm under contract with an investing entity to invest or manage the investing entity's investment portfolio, for the purposes of this subsection. (m) Requires an investment entity, other than a state agency, to annually perform a compliance audit of management controls on investments and adherence to investment policies. Makes a conforming change. (n) Requires a state agency to arrange for a compliance audit of management controls on investments and adherence to investment policies at least once every two years, except as provided by Subsection (o). Requires the compliance audit to be performed by the agency's internal auditor or by a private auditor. Requires a state agency to report the results to the state auditor not later than January 1 of each even-numbered year. Requires a state agency to report to the state auditor other information the state auditor determines necessary to assess compliance with laws and policies applicable to state agency investments. Requires a state agency report to be prepared in a manner the state auditor prescribes. (o) Provides that the audit requirements of Subsection (n) do not apply to assets of a state agency that are invested by the comptroller. SECTION 5. Amends Section 2256.007(c), Government Code, to provide that training must include education in diversification of investment portfolio. SECTION 6. Amends Section 2256.008, Government Code, as follows: Sec. 2256.008. INVESTMENT TRAINING; LOCAL GOVERNMENTS. (a) Requires the treasurer, chief financial officer, and the investment officer of a local government, except as provided by Subsection (b), to attend at least one training session conducted by an independent source approved by the governing body of the local government or a designated investment committee advising the investment officer and containing at least 10 hours of instruction relating to the person's responsibilities. Requires those persons to attend an investment training session at least once every two years and receive at least eight, rather than 10, hours of instruction, except as provided by Subsection (b). (b) Authorizes 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 to satisfy the training requirement by having an officer of the governing body attend four hours of appropriate instruction in a two-year period. Provides that 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) Makes a conforming change. (d) Requires each individual, association, business, organization, governmental entity, or other person that provides training to report to the comptroller a list of the governmental entities for which the person provided required training under this section during that calendar year not later than December 31 each year. Establishes that an individual's reporting requirements are satisfied by a report of the individual's employer or the sponsoring or organizing entity of a training program or seminar. SECTION 7. Amends Section 2256.009(a), Government Code, to provide that bonds issued, assumed, or guaranteed by the state of Israel are authorized investments, except as provided by Subsection (b) (regarding unauthorized investments). Makes a conforming change. SECTION 8. Amends Section 2256.014(c), Government Code, to delete existing text which provides that an entity is not authorized to invest in the aggregate more than 80 percent of its monthly average fund balance in money market mutual funds. Redesignates Subdivision (4) to (3). SECTION 9. Amends the heading of Section 2256.015, Government Code, as follows: Sec. 2256.015. New title: AUTHORIZED INVESTMENTS: GUARANTEED INVESTMENT CONTRACTS. SECTION 10. Amends Section 2256.015(a), Government Code, to delete text specifying that the authorized investments are for state agencies. SECTION 11. Effective date: September 1, 1999. SECTION 12. Emergency clause.