HBA-DMH S.B. 982 77(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 982 By: Duncan Pensions & Investments 5/18/2001 Engrossed BACKGROUND AND PURPOSE Currently, all agencies that invest state funds have in place ethics guidelines and financial disclosure requirements for board members and staff involved in the investment decision-making process. The investment policies and disclosure requirements, however, vary from one agency to another. Senate Bill 982 establishes a minimum set of ethics guidelines and financial disclosure requirements for any agency that invests state funds. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the governing body of a state governmental entity in SECTION 1 (Sections 2262.006 and 2262.007, Government Code) and SECTION 2 and to the state auditor in SECTION 1 (Section 2262.006, Government Code) of this bill. ANALYSIS Senate Bill 982 amends the Government Code to require the governing body of a state governmental entity that manages or invests state funds or for which state funds are managed or invested to enforce an ethics policy for members of the governing body and for officers and employees of, consultants and advisors to, and brokers and money managers who provide financial services for the state governmental entity (Sec. 2262.002). The bill requires each officer and employee of a state governmental entity who exercises significant decision-making or fiduciary authority in connection with the management or investment of state funds to file a financial disclosure statement and an annual compliance statement with a person designated by the governing body and with the state auditor. The bill sets forth provisions relating to the contents, filing, and maintenance of the financial disclosure and compliance statements. The bill requires each member of the governing body of a state governmental entity that manages or invest state funds or for which state funds are managed or invested to file an annual compliance statement (Secs. 2262.003 and 2262.005). The bill requires a member of the governing body of, or an officer or employee of, a state governmental entity who has a direct or indirect business or commercial relationship that could reasonably be expected to diminish the person's independence of judgment in the performance of the person's responsibilities in connection with the management or investment of state funds to disclose the relationship in writing to a person designated by the governing body and to the state auditor. The bill prohibits a person who files or is required to file a disclosure statement from giving advice or making decisions about matters affected by the conflict of interest unless the governing body, after consultation with the general counsel of the state governmental entity, expressly waives this prohibition. The bill requires the state governmental entity to maintain a written record of each waiver and the reasons for the waiver. The bill authorizes the governing body to delegate the authority to waive prohibitions that affect an officer or employee to one or more designated officers or employees. The bill authorizes the governing body to adopt criteria for designated officers or employees to use to determine the kinds of relationships that do not constitute a material conflict of interest. The bill authorizes a multimember governing body to delegate such authority only by adopting an order on a vote of a majority of its members at an open meeting called and held in compliance with open meetings provisions. The bill requires the governing body to have the order entered into the minutes of the meeting (Sec. 2262.004). The bill requires the governing body by rule to adopt standards of conduct applicable to consultants, advisors, money managers, and brokers who advise the state governmental entity or a member of the governing body of the state governmental entity in connection with the management or investment of state funds or provide financial services to the state governmental entity and who: _may reasonably be expected to receive more than $10,000 in compensation from the entity during a fiscal year; or _render important investment or funds management advice to the entity or a member of the governing body of the entity. The bill requires a consultant, advisor, money manager, or broker who advises a state governmental entity or a member of the governing body of the state governmental entity in connection with the management or investment of state funds or provides financial services to the state governmental entity to disclose in writing to the administrative head of the entity and to the state auditor any relationship the consultant, advisor, money manager, or broker has with any party to a transaction with the state governmental entity, other than a relationship necessary to the investment or funds management services that the consultant, advisor, money manager, or broker performs for the state governmental entity, if the relationship could reasonably be expected to diminish the person's independence of judgment in the performance of the person's responsibilities to the state governmental entity. The bill requires the consultant, advisor, money manager, or broker to disclose a relationship without regard to the type of relationship and requires such persons to file annually a statement with the administrative head of the applicable state governmental entity and with the state auditor. The statement must disclose each relationship. The bill requires the state auditor by rule to prescribe the date by which the statement must be filed and authorizes the state auditor to prescribe a uniform date or different dates for statements filed in relation to different state governmental entities. The bill requires the consultant, advisor, money manager, or broker to file a new or amended statement with the administrative head of the applicable state governmental entity and with the state auditor whenever there is new information to report (Sec. 2262.006). The bill requires the governing body by rule to require consultants, advisors, money managers, and brokers who provide investment or funds management advice to the state governmental entity or provide financial services to the state governmental entity to file regularly with the entity a report detailing any expenditure of more than $250 made on behalf of a member of the governing body or an officer or employee of the state governmental entity (Sec. 2262.007). The bill requires the governing body to designate an employee to be the custodian of the statements, waivers, and reports for purposes of public disclosure (Sec. 2262.008). The bill requires the state auditor to prescribe forms for financial disclosure statements, annual ethics compliance statements, disclosure statements of conflicts of interests, and waivers of the prohibition against involvement in a matter affected by a conflict of interest (Sec. 2262.009). The bill requires each state governmental entity required to adopt rules in the Act to adopt its initial rules in time for the rules to take effect not later than January 1, 2002 (SECTION 2). The bill set forth requirements for the applicability of ethics requirements for managing or investing state funds in relation to other law, including the provision that the law that imposes a stricter ethics requirement controls (Sec. 2262.001). EFFECTIVE DATE September 1, 2001.