85R19739 KLA-D     By: Capriglione H.B. No. 1003     Substitute the following for H.B. No. 1003:     By:  Burrows C.S.H.B. No. 1003       A BILL TO BE ENTITLED   AN ACT   relating to investment of public funds.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Section 2256.009(a), Government Code, is amended   to read as follows:          (a)  Except as provided by Subsection (b), the following are   authorized investments under this subchapter:                (1)  obligations, including letters of credit, of the   United States or its agencies and instrumentalities;                (2)  direct obligations of this state or its agencies   and instrumentalities;                (3)  collateralized 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, including   obligations that are fully guaranteed or insured by the Federal   Deposit Insurance Corporation or by the explicit full faith and   credit of the United States;                (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; and                (7)  interest-bearing banking deposits that are   guaranteed or insured by:                      (A)  the Federal Deposit Insurance Corporation or   its successor; or                      (B)  the National Credit Union Share Insurance   Fund or its successor.          SECTION 2.  Section 2256.011, Government Code, is amended by   adding Subsection (e) to read as follows:          (e)  Section 1371.059(c) applies to the execution of a   repurchase agreement by an investing entity.          SECTION 3.  Sections 2256.014(a) and (b), Government Code,   are amended to read as follows:          (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   of 1940 (15 U.S.C. Section 80a-1 et seq.); and                (3)  complies with federal Securities and Exchange   Commission Rule 2a-7 (17 C.F.R. Section 270.2a-7), promulgated   under the Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et   seq.) [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; and                (3)  either:                      (A)  has a duration of one year or more and is   invested exclusively in obligations approved by this subchapter; or                      (B)  has a duration of less than one year and the   investment portfolio is limited to investment grade securities,   excluding asset-backed securities                [(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].          SECTION 4.  Section 2256.015, Government Code, is amended by   adding Subsection (d) to read as follows:          (d)  Section 1371.059(c) applies to the execution of a   guaranteed investment contract by an investing entity.          SECTION 5.  Sections 2256.016(b), (f), and (h), Government   Code, are amended to read as follows:          (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 secondary 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   in and withdraw funds from the pool; [and]                (12)  the performance history of the pool, including   yield, average dollar-weighted maturities, and expense ratios; and                (13)  the pool's policy regarding holding deposits in   cash.          (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, the governing body of the public   funds investment pool shall take action as the body determines   necessary to eliminate or reduce to the extent reasonably   practicable any dilution or unfair result to existing participants,   including a sale of portfolio holdings to attempt [shall be sold as   necessary] to maintain the ratio between 0.995 and 1.005.  In   addition to the requirements of its investment policy and any other   forms of reporting, a public funds investment pool created to   function as a money market mutual fund shall report yield to its   investors in accordance with regulations of the federal Securities   and Exchange Commission applicable to reporting by money market   funds.          (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 the highest liquidity   rating given to United States Treasury obligations [AAA or AAA-m or   at an equivalent rating] by at least one nationally recognized   rating service.          SECTION 6.  Section 2256.019, Government Code, is amended to   read as follows:          Sec. 2256.019.  RATING OF CERTAIN INVESTMENT POOLS. A   public funds investment pool must be continuously rated no lower   than the highest liquidity rating given to United States Treasury   obligations [AAA or AAA-m or at an equivalent rating] by at least   one nationally recognized rating service.          SECTION 7.  Subchapter A, Chapter 2256, Government Code, is   amended by adding Section 2256.0206 to read as follows:          Sec. 2256.0206.  AUTHORIZED INVESTMENTS: HEDGING   TRANSACTIONS. (a)  In this section:                (1)  "Eligible entity" means a state agency or   political subdivision that is an issuer as defined by Section   1371.001.                (2)  "Eligible project" has the meaning assigned by   Section 1371.001.                (3)  "Hedging" means acting to protect against economic   loss due to price fluctuation of a commodity or related investment   by entering into an offsetting position or using a financial   agreement or producer price agreement in a correlated security,   index, or other commodity.          (b)  This section prevails to the extent of any conflict   between this section and:                (1)  another law; or                (2)  an eligible entity's municipal charter, if   applicable.          (c)  The governing body of an eligible entity shall establish   the entity's policy regarding hedging transactions.          (d)  An eligible entity may enter into hedging transactions,   including hedging contracts, and related security, credit, and   insurance agreements in connection with commodities used by an   eligible entity in the entity's general operations, with the   acquisition or construction of a capital project, or with an   eligible project. A hedging transaction must comply with the   regulations of the federal Commodity Futures Trading Commission and   the federal Securities and Exchange Commission.          (e)  A hedging contract and any security, credit, or   insurance agreement related to a hedging contract, including a   letter of credit reimbursement agreement, may not have a term that   exceeds five years. An eligible entity may pledge as security for   and to the payment of an agreement described by this subsection any   revenue the entity is authorized by law to pledge to the payment of   any other obligation.          (f)  Section 1371.059(c) applies to the execution by an   eligible entity of a hedging contract and any related security,   credit, or insurance agreement.          (g)  An eligible entity may credit any amount the entity   receives under a hedging contract against expenses associated with   a commodity purchase.          (h)  An eligible entity's cost of or payment under a hedging   contract or agreement may be considered:                (1)  an operation and maintenance expense of the   eligible entity;                (2)  an acquisition expense of the eligible entity;                (3)  a project cost of an eligible project; or                (4)  a construction expense of the eligible entity.          SECTION 8.  The changes in law made by this Act apply only to   authorized investments of public funds governed by Chapter 2256,   Government Code, as amended by this Act, that are made on or after   the effective date of this Act. An authorized investment of public   funds made before the effective date of this Act is governed by the   law in effect immediately before that date, and that law is   continued in effect for that purpose.          SECTION 9.  This Act takes effect immediately if it receives   a vote of two-thirds of all the members elected to each house, as   provided by Section 39, Article III, Texas Constitution.  If this   Act does not receive the vote necessary for immediate effect, this   Act takes effect September 1, 2017.