Miscellaneous Expenditures
Investments

General discussion

A state agency may not invest state funds in any investment vehicle unless the agency has specific constitutional or statutory authority to do so.

Any investment of state funds must comply with applicable constitutional provisions and statutes.

Documentation Requirements [+]

Public Funds Investment Act

This section does not apply to:

• A public retirement system
• State funds invested under Texas Government Code Section 404.024
• An institution of higher education with total endowments of at least $95 million in book value
• Funds invested by the Veterans’ Land Board under Chapter 161, 162 or 164 of the Natural Resources Code
• Registry funds deposited with the county or district clerk under Chapter 117 of the Local Government Code
• A deferred compensation plan that qualifies under either Section 401(k) or 457 of the Internal Revenue Code of 1986
• An investment donated to a state agency for a particular purpose or under terms of use specified by the donor.

The Public Funds Investment Act (PFIA) does not authorize any state agency to invest its funds or the funds under its control. The PFIA applies to a state agency only if the agency has statutory authority outside the PFIA to invest funds.

Investment pools; investment management firms

A state agency may invest its funds and funds under its control through an investment pool with the approval of the agency’s governing body.

The pool can accept the agency’s funds and invest them as long as the pool furnishes the agency’s investment officer or other authorized representative an offering circular or similar disclosure instrument that complies with Texas Government Section 2256.016(b). The pool will maintain its eligibility to accept the agency’s funds and invest them as long as it maintains compliance with the Texas Government Code Section 2256.016(c).

The governing body of a state agency or of an investment pool may purchase, sell and invest its funds as authorized under The Texas Government Code Chapter 2256. The investments must also comply with the policies approved by the governing body.

The governing body may contract with an investment management firm registered under the Investment Advisers Act of 1940 or with the State Securities Board, to invest and manage the body’s public funds or other funds under its control. The contract may not be for a term longer than two years. A renewal or extension must be made by order or resolution of the body.

The Public Funds Investment Act (PFIA) does not prohibit the governing body of a state agency or investment officer from using the agency’s employees or the services of a contractor of the agency to aid the officer in the execution of the officer’s duties under the PFIA.

The governing body of a state agency or of an investment pool must adopt a written policy regarding the investment of its funds and the funds under its control. A copy of the investment policy must be presented to:

• Any person offering to engage in an investment transaction with the agency or pool, or
• An investment management firm under contract with the body to invest or manage the body’s investment portfolio.

The qualified representative of the business organization offering to engage in an investment transaction with the agency or pool must execute a written contract stating the organization has:

1. Received and reviewed the investment policy, and
2. Acknowledged the organization has implemented reasonable procedures and controls to prohibit investment transactions conducted between the agency or pool and the organization not authorized by the agency’s or pool’s investment policy.

Investment officers; training

The governing body of a state agency or of an investment pool must appoint one or more officers or employees as its investment officer. If the body has contracted with another investing entity, the investment officer of the other entity is considered to be the body’s investment officer.

The investment officer is responsible for the investment of the agency’s or pool’s funds consistent with the agency’s or pool’s investment policy. Unless authorized by law, a person who is not the investment officer for a state agency or investment pool may not deposit, withdraw, invest, transfer or manage in any other manner the funds of the agency or pool.

Each member of the governing board of a state agency and its investment officer must attend at least one training session relating to the person’s responsibilities under the PFIA and must cover the subjects required by Texas Government Code Section 2256.007(c). The training session must occur within six months after the person takes office or assumes the person’s duties. The Texas Higher Education Coordinating Board is required to provide the training.

The investment officer must also attend a training session not less than once in a two-year period. The training may be provided by an independent source approved by the governing body of the state agency that employs the officer.

See also: Chapter 7: Training for members of governing boards.

Purchase of securities

The Comptroller's office or the disbursing officer of an agency that has the power to invest assets directly may pay for authorized securities purchased from or through a member in good standing of the National Association of Securities Dealers or from a national or state bank. A purchase of securities may not be made at a price that exceeds the existing market value of the securities.

Purchase of securities

A state agency may not acquire securities of a company that is included on a list prepared and maintained by the Comptroller’s office under Government Code Sections 807.051, 808.051, 2252.153 or 2270.0201 of companies:

• Known to have contracts with, or provide supplies or services to, a foreign terrorist organization;
• Engaged in scrutinized business operations in Sudan or Iran, as defined in Government Code Sections 807.001(10), 808. and 2270.001(9) or,
• Boycotts Israel as defined in Government Code Section 808.001(1).

A state agency that has invested in a listed company must comply with the applicable notification and divestment requirements in Government Code Chapters 807, 808, 2252 and 2270.

Prohibited Investments

A state agency may not acquire securities of a company that is included on a list prepared and maintained by the Comptroller’s office under Government Code Sections 807.051, 808.051, 2252.153 or 2270.0201 of companies:

• Known to have contracts with, or provide supplies or services to, a foreign terrorist organization;
• Engaged in scrutinized business operations in Sudan or Iran, as defined in Government Code Sections 807.001(10), 808. and 2270.001(9) or,
• Boycotts Israel as defined in Government Code Section 808.001(1).

A state agency that has invested in a listed company must comply with the applicable notification and divestment requirements in Government Code Chapters 807, 808, 2252 and 2270.

Sources [+]

Definitions:

In this subsection:

Funds

Public funds in the custody of a state agency:

• Not required by law to be deposited in the State Treasury, and
• the agency has authority to invest.

Institution of higher education

Has the meaning assigned by Texas Education Code Section 61.003.

Investment pool

• That is created under the Government Code to invest funds jointly on behalf of:
  1. at least two state agencies, or
  2. at least one state agency and at least one local government, and
• Whose investment objectives are, in order of priority:
  1. preservation and safety of principal
  2. liquidity
  3. yield

Local government

• A municipality
• A county
• A school district
• A district or other authority created under Texas Education Code Article III, Section 52(b)(1) or (2) or Texas Education Code Article XVI, Section 59
• A fresh water supply district
• A hospital district
• A political subdivision, authority, public corporation, body politic or instrumentality of the State
• Any nonprofit corporation acting on behalf of any of those entities

Public funds

Funds that a state agency collects under general law and that are designated to a public purpose. The term does not include funds collected or voluntarily contributed for the sole benefit of the contributors and for which a state agency is merely the custodian.

Public retirement system

Has the meaning assigned by Texas Government Code Section 802.001(3).

State agency

An office, department, commission, board or other agency that is part of any branch of state government, an institution of higher education and any nonprofit corporation acting on behalf of any of those entities.

Definitions Source [+]

Sources [+]