Middleton Bill Orders A Pool Pullout, Then Spares Old Contracts

The text as introduced · 735 words

89R2090 MP-D

By: Middleton
S.B. No. 404

A BILL TO BE ENTITLED

AN ACT

relating to the investment of public funds by a local government in

investment pools.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 2256.016, Government Code, is amended by

amending Subsection (a) and adding Subsection (l) to read as

follows:

(a) Except as provided by Subsection (l), an [ 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.

(l) A local government may invest funds in an investment

pool only if the investment pool is managed by the comptroller or

the Texas Treasury Safekeeping Trust Company.

SECTION 2. Subchapter A, Chapter 2256, Government Code, is

amended by adding Section 2256.0175 to read as follows:

Sec. 2256.0175. DIVESTMENT OF CERTAIN FUNDS BY LOCAL

GOVERNMENTS. (a) In this section, "restricted investment pool"

means an investment pool that is not managed by the comptroller or

the Texas Treasury Safekeeping Trust Company.

(b) Notwithstanding Section 2256.017, a local government

shall sell, redeem, divest, or withdraw all of its funds and funds

under its control that are invested in a restricted investment pool

in compliance with the following schedule:

(1) at least 50 percent of those funds must be removed

from a restricted investment pool not later than the 180th day after

the date the local government discovers that the funds are invested

in a restricted investment pool, unless the local government

determines, based on a good faith exercise of its fiduciary

discretion and subject to Subdivision (2), that a later date is more

prudent; and

(2) 100 percent of those funds must be removed from the

restricted investment pool not later than the 360th day after the

date the local government discovers that the funds are invested in a

restricted investment pool.

(c) Except as provided by Subsection (b), a local government

may delay the schedule for divestment under that subsection or

otherwise cease divesting from a restricted investment pool only to

the extent that the local government determines, in the local

government's good faith judgment, and consistent with the local

government's fiduciary duty, that divestment from the restricted

investment pool will likely result in a loss in value or a benchmark

deviation described by Subsection (d). If a local government

delays the schedule for divestment or otherwise ceases to divest,

the local government shall submit a report to the presiding officer

of each house of the legislature, the attorney general, and the

comptroller stating the reasons and justification, supported by

clear and convincing evidence, for the local government's delay in

divestment from the restricted investment pool. The report must

include documentation supporting the local government's

determination that the divestment would result in a loss in value or

a benchmark deviation described by Subsection (d), including

objective numerical estimates. The local government shall update

the report every six months.

(d) A local government may delay the schedule of divestment

under Subsection (b) or otherwise cease divesting from one or more

restricted investment pools under Subsection (c) only if clear and

convincing evidence shows that divesting from the restricted

investment pool will likely result in:

(1) the local government suffering a loss in the

hypothetical value of all funds under management by the local

government as a result of having to divest from restricted

investment pools under this section; or

(2) an individual portfolio that uses a

benchmark-aware strategy being subject to an aggregate expected

deviation from its benchmark as a result of having to divest from

restricted investment pools under this section.

SECTION 3. The changes in law made by this Act apply only to

a contract entered into on or after the effective date of this Act.

A contract entered into before that date is governed by the law in

effect on the date the contract was entered into, and the former law

is continued in effect for that purpose.

SECTION 4. This Act takes effect September 1, 2025.