By: Middleton, Hinojosa of Nueces S.B. No. 2642               A BILL TO BE ENTITLED   AN ACT   relating to authorized investments by governmental entities.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Section 2256.002, Government Code, is amended by   adding Subdivision (9-a) to read as follows:                (9-a)  "Qualified manager" means:                      (A)  an investment management firm registered:                            (i)  under the Investment Advisers Act of   1940 (15 U.S.C. Section 80b-1 et seq.); or                            (ii)  with the State Securities Board;                      (B)  a bank, as defined by Section 3, Federal   Deposit Insurance Act (12 U.S.C. Section 1813); or                      (C)  a bank holding company, as defined by Section   2(a), Bank Holding Company Act of 1956 (12 U.S.C. Section 1841(a)).          SECTION 2.  Section 2256.003(b), Government Code, is amended   to read as follows:          (b)  In the exercise of its powers under Subsection (a), the   governing body of an investing entity may contract with a qualified   manager [an investment management firm registered under the   Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.) or   with the State Securities Board] to provide for the investment and   management of its public funds or other funds under its control. A   contract made under authority of this subsection may not be for a   term longer than two years. A renewal or extension of the contract   must be made by the governing body of the investing entity by order,   ordinance, or resolution.          SECTION 3.  Section 2256.016, Government Code, is amended to   read as follows:          Sec. 2256.016.  AUTHORIZED INVESTMENTS: INVESTMENT POOLS.   (a) An entity may invest its funds and funds under its control   through an eligible investment pool if the governing body of the   entity by rule, order, ordinance, or resolution, as appropriate,   authorizes investment in the particular pool. An investment pool   shall invest the funds it receives from entities in authorized   investments permitted by this subchapter. An investment pool may   invest its funds in money market mutual funds to the extent   permitted by and consistent with this subchapter and the investment   policies and objectives adopted by the investment pool.          (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;                (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; and                (14)  written confirmation in readily visible font and   positioning on the disclosure that there is no sponsorship   agreement or royalty paid to any association or organization from   funds or interest income of the pool.          (c)  To maintain eligibility 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:                (1)  investment transaction confirmations; and                (2)  a monthly report that contains, at a minimum, the   following information:                      (A)  the types and percentage breakdown of   securities in which the pool is invested;                      (B)  the current average dollar-weighted   maturity, based on the stated maturity date, of the pool;                      (C)  the current percentage of the pool's   portfolio in investments that have stated maturities of more than   one year;                      (D)  the book value versus the market value of the   pool's portfolio, using amortized cost valuation;                      (E)  the size of the pool;                      (F)  the number of participants in the pool;                      (G)  the custodian bank that is safekeeping the   assets of the pool;                      (H)  a listing of daily transaction activity of   the entity participating in the pool;                      (I)  the yield and expense ratio of the pool,   including a statement regarding how yield is calculated;                      (J)  the portfolio managers of the pool; [and]                      (K)  any changes or addenda to the offering   circular; and                      (L)  written confirmation in readily visible font   and positioning on the disclosure that there is no sponsorship   agreement or royalty paid to any association or organization from   funds or interest income of the pool.          (d)  An entity by contract may delegate to an investment pool   the authority to hold legal title as custodian of investments   purchased with its local funds.          (e)  In this section, for purposes of an investment pool for   which a $1.00 net asset value is maintained, "yield" shall be   calculated in accordance with regulations governing the   registration of open-end management investment companies under the   Investment Company Act of 1940, as promulgated from time to time by   the federal Securities and Exchange Commission.          (f)  To be eligible to receive funds from and invest funds on   behalf of an entity under this chapter:                (1)  a public funds investment pool that uses amortized   cost or fair value accounting must mark its portfolio to market   daily; [and]                (2)  if the investment pool uses amortized cost:                      (A)  the investment pool must, to the extent   reasonably possible, stabilize at a $1.00 net asset value, when   rounded and expressed to two decimal places;                      (B)  the governing body of the investment pool   must, 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, 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 to maintain the ratio between 0.995 and 1.005;   and                      (C)  the investment pool must, in addition to the   requirements of its investment policy and any other forms of   reporting, report yield to its investors in accordance with   regulations of the federal Securities and Exchange Commission   applicable to reporting by money market funds; and                (3)  an investment pool must invest at least 35 percent   of the pool's funds with an authorized investment described by   Sections 2256.009(a)(7) or (8) or 2256.010 in a bank located in this   state.          (g)  To be eligible to receive funds from and invest funds on   behalf of an entity under this chapter, a public funds investment   pool must have an advisory board composed:                (1)  equally of participants in the pool and other   persons who do not have a business relationship with the pool and   are qualified to advise the pool, for a public funds investment pool   created under Chapter 791 and managed by a state agency; or                (2)  of participants in the pool and other persons who   do not have a business relationship with the pool and are qualified   to advise the pool, for other investment pools.          (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 AAA or AAA-m or at an   equivalent rating by at least one nationally recognized rating   service.          (i)  If the investment pool operates an Internet website, the   information in a disclosure instrument or report described in   Subsections (b), (c)(2), and (f) must be posted on the website.          (j)  To maintain eligibility to receive funds from and invest   funds on behalf of an entity under this chapter, an investment pool   must make available to the entity an annual audited financial   statement of the investment pool in which the entity has funds   invested.          (k)  If an investment pool offers fee breakpoints based on   fund balances invested, the investment pool in advertising   investment rates must include either all levels of return based on   the breakpoints provided or state the lowest possible level of   return based on the smallest level of funds invested.          (l)  The annual audit under Section 2256.016(j) shall be   posted on the publicly accessible internet website of the   investment pool and on the comptroller's internet website.          (m)  To be eligible to receive funds from and invest funds on   behalf of an entity under this chapter, a public funds investment   pool is prohibited from:                (1)  entering into a royalty or sponsorship agreement   with an association or organization; and                (2)  paying a royalty or sponsorship from funds or   interest income available to the pool.          SECTION 4.  This Act takes effect September 1, 2026.