HBA-SEB C.S.H.B. 3009 76(R)BILL ANALYSIS


Office of House Bill AnalysisC.S.H.B. 3009
By: Greenberg
Pensions and Investments
4/30/1999
Committee Report (Substituted)



BACKGROUND AND PURPOSE 

C.S.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 advisory 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. 

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)  Authorizes an employee of a management firm to be considered an
employee of an investing entity for the purpose of being designated as the
investment officer if the governing body of the investing entity has
contracted with the management firm to perform duties as the staff of the
investing entity.  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 advisory firm under contract.  Provides that a business
organization includes an investment advisory firm under contract 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 2256.008, Government Code, as follows:

Sec. 2256.008.  INVESTMENT TRAINING; LOCAL GOVERNMENTS.  (a)  Requires the
treasurer, chief financial officer, if applicable, and the investment
officer of a local government to attend at least one training session
conducted by an independent source and containing at least eight 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 the treasurer, chief financial officer, if applicable, and
the investment officer of a local government to satisfy the training
requirement with four hours of appropriate instruction in a two-year period
if the local government has investments of less than $2 million and invests
in only certain specified investments.   

(c)  Provides that an individual or business organization that offers to
sell investments to an investing entity is not an independent source for
purposes of this section.   

(d)  Created from existing text.

SECTION 6.  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 7.  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 8.  Amends the heading of Section 2256.015, Government Code, as
follows: 

Sec. 2256.015.  New title:  AUTHORIZED INVESTMENTS:  GUARANTEED INVESTMENT
CONTRACTS. 

SECTION 9.  Amends Section 2256.015(a), Government Code, to delete text
specifying that the authorized investments are for state agencies.   

SECTION 10.  Effective date: September 1, 1999.

SECTION 11.  Emergency clause.
COMPARISON OF ORIGINAL TO SUBSTITUTE

The substitute completely changes the original. The substitute modifies
investment options for governmental entities.  The original would have
provided that all state agencies and local governments are subject to the
application of Chapter 2256, Government Code (Public Funds Investment),
unless otherwise exempt.  The original would have required an entity
subject to that chapter to meet its requirements applicable to the
investment of all funds held or invested by the entity; investment
standards, including the use of nationally recognized rating services for
investments; accounting standards for financial statements, compliance
audits unless otherwise exempt; and other practices and procedures
advisable to ensure prudent investment and accountability.   

For a more complete analysis of the substitute, please see the
Section-by-Section Analysis portion of this document. 

The substitute redesignates the emergency clause from SECTION 2 of the
original to SECTION 11 of the substitute and changes the version from the
long version in the original to the short version in the substitute.