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.